AI Structured Summary
Not yet generated for this judgment
Judgment
Alladi Kuppuswami, J.—In all these appeals, the appellant is the State of Andhra Pradesh and the respondent is a firm of Engineers and Contractors. They were entrusted with works relating to construction of food-grains godowns at Karimnagar. In connection with that contract disputes arose between the contractors and the Government. The contractors filed O.P. 209/71 on the file of the Chief Judge, City Civil Court, Hyderabad for the appointment of an Arbitrator to adjudicate the disputes between them and the Government. Sri P.T. Malla Reddy, retired Chief Engineer was appointed as Arbitrator. He passed an award dt. 12-4-1972 and informed the parties of the award by his notice of the same date. On 13th April, 1972 he delivered the stamped award to the contractors to be filed into court. The contractors thereupon filed O.S. 49/72 on the file of the Chief Judge, City Civil Court, Hyderabad, praying that the award passed by the Arbitrator may be made a rule of court. The Government in its turn filed O.P. No. 237/7 praying that the award passed by the arbitrator may be set aside In that petition several objections were raised to the award. It is necessary however to refer only to some of them in connection with these appeals. It was the case of the contractors that certain amounts were wrongfully recovered from them. In respect of such wrongful recoveries, they claimed interest at 12 percent p. a. from the date of recoveries. This was item (d) of the General claims in the claim put forth by the contractors before arbitrator. The arbitrator accepted the contention of the contractor, and granted interest. The Government objected to the award of interest. The learned Chief Judge however, held that the arbitrator acted in excess of jurisdiction in awarding this interest and set aside this part of the award. Another contention that was raised by the contractors before the arbitrator was that they had to make extra payment and incurred extra expenditure due to the increase in the market rate for material, labour etc. due to the delay caused by the department. They claimed a sum of Rs. 46,954-50 under this head. In his award the arbitrator awarded a sum of Rs. 17,200 under this head. This formed item 4 of part II of the claim. This was also objected to by the Government. The learned Chief Judge City Civil Court held that this part of the award was also in excess of the jurisdiction of the arbitrator as neither the agreement nor MDSS provides for the payment of increase in market rates for material, labour etc. due to the delays caused by the department. He therefore, set aside the award with regard to item 4 of part II also.
Regarding items 5, 18 of part 1B and items 2, 3, 5 and 6 of part II of the claim it was contended by the Government that the evidence of one Radhakrishna Murthy. Assistant Engineer was relevant and the arbitrator failed to give reasonable opportunity to examine him inspite of written request by their letter dt. 27-2-1972 and hence the award was illegal and opposed to the principles of natural justice. This contention was accepted and the court below set aside the award in regard to these items and remitted the dispute relating to the above items back to the arbitrator for giving a fresh award after examining the Assistant Engineer, Radhakrishna Murthy. In respect of the other items of the award he directed that the award should be made a rule of court and the suit of the contractors to make it a rule of court was decreed to that extent and the petition filed by the Government to set aside the award was dismissed.
The Government preferred C.M.A. No. 190 and 191 of 1973 against the judgement of the learned Chief Judge. Though the appeals relate to the same matter, two appeals had to be preferred. One against the decree in the suit and another against the order in the petition to set aside the award. The contractors preferred cross objections in each of the appeals in so far as the learned Chief Judge, City Civil Court, held against them.
While the appeals were pending the arbitrator in pursuance of the direction of the learned Chief Judge regarding that part of the award which was remitted for re-consideration gave an opportunity to the Assistant Engineer Radhakrishna Murthy to give evidence and passed a fresh award on 31-3-1973. He issued notice dt. 2-4-1973 and also sent a letter dt. 3-4-1973 authorising the contractors to file the original stamped award into court. Accordingly the contractors filed the suit O.S. 117/74. Chief Judge, City Civil Court, Hyderabad enclosing the stamped award and prayed for making the award a rule of court. The Government filed O.P. 404/73 praying that the court my set aside the award. The learned Chief Judge held that as the petition to set aside the award was filed on 23-6-1973 more than 30 days after receiving the notice of filing of the award, it was barred by limitation and therefore, not maintainable. Hence the award could not be set aside. In the result, he decreed the suit filed by the contractors and made the award a rule of court and dismissed the petition to set aside award.
As against the said judgement the Government has filed C.M.A. No. 65 and 74/74, one against the decree making the award a rule of court and another against the order refusing to set aside the award.
