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Judgment
P. Jyothimani, J.—O.P. No. 146 of 2001 is filed u/s 14(2) of the Indian Arbitration Act (Act 10 of 1940), to permit the petitioner to file the
original award .dated 25.10.1999.
O.P. No. 246 of, 2001 is filed u/s 30 read with Section 33 of the Indian Arbitration Act (Act 10/40) to set aside the award passed by the
second respondent, being the sole Arbitrator dated 25,10.1999.
In view of filing of the award into the Court, no order is necessary m O.P. No. 146 of 2001 and accordingly, O.P. No. 146 of 2001, is
dismissed.
4 The first respondent in O.P. No. 246 of 2001 is contractor, who entered into a contract in writing with the petitioner for provision of Married
Accommodation for 72 LTS at Naval Air Station, Arakkonam vide contract Agreement No. CEMZ/ARK/28 of 1987-88 dated 12.11.1987. In-
respect of. some difference which arose between the parties, the second respondent was appointed as a sole Arbitrator, who passed an award on
25.10.1999, directing the petitioner to pay a sum of Rs. 5,64,908/- plus interest, by partly allowing the claim of the first respondent/claimant. Both
the parties have agreed for the proceedings under Indian Arbitration Act, 1940.
According to the first respondent who has made a claim, that a contract between the first respondent and the petitioner was entered into on
12.11.1987 for a lump sum of Rs. 1,54,19,383.19. The work was commenced on 27.11.1987 and as per the Work Order, it has to be
completed within a period of 21 months, i.e., before 26.08.1989 or after the extended period viz., 15th December, 1990. On 15th December,
1990, the work was completed and the accommodation taken over. According to the first respondent/claimant, the reason for delay in completing
the contract was referable to the large scale deviation in specification relating to finishing items from the time when the works were ordered viz.,
June, 1989 till the stage of executing finishing items. According to the first respondent/claimant, even after completion of contract in December,
1990, the petitioner took a very long time to finalise all the deviations ordered during currency of contract and consequently, there was enormous
delay in prepration of final bill.
The deviations were finalized by the petitioner, viz., one in March, 1991; one in August 1991; two in January, 1992; four numbers -in
May,1993; eight numbers in January, 1995 and eight numbers in July, 1995. The final bill was prepared in February, 1995 when eight numbers the
Deviation Orders have not been finalised. The first respondent/claimant has signed the final bill under protest on 03.02.1995 by referring to the
letter dated 24.86.1993. The Engineer in Chief on behalf of the petitioner has signed the final bill on 10.02.1995 and it was technically checked on
14.09.1995. At last, eight deviation orders involving the number of star rates were issued In July,1995, The final amount was worked out to a
minus figure of Rs. 3,66,700/-. As per Garrison Engineer''s letter dated T24,06.1996, it is seen that nearly alter one ;year after the date when the
first respondent Contractor failed to deposit the said amounts it was recovered from the contractor''s other due payments in February,1997.
The first respondent Contractor has made five claims, viz.,
Claim No. 1: (a) Claim on account of work executed as Deviation orders to the contract ordered by Garrison Engineer Project No. 3, NAS
Arakkonam in his letter dated 19.06.1989. The original claim m the said head was Rs. 5 lakhs, which was ultimately revised to Rs. 4,34,984.36,
which is stated to be an under payment. Under the said Claim No. 1, the first respondent/claimant has raised four items, which relate to pricing of
OMIT"" portion in DO Nos. 38, 40 and 42 on the basis of star rate?, when rates for these items were available in MES schedule for pricing,
which was contended to be in violation of method of pricing agreed between the parties. It was also the specific contention that 15 Numbers of
deviations were communicated in Garrison Engineer''s letter dated 19.06.1989, wherein it was stated that pricing will be finalised as per star rate,
wherever Standard Schedule Rate (SSR) is not available and therefore, according to the first respondent/claimant, only the star rate is applicable
and where rates were not available in MES Standard Schedule of Rates. It was the further contention that the pricing by star rate is applicable only
as a last resort and the same has to be followed only in cases where the rate cannot be obtained by any of the methods referred to in Condition
No. 62(A) to (E).
