AI Structured Summary
Not yet generated for this judgment
Judgment
P.K. Misra, J.—These two appeals have been filed by the State Government u/s 39 of the Arbitration Act, 1940. O.S.A. No. 7 of 2000 is
directed against the order in O.P. No. 558 of 1995, which has been filed by Respondent No. 1, for filing the award and making it a Rule of Court.
O. S.A. No. 8 of 2000 is filed against the order in O.P. No. 328 of 1996 dismissing the application of the appellant u/s 30/33 of the Act to set
aside the award.
The relevant facts are narrated hereunder :-
By agreement dated 10.10.1974, Respondent No. 1 was awarded the contract relating to construction of a bridge across Pamban Strait. Value of
the contract was Rs. 5,13,08,000/- and the work was to be completed within 48 months from 17.11.1974, the date on which the site was handed
over. The period for completion of the work was extended by the Government from time to time and was last extended till 31.12.1980. On
account of a severe cyclone on 24.11.1978, Respondent No. 1 suffered heavy loss in the shape of damage to the machineries. Respondent No. 1
filed C.S. No. 765 of 1980 to resolve the dispute. On 29.12.1980 the contract was terminated by the Government. Learned single Judge passed
order on 19.8.1983 appointing the Chief Engineer as Arbitrator, to resolve the disputes. However, Respondent No. 1 filed O.S.A. No. 21 of
1984 and the Division Bench by order dated 27.11.1986 appointed Respondent No. 2, a retired Judge of the High Court, to decide the disputes.
Respondent No. 1 filed Claim Petition on 31.12.1986 claiming various amounts under different heads. The substance of the claims is as follows:-
Claim No. 1 : Compensation for loss suffered on account of overheads and profits due to breach of contract including termination Rs. 22 6.351
lakhs.
Claim No. 2 : Compensation for loss due to Cyclone Rs. 29,92,166.08
Claim No. 3 : Compensation for taking over the infrastructure and materials at site Rs. 76,36,090/- corrected later to Rs. 89,23,722.45
Claim No. 4 : Compensation for loss on account of idle labour machinery equipment Rs. 82,12,000/-
Claim No. 5 : Settlement of final bills Rs. 22,98,976/-
Claim No. 6 : Payment of design fee Rs. 15,83,784/-
Claim No. 7 : Interest
Claim No. 8 : Cost
The present appellant apart from resisting the aforesaid claim, made a counter claim for Rs. 11,41,27,936/-, which included the additional costs
of Rs. 10 crores in getting the work completed through another contractor.
The arbitrator by award dated 16.12.1988, while rejecting Claim No. 4, passed award in respect of Claim Nos. 1,2,3,5 & 6. The Arbitrator
awarded Rs. 2,26,35,000/-, Rs. 78,94,672/- and Rs. 15,83,784/- under Claim Nos. 1, 3 and 6 respectively. The arbitrator has also awarded
interest at the rate of 16.5% and costs under Claim Nos. 7 & 8. The counter claim made by the Government was rejected in toto.
The appellant filed O.P. No. 275 of 1989 to set aside the award. Learned single Judge by order dated 14.6.1994 confirmed the award in
respect of Claim Nos. 2 and 5 and set aside the award relating to Claim Nos. 1, 3 and 6 and remitted the matter to the arbitrator for fresh
consideration on these three claims. Thereafter, the arbitrator has passed a fresh award in respect of these three claims as under :
Claim No. 1 - Rs. 2,26,35,000/-
Claim No. 3 - Rs. 78,94,682/-
Claim No. 6 - Rs. 15,83,784/-
Total Rs. 3,21,13,466/-
The arbitrator has also directed payment of interest at the rate of 1 6.5% from the date of reference till the date of award. Thereafter, the learned
single Judge while confirming the award in respect of Claim Nos. 1, 3 and 6, reduced the rate of interest to 12% in respect of Claim Nos. 1, 3 and
Appeals have been filed by the Government against the said decision of the learned single Judge.
Cross Objection has been filed by Respondent No. 1 claiming that reduction of rate of interest from 16.5% to 12% is illegal and not justified.
Learned Additional Advocate General appearing for the appellant has raised the following contentions :-
(1) The decision rendered by the learned single Judge on the earlier occasion setting aside the award being appealable and no appeal having been
filed against the said decision, the conclusions reached by the learned single Judge in the earlier decision became final and the arbitrator committed
error of law apparent on the face of record in coming to the contrary decision ignoring the findings rendered by the learned single Judge.
(2) Even assuming that no appeal was maintainable against such decision of the single Judge, the observations made by the single Judge in the
judgment were binding on the arbitrator and the arbitrator has committed errors of law apparent on the face of record by ignoring such findings.
(3) Even otherwise, the arbitrator has committed errors apparent on the face of record in passing the award in respect of Claim Nos. 1,3 and 6.
Learned counsel appearing for Respondent No. 1 has supported the award of the arbitrator and the subsequent decision of the learned single
Judge. However, he has also submitted that the arbitrator having awarded 16.5% as interest, as in the previous occasion, there was no scope for
the learned single Judge to reduce the rate of interest and to that extent, the cross objection should be allowed.
The first question which is to be decided is whether the earlier decision of the learned single Judge in remitting the award to the arbitrator for
fresh consideration in respect of Claim Nos. 1, 3 and 6 was appealable.
Section 39(1) of the Arbitration Act is as follows:-
(1) An appeal shall lie from the following orders passed under this Act and from none others to the court authorised by law to hear appeals from
original decrees of the court passing the order: An order--
(i) to (v) omitted
(vi) setting aside or refusing to set aside an award:
Provided that the provisions of this section shall not apply to any order passed by a Small Causes Court.
Under this specific terms of section 39(1)(vi), the order of the Court, setting aside or refusing to set aside the award, is thus made appealable.