In regard to C.M.A. No. 190 and 191/73 a preliminary objection is raised by the respondents that the appeals are not maintainable in so far as they are against that part of the order remitting the award. This objection has to be upheld. Under Sec. 39 of the Arbitration Act, an appeal lies only from the orders referred to in that section and no others. The order remitting an award is not one of the orders referred to in that section. In Iftikhar Ahmed and Others Vs. Syed Meharban Ali and Others, it was observed that no appeal lies from an order remitting an award to the arbitrator under Sec. 16 of the Arbitration Act. To the same effect is the decision in R.T. Perumal v. John Deavin AIR 1960 Mad. 48.
It has however been held that even though an appeal does not lie against an order remitting an award, where a revised award is made in pursuance of that order, that award can be set aside on the ground that the order remitting the award was contrary to law and the provisions of the Arbitration Act including Sec. 16 of the Act. In this case, the two appeals that were filed against the order of the court below making the revised award a rule of court and refusing to set aside the award are C.M.A. Nos. 65 and 74 of 1975 and it is open to the appellants to question the earlier order remitting the award in the proceedings relating to the revised award as well as in the appeals preferred against the order making the revised award a rule of court and refusing to set aside the same.
The learned Government Pleader submitted that the court below acted illegally in remitting the award even on the first occasion. It is submitted in the view the learned Chief Judge took, namely that the arbitrator was guilty of misconduct for not having given an opportunity to the Government to examine Radhakrishna Murthy the court ought to have set aside the award and not remitted the award. He further submitted that having held that the award is liable to be set aside in so far as it related to item 4 of part 11 and clause (d) of the general claims and items 3 and 4 of part III, the Arbitrator ought to have set aside the award as a whole. He acted illegally in making the award a rule of court in part, setting aside the award in part and remitting the award in part. He further submitted that the finding of the court below that no opportunity was given to the Government to examine Radhakrishna Murthy amounted to a finding that the principles of natural justice have been violated and therefore the award was a nullity and hence it ought to have been set aside as a whole and the Arbitrator was not justified in remitting that part of the award.
Section 30 of the Arbitration Act provides that an award shall not set aside except on one or more of the grounds mentioned in that section. The ground relevant for the purpose of this case is that mentioned in clause (a), namely, that an arbitrator or umpire has misconducted himself or the Proceedings. Under Sec. 16 of the Act the court is empowered from time to time to remit the award or any matter referred to arbitratration to the arbitrators or umpire for reconsideration upon such terms as it thinks fit for the reasons mentioned in clauses (a) to (c) of that section. The only clause relevant for the purpose of this case is clause (c), namely.
Where an objection to the legality of the award is apparent upon the face of it.
It is argued by the learned Government Pleader that as the court has held that an arbitrator has misconducted himself in not allowing the Government to examine Radhakrishna Murthy it was bound to set aside the award under sec. 30 of the Act. Misconduct is not one of the grounds mentioned in sec. 16 and therefore it could not remit the award under sec. 16. He drew our attention to the decision AIR 1944 76 (Privy Council) where it was held that section 16 specified three sorts of defects which may necessitate reconsideration of an award and empowers the court to remit the defective award in the cases specified and in no others to the arbitrator or umpire and if the award is remitted on any other around, the order would be invalid. This decision was followed in Vengu Ayyar v. Yegyan Ayyar AIR 1951 Mad. 415. In our view however, the present case comes within sub-clause (c) of sec. 16 (1). If the award is passed without giving an opportunity to examine an essential witness, the award would be one where the objection to the legality of the award is apparent on the face of it. Hence, the order remitting the award would fall within the court''s powers under Sec. 16 (1) (c) of the Act.
