M.Shiva Rao Vs Union of India

IN THE HIGH COURT OF ORISSA AT CUTTACK

ARBA No.06 of 2006

In the matter of an Appeal under Section 39(vi) of the Arbitration Act, 1940 assailing the final award dated 31^st January, 1995 passed by the learned Arbitrator.

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M.Shiva Rao …. Appellant
-versus-
….
Union of India Respondents
Appeared in this case by Hybrid Arrangement
(Virtual/Physical Mode):
================================================
For Appellant - Mrs. Pami Rath, Sr.Advocate,
Mr. Prayasis Mohanty,
Advocate
For Respondents - Mr. D.R. Bhokta,
(Central Government Counsel).
CORAM:
MR. JUSTICE D.DASH

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Date of Hearing : 08.11.2023 :Date of Judgment: 22.01.2024

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D.Dash, J. The Appellant, by filing this Appeal under Section 39 (vi) of the Arbitration Act, 1940 (for short called as ‘the Arb. Act’) has prayed for setting aside the award published by the Arbitrator on 31.01.1995 seeking further direction for appointment of another Arbitrator to adjudicate the disputes between the parties.

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2. Facts necessary for the purpose of this Appeal are as under:-

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The Appellant (Claimant-Contractor) had entered into an agreement with the Union of India represented by the Executive Engineer, Postal Civil Division, Cuttack vide Agreement No.52-CDC of 1987-88 for the purpose of construction of Post Office Building and SPM’s quarter at Banta. Since the dispute arose between the parties and the claim of the Appellant (Claimant-Contractor) was not settled; the Appellant (Claimant-Contractor) invoked the arbitration for a decision on his claims. The Chief Engineer (Civil), Postal, New Delhi as per the agreement appointed Shri N.S. Chakrabatry as the sole Arbitrator. He resigned on 25.01.1991 and vacated the office. Thereafter Mr. J. Pal was appointed in his place as the sole Arbitrator. He proceeded with the reference from the stage where it had been left by the previous Arbitrator.

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The decision of the Arbitrator is in relation to eleven items of claim made by the Appellant (Claimant-Contractor) and two items of claim raised in the counter claim filed by the Respondent-Department. The Arbitrator has found Claim Nos.1, 3, 6 and 8 as not justified whereas the claim under Item Nos.2, 5 and 7 as also 9 in part as justified.

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Accordingly, the Arbitrator has awarded Rs.7,000/-, Rs.31,998/-, Rs.21,600/- and Rs.4,000/- on the above items of claim, the Appellant (Claimant-Contractor) had withdrawn item No.4 of the Claim. On the amount awarded under Item Nos.2, 7 and 9 (part) by the Arbitrator amounting to Rs.32,600/- interest @ 10% with effect from 28.07.1989 till payment has been allowed.

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3 . Dealing with the counter claim lodged by the Respondent-Department, two items have been held to be partly justified and accordingly has been directed the Appellant (Claimant-Contractor) to pay a sum of Rs.46,098/to the Respondent-Department after deducting the amount as has been awarded in his favour.

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4 . The Appellant (Claimant-Contractor) having filed application under section 30 and 33 of the Arb. Act for setting aside the award; the Respondent filed its counter. The Respondent-Department had also filed another application under sections 30 and 33 of the Arb. Act for setting aside the award wherein the Appellant (ClaimantContractor) had filed its counter.

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5 . The learned Civil Judge (Senior Division) has disposed of those applications by passing the following order:-

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“The Misc. Case No.413 of 1995 filed by the Petitioner-Claimant is dismissed against the

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Respondent-O.P. without cost. The Misc. Case No.431 of 1995 filed by the Petitioners Department is dismissed on contest against the O.P.-Claimant. Consequence upon dismissal of both the Misc. Cases, the suit is decreed and the award passed by the Arbitrator is made rule of the Court. The Plaintiff Claimant shall pay interest @ 6% per annum to the Respondent Department on the amount of Rs.46,098/- from the date of decree till the payment is made whichever is earlier. The Respondent Department is also liable to pay interest @ 6% per annum on the claim amount of Rs.32,600/- from the date of decree till date of payment whichever is earlier.”

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6 . This Appellant (Claimant-Contractor) having filed the present Appeal against that order of dismissal of his application; the Respondent, however, has not preferred any Appeal. There is also no such move before this Court by filing any Cross-Appeal or Cross-Objection from the side of the Respondent-Department.

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7 . Heard Mrs. Pami Rath, learned Senior Counsel on behalf of the Appellant and Mr.D.R. Bhokta, learned Central Government Counsel at length.

