State of Goa vs N.S. Nayak and Sons, Engineers and Contractors

B.P. Dharmadhikari, J.—By this appeal filed u/s 37 of the Arbitration and Conciliation Act 1996, the Department has challenged Order dated 22.02.2000, delivered by District Judge, South Goa, at Margao, in Civil Misc. Application No. 101/1998. The learned IInd Addl. District Judge, who decided the matter, has considered the points whether act of Arbitrator in granting amount in excess of contractual amount or failure to deduct escalation already paid was against public policy and constituted fraud.

The learned Advocate General appearing for appellant- State has contended that a case for remand is being pressed into service as both these aspects are understood in the background of the Judgment of Hon''ble Apex Court reported at Renusagar Power Co. Ltd. Vs. General Electric Co., by the learned District Court and said Judgment has been modified and concept has been found to be more wider by Hon''ble Apex Court in its latter Judgment reported at Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., .

It is not in dispute that because of interim Orders passed by this Court, the amount as awarded has been released to respondent subject to furnishing their Bank guarantee and the Bank guaranties are valid even today.

Learned Advocate General has contended that the latter Judgment of Hon''ble Apex Court reported at Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (supra), permit interference when the Arbitrator does not record proper reasons or ignores the contents and grants relief contrary to contract between parties. He contends that specifically this aspect was pressed into service before District Court by pointing out how the amount granted is enormous and exorbitant and contrary to contract between the parties. He contends that the period for completion of work was extended up to 05.07.1997 and hence, during the said period, escalation only in terms of Clause 10 CC could have been granted. He argues that in any case, the Arbitrator ought to have given reasons for awarding such huge sums and as those reasons are missing, the learned District Judge ought to have allowed the application u/s 34 filed by appellants before it. In order to substantiate his contentions, he has invited our attention to the award as made, contents in the memo of objection filed before District Court by the Department and also to the impugned Order passed by it. He has also cited certain other cases to buttress his contentions.

Senior Advocate Shri Dessai with advocate Shri Padiyar has raised preliminary objection. According to him, proceedings filed before District Court were not within 90 days and, in any case, there was no application for condonation of delay. He, therefore, states that grant of benefit of Section 14 of Indian Limitation Act by learned District Court suo motu to present appellants is misconceived and cannot be sustained.

Opposing the arguments of learned Advocate General on merits, learned Senior Advocate has invited our attention to various Judgments to urge that the jurisdiction being exercised by this Court in the present matter is not appellate jurisdiction. The reasonableness of the reasons assigned by Arbitrator or then adequacy thereof cannot be judicially scrutinized. He states that the Arbitrator has found the appellants guilty for huge delay in completion of Project and said finding is not being assailed either before District Court or then before this Court. The said finding, therefore, entitles present respondent to amounts as awarded by Arbitrator. He points out that originally contract was to be completed by August 1992 and Arbitrator has found that because of laches and negligence on the part of appellant, it could not be completed till 05.07.1997. He states that looking to the quantum of work expected from this respondent, the respondent was prepared to complete work for amount of Rs. 20,00,000/-to 25,00,000/-every month and his this preparation in the shape of labourer and machinery, remained deployed up to 05.07.1997. According to him, therefore, merely because Arbitrator has made award of Rs. 10 crores approximately, that by itself is not sufficient to label it as exorbitant or unreasonable. He has invited our attention to the Award as made with contention that the Arbitrator has duly applied his mind and though there was claim for future charges before him, Arbitrator restricted the grant till 05.07.1997. He further states that the Arbitrator while considering the entitlement to various amounts under different heads claimed by respondent, has done his own calculations and rejected the claim at several places while granted it for lesser amounts at other places. He, therefore, states that the application of mind is apparent on record and learned District Court has accordingly found in favour of present respondent. He has also relied upon certain other Judgments to show how the issue needs to be looked into by this Court. According to him, no case is being made out warranting any interference in appeal and the appeal, therefore, needs to be dismissed.