It is true that refusal to examine a material witness would also amount to legal misconduct and it would have open to the court to set aside the award under sec. 30, but it is not obligatory on the part of the court to do so. All that Sec. 30 says is that no award can be set aside except on the grounds mentioned in sec. 30. But it does not follow that whenever the grounds mention in sec. 30 are present the court is bound to set aside the award even though it is also open to the court to remit the award under sec. 16. The provisions in section 30 (a) and the provisions in sec. 16 (c) overlap to a certain extent. Normally, if the arbitrator is guilty of misconduct only in a legal sense, i.e. for instance, where the arbitrator in making the award was not actuated by bias, ill-will or dishonesty and the circumstances are such that the court justified in still entrusting the making of the award to the arbitrator, the proper course, in our view, is to remit the award if the conditions of section 16 are satisfied and not to set it aside under sec. 30. In Crompton & Co. Ltd. and Mohanlal arbitration between 41 ILR Cal. 313 it was held that where an award was set aside on the grounds of the legal (as distinguished from moral) misconduct of the arbitrator, the court had the power to remit the award to the arbitrator for reconsideration. It was observed in that case that there was no question of moral misconduct and that there was no suggestion that the arbitrator was corrupt or partial in any way. The contention that in the case of misconduct the court had no power to remit the award was rejected and it was held that even in such a case the court had the power to remit the award and it would be entirely right in the circumstances of the case to remit the award for further consideration.
As pointed out in Russel on Arbitration the power to remit and the power to set aside are both discretionary. In exercising its discrection as to whether to set aside or remit an award the court should have regard to the circumstances of the particular case as a whole. In the case of misconduct on the part of the arbitrator, if the misconduct is of such a kind e.g. fraud as will justify removal of the arbitrator, the court will set aside the award rather than remit it. Setting aside would appear to be the correct remedy in a case where justice demands it, for example where the arbitrator might appear to be prejudiced, or where the arbitrator might not approach the question with a fresh mind, or in other appropriate circumstances. If however the misconduct is not such as to disqualify the arbitrator or umpire from acting or to make it impossible for the court trust him, the court in its discretion may remit the award rather than set it aside. Hearing witnesses or consulting documents in the absence of the parties, awarding a lump sum for his own costs and other expenses so as to deprive the parties of their right to challenge his charges, failure to exercise all his powers to improperly exercising a discretion is such misconduct, if coupled, with a complete absence of dishonest motive, as will justify the court in remitting the award instead of setting it aside. The decision of the court will not be interfered with on appeal unless the discretion has clearly been missued. (Vide Russel on Arbitration, 18th edition p. 358 etc.).
In Halsbury''s Laws of England (4th edn. paragraph 617) also it is pointed out that in most of the cases where the court may remit an award, the court also has power to set the award aside. However, the question whether in any particular case the award will be remitted or set aside depends on the circumstances. Where there has been an error of law on the face of the award, remission is frequently granted. In the case of the arbitrator''s admitted mistake remission is the normal remedy. In the case of misconduct the appropriate remedy depends on the nature of the misconduct and of the surrounding circumstances.
In this case the court below held that opportunity was not given to the Government to examine one essential witness. There was no fear of any bias or dishonesty or other circumstances which would disqualify the arbitrator from hearing the matter again. Therefore, even though the non examination of the witness amounted to legal misconduct, we are of the view that the court below properly exercised its discretion in remitting the award.
The next submission is that the court had no jurisdiction to remit the award in part. Reliance was placed upon the decision in State of U.P. Vs. Reishma Devi and Others, where it was held that there can be no remittance of a part of the award under sec. 16. It was observed that it is clear from sec. 17 that the question of confirmation of the award and pronouncement of judgment according to the award arises only where the court see no cause to remit the award or to set aside the award and the time for making an application to set aside the award has expired. When these stages have passed, the court has no option but to pronounce judgment according to the award. That being the scheme of section 17, it does not contemplate that the court will confirm part of the award and remit the rest of the award. It is however, seen from section 16 that it is open to the court not only to remit the award from time to time but any maker referred to arbitration to the arbitrators for reconsideration. In our view it was therefore, open to the court to direct the arbitrator to reconsider the particular items of the claim after giving an opportunity to examine the witnesses whose evidence was essential in regard to the claim relating to those items. In Mehta Teja Singh & Co. v. Fertilizer Corpn. of India AIR 1968 Del. 188 it was held that the order under sec. 16 may be made on such terms as the court thinks fit. Under the powers conferred under this section the court can validity remit back to the arbitrator one or more matters referred to arbitration and it is not necessary in law to remit back the entire award The order, therefore, remitting a part of the award cannot be held to be tainted. We are in agreement with this decision. See also Bapuji Dhanaji Thakare and Another Vs. Ganpatrao Anyaji Gawande,
In Russel on Arbitration (8th edition p. 399) it is stated that an award had bad in part may be good for the rest. If, notwithstanding that some portion of the award is clearly void, the remaining part contains a final and certain determination of every question submitted, the valid portion may be maintainable as the award, the void part being rejected. An award may be remitted for a partial rehearing. If the arbitrator has exceeded his authority as to part of the award only, and the bad part is clearly separable from the rest of the award, and does not affect the good part, the good part may be allowed to stand. The bad portion however, must be clearly separable in its nature in order that the award may be good for the residue. When it is so divisible, the faulty direction will alone be set aside or treated as nullity.