Section 16 of the Arbitration Act empowers the Court to remit the award to the arbitrator for reconsideration of such terms as it thinks fit
under three circumstances :-
(a) where the award has left undetermined any of the matters referred to arbitration or where it determines any matter not referred to arbitration
and such matter cannot be separated without affecting the determination of the matters referred; or
(b) where the award is so indefinite as to be incapable of execution; or
(c) where an objection to the legality of the award is apparent upon the face of it.
Section 16(1)(c) therefore contemplates remitting the award to the arbitrator for fresh consideration where the objection to the legality of the
award is apparent upon the face of it.
Section 30, which contemplates the grounds for setting aside the award and is as follows :-
(a) an arbitrator or umpire has misconducted himself or the proceedings;
(b) an 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;
(c) an award has been improperly procured or is otherwise invalid.
While interpreting Section 30(a) and 30(c), it has been universally accepted that the court can interfere with the award if it is found that there is
error of law apparent on the face of the award. Such a ground is considered in the light that the arbitrator has misconducted the proceedings as
contemplated in Section 30(a) or the award is otherwise invalid as contemplated in Section 30(c). When the court finds an error of law apparent
on the face of the award, the court sets aside the award. u/s 19, where the award is set aside, the court by order may supersede the reference and
thereby the matter is concluded. On the other hand, the court may remit the award for fresh consideration u/s 16(1)(c) where the objection to the
legality of the award is apparent on the face of it. To this extent, the scope of section 16(1)(c) and Section 30(a) or 30(c) are overlapping.
There cannot be any doubt that when the award is remitted to the arbitrator for fresh consideration on the basis of the conclusions
contemplated in Section 16(1)(a) or 16(1)(b), such order is not appealable under any of the Clauses in Section 39. The question is whether an
order remitting the award to the arbitrator for fresh consideration coming u/s 16(1)(c) on the ground that there is an error apparent on the face of
the award is appealable or not. The contention of the learned Advocate General is to the effect that since the learned single Judge, on the earlier
occasion, had set aside the award, such portion of the order of the learned single Judge must be taken to be appealable u/s 39(1)(vi), even though
the learned single had ultimately remitted three claims for fresh consideration. Learned counsel appearing for the respondent has submitted that
since the award was remitted for fresh consideration as contemplated u/s 16(1)(c), such order was not appealable.
Learned Additional Advocate General has placed strong reliance upon the decision of Nagpur High Court reported in AIR 1956 Nag 245
(Jayantilal Keshavlal Dave v. Surendra Gangsa Johrapurkar). In the said case, after the award was passed, the trial court accepted certain part of
the award and remitted for reconsideration only on certain other points. Such order accepting part of the award was challenged in appeal. A
preliminary objection was raised to the effect that since the award had been remitted for fresh consideration, such order of the court was not
appealable. The Division Bench of the Nagpur High Court observed as follows :-
In our opinion, the preliminary objection raised by the learned counsel for the respondent is not tenable. The contention of the learned counsel for
the respondent would have been well founded had the award in its entirety been remitted by the learned Judge for reconsideration. But the
contention loses its force when, as in the instant case, the award is accepted in part and is remitted for reconsideration for the remaining part...
When an award is accepted on certain points and is remitted for reconsideration only on the remaining points, then, in our opinion, the order would
amount to a refusal to set aside an award on the points the award is accepted and, as such, will be appealable. The term setting aside or refusing
to set aside"" occurring in Section 39(1)(vi) of the Act, in our opinion, will include setting aside or refusing to set aside an award in part as well.
Where the Court accepts the award in part and in effect the Court refuses to set aside the award in its entirety which according to the contention of
the appellant the Court should have done, the appeal is covered by Section 39(1)(vi).
A perusal of the aforesaid decision makes it clear that the appeal was construed to be an appeal against that portion of the order of the trial
court by which the trial court had accepted in part the award. In other words, the court observed that such portion was coming within the
expression refusing to set aside- the award. By extending the said analogy to the present case, it can be held that it would have been open to the
State Government to file appeal against that portion of the decision of the learned single Judge, under which he had confirmed the part of the award
as he had refused to set aside the award. Similarly, when part of the award is set aside, the aggrieved party can file appeal against that portion of
the order by which the award is set aside. The ratio of the Division Bench decision of the Nagpur High Court is not directly applicable to the
present case where the single Judge had not only set aside the part of the award but also remitted that part of the award for fresh consideration.