On the other hand, it was the case of the petitioner before the Arbitrator that the rates for both ""OMIT"" and ""ADD"" items were not available in
Standard Schedule Rates (SSR), and the adjustment has been done on the basis of star rates. According to the petitioner/Union of India, since by
letter dated 13.09.1996 (Ex.B5,S0C, Contractor) the deviation orders have been singed by the contractor, there had been full accord and
satisfaction as per Section 63 of Indian Contract Act, and the first respondent/Contractor is estopped from making the claim. According to the first
respondent/claimant, in respect of Item Nos. 1, 2, 3 and 4 of Claim No. 1, the ascertainment of amount by the petitioner/Union of India, is
contrary to the terms of agreement.
The learned Arbitrator, on facts, found that the petitioner/Union of India has not given any convincing reason as to why they have resorted to
deviation from the agreed conditions of contract. It was also found that the argument of the petitioner/Union of India in fixing the amount on star
rates has to fail, because the petitioner themselves have not carried forward the same while pricing Deviation Order No.23 and in respect of that
the petitioner/Union of India had no explanation for the change is their stand, the Arbitrator has also found that the principle of Accord and
Satisfaction is not applicable on the basis that if sudh Accord and Satisfaction had been entered, it should have been taken in writing in July,1995
from the contractor and such willingness should have been obtained from the contractor and such accord has not; taken place by the reason that
the contractor by its reply letter dated 27.09.1996 (Ex. 6, SOC, Contractor) has reiterated its objection to the method of pricing of the deviation
adopted by the petitioner/Department. It was, in those circumstances, on factual finding against the petitioner, the Union of India, the learned
Arbitrator has found that the petitioner has not priced Item Nos. 1 to 4 of Claim No. 1 as per the contract provisions and in view of the same,
awarded amount of Rs. 2,22,823.00 to the first respondent/claimant/contractor, by correcting the error worked out in respect of proportional rate
against item No. 4 of Claim No. 1.
(b) Item No. 5 in Claim No. 1 relates to non-payment of pending work to MS sheets for garage doors under DO No. 3. Since the
petitioner/Union of India has agreed for payment of Rs. 3125/-, the same was recorded by the learned Arbitrator.
(c) Item No. 6 in claim No. 1 relates to incorrect working of star rates of Do No. 23, in which star rate for new electrical fitting SK-1, 3, 6, 8, 9,
and 11 had not been done on the basis of ""cost of contractor"" as per the Condition 62(G) and instead pricing was made at star rates based on
printed price-list of the supplier at Delhi while the petitioner has procured the fitting from the market in Chennai. It was on that basis the first
respondent/claimant has made a claim of Rs. 57,759.37 as underpayment. In respect of this item also the petitioner/Union of India has claimed
accordance and satisfaction as a defence. The learned Arbitrator found that the petitioner/Union of India has failed to clarify as to why it did not
make price-list with effect from 10th July, 1989 as a basis for star rates, the market rates mentioned in RAR carried cutting and over-writings, for
four star rates, trade discount of 10% and cash discount of 5%, and in respect of three star rates discount of 20% were considered. Packing
charges were considered only in. four cases, and not in respect of balance three cases. Transporting charges per piece from Delhi to Arakkonam
was considered under various star rates, viz., Rs. 1.02 in three cases; Rs. 4.62 in two cases; Rs. 6.28 in one case and Rs. 5.06 in one case, and
therefore, there has been difference in transportation charges. In four cases, CST was considered and in respect of remaining three cases it was
considered as 4%. There was no explanation as to what is the basis for discounts (Trade and Cash) in the absence of any mention in the catalogue
price.
It was on the above said basis of failure of the petitioner/Union of India in explaining the variations, the learned Arbitrator has concluded that
the star rates for these electrical fittings have not been correctly fixed and also came to the conclusion that the claim of the petitioner/Union of India
on Accord and Satisfaction cannot be accepted and ultimately, estimated the reasonable price amount of underpayment to the contractor at Rs.
22,819/-.
