Allowed

N.E.Abraham v. State of Kerala & Another

Kerala HC25 Feb 2016Arb.A/27/2007

Case brief

AI extract

What is this about?

The High Court allowed an arbitration appeal, holding that respondents failed to set aside a time-barded award under Section 33 of the Arbitration Act. It directed a decree in their favor but corrected the interest rate from 12% to 9% on the claimed amount.

What did the court decide?

The appellant is entitled to a decree for Rs.16,25,000 with interest at 9% per annum from 14.11.1994 till realization.

N.E.Abraham Vs State of Kerala & Another — Pension and Retirement Benefits | Kerala HC (2016)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT:

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THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR

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THE HONOURABLE MRS. JUSTICE MARY JOSEPH

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THURSDAY, THE 25TH DAY OF FEBRUARY 2016 / 6TH PHALGUNA, 1937

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Arb.A.No. 27 of 2007

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AGAINST THE JUDGMENT IN OP(A) 175/1994 of THE COURT OF PRINCIPAL SUB JUDGE,THIRUVANANTHAPURAM DATED 07-08-2006

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APPELLANT /CLAIMANT

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N.E.ABRAHAM, GOVERNMENT CONTRACTOR, NJATTUMKALAYIL HOUSE, KADAYIRIPPU, KOLENCHERRY.

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BY ADV.SRI.M.C.JOHN

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RESPONDENTS /RESPONDENTS:

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STATE OF KERALA REPRESENTED BY CHIEF SECRETARY, GOVERNMENT SECRETARIAT,, THIRUVANANTHAPURAM.

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THE SUPERINTENDING ENGINEER, KIP (LB) CIRCLE, KOTTARKKARA.

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BY SR.GOVERNMENT PLEADER SRI.K.K.SAIDALAVI

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THIS ARBITRATION APPEAL HAVING BEEN FINALLY HEARD ON 25-02-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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C.T.RAVIKUMAR & MARY JOSEPH, JJ.

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--------------------------------------------------Arbitration Appeal No.27 of 2007

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--------------------------------------------------- Dated this the 25^th day of February, 2016

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JUDGMENT

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C.T.Ravikumar, J.

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This is an appeal filed by the claimant in O.P. (A)No.175/1994 on the files of the Principal Sub-Court, Thiruvananthapuram, wherein an arbitration award passed in his favour was set aside. As per the impugned judgment, I.A.No.6626/96 for setting aside the award under Section 30 of the Arbitration Act and I.A.No.1566/98 for setting aside the award in the light of “Kerala Revocation of Arbitration Clauses and reopening of award Ordinance 1997” (hereinafter referred to as 'the Ordinance, 1997' for short), filed by the respondents were allowed.

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The various facts relevant for disposal of this appeal are as hereunder:-

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The appellant/claimant is a contractor and he was allotted a work in connection with the Kallada Irrigation Project as “KI&T.C.D.P.-LBC-Formation of Oyoor branch Canal from ch 7000m- constructing aqueducts (2 Nos) part I from ch10922-11269m including canal formation and lining.” Thereupon an agreement was executed on 27.03.1985 between himself and the Superintending Engineer KIP(LB) Circle, Kottarakkara. The appellant had agreed to do the work as per the agreement and the accepted PAC was Rs.22,17,934/-. The sanctioned estimated amount was Rs.26,67,704/-. The work was to be completed within 12 months from the date of handing over of the site and Selection Notice was issued on 26.03.1985. Though the work was to be completed on or before 27.03.1986 it was actually completed on 31.12.1987. As per the bill submitted by him, on completion of the work, the value of the work done was Rs.42,45,052/-. He received the said bill for the lesser amount under protest. Since certain disputes arose between the parties in terms of Clause 52 of the Local Competitive Bidding Specification (LCB), the matter was referred to the sole Arbitrator viz., one Sri.S.Unnikrishnan