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Keeping in view the submission made, I have perused case record and more importantly, the award passed by the Arbitrator, the rival pleadings before the Court below in challenging the award and the impugned judgment

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rejecting the challenges to the award as advanced by the parties.

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8 . Before the Court below, the Appellant banking upon the provision contained under section 30 and 33 of the Arb. Act had raised the following objections to the award:-

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(i) that the subsequently engaged Arbitrator without calling for all the papers from the previous Arbitrator had made the adjudication in the matter and as such committed misconduct in the proceeding of the case;

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(ii) that the Arbitrator was required to settle the dispute and published the award within four months from the date of entering into the reference and that having not been adhered to, the award is without jurisdiction; and

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(iii) there are errors apparent on the face of the award and the award being without any reason clearly exposes the non-application of judicial mind.

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9 . The judgment impugned in this Appeal finds mention of all the above objections at paragraph-6 and each of the above objections have been addressed and ultimately, the conclusions arrived thereunder are not in favour of this Appellant (Claimant-Contractor).

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10 . The Hon’ble Supreme Court in M/s Alopi Parshad & Sons Ltd. Vs. Union of India (AIR 1960 SC 588) p lacing

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reliance upon the ratio in Champsey Bhara & Company vs Jivraj Balloo Spinning & Weaving Company Ltd. (AIR 1923 P.C. 66) observed that the award may be set aside on the ground of an error on the face thereof, when in the award or in any document incorporated with it, as for instance, a note appended by the Arbitrator(s) stating the reasons for the decision wherein the legal propositions which are the basis of the award are found to be erroneous. A specific question submitted to the Arbitrator for his decision, even if found answered wrongly involving an erroneous decision in point of law also, was considered not to make the award bad on its face so as to call for interference. While emphasising the position that misconduct in Section 30 (a) of the Act comprises legal misconduct, this Court held it to be complete in itself when the Arbitrator was found to have, on the face of the award, arrived at a decision by ignoring very material and relevant documents which throw abundant light on the controversy to help a just and fair decision or arrived at an inconsistent conclusion on his own finding (K.P Poulose vs State of Kerala & Anr. - AIR 1975 SC 1259 ). In M/s Chahal Engineering and Construction Company vs. Irrigation Deptartment., Punjab, Sirsa, (1993 (4) SCC 186 ), this Court held that the words is otherwise invalid in clause (c) of Section 30 of the Act would include an error apparent on

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the face of the record. In Trustees of the Port of Madras vs Engineering Constructions Corporation Ltd., (1995 (5) SCC 531 ) after adverting to the ratio of the Constitution Bench of this Court in Raipur Development Authority & Ors. vs M/s Chokhamal Contractors & others (1989 (2) SCC 721 ), this Court held that the error apparent on the face of the award contemplated by Section 16 (1) (c) and Section 30 (c) of the Act is an error of law apparent on the face of the award and not an error of fact and that the Arbitrator cannot ignore the law or misapply it in order to do what he thinks is just and reasonable. In The President, Union of India & Another vs Kalinga Construction Co. (P) Ltd. (AIR 1971 SC 1646), it was held that the Court, in a proceeding to set aside the award cannot exercise jurisdiction, as if on an appeal by reexamining and re-appraising the evidence considered by the Arbitrator and come to the decision that the Arbitrator was wrong (See also AIR 1989 SC 268; 1989 SC 777 and 1989 SC 890 ).

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11 . In Union of India vs. M/s Jain Associates & Another (1994) 4 SCC 665, the Hon’ble Supreme Court held as follows:-

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“7. In K.P. Poulose vs State of Kerala & Anr. [(1975) Supp. SCR 214)], this Court held that misconduct under Section 30(a) does not connote a moral lapse. It comprises of legal misconduct which is complete if the arbitrator, on the face of the award, arrives at an inconsistent conclusion even on his

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own finding, by ignoring material documents which would throw abundant light on the controversy and help in arriving at a just and fair decision. It is in this sense that the arbitrator has misconducted the proceedings in the case. In that case the omission to consider the material documents to resolve the controversy was held to suffer from manifest error apparent ex facie. The award was accordingly quashed. In Dandasi Sahu vs State of Orissa (1990 (1) SCC 214), this Court held that the arbitrator need not give any reasons. The award could be impeached only in limited circumstances as provided under Section 16 and 30 of the Act. If the award is disproportionately high having regard to the original claim made and the totality of the circumstances it would certainly be a case of non application of mind amounting to legal misconduct and it is not possible to set aside only invalid party while retaining the valid part. In other words the doctrine of severability was held inapplicable in such a situation. It is, therefore, clear that the word misconduct in Section 30(a) does not necessarily comprehend or include misconduct of fraudulent or improper conduct or moral lapse but does comprehend and include actions on the part of the arbitrator, which on the face of the award, are opposed to all rational and reasonable principles resulting in excessive award or unjust result or the like circumstances which tend to show non application of the mind to the material facts placed before the arbitrator or umpire. In truth it points to fact that the arbitrator or umpire had not applied his mind and not adjudicated upon the matter, although the award professes to determine them. Such situation would amount to misconduct. In other words, if the arbitrator or umpire is found to have not applied his mind to the matters in