In this connection, the decision reported in Mehta Teja Singh and Co. Vs. Fertilizer Corporation of India, Ltd. and Another, is sought to be
distinguished by the learned Additional Advocate General. In the said case, the questions referred to the Division Bench were (i) Whether u/s 16 of
the Arbitration Act it is open to the Court to remit a part of an award; and (2) whether in such a case, an appeal lies u/s 39(1)(vi) of the Act. The
Chief Justice Dua, as His Lordship then was, observed :-
We are thus inclined, as at present advised, to hold that an order remitting a part of an award and affirming a part, does not necessarily amount to
an order setting aside or refusing to set aside an award within the contemplation of Section 39(1)(vi) of the Act and it would thus not be
appealable. We are not unmindful of the fact that a provision of law permitting appeals to the higher Courts, deserves to be liberally construed, but
this liberal construction must not involve stretching of the language, for it has to be remembered that right of appeal is statutory, and, but for a
statutory affirmative provision, no inherent right of appeal is claimable by an aggrieved suitor. In the case in hand, the language of Section 39(1)(vi)
read in the light of Section 30, seems to us to be clear and the present case does not fall under this clause. There is no other clause in Section
39(1) which can reasonably be held to provide for an appeal against an order remitting or declining to remit an award. The decision of a learned
Single Judge of the Punjab High Court in the State of Patiala and East Punjab States Union v. Messrs. Puran Chand Rangi Ram 1966 68 Punj
L.R. 694 would thus seem to lay down a correct rule of law. The learned Single Judge of the Punjab High Court agreed with the view taken in
R.T. Perumal Vs. John Deavin and Another, . It is true that in the Madras case, it was conceded by Mr.Nambiar at the Bar that there was no right
of appeal against the order of the Court remitting the award to the arbitrator and the point was not decided on a discussion of the scheme of the
Act, but, in our opinion the concession was rightly made. Clause (c) of Section 30, when it refers to the improper procurement of the award,
would prima facie seem to us to contemplate the improper procurement of the award as a whole and not a part of it and if that be so, then the
invalidity of the award otherwise would also seem to us to refer to the award as a whole and not to a part of it, for, both parts of this clause would
get colour and content from each other. Looking at the scheme of the Act we are also inclined to think that Section 16 of the Act dealing with the
power of the Court to remit the award, should be construed independently and the remission of the award or any matter contemplated by this
section is not intended to include within its fold setting aside of the award or a part of it as contemplated by Section 30, which is apparently an
exhaustive provision specifically dealing with setting aside of awards. We are also aware of a decision of the Supreme Court in B.S. Madhava and
Co. v. Kapila Textile Mills, Ltd. Civil Appeal No. 1094 of 1963 decided by Subba Rao, J (as he then was) and J.C.Shah, J on 9.9.1964, in
which it was observed that an order u/s 16(1)(c) of the Act refusing to remit an award to the arbitrators or the umpire is not appealable under the
Act. Now, if refusing to remit an award cannot be construed as a refusal to set aside an award and, therefore, not appealable, the remission of an
award or any matter would also seem to us, on parity of reasoning, not to amount to setting aside the award or a part of it. If that be the correct
way of looking at things, then obviously an order remitting to the arbitrator or umpire for reconsideration an award or any matter referred to
arbitration, cannot be deemed to include an order setting aside an award or a part of it and then remitting the award or the matter, as the case may
be. Before closing discussion on this point, we may point out that on behalf of the appellant Shri.T.P.S. Chawla actually conceded that if the entire
award is remitted by an order, then that orde r would not be open to appeal. The only point which was sought to be made out was that in case
there is a partial remit, then that order would clearly be appealable. For this distinction, we find no basis in law.
The observations made by the Division Bench seem to suggest that no appeal can be filed even if a part of the award is set aside and remitted
for fresh consideration.
In the said decision, reference has been made to the observations of the Madras High Court reported in R.T. Perumal Vs. John Deavin and
Another, . It was observed as follows :-
Mr. Nambiar, however, contended that the order of remittal cannot be questioned in these appeals even if they were competent. He relied on a
ruling of this Court in Subbiah Iyer v. Subramania Iyer ILR 31 Mad 479 which was followed by the Lahore High Court in Baland Baksh v. Ram
Chandra 84 Ind Cas 693 (1): AIR 1925 Lah 267. There were also other decisions cited to us, namely, George v. Vastian Soury ILR 22 Mad 202
and Vengu Ayyar and Another Vs. Yegyam Ayyar and Others, , but in our opinion these decisions do not materially help us in this case because
they all related to a different set of facts. In those cases the arbitration was in a pending suit but there are observations in the decision ILR 31 Mad
479 which prima facie appear to support the contention of Mr. Nambiar namely,
It was not contended that an appeal would lie against a decree passed by the court in accordance with the award on the ground that the Court
had improperly refused an application for an order of remittal under S. 520, C.P.C. and the policy of the law appears to be to refuse to allow
appeals against decrees in accordance with awards on the ground either that an order under S. 520 C.P.C. was improperly made or improperly
refused.
Much of the force of the observations is lost by the obvious fact that it was practically conceded that an appeal would not lie against a decree
passed by the court in accordance with the award on the ground that there had been an improper refusal of an application for an order of remittal.
Mr. Nambiar conceded that there was no right of appeal against the order of the Court remitting the award to the arbitrator. He also had to admit
that the Court would have jurisdiction to remit an award only on one of the grounds specified in S. 16 and under no other ground. If, therefore, the
Court remitted an award on any ground other than those specified in that section such an order would be without jurisdiction. We than asked
Mr.Nambiar what was the remedy of the party aggrieved by such an invalid remittal. Mr.Nambiar frankly stated that there was no remedy so far
as he could see. We do not think that we could subscribe to this result unless we are forced to. In our opinion one of the grounds on which a
revised award can be sought to be set aside is that it was the result of an invalid order of remittal. That was the first objection which the appellants
took in their counter affidavits.
The Delhi High Court has observed that the decision was based on a fair concession.
Even though not cited at the bar, we have come across a decision of a learned single Judge of the Orissa High Court in Duryodhan Mohapatra
Vs. Executive Engineer, Irrigation Division, , wherein it was observed :-
A preliminary objection was taken by the Additional Standing Counsel to the effect that this appeal is not maintainable. It was urged that the
award has been remitted to the Arbitrator under Sec.16 of the Act and no appeal is provided u/s 39 thereof. Section 39 of the Act enumerates the
orders passed under the Act which are appealable. It is submitted that an order remitting the award being not appealable under Sec.39 of the Act,
this appeal is incompetent. Mr. Misra appearing for the appellant contends that an appeal shall lie from an order setting aside or refusing to set
aside an award and as the order remitting the award in this case amounts to setting aside the award an appeal shall lie. Admittedly, S. 39 does not
provide an appeal against an order of the court remitting or refusing to remit an award. The Additional Standing Counsel relied on a decision
reported in AIR 1976 Orissa 149, Chowdhury and Co. v. Govt. of Orissa, wherein it has been held that in a simple case of remission of the award
no appeal as such would lie. It has, however, been observed in the said decision that where the award has been made a rule of the Court in part
and with respect to certain items of claim the court has refused to set aside the award and directs a remand, an appeal would lie on the ground that
the court has refused to set aside the other part of the award. Mr. Misra, on the other hand, relies on a Full Bench decision of the Patna High
Court reported in Makeshwar Misra Vs. Laliteshwar Prasad Singh and Others, in support of the proposition that where the order passed by the
court amounts to setting aside an award, appeal would lie against such an order.