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who was a retired Chief Engineer. In tune with the prescribed procedures the Arbitrator conducted the procedures and ultimately he passed an award on 14.11.1994. Going by the award, claims A, B, C and D were allowed and the other claims were rejected. The Arbitrator granted a sum of Rs.11 lakhs under claim A, Rs.4 lakhs under claim B, Rs.95,000/- under claim C and Rs.30,000/under claim D with 18% interest from the date of award till the date of realisation. However, a perusal of the award dated 14.11.1994 would reveal that the claim under the aforesaid heads were allowed with an interest at the rate of 12% only. Pursuant to the passing of the award, for the purpose of making it as a decree, the Arbitrator flied an application before the Court. The appellant herein filed O.P. (A) No.175/94 for passing a decree in terms of the award dated 14.11.1994. The respondents herein filed I.A.No.6626/96 for setting aside the award under Section 30 of the Arbitration Act and they have also filed I.A.No.1566/98 for setting aside the same award in the light of the Ordinance, 1997. Subsequently, the appellant/claimant filed another petition under Section 29 of the Arbitration Act read

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with Section 34 of the Code of Civil Procedure for getting interest at the rate of 24% per annum. He also filed objections to I.A.Nos.1566/98 and 6626/96. It was after considering the applications filed by the appellant herein as also the aforementioned petitions filed by the respondents for setting aside the award that the impugned judgment was passed. As per the impugned judgment, the award passed by the Arbitrator as a whole was set aside and the aforementioned interlocutory applications filed by the respondents were allowed. It is in the said circumstances that this appeal has been preferred by the claimant.

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We have heard Sri.M.C.John, the learned counsel for the appellant and Sri.K.K.Saidalavi, the learned Government Pleader.

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The learned counsel appearing for the appellant contended that though objections were filed by him in I.A.No.6626/96 filed by the respondents for setting aside the award, taking up the contention that it is barred by limitation, the said crucial aspect was not at all considered while passing the impugned judgment. It is submitted that a bare perusal of the impugned judgment would reveal that

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without considering the aforesaid crucial aspect the court below virtually, considered the petitions filed by the respondents for setting aside the award. True that, the court below found that the question of delay occurred in the matter of completion of the work was not virtually considered by the Arbitrator and the Arbitrator only found that there occurred some delay in the supply of materials. The court below found that the Arbitrator misconducted himself by travelling beyond the terms of the contract. Evidently, it was held that where a party to a contract commits breach the other party could withdraw from the same and ask the party who committed the breach for damages. Essentially, such an observation was made holding that there occurred delay on the part of the appellant/claimant in completing the work. On such consideration, the court below found that the award of the Arbitrator under Claim A is liable to be set aside and it was set aside. A scanning of the impugned judgment would reveal that assigning reasons the court below set aside the award under Claims A, B, C and D and ultimately set aside the award passed by the Arbitrator as a whole.

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The learned counsel for the appellant contended that the court below went wrong in considering the matters on merit without considering the crucial aspect as to whether the application for setting aside the award was filed beyond the period of limitation or not. It is the further submission that the question of considering whether a decree could be drawn in terms of the award ought to have been considered without considering the application for setting aside the award as it was passed beyond the period of limitation. In short, the contention of the learned counsel for the appellant is that the court below ought to have passed a decree in terms of the award, going by the provisions under Section 17 of the Arbitration Act. The learned counsel further submitted that a bare scanning of the impugned judgment would reveal that the court has not entered into the finding that there existed some cause to remit the award. It is submitted that in the light of the provisions under Section 17 of the Arbitration Act, if the court sees no cause to remit the award or any of the matters referred to arbitration it ought to have passed a decree in terms of the award. The further submission is that a perusal

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of Section 17 of the Arbitration Act would reveal that the question of setting aside the award would arise only if an application to set aside the award is filed within the time prescribed. If such an application has not been made within the time limit, going by Section 17 of the Arbitration Act, a decree in terms of the award could be passed. In short, the contention is that the question of setting aside of the award would arise only in a case where an application to set aside the award was preferred within the prescribed period of limitation. Needless to say that even if an application for setting aside the award is filed, the scope of consideration of such an application is only on the grounds specifically mentioned in Section 30 of the Arbitration Act.

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Per contra, the learned Government Pleader submitted that there is absolutely no reason to interfere with the judgment under challenge. It is submitted that the court below had considered all aspects of the matter and it is only upon finding that the Arbitrator had misconducted himself and existence of other permissible grounds to interfere with an award that the impugned judgment was passed setting aside the award. In short, according to the learned

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Government Pleader, no illegality could be attributed to the impugned judgment and it warrants no appellate interference.