(d) In respect of Item No. 7 of Claim No. 1, which relates to the rate fixed by the petitioner/Onion of India for omission of galvanized mild steed
wire cloth in DO No. 32, the first respondent/claimant has claimed an excess recovery and underpayment of "" Rs.25,409.79. According to the first
respondent/claimant, even if the price adopted by the Department in respect of Item. Nos. 1 to 4 in Claim No. 1 are accepted on the star rate
based on SSR, it should have been Rs. 51.10 per SM. The petitioner/Union of India has defended saying that the rate was for wire cloth using
0.56 mm dia wires, whereas the contract specified the using of wire Cloth of @.50 mm wires and therefore, the Union of India had to resort to
star rate method for omit portion of Deviation Orders, The petitioner/Union of India has failed to clarify that by mistake 0.50 mm was mentioned in
lieu of 0.56 mm., it was indeed admitted by the petitioner/Union of India that it was a typographical error and the dia of wire ought to be 0.56 mm.
However, again it was again contended by the petitioner that the Deviation Order was signed by the first respondent/Claimant and therefore,
Accord and Satisfaction will apply u/s 63 of the Indian Contract Act. After analysing the said concept, the learned Arbitrator has found that there
was no evidence of consent from the first respondent/Claimant and therefore, Accord and Satisfaction will apply u/s 63 of the Indian Contract Act.
After analyzing the said concept, the learned Arbitrator has found that there was no evidence of consent from the first respondent/Claimant and
therefore, Accord and Satisfaction was not applicable and awarded a sum of Rs. 25,409/- in respect of item No. 7 of Claim No. 1.
(e) Item No. 8 of Claim No. 1 relates to the manner in which star rate No. 55 in Deviation Order No. 44 had been prepared. A claim of under
payment of Rs. 7,906/- was made, which was subsequently revised as Rs. 7,953/-. This was relating to omission of letter boxes provided as per
contract drawings. The petitioner/Union of India obtained rate from another contractor at Rs. 180/- each and on examinig the drawings, the
learned-Arbitrator has arrived at the fair rate for omission of letter box at Rs. 150/- each, and granted a refund of Rs. 3,456/- to the first
respondent/claimant.
(f) Item No. 9 in Claim No. 1 relates to the issue of disproportionately lesser labour allowed in star rate No. 30 in Deviation Order No.36. That
relates to the provision of CP flush valves with stainless steel flush pipe. The contractor, has claimed the labour rate at Rs. 22.80 and thereby
claimed underpayment of Rs. 19,007/- from the petitioner/Union of India. Again, Union of India has put forward the plea of Accord and
Satisfaction and ultimately, the learned Arbitrator has come to the conclusion after analysis that the underpayment was Rs. 12/- for packing,
jointing materials and transportation from Chennai to Arakkonam, he fixed it at Rs. 7.40 and allowed the reasonable fair amount of Rs. 3,073/- to
the first respondent/claimant.
(g) Item No. 10 which is the last item in claim No. 1 relates to a wastage of only 5% in finalizing the star rate by the petitioner in respect of
Deviation Order Nos. 38 to 40 52. For Deviation Order Nos. 38, 40 and 42, while the first respondent/claimant has claimed at 10%, based on
the text book provisions. The first respondent/claimant has also produced details considering the size of wardrobe and loft door shutters and
standard size of boards to show that the wastage worked out to 17% was correct, about which the petitioner/Union of India had no comment.
Considering that 5% wastage for journey item is inadequate, the learned Arbitrator has found that claim of 10% by the first respondent/claimant is
reasonable, but arrived it at 8%, and ultimately arrived at Rs. 18,306/- as underpayment as against the claim of Rs. 33,366/- of the first
respondent/claimant.
In all the 10 items of Claim No. 1, the learned Arbitrator has awarded an amount of Rs,2,99,011.00 to the first respondent/claimant.
7.2 Claim No. 2 and 3: These claims relate to the materials procured to the original contract design, which became dead stock due to whole sale
changes. The first respondent/claimant, who has made these claims also, procured materials and carried out fabrication work as per contracted
designs before large scale changes in finishing items ordered- by the Samson Engineer''s letter dated 19.06.1989. It was the case of the first
respondent/claimant that these items have been fixed in the sample quarter, which work was completed earlier than June 1989.