....It is clear from a plain reading of the section that the Court may, in its discretion, remit the award to the Arbitration for reconsideration under any
of the grounds mentioned in Clauses (a), (b) and (c) of sub-section (1) of Sec.16.
All cases of remittance u/s 16 of the Act may not involve setting aside of the award in its entirety or even in part. Where the court shall set aside
the award either in whole or in part the same becomes appealable u/s 39(vi) of the Act. The decision reported in Chowdhury and Co. Vs.
Government of Orissa, was a case where the appeal was against the decision of the learned Sub-Judge refusing to remit the award made by the
Arbitrator. Thus the facts of that case are distinguishable and cannot be applied to this case. I, therefore, conclude that this appeal is maintainable
u/s 39(vi) of the Act.
Learned counsel appearing for the respondent on the other hand has placed specific reliance upon the decision of the Supreme Court reported
in Iftikhar Ahmed and Others Vs. Syed Meharban Ali and Others, . In the said decision, a controversy relating to title arising under U.P.
Consolidation of Holdings Act, 1953 was referred to the Civil Judge by the Consolidation Officer and in his turn the Civil Judge referred the
dispute to an arbitrator appointed under the said Act. The Arbitrator held that an earlier decision of the High Court of Allahabad operated as res
judicata between the parties with respect to title of the parties to the properties. Both parties filed objection to the award before the trial court. The
trial court held that the earlier decision of the High Court relied upon by the arbitrator did not operate as res judicata as regards the title, and
therefore, the decision of the arbitrator was manifestly wrong and vitiated by an error of law apparent on the face of the award. The trial court
therefore set aside the award and remitted the case to the arbitrator for a fresh decision. Thereafter the arbitrator decided the matter afresh and
came to the conclusion that the judgment of the High Court was not res judicata as regards the title of the parties. An objection was filed by the
original appellant in the Civil Court. However, the trial court confirmed the award. The original appellant thereafter preferred appeal before the
District Judge and during pendency of such appeal, on his death, his legal representatives were substituted. The appellate court, namely, the District
Judge, held that the award suffered from an error of law apparent on the face of the record and the arbitrator ignored the judgment of the High
Court which operated as res judicata as regards the title of the parties, and therefore, he allowed the appeal and set aside the decree and remitted
the matter to the arbitrator for a fresh decision. In the revision filed by the respondents against such appeal, the High Court reversed the decision of
the District Judge and restored the decree passed by the Civi Judge confirming the award obviously on the footing that the earlier decision of the
High Court did not operate as res judicata. Against such decision of the High Court in revision, appeal was taken to the Supreme Court by the
legal representatives of the original appellant. The Supreme Court, while reversing the decision of the High Court, upheld the decision of the
District Judge and however concluded the matter by saying that since the principle of res judicata was applicable, it would be an empty formality to
remit the matter to the arbitrator, and therefore, the Supreme Court confirmed the original award. It was observed:-
It might be recalled that the II Civil Judge set aside the first award and remitted the case to the Arbitrator for passing a fresh award u/s 16 of
the Arbitration Act. That was only on the basis that the arbitrator committed an error of law in relying upon the judgment of the High Court as
finally determining the title to the properties. As no appeal u/s 39 of the Arbitration Act lay from an order remitting an award to an arbitrator u/s 16
of the Arbitration Act, Ishtiaq Ahmed could not have challenged the order. There is, therefore, no reason why the appellants should be precluded
from challenging the correctness of that order in this appeal and getting relief on that basis.
Learned Additional Advocate General appearing for the appellant has tried to distinguish the aforesaid decision by submitting that under the
first order, the Sub Judge had set aside the entire award and remitted the entire matter for fresh consideration by the arbitrator, and therefore, such
order was not appealable, whereas, in the present case, part of the award was set aside and remitted for fresh consideration and therefore
appealable.
In principle, we do not find any difference between a case where the award is set aside in its entirety and thereafter remitted for fresh
consideration and where the award is set aside in part and that part is remitted for fresh consideration. It may be that where a part of the award is
confirmed and the court passes a decree, such order would be appealable and it is not necessary to consider as to whether the decision of the
Delhi High Court is applicable or not. It is of course true that the observation made by the learned single Judge of the Orissa High Court in
Duryodhan Mohapatra Vs. Executive Engineer, Irrigation Division, lays down that when an award was set aside in part and that part is remitted to
the arbitrator for fresh consideration, an appeal can be filed. However, in our opinion, in view of the observation of the Supreme Court in Iftikhar
Ahmed and Others Vs. Syed Meharban Ali and Others, the ratio of the decision of Orissa High Court cannot be followed.
It seems that the matter is now settled in view of the subsequent decision of the Supreme Court in 2001 (44) ALR 514 (SC) . In the said case,
in a dispute, the arbitrator, in its award, had given relief in respect of Agreements 1 and 2, but held that the contractor was not entitled to any relief
in respect of Agreements 3 and 4. When the award was filed in the court, objections were made and the trial court remitted the matter in respect
of Agreements 3 and 4 as it took the view that the arbitrator has not decided the matter. The question of maintainability had been raised before the
District Judge, who held that the trial court had directed the arbitrator to make a fresh award in the light of the directions given in that judgment and
had virtually set aside the award with a direction to the arbitrator to give a fresh award and, therefore, fell within the scope of Section 39 of the
Arbitration Act. Thereafter the matter was taken to the Supreme Court by Special Leave. The Supreme Court observed as follows:-
This Court in Iftikhar Ahmed and Others Vs. Syed Meharban Ali and Others, held that no appeal is provided by the Act against an order of the
court remitting the award u/s 16 of the Act. Section 39 of the Act opens with a clause that an appeal shall lie from the orders passed as
enumerated therein and from no others. The orders enumerated are as follows:
(i) superseding an arbitration;
(ii) on an award stated in the form of a special case;
(iii) modifying or correcting an award;
(iv) filing or refusing to file an arbitration agreement;
(v) staying or refusing to stay legal proceedings where there is an arbitration agreement; and
(vi) setting aside or refusing to set aside an award; Each of the modes in which a proceeding is disposed of by the court is dealt with in clauses (i)
to (vi) but not an order remitting the matter to the arbitrator u/s 16 of the Act, the principle being that such a decision would mean referring the
matter back to the arbitrator or it is a case for reconsideration of the matter and no appeal lies in such cases u/s 39 of the Act.