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If an application for setting aside an award is filed, but at the same time if it was filed beyond the period of limitation, whether it could be entertained ? That question was considered by a Division Bench of this Court in State of Kerala v. Sivan Pillai reported in 1997(1) KLT 556 . Virtually, this Court rendered the judgment in Sivan 's case (supra) following the judgment of the Honourable Apex Court in Madan Lal v. Sunder Lal reported in AIR 1967 SC 1233 . Madan Lal's case was under the Arbitration Act, 1940. That was a case where the application for setting aside the award was filed with a petition to condone the delay under Section 5 of the Limitation Act. Essentially, the question that was considered by the Division Bench was that whether Section 5 of the Limitation Act is applicable in respect of an application filed to set aside an award under Section 33 of the Arbitration Act, 1940. Going by Article 119(b) of the Schedule to the Limitation Act, 1963, such an application for setting aside an award has to be filed within

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30 days from the date of service of the notice of the filing of the award. After considering the applicability of Section 5 of the Limitation Act in respect of such an application filed under Section 33 of the Arbitration Act to set aside an award it was held that Section 5 of the Limitation Act is inapplicable in respect of such an application and therefore the court got no jurisdiction to condone the delay in filing an application to set aside the award under Section 33 of the Arbitration Act. Evidently, as noticed hereinbefore, the Division Bench held thus in the light of the decision of the Honourable Apex Court in Madan Lal 's case (supra) . Evidently, the said position was restated by the Honourable Apex Court in a recent decision in Union of India v. Deepak Electric and Trading Company reported in AIR 2012 SC 41 . The Apex Court held that the starting point for limitation is the date of service of the notice of the filing of the award in court and the starting point is not a date of knowledge of filing of the award. The Apex Court held: It would be clear from Clause (b) of Article 119 of the Schedule to the Limitation Act, 1963 that an application for setting aside of an award has to be flied within 30 days from “the date of service of the notice of

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the filing of the award.” Thus, the starting point of limitation is the date of service of the notice of the filing of the award and not the date of knowledge of the filing of the award.”

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In the said decision the Apex Court virtually referred to its earlier decision in Deo Narain Choudhury v. Shree Narain Choudhury (( 2008) 8 SCC 626) . In the said circumstances, it is evident that the starting point for the purpose of filing an application for setting aside the award is 30 days from the date of service of the notice of the filing of the award and that the delay, if any occurred in filing such an application, could not be condoned by invoking the power under Section 5 of the Limitation Act. Therefore, the position is clear that filing of an application for setting aside the award beyond the period prescribed under Clause (b) of Article 119 of the Schedule to the Limitation Act got no impact on the application for passing of a decree in tune with the award. In other words, in such circumstances, the court has to draw a decree in tune with the mandate under Section 17 of the Arbitration Act. The question is whether in the absence of such an application the court could set aside an award on any of the grounds specified in Section 30 of

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the Arbitration Act ? It was that aspect which was mainly considered by the Honourable Apex Court in the decision in Madan Lal 's case (supra) . In paragraph 8 of the said decision the Hon'ble Apex Court held:-

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“5. Learned counsel for the appellant, however, urges that Section 17 gives power to the Court to set aside the award and that such power can be exercised even where an objection in the form of a written-statement has been made more than 30 days after the service of the notice of the filing of the award as the Court can do so suo motu. He relies in this connection on Hastimal Dalichand v. Hiralal Motichand AIR 1954 Bom 243 and Saha and Co. v. Isharsigh Kripalsingh AIR 1956 Cal 321 (FB) . Assuming that the Court has power to set aside the award suo motu, we are of the opinion that, that power cannot be exercised to set aside an award on grounds which fall under Section 30 of the Act, if taken in an objection petition filed more than 30 days after service of notice of filing of the award, for if that were so the limitation provided under Article 158 of the Limitation Act would be completely negatived. The two cases on which the appellant relies do not in our opinion support him. In Hastimals case, AIR 1954 Bom 243 , it was observed that “if the award directs a party to do an act which is prohibited by law or if it is otherwise patently illegal or void it would be open to the Court to consider this patent defect in the award suo motu, and when the Court acts suo motu no question of limitation prescribed by Article 158 can arise”. These observations only show that the

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Court can act suo motu in certain circumstances which do not fall within Section 30 of the Act.”