The preliminary objection raised by Advocate Shri Dessai has been met with by learned Advocate General by pointing out that the Award was presented to the Court of Civil Judge Senior Division by Arbitrator himself. Perusal of record of District Court shows that the Arbitrator had forwarded the Award to the Court of Civil Judge, Senior Division, Margao, and notice of that Award was served upon present appellants on 19.06.1997. The appellants then filed their objections u/s 30 within a period of 30 days. By Order dated 07.05.1998, the learned Civil Judge found that proceedings before him were misconceived. The copy of this Order of Civil Judge was received by present appellants on 21.05.1998 and then on 04.06.1999, they filed their objections u/s 34 before District Court. The perusal of Orders passed by District Court, particularly paragraph 6 thereof, shows that all these dates and arguments of parties were considered by it and then it gave benefit of Section 14 of Limitation Act to present appellants. It is, therefore, obvious that the objection raised by respondent has been looked into by that Court and absence of application u/s 14 of Limitation has not caused any prejudice to them. Judicial note can be taken of the fact that the summer vacation for Civil Courts here begins in first week of May and Courts open normally after first week of June. Here, the Civil Judge found by his Order dated 07.05.1998 that proceedings before him were unsustainable and on 04.06.1998, application u/s 34 has been filed before District Court. In the circumstances, we do not find any negligence or malafides on the part of the present appellants and also any prejudice caused to respondent as all these facts are on record. The preliminary objection raised by learned Senior Advocate is, therefore, rejected.

Perusal of impugned Order dated 22.02.2000 reveals that the term "public policy" has been construed by learned District Court in the light of Judgment of Hon''ble Apex Court reported at Renusagar Power Co. v. General Electric Company (supra). In paragraph 11, said Court has found that the enforcement of Award should be contrary to (I) fundamental policy of India; (II) the interest of India; or (III) justice or morality. It was also held there that contravention of law would not attract bar of public policy something more than contravention of law was required. Advocate General has relied upon Judgment of Hon''ble Apex Court reported at Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., , wherein the provisions of Section 34(2)(b)(ii) are considered. In paragraph 14, while narrating the result, Hon''ble Apex Court has stated that if the Award is contrary to substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal and it could be interfered u/s 34. It is also noticed that such failure of procedure should be patent affecting the rights of the parties. In paragraph 15 onwards, the meaning to be assigned to phrase "Public Policy of India" is considered. In paragraph 16, the Judgment in case of Central Inland Water Transport Corporation Limited and Another Vs. Brojo Nath Ganguly and Another, , is cited with approval. In paragraph 17, above referred Judgment Renusagar Power Co. v. General Electric Company (supra) is mentioned and in paragraph 31, the Hon''ble Apex Court has stated that said phrase is required to be given wider meaning. The award which on the face of it is patently in violation of statutory provisions, cannot be said to be in public interest and such award is likely to adversely affect the administration of justice. The Hon''ble Apex Court, therefore, states that narrower meaning given to term "Public Policy" in Renusagar Power Co. v. General Electric Company (supra), is required to be widened and if award is patently illegal, it can be set aside. The grounds for setting aside are stated to be award being contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality; or

(d) in addition, if it is patently illegal.

The illegality has to go to the root of the matter and should not be of trivial nature. Award can also be set aside if it is so unfair and unreasonable that it shocks the conscience of Courts. Hon''ble Apex Court has stated that such Award is opposed to public policy and is required to be adjudged void.