The case of the petitioner/Union of India was that the first respondent/claimant had not even submitted sample quarter for approval before mass
procurement. However, it was the case of the first respondent/claimant that these items were standard makes and did not require any sample
approval. It was agreed by the petitioner/Union of India that the work was completed prior to June 1989. The learned Arbitrator has directed the
first respondent/claimant to produce evidence by way of purchase voucher entries in work diary and other evidence to support its contention,
which was not produced. However, the petitioner/Union of India has agreed that one sample quarter was completed prior to June, 1989, for
which the learned Arbitrator has come to conclusion that a compensation of Rs. 8,686/- is to be paid to the first respondent/claimant as against its
claim and therefore, except in respect of the said amount of Rs. 8,686/-, the learned Arbitrator has rejected the other claims by the first
respondent/claimant under Claim Nos. 2 and 3.
7.3 Claim No. 4: This relates to loss of business turn over due to prolonged extension of bank guarantee. Originally, the claim was made by the
first respondent/claimant for Rs. 5 lakhs, which ,was revised at Rs. 10 lakhs. The first respondent/claimant has furnished the bank guarantee
towards retention money for a value of Rs. 1.50 lakhs, which was not disputed by the petitioner/Union of India. The bank guarantee was encashed
by the petitioner/Union of India after serving notice in September, 1998 which was not disputed by the petitioner/Union of India. Under these
circumstances, the contention of the first respondent/claimant that the contract period got extended by 15 months due to the default committed by
the petitioner Department and the first respondent/claimant was forced to extend the validity of bank guarantee bon till the work was completed in
December, 1990. However, the Department failed to finalise the deviations on time and the same was continued upto July, 1995, viz., for nearly
15 months after completion and during that period the first respondent/claimant was forced to keep the bank guarantee alive for no fault on its part.
Finally, the bill was prepared and sent in February,1995 on wrong fixation of rates, which was due to the incorrect action on the part of the
petitioner Department. A notice to deposit a sum of Rs. 3,66,700/- on account of minus final bill was served in June,1996 and thereafter, the said
amount was recovered by the Department through another payment in February, 1997, which fact was admitted by the petitioner/Union of India.
In respect of the above said fact, the petitioner/Union of India was requesting for extending the validity pf bank guarantee, which was arranged
from time to time till October, 1998. In September, 1998, the Department went again to encash the bank guarantee, which as a matter of fact, not
disputed by the Union of India.
Against the claim of Rs. 3,66,700/- raised in June,1996, the Department made recovery of the said amount in February,1997 and another sum of
Rs. 1.50 lakhs in December,1998, which was not explained adequately by the Union of India and therefore, according to the first
respondent/claimant, the claim of Rs. 1.50 lakhs was wrongly collected by the petitioner/Union of India. The enlargement of validity of bank
guarantee had the effect blocking the money of the first respondent/claimant and it could not utilise the amount for business turnover and therefore,
the claim was made u/s 73 of the Indian Contract Act.
The learned Arbitrator has found that the petitioner/Union of India was unable to clarify,
(i) as to how a total recovery of Rs.5,16,700/- against the demand of Rs. 3,66,700/- was made;
(ii) as to why after the demand of Rs. 3,66,700/- was met with in February, 1997, the bank guarantee was directed to be retained; and
(iii) as to why the bank guarantee was not encashed in June, 1996 when the case of the petitioner/Union of India was that their first charge was on
the bank guarantee.
The learned Arbitrator, after considering, the entire factual situation, concluded the said points in favour of the first respondent/claimant and
sustained the claim of the first respondent/claimant partially by awarding an amount of Rs. 1,84,500, as against the claim of Rs. 10 lakhs.
7.4 Claim No. 5: It relates to reimbursement of works contract sales tax made by the first respondent/claimant at Rs. 15,741/-. On finding that the
first respondent/claimant has produced copies of assessment orders dated 06.06.1995 for the year 1987-88, 1989-90 for tax on the payments
received by it during these years for the contract at Arakkonam, the learned Arbitrator has awarded the amount of Rs. 15,741/- under claim No.
5.