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It is therefore clear from the scheme of the Act

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that if a party wants an award to be set aside on any of the grounds mentioned in Section 30 of the Act, he must apply within 30 days from the date of service of the notice of the filing of the award as provided under Article 158 of the Limitation Act. If no such application is made, the award cannot be set aside on any of the grounds specified under Section 30 of the Arbitration Act. No special form is prescribed for making such an application and in an appropriate case an objection in the form of a written statement could be the basis for considering the question of setting aside an award if it is filed within the period of limitation. But, if such an objection has been filed after the period of limitation it cannot be treated as an application to set aside the award. Thus, it is clear that there is no statutory mandate that to set aside an award a separate petition under Section 33 of the Arbitration Act be filed and it could be filed by the respondent who desires setting aside of the award in the form of objection in the written statement,

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filed resisting the prayer for passing a decree in tune with the award. Evidently, if such an objection to the passing of a decree in tune with the award is made in a written statement such a written statement could be treated as a petition carrying the prayer for setting aside the award but to treat it so, the objection must be have been filed within the period of limitation. In this case, it is evident from the records that the appellant/claimant herein filed an application for passing a decree in tune with the award dated 14.11.1994, immediately after the passing of the award by the Arbitrator. The court proceedings would reveal that notices were issued in O.P.(A)No.175/94 before 30.01.1995. Evidently, no separate written statement has been filed in O.P.(A).No.175/94. The respondents filed a petition as I.A.No.6626/96 for setting aside the award only on 25.06.1996. Thus, it is evident that the application for setting aside the award was filed by the respondents in terms of the provisions under Section 33 of the Arbitration Act only much after the expiry of the period of limitation. It is, thus, obvious that the said application was filed for setting aside the award beyond the prescribed period

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virtually, after more than a year since the expiry of the period of limitation. Evidently, it was in the said situation that the appellant/claimant filed an objection in the aforementioned interlocutory applications. A mere perusal of the impugned judgment would reveal that, the objection was not at all considered by the court. In the light of the specific provisions under clause (b) of Article 119 of the Limitation Act and also in view of the decisions referred supra of this Court as also the Honourable Apex Court when the question of limitation was specifically raised by the appellant/claimant, the court below should have considered that aspect first as the question of considering the scope of interference with the award would essentially depend upon the outcome of such consideration. In other words, if it was found that the application for setting aside the award was filed beyond the period of limitation, it could not have been treated as an application to set aside the award and in such event, in the light of the aforesaid decisions the award should not have been set aside on any of the grounds specified under Section 30 of the Arbitration Act. In such circumstances, invoking the power under Section 17 of the

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Arbitration Act, the Court ought to have drawn decree in terms of the award. As noticed hereinbefore, it is discernible from the evidence on record that no written statement was filed in O.P.(A).175/1994 within the period of 30 days from the date of service of the notice of the filing of the award. So also, I.A.No.6626/96 was filed much after the expiry of the period of limitation. In such circumstances, in the light of the decisions referred supra the court could not have gone into the question whether the award is liable to be set aside under any of the grounds under Section 30 of the Arbitration Act.

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Still, another question survives for consideration is whether I.A.No.1566/96 could have been allowed by the court below. Essentially, that was an application filed under the provisions of the Ordinance 1997. True that, subsequently, the “Kerala Revocation of Arbitration Clauses and reopening of Awards Act, 1998 came into force and it was challenged before this Court. A Division Bench of this Court, in which one among us (C.T.Ravikumar, J.) was a member, considered that issue in James Varghese

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v. All Kerala Irrigation Projects Contractors

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Assosiation reported in 2013 (3) KLT 605 . This Court found that the “Kerala Revocation of Arbitration Clauses and reopening of Awards At, 1998 is unconstitutional and inoperative and it is repugnant to the provisions of the Arbitration and Conciliation Act. It is to be noted that much prior to the promulgation of the Ordinance in 1998, the award in this case was passed by the Arbitrator. To be precise, in this case, the Arbitrator passed the award as early as on 14.11.1994. The learned counsel for the appellant submitted that while considering the aforesaid question the decision of the Division Bench of this Court in Arbitration Appeal No.2/2012 dated 20.05.15 assumes relevance. The Arbitration appeal was preferred by a similarly situated contractor. The learned counsel submitted that Paragraph 65 in the said judgment would reveal that for resisting the appeal the learned Government Pleader raised the contention in the light of provisions under the Kerala Revocation of Arbitration Clauses and Reopening of Awards At, 1998 promulgated by the Government in relation to the Kallada Irrigation Project. Essentially, the contention was that going by Section 3 of the said Act the Arbitration