In Halsbury''s laws of England (4th edn. Vol. 12, paragraph 618) it is also stated the whole or only a part of an award may be remitted, in the former case the award to remitted is of no effect, in the latter only that portion of the award which is remitted is avoided, and the reminder is valid and enforceable. The learned Government Pleader submitted that the English authorities are not applicable to cases arising out of the Indian Arbitration Act, as under Sec. 22 of the English Arbitration Act, 1950 the court is empowered to remit the matters referred to or any of them for reconsideration of the arbitrator or umpire from time to time, whereas the wording of sec. 16 of the Indian Arbitration Act is different. As we have already observed even under sec. 16 the court is empowered not only to remit the award, but any matter referred to arbitration to the arbitrators and we are therefore, of the view that the principles laid down in the above leading English Text Books on Arbitration are equally applicable to cases arising under the Indian Arbitration Act. In our view the Court should be more readily inclined to remit an award in part where it finds that only a particular portion of the award which is severable is bad, instead of setting aside it as a whole, as it is in the best interests of the parties to see that the arbitration proceedings which have already taken place at considerable expense to the parties are not made totally ineffective and are continued as far as possible.
It is finally contended that as the court has held that no opportunity was given to the Government to examine a material witness, principles of natural justice are violated and hence the entire award is a nulity and has to be set aside as a whole. We have no hesitation in rejecting this contention. The non-examination of a particular witness had relevance only with regard to a few items of the claim and the court therefore, rightly directed the arbitrator to give an opportunity to the Government to examine the witness and make an award. It cannot be said that the entire award is a nullity because once witness, whose evidence is material with regard to few items was not examined.
For all these reasons we are of the view that there is no substance in the contention that the order in so far as it remitted the award for reconsideration of the claim relating to certain items after examining the witness, Radhakrishnamurthy is in any way illegal.
No arguments were addressed with regard to that part of the order of the court below which made the award a rule of court.
We have now to consider the appeals against the order making the revised award a rule of court and refusing to set aside the award. In this case, the revised award was matte in 31-3-1973 and notice of the award was given on 2-4-1973 and served on the parties on 3-4-1973. The contractors applied to the court below to make the award a rule of court within the time prescribed. Government did not file any objections within 30 days, but filed a petition to set aside the award on 23rd June, 1973. The court below held that under Art. 158 of the Limitation Act (Art. 119 (b) of the new Act) the party who desires an award to be set aside must apply within 30 days of the date of service of the notice. In the case, the application was not filed within 30 days and the application filed on 23-6-53 was dearly barred by limitation. The application to set aside the award was therefore rightly dismissed and as a consequence the award was made a rule of court. In Madan Lal Vs. Sunderlal and Another, t was held that if a party wants an award to be set aside it must apply within thirty days of the date of service of notice of the filing of the award as provided in the Limitation Act. If no such application is made the award cannot be set aside on any of the grounds specified in sec. 30 of the Act. There is no special from prescribed for making such an application and in appropriate case an objection to an award in the nature of a written statement may be treated as such an application, if it is filed within the period of limitation. But if an objection like this has been filed after the period of limitation it cannot be treated as an application to set aside the award, for if it is so treated it will be barred by limitation. In this case the application having been filed more than 30 days after service of notice of the filing of the award, the court below was right in dismissing the application and making the award a rule of court.
In the result all the C.M.As. have to be dismissed.
The contractors have filed memorandum of cross-objections in C.M.A. Nos. 190 and 191/73. It was contended that if the C.M.A. against an order remitting the award is not maintainable as has been held by us, then the respondent is not entitled to prefer cross-objections. This argument would have had considerable force if the appeal was only against that part of the order remitting the award. The learned Judge had also refused to set aside the award with regard to several items of claim and had made the order a rule of court. The appeal of the Government was directed against this part of the judgment of the court below and was maintainable to this extent. Therefore, there is no substance in the contention that the cross-objections will not be maintainable. In any event the contractors have filed C.M.P. No. 10422/74 in C.M.A. No. 190 of 1972 praying for permission to convert the cross-objection into an appeal. We consider that in the circumstances of the case it is just and proper this petition should be ordered as the petitioners have paid the full court fee on the cross-objections.