In view of the aforesaid observation, whatever lingering doubt, if any {inspite of the decision of the Supreme Court in Iftikhar Ahmed and
Others Vs. Syed Meharban Ali and Others, }, must be taken to have been dispelled by this judgment. In view of this, it must be taken that even
where an award is partly confirmed and another part of the award is remitted for fresh consideration, such part of the order of the trial court
remitting the matter for fresh consideration is not appealable u/s 39 of the Act. This position also seems to be clear on a careful reading of a
subsequent decision of the Supreme Court in K.K. John Vs. State of Goa, .
In spite of the aforesaid conclusion that the earlier order of the learned single Judge setting aside the part of the award in respect of Claim Nos.
1, 3 and 6 and remitting such claims for fresh consideration was not appealable, we are unable to appreciate the observations made by the learned
arbitrator regarding the binding effect of any observation made while remitting the matter for fresh consideration. If the court concludes any part of
the controversy, to that extent, such conclusion would be binding on the arbitrator, when the arbitrator reconsiders the matter. The analogy given
by the learned Arbitrator regarding the opinion of the court in a reference to the Court u/s 13 of the Act, is not at all appropriate. It is correct that
the opinion of the Court in a reference is not binding and has only advisory value unless the opinion is annexed as the award itself, if specifically so
referred, in which event, such opinion forms part of the award. However, the directions given and the conclusions arrived at by a Court while
considering the validity of an award, would obviously stand on a different footing.
It is of course true that a court, dealing with the matter under Sections 15 16 17 30 and 33 of the Act, does not sit as an appellate authority
over the award of the arbitrator and the scope for interference is circumscribed by the provisions contemplated in Section 30 itself, but
nevertheless the Court must be considered as a superior authority vis-a-vis the arbitrator notwithstanding the fact that the scope for interference is
very limited. Therefore, to the extent that the Court gives any particular direction or comes to any particular conclusion even while remitting the
award for fresh consideration, the arbitrator is not only expected to follow such direction, in our opinion, he is bound to follow such directions or
conclusions. It is of course true that the conclusions or the directions of the Court while remitting cannot be immediately challenged in appeal, but
like the matters remanded under the CPC by the appellate authority, the ultimate decision can be challe nged in a higher Forum. Whether certain
directions are given or conclusions have been reached finally (for that stage at least) or not would obviously depend upon the nature of the
directions and the nature of the discussions, but as a general rule it cannot be said that in no case when the matter is remitted to arbitrator for fresh
consideration, he is bound by any of the conclusion or direction made in the remittal order. At this stage it is also necessary to make it clear that
since any direction or conclusion made by the learned single Judge is not appealable at that stage and ultimately the matter has come to the higher
Forum, it would be appropriate to consider at the relevant stage whether there was any conclusion or direction by the learned single Judge on the
earlier occasion. It would be also appropriate to consider the validity of the directions and conclusions as the present appellant had no other
opportunity to challenge such direction or conclusion.
27 Learned counsel appearing for the respondent has however invited our attention to a decision of this Court reported in 1997 (1) Arb. L.R. 334
(THE U.P. State Bridge Construction v. State of Tamil Nadu and Anr.). In the said case, the award was set aside by the learned single Judge on
the ground that the arbitrators had not given any reason in support of the award. A preliminary objection was raised that the appeal was not
maintainable as the case had been remitted u/s 16 of the Arbitration Act, even though the learned single Judge had made reference to Section 30 of
the Act. The Division Bench observed :-
No doubt, the learned Judge has referred to Section 30 of the Arbitration Act in paragraph 16, but on a perusal of the entire judgment, we find
that the learned Judge has exercised his power only u/s 16(1)(c) of the Act. Under that section a court may remit the Award or any matter to
arbitration for reconsideration, where objection to the legality of the Award is apparent on the face of it. The learned Judge has found, as a matter
of fact, that on the fact of it the Award suffers from illegality inasmuch as it has not give any reasons to support the conclusions. It is only on that
one ground, the entire Award has been set aside and the matter has been remitted. Hence, we cannot construe the judgement of the learned Judge
as one falling u/s 30 of the Arbitration Act, which enables the court to set aside an Award on any of the three grounds including misconduct of the
arbitrator set out therein. In this case, the only ground is illegality apparent on the face of the record inasmuch as the Award has failed to contain
reasons. Hence, we hold that the order of the learned Judge falls u/s 16(1)(c) of the Act and it is only the order remitting the matter for fresh
consideration and passing of Award...
The Arbitrators are directed to dispose of the matter and pass an Award within four months from this date. It is needless to add that any
observation made by the learned Judge in his order of remittal does not bind the Arbitrators and they shall consider the matter independent thereof
and afresh on the materials on record.
The latter part of the observation to the effect that it is needless to add that any observation made by the learned Judge in his order of remittal
does not bind the Arbitrators and they shall consider the matter afresh on the materials on record, is pressed into service by the learned counsel for
the respondent in support of his contention that when a matter is remitted to the arbitrator, he is bound by any observation made by the Court. We
do not think that the aforesaid observation made by the Division Bench is meant to lay down an universal proposition of law that in every case
when the matter is remitted to the arbitrator, such arbitrator is not bound by any direction or conclusion of the court because Section 16 itself
contemplates issuance of directions. It is made clear in the peculiar facts of that case that when the single Judge had remitted the matter as the
arbitrator had not given any reason, even though he was required to do so, the Division Bench clarified by saying that the arbitrator is to decide the
matter afresh without being influenced by the observations made by the learned single Judge. In our opinion, to the extent there is any specific
conclusion or direction by a Court while remitting the award to arbitrator, the latter is bound by such conclusion and direction.