7.5 Claim Nos. 6 and 7: These claims relate to rate of interest. The first respondent/claimant has interest at the rate of 8% per annum based on the
enormous financial damage done to it due to the conduct of the petitioner Department. Even though Union of India has contended that there was
no damage caused to the first respondent/claimant, on finding that after the Interest Act, 1978, payment of interest is attracted and the law is well
settled on this aspect, the learned Arbitrator has awarded interest on Rs. 60,000/-, representing the net effect of item Nos. 1, 2 and 3 of Claim
No. 1 of the first respondent/claimant at 15% per annum for a period of 6,33 years on Rs. 56,970/- and not awarded interest in respect of Claim
No. 4 and 5, since Claim No. 4 has already been covered in the award and Claim No.5 was made only before the Arbitrator.
7.6. Claims No. 8 It relates to costs of arbitration. The amount claimed by the first respondent/claimant is Rs. 1 lakh. However, the learned
Arbitrator has rejected the claim.
On the part of the petitioner/Union of India, two claims were made.
(i) Claim No. 1 with regard to minus final bill-amount it was claimed at Rs. 3,66,700/-, which was ultimately revised to Rs. 3,99,346/-. The first
respondent/claimant has brought out some discrepancy in the bill, viz., the wrong recovery of Rs. 1,32,939.98 on account of alleged over issue on
Schedule ""B"" stores and escalation for labour was wrongly calculated. The petitioner/Union of India has contended that the calculation was on the
basis of quantity of cements as per the normal accepted constants and its was worked out in respect of over issue of 350 bags. The learned
Arbitrator has sustained the claim to the extent of Rs. 2,47,563/- and passed award directing the Union of India, viz., the petitioner, to refund a
sum of Rs. 1,19,138/-.
(ii) Claim No. 2: It was made by the petitioner/Union of India in respect of costs of arbitration to the extent of Rs. 50,000/-, which was .revised as
Rs. 3,66,700/-, and the same was rejected by the Arbitrator.
Even though it was strenuously Contended by Mr. C. krishnan, learned senior Counsel for the petitioner/Union of India, in this petition that
under various documents, it is shown that the first respondent/claimant itself has admitted variation in work, he is unable to find out as to how the
stair rate was fixed against the provisions of contract. In any event, these are the matters which have been factually discussed by the learned
Arbitrator in detail and arrived -at the conclusion. The learned senior Counsel would further contend that as per the provisions of contract, the
decision of Garrison Engineer and subsequently the Commander, Union of India has become final and binding and therefore, the amount arrived at
after the decision by the Union of India is not arbitrable in nature and according to him there was no issue left open for arbitration when the race
have become final and the first respondent/claimant has never raised protest at any point of time during the time when the deviation orders were
issued. He also relied upon the judgement of the Supreme Court in Prabartak Commercial Corporation Ltd. v. The Chief Administrator
Dandakaranya Project and Anr. AIR 1991 SC 9571 to substantiate his contention. According to the learned senior Counsel the first
respondent/claimant has chosen to make claim after four years of finalisation of the final bill viz., only on 19.03.1999, further, it is the contention of
the learned senior Counsel that the Arbitrator acted as appellate authority on factual position and according to him the reasons arrived at by the
learned Arbitrator is not reasonable and he would also rely upon the judgement of the Supreme Court in Rajasthan State Mines and Minerals
Limited Vs. Eastern Engineering Enterprises and Another, . His further contention is that the award of the Arbitrator is capricious and it is beyond
his jurisdiction.
On the other hand, Mr. Abudukumar Rajarathinam, learned Counsel appearing for the first respondent/claimant would submit that a reference
to the award of the Arbitrator shows that he has considered the claim of both parties and on facts has arrived at the conclusion. According to him,
issuance of completion certificate is not amounting to granting of the bill and while the completion of work was admittedly done on 15.12.1990 and
the final bill passed by the petitioner on 03.62.1995, and therefore, on the face of it there has been a gross violation of the terms of the contract by
the petitioner and the fact has been considered in detail by the learned Arbitrator. He would also submit that as per Condition No. 62 (A) to (E),
the rates are available for various items and it is only if the rates are not available, the applicability of star rates will come into operation and the
learned Arbitrator has discussed entirely about the applicability of Condition No. 62 (A) to (E) and the conduct of the petitioner/Union of India in
applying the star rates is totally opposed to the principles of contract. He would also submit that the judgement of the Supreme court in M/s.