Before proceeding further, it will be appropriate to look into various Judgments cited by Advocate Dessai to show the narrow compass within which jurisdiction of this Court can be exercised. He has relied upon several Judgments and also upon State of Kerala and Others Vs. T.A. Thomas, and Union of India (UOI) Vs. Romesh Kumar Rajgharia, However, as learned Advocate has relied upon Judgments of Hon''ble Apex Court delivered right up to the year 2008-2009, we are not referring to these Judgments. In Municipal Corporation of Delhi Vs. Jagan Nath Ashok Kumar and Another, , the Arbitrator had given reasons in support of the Award and the Arbitrator found that there was provision in agreement for extension of time for completion of contract as well as for levy of compensation for delay. He has applied his mind and he came to decision that rescission of contract was bad and wrongful. Hon''ble Apex Court found that there was no lack of reason in the reasons given by the Arbitrator and the same had rational nexus with conclusions arrived at by him. In paragraph 4, Hon''ble Apex Court found that the Arbitrator did not violate principles of natural justice and did not avoid to take any cogent or material fact into consideration. In Indian Oil Corporation Ltd. Vs. Indian Carbon Ltd., , the Hon''ble Apex Court found that no error of law could be pointed out in reasons assigned by the Arbitrator and the Arbitrator had made his mind known and thus basis on which he acted could be seen. Hon''ble Apex Court states that it is one thing to say that reason should be stated and another thing to say that a detailed Judgment be given in support of an Award. Even if it was obligatory to state reasons, it is not obligatory to give detailed Judgment. Arbitrator has to set out on what his view of evidence did or did not happen and should explain succinctly why in the light of what happened he reached his decision. Thus, Hon''ble Apex Court says that it would be a reasoned Award. Reasons have to be intelligible but shall also deal with substantial points that have been raised. Sufficiency of reasons depends upon facts of particular case. In Sudarsan Trading Co. Vs. Government of Kerala and Another, , the Hon''ble Apex Court has stated that reasonableness of reasons given by Arbitrator cannot be challenged and evaluation of evidence by him is never a matter which the Court questions and considers. The Court cannot substitute its own evaluation of the conclusion of fact or law to come to a conclusion that Arbitrator had acted contrary to the bargain between parties. Whether particular amount was liable to be paid or damages liable to be sustained, was a decision within competency of Arbitrator and Court itself could not have taken the burden of saying that it was contrary to contract. Hon''ble Apex Court has also expressed that there is distinction between disputes as to the jurisdiction of Arbitrator and the disputes as to in what way that jurisdiction should be exercised. (2008) 14 S.C.C. 785 (Satna Stone and Lime Company Ltd., Madhya Pradesh and Ors. v. Union of India and Anr.), has also been relied upon and in said Judgment, the Hon''ble Apex Court has stated that scope of interference of Court with the Award is limited and Court would not be justified in re-appreciating the material on record and substitute its own view in place of Arbitrator''s view. The Court has to approve the Award with the desire to support it, if a reasonable and possible view has been taken and Court has to avoid destroying it by calling it illegal.

In Kwality Manufacturing Corporation Vs. Central Warehousing Corporation, , again the same principles have been laid down and it has been further noticed that inconsistency found by Division Bench of High Court related only to one issue which was separable. High Court, therefore, ought to have modified that Award only to that extent instead of setting aside the entire Award and the findings recorded by Arbitrator could not have been interfered with except to the extent of inconsistency. All these Judgments pressed into service by Advocate Dessai, therefore, clearly show that if there are no reasons or apparently inconsistent reasons, the High Court can interfere though it does not sit in appeal over such Award and review the reasons.

Shri Dessai has also pointed out Judgment of the Hon''ble Apex Court reported at McDermott International Inc. Vs. Burn Standard Co. Ltd. and Others, , to show that aspect of public policy and apprenticeship therein is also noticed in said Judgment. However, he has relied upon said Judgment to point out legal scope of challenge to the Award and duty of Arbitrator to assign reasons. In paragraph 56, it is noticed that reasons have to reveal grounds on which the Arbitrator reached the conclusion which adversely affects the interest of party and such reasons must be based upon material supplied before him. The scope of supervisory jurisdiction is considered in paragraph 65. Broad principles stated therein stipulate that whether reasons are vitiated by perversity in evidence, interference may be possible.

Learned Advocate General relied upon ONGC Ltd. Vs. Garware Shipping Corpn. Ltd., , wherein in paragraph 12, Hon''ble Apex Court noticed a finding of Division Bench of High Court that basis of calculation adopted by learned Arbitrator was not only logical but just and fair. In paragraph 13, the finding of learned Single Judge that there was no reference to the learned Arbitrator so far as period of 13 to 16 years is concerned, is referred and it is noticed that prayers and writ petitions indicated otherwise. The Division Bench held that even if mode of calculation as applied by the Arbitrator was not very appropriate in its effect, that could not be a ground for exercise of power u/s 30 of the Arbitration Act. We are not concerned with the findings on merit but then, in paragraph 28, Hon''ble Apex Court has noticed that there is no proposition that Courts should be slow to interfere with Arbitrator''s Award even if the conclusions are perverse and even when the very basis of the Arbitrator''s Award is wrong. The Hon''ble Apex Court, therefore, found it necessary to interfere in facts before it. Chairman and Managing Director, United Commercial Bank and Others Vs. P.C. Kakkar, , is the other Judgment cited by learned Advocate General which points out that right to reason is indispensable part of some judicial system. Affected party can know thereby why decision had gone against him. In view of the Judgments already considered above, it is not necessary to make reference to these Judgments in more details.