Stage is now to consider whether the arbitrator has committed any error of law apparent on the face of record in deciding Claim Nos. 1, 3 and
As apparent from the award itself, Claim No. 1 relates to claim on account of illegal termination of the contract and the consequential claim for
reimbursement of the loss sustained by the contractor. The award itself makes it clear that the arbitrator considered the matter on three heads.
The first head relates to loss of overhead profit suffered during the original period of contract and the second head relates to loss of overheads
and profits suffered during the extended period of contract as ultimately the contract was terminated. The third head relates to loss of business
profits for six years from the date of termination of the contract till the date on which reference was made for arbitration. In the original award,
before it was remitted, the arbitrator had granted the amount claimed without disclosing on what basis such amount had been granted.
The learned single Judge on the earlier occasion had confirmed the finding that the termination of the contract was illegal. Learned single Judge
had observed:-
The contractors claimed the compensation of Rs. 226.351 lakhs towards the loss suffered on account of over-heads and profits due to the
termination of the contract. The claim has been allowed as claimed by the contractors. The above figure has been arrived at on the basis of the
alleged loss under three heads namely the net loss suffered during the period of contract till the original contract period Rs. 76.77 lakhs (2) net loss
suffered during the extended period of contract till termination Rs. 60.33 lakhs and (3) loss of business profit for six years Rs. 89.25 lakhs. So, on
the basis that the contractors had suffered loss in the execution of the work both in the original period of contract and also in the extended period
of contract and also in the extended period of contract to the tune of Rs. 137.10 lakhs, the learned arbitrator has awarded this amount and added
another Rs. 89.29 lakhs as loss of profit in the execution of the work for six years. ... As the learned arbitrator has found that the termination of the
contract is not legal, certainly the contractors are entitled to claim compensation for the loss of profit for the unfinished balance of the contract
work. In this case, it is the allegation of the Department that only 36% of the work was completed by the contractors and there was balance of
64% unfinished. Therefore, even according to the decision relied upon by the counsel for the 1st respondent contractors, the contracts are entitled
to claim 15% of the value of the unfinished work. But, in this case, the contractors have claimed loss of 137.10 lakhs till the date of termination of
the contract and they claimed this amount in addition to the loss of profit of Rs. 89.25 lakhs from the Department.
...When the balance-sheet Ex.C-153 and R.527 prove the gross profit relating to the business, I am not able to understand how huge loss of Rs.
76.77 lakhs is shown by the contractors. Secondly, even if the contractors had incurred loss of Rs. 76.77 lakhs in the original period of contract
and another Rs. 60.33 lakhs during the extended period of the contract, it is not explained, why the Department has to compensate this loss of the
contractors for the period before the termination of the contract. If the contractors had incurred loss in the transaction, the loss has to be borne by
the contractors and there is no clause in the agreement that the Department has to compensate the loss. The Department was in no way
responsible for the loss incurred by the contractors during the period prior to 29.12.1980. Even according to the decision relied upon by the
learned counsel for the contractors A.T. Brij Paul Singh and Others Vs. State of Gujarat, damages can be claimed only for the loss of profit in the
balance of the incompleted work due to the breach of contract. Therefore, the learned arbitrator allowing the entire claim of Rs. 226.351 lakhs on
the basis that the contractors had incurred loss, appears to be error apparent due to the nonapplication of mind...
Ultimately it was concluded :-
Therefore, in the fixation of the quantum of compensation, there is error apparent on the face of the award as compensation has been awarded for
the alleged loss in the work already completed. This is beyond the scope of the tender document which has to be treated as a legal misconduct on
the part of the learned arbitrator. Therefore, the award fixing the compensation at Rs. 226.351 lakhs has to be set aside.
In the subsequent award, the arbitrator has given the break-up and the basis on which the calculation had been made. In the revised award, the
Arbitrator has observed that Claim No. 1 consists of,
(i) loss due to overheads during the original period of contract - Rs. 76.77 lakhs.
(ii) Loss due to overheads during the extended period of contract Rs. 60.33 lakhs
(iii) Loss of business for six years Rs. 89.25 lakhs
Thereafter the arbitrator has proceeded to consider each sub-head. The Arbitrator has observed :
The illegal termination of the contract by the Department has had the effect of preventing the contractors from completing the work and thereby
earning the expected amount, which they would have normally earned if the contract had been fully performed.
It was further observed :-
Normally in claiming compensation or damages for breach of contract, loss of overheads and profits are clubbed together and a percentage of
20% i.e. 10% on each head has been found to be appropriate. But that is not an absolute rule and may vary from place to place.
While considering the question of loss of overheads and profits in first item of Claim No. 1, the arbitrator has considered the expected profit
and came to the conclusion that if the contract would have been completed during the stipulated period, the contractor would have earned profit of
Rs. 76.77 lakhs. We have already referred to the observations made by the learned single Judge. A careful study of the observations makes it
clear that the learned single Judge had not rendered any categorical conclusion but had expressed doubt regarding the basis on which the amount
had been claimed. The arbitrator has now given sufficient basis for arriving at the figure of Rs. 76.77 lakhs in respect of sub-head (i) of Claim No.
Even though there may be a different method of calculation, it cannot be said that the method of calculation adopted by the arbitrator is illegal on
the face of it. It is of course true that the arbitrator at one point of time observed that normally loss of overhead and profits are clubbed together
and profit of 20% i.e., 10% on each head, is found to be appropriate, but, as rightly observed by the arbitrator, it is not an absolute rule and may
vary from place to place. In the present case, the arbitrator has referred to some materials on record to come to the conclusion that the contractor
was entitled to get more. Keeping in view the limited scope for interference in such matters, since the Court dealing with the matter under Sections
30 and 33 of the Act and obviously the appellate court dealing with such matter u/s 39, do not sit as an appellate authority over the award of the
arbitrator, the award in respect of sub-head (1) of Claim No. 1 has to be accepted willy-nilly.