Prabartak Commercial Corporation Ltd. Vs. The Chief Administrator Dandakaranya Project and another, is not relating to works contract, but
relates to supply of materials, and therefore, it is not applicable to the facts of the present case. He would, also rely upon the judgement of the
Supreme Court in State of Rajasthan v. Puri Construction Co. Ltd. and Anr. JT 1994 (6) SCC 412, to contend that when on factual position the
Arbitrator has decided, it becomes final and the reasonability of such reason cannot be considered by the Court while deciding about the validity or
otherwise of the award.
I have considered the arguments of both the counsel for petitioner as well as first respondent and also gone through the entire records.
As I have narrated above, the award in categoric terms has dealt with each and every aspect of the items claimed by the first
respondent/claimant as well as the petitioner''s and in all claims the Arbitrator has decided the same based on the terms of contract and his decision
on all items are on factual matrix, and when the decision is taken by the petitioner/Union of India has become final, the contention by the petitioner
that the petitioner is entitled to claim at star rate, is not sustainable. As rightly contended by the learned Counsel for the first respondent/claimant,
the judgement of the Supreme Court in M/s. Prabartak Commercial Corporation Ltd. Vs. The Chief Administrator Dandakaranya Project and
another, relates to contract of supply of materials. On the factual situation in that case wherein the Clause in the agreement did not provide for
independent clause in providing for dispute over rates of payment, making the decision of Superintending, Engineer final. It was in those
circumstances the Supreme Court held that the dispute regarding rates does not fall within the arbitration clause and held that the award was
without jurisdiction. In those circumstances, the Supreme Court has held as follows:
The learned judge of the High Court held that Clause 14 containing the arbitration agreement had no application to the dispute in question which
fell under Clause 13A and, therefore, the arbitrator had no jurisdiction in the matter. He held that the reference of the dispute to the arbitrator was
invalid and the entire proceedings before the arbitrator including the awards made by him were null and void.
Another judgement of the Supreme Court relied upon the learned senior Counsel for the petitioner/Onion of India, viz., Rajasthan State Mines
and Minerals Limited Vs. Eastern Engineering Enterprises and Another, also has no application to the facts and circumstances of the case. That
was a case wherein the Arbitrator has passed an award beyond the jurisdiction ignoring the stipulations in; the contract and in those circumstances
the Supreme Court has held that the award was perverse and the Arbitrator has no jurisdiction. The Supreme Court has held as follows:
It is1 settled law that the arbitrator is the creature of the contract between the parties and hence if he ignores the specific terms of the contract,
it would be a question of jurisdictional error which could be corrected by the Court and for that limited purpose agreement is required to be
considered. For deciding whether the arbitrator has exceeded his jurisdiction reference to the terms of the contract is a must. It is true that
arbitration Clause 74 is very widely worded, therefore, the dispute was required to be referred to the arbitrator. Hence, the award passed by the
arbitrator cannot be said to be without jurisdiction but, at the same time, it is apparent that he has exceeded his jurisdiction by ignoring the specific
stipulations in the agreement which prohibit entertaining of the claims made by the contractor. In the letter dated 5th February, 1985 appointing the
sole arbitrator, it has been specifically mentioned that agreement dated 14th May, 1981 was executed by and between the parties and that.
contractor has raised the claims as mentioned in the letter dated 7th September, 1983 which was denied by the company and at the request of the
contractor, sole arbitrator was appointed to adjudicate the claims made by the contractor vide his letter dated 7th September, 1983. This
reference to the arbitrator also clearly provides that reference was with regard to the dispute arising between the parties on the basis of the
agreement dated 14th May, 1981. It nowhere indicates that the arbitrator was empowered to adjudicate any other claims beyond the agreement
between the parties. No such issue was referred for adjudication. Even the arbitrator in his interim award has specifically stated that he was
appointed to adjudicate the disputes between the parties arising out of the agreement dated 14th May, 1981.
Again, it is relevant to point out in this case that it is not even the case of the parties that the issues which were raised before the, learned Arbitrator
are not within his jurisdiction and it is not the case of anybody that there was any other clause prevent ins the Arbitrator to 4ecidt any of the claims
made by the parties.