Though before learned District Court the State Government did not assailed the finding of Arbitrator holding it responsible for delays and though while arguing the matter for remand, learned Advocate General also did not urge any arguments on this aspect, the basic challenge appears to be grant of various amounts under various heads by the Arbitrator. During hearing, a brief summary of the claims made in the light of the amount awarded by the Arbitrator, has been filed before us for ready reference. The objections raised before the District Court clearly show that ground of exorbitant grant of amount has been raised with a view to give impression that it was shocking and disproportionate, we find that such arguments by itself cannot assist the appellants. No doubt, the value of contract as awarded was Rs. 2,34,00,000/-and Arbitrator has allowed amount of Rs. 10 crores plus interest at 18% starting from 27.11.1995 till actual payment but then that by itself is not sufficient to discredit the Award. The other grant is failure to give credit to appellants for escalation amount already paid. They have also stated that the amount awarded was shockingly high and rates granted under Claim No. 1 were out of proportion when compared with rates originally quoted by respondent-Contractor. They have clarified this by pointing out that to item No. 3 under Claim No. 1, the Arbitrator awarded rate of Rs. 120 per cubic metre plus escalation while prevailing rate as per Goa Schedule of Rate (GSR) for that work was Rs. 33.15/M3 in 1993 and Rs. 43.50/M3 in 1997. For item No. 6, Arbitrator held Rs. 150/M3 plus escalation while prevailing rate as per GSR was Rs. 52/M3 as in 1993 and Rs. 73/M3 as in 1997. Rate under item No. 9 as awarded by Arbitrator was Rs. 884/M3 plus escalation while as per GSR of 1993, it was Rs. 412/M3 and for 1997, it was Rs. 657/M3. Claim No. 3, where compensation to the tune of Rs. 73,00,000/-for idle deployment of men and machinery has been granted, is stated to be overlapping because wage burden of labourers and cost of machinery is alleged to be integral part of rates of any item of contract. In short, learned Advocate General has tried to show that the grant of exorbitant rates by Arbitrator was specifically the objection raised before learned District Court. He states that neither Arbitrator nor District Court has looked into this aspect of matter. According to learned Senior Advocate Shri Dessai, Arbitrator has done his own calculations and thereafter he has arrived at these rates. He contends that the total amount claimed for idle period was Rs. 1,46,00,000/-and against it only Rs. 73,00,000/-has been awarded. He further points out that several claims have been rejected or awarded in part and it shows application of mind. During arguments, learned Advocate General has attempted to show that even for future period, the Arbitrator has granted Award while Advocate Dessai has stated that the future rates were also referred for Arbitration. Advocate Dessai has contended that the rates against each item claimed by Contractor were not disputed or challenged by appellants and hence acceptance of said rates by Arbitrator cannot be assailed for the first time before this Court. He has also invited our attention to the Order of Appointment of Arbitrator dated 07.05.1996 and shown that Arbitrator was directed to make a speaking Award in respect of claims/disputes as listed vide letters dated 05.09.1994 and 27.11.1995.