The cross-objections relate to two items, one in regard to the claim for interest on the amount wrongfully recovered and secondly in regard to the claim for increase in market rates, cost of labour etc, by reason of delay on the part the Government.
The claim of the contractors for compensation on account of the incease in the market rate of materials etc. which was allowed to the extent of Rs. 17,200/- by the arbitrator was considered by the court below in paragraphs 18 of it judgement. The arbitrator had awarded the sum to compensate for the increase in the market rates for materials labour, etc., due to the delays caused by the Department. The court below held that the award was in excess of the arbitrator''s jurisdiction to this extent as neither the agreement nor M.D.S.S. provide for the payment of increase in the market rates due to the delays caused by the department. The court below therefore set aside this part of the award. We agree with the contention of the learned counsel for the contractors that the court below was wrong in holding that the arbitrator acted in excess of his jurisdiction in awarding compensation for the increase in the rates. The court below erred in thinking that he was precluded from doing so because the agreement or the M.D.S.S. did not provide for such payment. When a party to a contract is compelled to spend more for the contract by way of increase in the market rate of material and labour due to no fault on his part, but due to the delay on the part of the department he is entitled to ask for compensation. The question is not whether the agreement or the M.D.S.S. provide for such payment, but whether they contain any provision precluding the party from asking for such compensation. As long as there is no provision in the agreement or M.D.S.S. which prohibits the payment of compensation to the aggrieved contractor there is no warrant for holding that the arbitrator acted in excess of his jurisdiction in awarding compensation. The judgment and the decree of the court below in so far as this amount is concerned has to be set aside and the cross-objections are allowed to this extent.
The next item in the cross-objections is the claim for interest for recoveries wrongfully made by the department from the bills of the contractors. This claim was allowed to the extent of Rs. 22,776 by the arbitrator. This was set aside by the court below on two grounds. Firstly, that under clause 69 of M.D.S.S. there is a prohibition against the payment of interest Secondly, the court observed that there was no material to show as to whether this question was referred to the arbitrator and it does not appear as to what was the amount that the arbitrator decided as wrongfully recovered. The second ground given by the court below does not appear to be correct. In the claim, interest at 12 per cent from the date of recoveries of all the amounts wrongfully recovered by the Government from the bills was claimed. Hence it cannot be said that the dispute was not referred to the arbitrator. The arbitrator also dealt with this dispute and awarded Rs. 28,776. We are however, inclined to agree with the first ground given by the court below in negativing the claim for interest, Under clause 69 of M.D.S.S. which has to treated as part of the contract, it is provided ''nor shall the contractor be entitled to interest upon any guarantee fund of payments in arrear, nor upon any balance which may, on the final settlement of his accounts, be found to be due to him. Even if it is assumed that the recoveries from the bills were wrongfully made such sums would be sums which would be found due to the contractors on the final settlement of accounts. Hence we agree with the contention of the Government that the contractors are not entitled to claim interest.
Sri N.V.B. Shanker Rao, drew our alternation to the decision in Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., where it was held that if is open to the arbitrator to award interest subsequent to the passing of the award till date of decree. This decision was followed in State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., where it was held that in cases where all the disputes including a claim for payment of the amount with interest is referred to the arbitrator, the arbitrator can award interest during the pendency of the arbitration proceedings. In this case, however, the claim for interest is from the date of the recoveries Such claim must be considered only with reference to the terms of the agreement and in our view clause 69 of M.D.S.S. precludes the party from claiming interest, on any amount due from the Government on taking of account of which they are in arrears. We do not see how the decisions relied on are of any assistance to the cross-objector.
Lastly, it was contended that the court below was wrong in not awarding interest from the date of the decree. We agree that the contractors are entitled to interest from the date of the decree as claimed by them in the cross objections.
The cross-objections are allowed to the extent indicated above.
The cross objectors will get half their costs in the cross-objections.
C.M.A. 190/73 and 65/75 are dismissed with costs. C.M.A. No. 191/73 and 74/75 are dismissed, but without costs.