Under sub-head (2) of Claim No. 1, the arbitrator had considered the loss due to overheads and profit during the extended period and has
come to the conclusion that the contractor was entitled to a sum of Rs. 60.33 lakhs under the aforesaid head of claim by taking into account the
amount of work completed and the proportionate overhead. The award prima facie appears to be on the higher side going by the normal rule, yet,
in view of the restricted scope for interference in such matters, we are unable to accept the submission of the learned Additional Advocate
General, and therefore, the award on this head is sustainable.
The appellant however seems to be on a stronger footing so far as sub-head (iii) of Claim No. 1 is concerned. Under this sub-head, the
contractor claimed a sum of Rs. 89.25 lakhs on account of loss of business for six years at Rs. 15 lakhs per annum minus the amount mitigated.
Apparently, this claim is on account of the fact that the machinery belonging to the contractor had been taken over by the State. While deciding this
matter, it is necessary to consider Claim No. 3 made by the contractor. Such Claim relates to claim of Rs. 76,36,09,045 towards the value of
infrastructure and m aterials taken over by the State. In respect of this claim, the contention by the Department was to the effect that even though
the Department is liable to pay the value of the machinery, such value had to be determined with reference to the depreciated value as indicated by
the contractor in his own books of accounts. The right of the contractor to get the value, whether the market value fixed by the arbitrator or the
depreciated value as contended by the Department, is not in dispute. Learned Additional Advocate General has therefore contended that since the
value of the machinery as calculated on the date of seizure of the machinery is being paid, the Department cannot be asked to pay for the so called
user of the machinery. In other words, it is contended that since the Department is being asked to pay the value of the machinery, it must be taken
that the machinery vested with the Department and award of a further sum on account of the so called loss of business from the date of termination
of the contract till the date of reference is only a clever way of making the same claim in a different manner.
Learned counsel appearing for the respondent on the other hand has submitted that since the machinery was illegally taken over, the
Department is required to pay compensation for such illegal taking over and since the Department had used the machinery, they must pay for such
usage. It is further submitted that in case the machinery would not have been taken over by the Department, the contractor could have used the
machinery for some other work and similarly if the Department would not have taken over the machinery, they would have been forced to hire the
machinery from some other source and, therefore, in either case the compensation should be calculated for those six years.
In our opinion, the claim made by the contractor on this head and granted by the arbitrator can aptly be described as ingenious. There is no
dispute that the machinery had been taken over by the Department. There is also no dispute that the contractor has never asked for return of the
machinery. On the other hand, if the contractor claims the value of the machinery as on the date of the seizure, it would be obvious that the title to
the machinery would vest with the Government. It is to be emphasised once again that the contractor has claimed the value of the machinery as on
the date of inspection by the expert, which was soon after the seizure. In our opinion, since the contractor has claimed value of the machinery from
the date of seizure, it must be taken that the machinery vested with the Government. It is of course true that the Government was liable to pay the
amount immediately, but such amount was ascertained and awarded at a later date. However, it was always open to the contractor to claim
interest on the said value, if he has not done so. It may be his misfortune, but having claimed the value of the machinery on the date of seizure, he
cannot be heard to say that even thereafter he would be entitled to a further sum.
In this connection, it is also to be remembered that it is not the case of the contractor that he had other works to be performed and because of
the non-return of the machinery or non-payment, he could not undertake other work. In our opinion, the claim on Sub-head ( iii) is too remote and
since the contractor is entitled to the value of the machinery, he is not entitled to the amount claimed under subhead (iii) of Claim No. 1. To this
extent, the award of the arbitrator suffers from an error apparent on the face of the award, which is required to be set aside.
In this connection, the contention raised by the appellant relating to value may be considered. According to the learned counsel appearing for
the appellant, since in the books of accounts the value of the machinery had been shown, which was much lower figure, the arbitrator had
committed an illegality in awarding a sum of Rs. 76,36,090.45 towards the value of the infrastructure and the materials wrongfully seized by the
Department.
It is of course true that in the books of accounts much lower figure has been indicated towards the value of such machinery. However, the
Arbitrator, on the basis of the report of the expert regarding the market value of the machinery, has made the award. It cannot be said that the
value indicated in the books of accounts always reflects the market value of a property, and therefore, the award of the Arbitrator, by accepting
the report of the Expert/Commissioner, cannot be said to be vitiated by any error of law apparent on the face of the award. Out of the two
methods available, the arbitrator has chosen one method. Merely because of adopting such method an higher amount is payable to the contractor,
the same cannot be a ground to set aside the award.
Next question relates to awarding a sum of Rs. 15,83,784/- towards design fee under Claim No. 6. In the earlier award, no basis had been
indicated by the arbitrator. When the matter came before the learned single Judge, it was observed :-
....This claim has also been straightaway allowed by the learned arbitrator without any discussion or assigning any reason. The learned Addl.
Government Pleader argues that when the contractors have claimed damages under claim No. 1 for all the loss sustained by them on account of
the termination of the contract they are not entitled to claim design fees of Rs. 15 lakhs and odd separately and this will amount to double claim in
respect of the same cause of action and this is also an error apparent in the award of the learned arbitrator. But the learned counsel appearing for
the contractors contended that under Claim No. 1, the loss of profit alone is claimed, but under Claim No. 6, as the Department had utilised the
designs prepared by the contractors, the Department is bound to pay the design fee and therefore, this claim will not amount to double claim in
respect of the same cause of action. I feel that this stand taken by the contractors does not appear to be sound or acceptable. The designs
prepared by the contractors were approved by the Department and therefore, the contractors were bound to execute the work, according to this
design, approved by the Department. Now the learned arbitrator has held that for the illegal termination of the contract, the contractors are entitled
to claim the loss of profit which they would have earned, as if the contract was not terminated. Even, if those designs prepared by the contractors
were utilised in the execution of the work, the contractors would have earned only the profit. Now the profit which they would have earned, will be
awarded by the arbitrator after calculating the percentage of the profit in the unexecuted part of the work. Therefore, when the contractors are
going to receive the expected profit, they cannot claim the design fee also as it will amount to double benefit for the same work. Some how, this
aspect was not taken into consideration by the learned arbitrator and as the compensation which has been fixed under Claim No. 1 includes all the
losses sustained by the contractors, the award for a sum of Rs. 15,83,784/- to the contractors towards the design fee on the ground that the design
was utilised by the Department, is an error on the face of it. Therefore, the award on this claim also has to be set aside.