The facts above clearly show that Arbitrator was, therefore, supposed to make a speaking Award. The perusal of Award made by Arbitrator shows that mostly all discussions undertaken therein are for the purpose of finding out the appellants-Department responsibility for delays in execution of contractual work. In paragraph 28 onwards, he has undertaken the calculation of amount to which Contractor is entitled. Thus, earlier part considers the issue of entitlement and the later part from paragraph 28 aims at computing the amounts payable to the Contractor. The Arbitrator has mentioned that he is analysing each claim and framing his Award. That exercise is undertaken by him from paragraph 29. Perusal of paragraph 29 shows that under Claim No. 1, while claiming revised rates in extended periods, the Contractor had claimed an amount of Rs. 7,84,21,681.78 and they gave a detailed break-up in annexure-I along with their claim statement. The Arbitrator has accepted said claim and he further mentions that he has worked out revised rate for each item of work and with these rates, the claim worked out to Rs. 4,30,57,781.09 and he has accordingly awarded said amount with further escalation. He has however taken note of the fact that rates arrived at by him and awarded by him were to be restricted till the extended time i.e. up to 05.07.1997. Perusal of chart filed by him as annexure of the Award does not show any working as such but only the final calculations or entitlement amount has been stated therein. The basis on which said amount is worked out is, therefore, not apparent. Though he has mentioned that he has worked out revised rates, that part of working out is not apparent in Award or in annexure. It is also not clear that when total claim was Rs. 7,84,21,681.78, why he has awarded Rs. 4,30,57,781.09. We, therefore, find that the reasons in so far as this computation is concerned, are not given at all. Contention of Advocate Dessai that there was no dispute or challenge before Arbitrator, the rates quoted by him have been accepted cannot be an answer to this lacuna because the Arbitrator has not granted the rate as claimed by respondent. He has awarded lesser amount than one claimed by the respondent and hence, reasons therefore ,ought to have been mentioned. We find it necessary after looking into the GSR rates prevalent during said period as mentioned by us above. This also holds good for Claim No. 2 i.e. about pre-monsoon protection work where total claim was about Rs. 13,55,000/-and amount awarded is Rs. 7,47,000/-. He has opined that claim of Contractor in this respect was genuine only for prolongation period and has not allowed said claim for monsoon of 1990-91 and 1992. Again, in paragraph 21.3, while considering Claim No. 3, he has stated that he has done his calculations and he has awarded amount of Rs. 73,00,000/-as against claim of Rs. 1,46,000/while the annexure with the Award does not show any working and directly mentions the amount of Rs. 73,00,000/-. The manner in which this computation has been done, application of mind, therefore, and hence reasons for awarding this amount are lacking. This can also be said in grants in Claim No. 8 and allows claim of Rs. 14,85,000/-in settlement therefore in paragraph 29.8 of his Award. Against claim No. 10 for extra cost due to increased depth, he has awarded amount of Rs. 98,36,745.36 as against amount claimed of Rs. 2,24,17,424.95. The Arbitrator mentions in paragraph 29.10 that he has carefully gone through the working of the cost of this claim and awarded this amount as per his calculations. Again, his calculations are nowhere apparent and the reasons for applying/granting particular rate are absent.

All this was in challenge before the learned District Judge. The learned Addl. District Judge has considered this challenge in the light of Judgment in Renusagar Power Co. v. General Electric Company (supra) mentioned above, and has accepted the finding as recorded by the Arbitrator by holding that the violation of public policy has not been demonstrated. It has further been found that reasons of reasons recorded by Arbitrator cannot be gone into and in fact it found Arbitrator has given cogent reasons but reasons have been confined to delay in execution of work. Thus, computation aspect or reasons for it have not been gone into by said Court because of its finding that Award of Arbitrator is neither against Public Policy of India nor was there anything on record to suggest that it was procured by fraud. In view of discussions above, we are unable to sustain the application of mind by said Court. In view of subsequent Judgment of Hon''ble Apex Court reported in Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd., (supra), we find it necessary to remand the matter back to that Court for re-consideration.

During hearing it transpired that original records of Arbitrator forwarded to the Court of Civil Judge Senior Division at Margao, were not called for and have not been looked into by the Addl. District Judge while delivering the impugned Order.

With the result, the Order dated 22.02.2000 delivered in Civil Misc. Application No. 101/1998, is quashed and set aside. Said Civil Misc. Application is restored back to the file of said Court for its further consideration in accordance with law after calling for original records and proceedings before the Arbitrator.

As the matter is very old, it is made time bound. The Court below to endeavour to dispose off the same as early as possible and by 31.12.2009. Bank Guarantee furnished by present respondent while affecting withdrawal shall be kept alive and valid till further appropriate Orders in this respect by the Court below. Parties to appear before that Court on 17.08.2009.

Appeal is accordingly allowed with no Order as to costs. Records and Proceedings be sent back immediately.