As far as filing of the star rate is concerned, Condition No. 62(A) to (E) of the contract entered between the parties provides clearly the
method by which the valuation is to be made and in such circumstances, the learned Arbitrator has correctly arrived at the valuation in respect of
deviation as per the terms of contrast, the petitioner has not explained as to how the different method of star rate has been arrived at. Therefore, it
cannot be said that the award of the Arbitrator is perverse.
Last if not least, the Supreme Court in State of Rajasthan v. Puri Construction Co. Ltd. and Anr. JT 1994 (6) SCC 412 has clearly held that
the Arbitrator is a final arbiter for the dispute between the parties and mere non-appreciation of facts cannot be a ground for the purpose of
challenging the award. In fact, in the said case the Supreme Court has analysed many decisions on the issue, viz.,
The arbitrator is the final arbiter for the dispute between the parties and it is not open to challenge the award on the ground that the arbitrator
has drawn his own conclusion or has failed to appreciate the facts. In Sudarshan Trading Co. v. Government of Kerala and Anr. reported in 1989
(2) SCC 28 it has been held this Court that 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.
(emphasis supplied). Whether a particular amount was liable to be paid is a decision within the competency of the arbitrator. By purporting to
construe the contract the Court cannot taken 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 though perhaps not the only correct
view, the award cannot be examined by the Court. Where the reasons have been given by the arbitrator in making the award the Court cannot
examine the reasonableness of the reasons. If the parties have selected their own forum, the deciding forum must be conceded the power of
appraisement of evidence. The arbitrator is the sole judge of the quality as well as the quantity of evidence and it will be for the court to take upon
itself the task of being a judge on the evidence before the arbitrator.
In Municipal Corporation of Delhi Vs. Jagan Nath Ashok Kumar and Another, it has been held by this Court that appraisement of evidence by
the arbitrator is ordinarily never a matter which the Court questions and considers. It may be possible that on the same evidence the Court may
arrive at a different conclusion than the one arrived at by the arbitrator but that by itself is no ground for setting aside the award. It has also been
held in the said decision that it is difficult to give an exact definition of the word reasonable. Reason varies in its conclusions according to the
idiosyncrasis of the individual and the time and circumstances in which he thinks. In cases not covered by authority, the verdict of a jury or the
decision of a judge sitting as a jury usually determines what is reasonable in each particular ease. The word reasonable has in law prima facie
meaning of reasonable in regard to those circumastances of which the actor, called on to act reasonably knows or Ought to know. An arbitrator
acting as a judge has to exercise a discretion informed by tradition, methodized by analogy, disciplined by system and subordinated to the
primordial necessity of order in the social life. Thereof, where reasons germane and relevant for the arbitrator to hold in the manner he did, have
been indicated, it cannot be said that the reasons are unreasonable.
In this case, claims before the arbitrators arise from the contract between the parties. It is well settled that if a question of law is referred to
arbitrator and the arbitrator comes to a conclusion, it is not open to challenge the award on the ground that an alternative view of law is possible. In
this connection, reference may be made to the decisions of this Court in Alopi Prasad v. Union of India reported in [1960] 2 SCR 799 and
Kapoor Nilokheri Cooperative Diary Farm Society reported in [1973] 1 SCC 78 . In Indian Oil Corporation Ltd. Vs. Indian Carbon Ltd., , this
Court has held that the Court does not sit in appeal over the award and review the reasons. The Court can set aside the award only if it is apparent
from the award that there is no evidence to support the conclusions or if the award is based upon any legal proposition which is erroneous.
It may also be mentioned here in that it is not necessary to indicate in the award computation made for various heads and it is open to the
arbitrator to give a lumpsum award. In this connection, reference may be made to the decisions made in State of Rajasthan Vs. R.S. Sharma and
Co., and in State of Orissa and Others Vs. Lall Brothers, and in Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, .