From the above discussion made by the learned single Judge it is apparent that the learned Judge came to the categorical conclusion, (and not
mere observation) that the contractor was expected to supply the design for the work and value of the design was already quoted in the lumpsum
value of the contract and since the contractor is entitled to get the compensation on account of termination of the contract, obviously, he cannot
claim any further amount towards the fee for design. The arbitrator, after fresh consideration, has came to the conclusion that the contractor had
paid Rs. 10 lakhs for the special design to M/s.Stupp Consultants and such amount was never contemplated in the original value of the work. The
Arbitrator further concluded that since the design supplied by the contractor was used by the subsequent contractor, the contractor is also entitled
to fee for that.
In course of hearing on this aspect, to a pointed query, the learned counsel for the respondent submitted that if the contractor would have
completed the work and would have been paid the entire amount, he could not have claimed any separate fee at the rate of 4% as the original
quotation included such amount.
Having regard to the facts and circumstances of the case, we feel that in view of the finding of the arbitrator, which obviously cannot be
interfered with, to the effect that Rs. 10 lakhs paid to M/s. Stupp Consultants was not a part of the original quotation and not a part of the original
contract, the contractor is entitled to such amount of Rs. 10 lakhs. However, since the contractor is being paid compensation for the illegal
termination of the contract, which also included the so called fee for the design, award for a sum of Rs. 5,83,784/- would amount to duplication,
and therefore, such part of the award cannot be sustained. Since this portion of the award is severable from other portion of the award directing
payment of Rs. 10 lakhs paid to M/s.Stupp Consultants, the award relating to this claim is required to be modified. In other words, in respect of
Claim No. 6, the contractor is entitled to a sum of Rs. 10 lakhs and the other portion of the award of the arbitrator directing payment of Rs.
5,83,784/- is not payable. To that extent, the award is required to be modified.
In view of the above discussion, the appeals preferred by the State are allowed in part. The award of the arbitrator in respect of Claim No.
1(iii) and award of Rs. 89.25 lakhs on that score is liable to be set aside. Similarly, out of the award of Rs. 15,83,784/-, relating to Claim NO. 6,
only a sum of Rs. 10,83,784/- is payable and the award is modified to that extent.
Next comes the question of cross objection filed by the contractor. Learned counsel for the respondent has submitted that the arbitrator had
awarded interest at the rate of 16.50% on the principal amount awarded by the arbitrator. On earlier occasion when the award was upheld in part,
the learned single Judge had also upheld the award of interest at the rate of 16.5% in respect of the claims then accepted, namely, Claim Nos. 2 &
In the present case, after the revised award was submitted in respect of Claim Nos. 1, 3 and 6, the learned single Judge, while upholding such
award in respect of Claim Nos. 1, 3 and 6, has illegally and without any justification reduced the amount of interest payable to 12%.
In the order of the learned single Judge, no special reason has been indicated as to why he has modified the award of the arbitrator on this
score. In the present case, after reaffirming the award relating to Claim Nos. 1, 3 and 6, the learned single Judge has simply observed :-
However, this Court has to differ with the arbitrator on the question of rate of interest as far as Claim Nos. 1, 3 and 6 by considering the amount of
compensation under various claims awarded by the arbitrator and also the other circumstances of the case by keeping the ends of justice in mind.
Accordingly, the rate of interest as far as Claim Nos. 1, 3 and 6 are concerned is modified at 12% per annum from 27.11.1986 to 31.5.1995.
From 1.6.1995 till the date of realisation, this Court has to pass the decree which includes the interest.
It is also interesting to observe that the learned single Judge also referred to Claim Nos. 2 and 5 and held that as the earlier award had not
been set aside, the contractor is entitled to draw the interest at the rate of 16.5% so far as claim Nos. 2 and 5 are concerned till 31.5.1995, the
date of present award. Thereafter in respect of Claim Nos. 2 and 5 the rate of interest would be at 12% per annum till the date of realisation.
A perusal of the aforesaid portion makes it clear that the contractor is entitled to get interest at the rate of 16.5% in respect of Claim Nos. 2
and 5 for the period from 27.11.1986 till 31.5.1995. However, the contractor as per the direction of the learned single Judge is entitled to 12%
per annum from 27.11.1986 to 31.5.1995 in respect of Claim Nos. 1, 3 and 6. It is also clear that in respect of all the claims, the contractor is
entitled to receive 12% from the date of judgment till the date of payment. The latter direction is obviously in accordance with Section 29 of the
Act. Such direction is obviously a matter of discretion, and therefore, the discretion of the learned single Judge in awarding 12% interest from the
date of the award till the date of realisation is not liable to be interfered with. However, there is no reason as to why the learned single Judge has
interfered with the award of interest at the rate of 16.5% in respect of Claim Nos. 1, 3 and 6 from the date of reference i.e., 27.11.1986, till
31.5.1995. To this extent, the cross objection filed by the respondent should be allowed and in modification of the order of the learned single
Judge it is directed that in respect of the amount now found payable in respect of Claim Nos. 1, 3 and 6, the respondent / contractor is entitled to
interest at the rate of 16.5% from 27.11.1986 till 31.5.1995, i.e., pendentlite interest, before the arbitrator.
So far as interest thereafter is concerned, the direction of the learned single Judge that the entire principal amount would carry interest at the rate of
12% from 1.6.1995 till the date of payment is however confirmed.
In the result, the appeals as well as the cross-objection are allowed in part to the extent indicated. Both the parties shall bear their own costs of
the present appeals.