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clauses have been cancelled. The Division Bench took note of the fact that subsequently, in James Varghese 's case (supra) (in O.P.4206/1998 and connected cases) the Act was declared as unconstitutional by a Division Bench of this Court. The Division Bench also took note of the submission that subsequently a Special Leave Petition was moved as SLP No.8491/14 and connected matters and an interim order was passed thereon by the Honourable Apex Court. The Division Bench noted that the interim order is only to the effect that the State should not take any coercive steps against the respondents who had already been paid amounts due under various arbitrary awards. Obviously, this Court found that the pendency of the SLP would not stand in the way of the merits of the appeal. Needless to say that in the light of the position of law, as it now stands, the respondents cannot seek for setting aside the award in question in the light of the provisions under the “Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998” as the very Act itself was declared as unconstitutional and inoperative and repugnant to the provisions of the Arbitration and Conciliation Act by this

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Court. In the said circumstances, the said application was also liable to be dismissed.

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In the above circumstances, the conclusion of the discussion is that in the light of the indisputable facts obtained in this case I.A.Nos.1626/96 and 1566/98 filed by the respondents herein could not have been allowed by the court below. We have already found that in the light of the decision in Madan Lal 's case (supra) since the respondents have not filed any written statement carrying a prayer for setting aside the award within the period of limitation and that they had also failed to file a petition in tune with the provisions under Section 33 of the Act for setting aside the award within the period of limitation prescribed under Clause (b) of Article 119 of the Schedule to the Limitation Act, the court below should have drawn a decree in terms of the award in the light of the provisions under Section 17 of the Act. In other words, in the light of the decision in Madan Lal 's case (supra), in such circumstances, the court below could not have probed the matter further for the purpose of looking into the scope of setting aside the award under any

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of the grounds mentioned in Section 30 of the Arbitration Act. In such circumstances, in the light of our findings on the question of limitation the other question regarding the correctness or otherwise of the findings with respect to the merits of the judgment touching the claims under A, B, C and D need not be gone into as the court should not have gone into such aspects and interfered with the award and set it aside, in respect of such claims. In short, in such circumstances, the appellant is entitled to get a decree in respect of claims under A, B, C and D in terms of the award.

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At the same time, another question which arose for consideration is whether the Arbitrator is justified in granting interest at the rate of 12% per annum on all the amount due. That question was also considered by the Division Bench of this Court in Arb.A.2/2012. Evidently, that aspect was considered by the Division Bench in the light of the decisions in Aman Kumar and another v. Malla Reddy reported in 2010(4) KLT S.N.27 (Case No.31) and State of Rajasthan v. Ferro Concrete Construction Pvt. Ltd. reported in 2009 (12) SCC 1 . In Malla Reddy 's

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case (supra) an interest was awarded at the rate of 18% per annum under the Arbitration Act, 1940. It was held that it was an error appearing on the face of the award. In the light of the dictum laid down by the Honourable Apex Court in Ferro Concrete Construction Pvt. Ltd. 's case (supra) after referring the Interest Act, 1978, the Apex Court held that the pre-reference interest could be only at the rate of 9%. In the light of the decision in Malla Reddy 's case (supra) the Division Bench found that the pre-reference interest should be 9% and interest pendente lite should also be only at the rate of 9%. In the said circumstances, we interfere with the award to the extent it granted 12% interest of the amounts due under claims A, B, C and D and we make the interest payable at all those stages as 9%.

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Therefore, we allow the appeal and held that the appellant/claimant is entitled to realise a total amount of Rs.16,25,000/- (Rupees Sixteen lakhs and twenty five thousand only) (Rs.11 lakhs under the claim (A), Rs.4 lakhs under the claim (B), Rs.95,000/- under the claim (C) and Rs.30,000/- under the claim (D) with interest at the rate

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of 9% from 14.11.94 till realisation and a decree is passed accordingly. Party shall suffer their costs respectively in the appeal.

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Sd/- C.T.RAVIKUMAR, JUDGE

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Sd/- MARY JOSEPH, JUDGE

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N.E.Abraham v. State of Kerala & Another

Case brief

What is this about?

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N.E.Abraham v. State of Kerala & Another

Case brief

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