In the State of Orissa v. Lall Brothers (supra) it has been held that an award is conclusive as a judgement between the parties and the court is
entitled to set; aside an award only if the arbitrator has misconducted himself in the proceedings or when the award has been made after the issue
of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid u/s 35 of the Arbitration Act or where an
award has been improperly procured or is otherwise invalid u/s 30 of the Act. An award may be set aside by the Court on the ground of error on
the fact of award, but an award is not invalid merely because by a process of inference and argument, it may be demonstrated that the arbitrator
has committed some mistake in arriving at his conclusion.
(emphasis supplied).
A court of competent jurisdiction has both right and duty to decide the lis presented before it for adjudication according to the best
understanding of law and facts involved in the lis by the judge presiding over the court. Such decision even if erroneous either in factual
determination or application of law correctly, is a valid one and being inter parties. It does not, therefore, stand to reason that the arbitrator''s
award will be per se invalid and inoperative for the simple reason that the arbitrator has failed to appreciate the facts and has committed error in
appreciating correct legal principle in basing the award. An erroneous decision of a court of law is open to judicial review by way of appeal or
revision on accordance with the provisions of law, Similarly, an award rendered by an arbitrator is open to challenge within the parameters of
several provisions of the Arbitration Act. Since the arbitrator is a judge by choice of the parties, and more often than not, a person with little or no
legal background, the adjudication of disputes by an arbitration by way of an award can be challenged only within the limited scope of several
provisions of the Arbitration Act and the legislature in its wisdom has limited the scope and ambit of challenge to an award in the Arbitration Act.
Over the decades, judicial decisions have Indicated the parameters of such challenge consistent with the provisions of the Arbitration Act. By and
large the courts have disfavoured interference with arbitration award on account of error of law and fact on the score of misappreciation and
misreading of the material on record and have shown definite inclination to preserve the award as far as possible. As reference to arbitration of
disputes in commercial and other transactions involving substantial amount has increased in recent times, the courts were impelled to have fresh
look on the ambit of challenge to an award by the arbitrator of the award does not get undesirable immunity. In recent times, error in law and fact
in basing an award has not given the wide immunity as enjoyed earlier, by expanding the import and implication of legal misconduct of an arbitrator
so that award by the arbitrator does not perpetrate gross miscarriage of justice and the same is not reduced to mockery of a fair decisions of the lis
between the parties to arbitration. Precisely for the aforesaid reasons, the erroneous application of law constituting the very basis of the award and
improper and incorrect findings of fact, which without closer and intrinsic scrutiny, are demonstrable on the face of the materials on record, have
been held, very rightly, as legal misconduct rendering the award as invalid. It is necessary, however, to put a not of caution that in the anxiety to
render justice to the party to arbitration, the court should not reappraise the evidence intrinsically with a close scrutiny for finding out that the
conclusion drawn from some facts, by the arbitrator is, according to the understanding of the court, erroneous. Such exercise of power which can
be exercised by an appellate court with power to reverse the finding of fact, is alien to scope and ambit of challenge of an award under the
Arbitration Act, Where the error of finding of facts having a bearing on the award is patent and is easily demonstrable without the necessity of
carefully weighing the various possible view points, the interference with award based on erroneous finding of fact, is permissible. Similarly, if an
award is based by applying a principle of law which is patently erroneous and but for such erroneous application of legal principle, the award could
have been made, such award is liable to be aside by holding that there has been legal misconduct on the part of the arbitrator, In ultimate analysis,
it is a question of delicate balancing between the permissible limit of error of law and fact and patently erroneous finding easily demonstrable from
the materials on record and application of principle of law forming the basis of the award which is patently erroneous. It may be indicated here that
however objectively the problem may be viewed, the subjective element inherent in the judge deciding the problem, is bound to creep in and
influence tie decision. By long training in the art of dispassionate analysis, such subjective element is, however, reduced to minimum. Keeping the
aforesaid principle in mind, the challenge to the validity of the impugned award is to be considered with reference to judicial decisions on the
subject.
As far as the award of interest is concerned, the law is well settled that, after the Interest Act, 1978 has come into existence, the Arbitrator has
got jurisdiction to award interest.
In view of all the above said factual and legal position, I have no hesitation to come to the conclusion that there is absolutely no ground to
interfere with the award passed by the learned Arbitrator. Therefore, the Petition fails and the same is dismissed. No costs.