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controversy and yet, has adjudicated upon those matters in law, there can be no adjudication made on them. The arbitrator/umpire may not be guilty of any act which can possibly be construed as indicative or partiality or unfairness. Misconduct is often used, in a technical sense denoting irregularity and not guilt of any moral turpitude, that is, in the sense of non-application of the mind to the relevant aspects of the dispute in its adjudication. In K.V. George vs Secretary to Government, Water & Power Department, Trivandrum & Anr. [(1989) 4 SCC 595], this Court held that the arbitrator had committed misconduct in the proceedings by making an award without adjudicating the counter claim made by the respondent. In Indian Oil Corporation Ltd. vs Amritsar Gas Service and Ors. [(1991) 1 SCC 533 & 544], the counter claim was rejected on the ground of delay and non consideration of the claim, it was held, constituted an error on the face of the award”.

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12 . It is also, by now, well settled that an Arbitrator is not a conciliator and his duty is to decide the disputes submitted to him according to the legal rights of the parties and not according to what he may consider it to be fair and reasonable. Arbitrator was held not entitled to ignore the law or misapply it and cannot also act arbitrarily, irrationally, capriciously or independently of the contract (See 1999 (9) SCC 283 : Rajasthan State Mines and Minerals Ltd. vs Eastern Engineering Enterprises & Anr.). If there are two equally possible or plausible views or interpretations, it was considered to be legitimate for the Arbitrator to accept

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one or the other of the available interpretations. It would be difficult for the Courts to either exhaustively define the word misconduct or likewise enumerate the line of cases in which alone interference either could or could not be made. Courts of Law have a duty and obligation in order to maintain purity of standards and preserve full faith and credit as well as to inspire confidence in alternate dispute redressal method of Arbitration, when on the face of the Award it is shown to be based upon a proposition of law which is unsound or findings recorded which are absurd or so unreasonable and irrational that no reasonable or right thinking person or authority could have reasonably come to such a conclusion on the basis of the materials on record or the governing position of law to interfere. So far as the case before us is concerned, the reference to the Arbitrator is found to be a general reference to adjudicate upon the disputes relating to the alleged termination of the agreement by the State and not a specific reference on any particular question and consequently, if it is shown or substantiated to be erroneous on the face of it, the award must be set aside.

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13 . The Award under challenge, would stand vitiated on account of serious errors of law, apparent on the face of it and such infirmities going to show that not only the Arbitrator acted arbitrarily and irrationally on a perverse

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understanding or misreading of the materials but also found to have misdirected himself on the vital issues before him so as to render the award to be one in utter disregard of law and the precedents. Although the award purports to determine the claims of parties, if on careful scrutiny the same discloses total non-application of mind to the actual, relevant and vital aspects and issues in their proper perspective, that stands a ground if it is seen that had there been such a prudent and judicious approach, the Arbitrator could not have awarded any damage whatsoever on mere conjectures and pure hypothetical exercises, absolutely divorced from rationality and realities, inevitably making law, equity and justice, in the process, a casualty.

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14 . In the light of all the aforesaid, now the objections raised by the Appellant are to be considered as to whether those successfully stand to the legal tests as above to thwart the award which in turn would decide the sustainability of the judgment impugned in this Appeal.

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15 . The first challenge is to the non-availability of all the papers before the Arbitrator subsequently appointed which were with the previous Arbitrator.

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It is not in dispute that the first Arbitrator in the given case having resigned and vacated the office, the second Arbitrator has finally took over and passed the award. The

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subsequently appointed Arbitrator appears to have given intimation to the parties in his letter dated 24.10.1991 clearly intimating them that the entire records of the Arbitration Proceeding from the previous Arbitrator has been transferred to him and to this there has been no objection or demur from the side of the Appellant (Claimant-Contractor) at any given point of time during the Arbitral proceeding before the subsequent Arbitrator. It is also not specifically stated that the Appellant (Claimant-Contractor) for nonavailability any such relevant paper/s has been prejudiced being not able to provide support to his claim or in thwarting the counter-claim.

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The subsequently appointed Arbitrator took up the proceeding from the stage where it had been left by the previous Arbitrator. The award reveals that he has considered all the documents filed by the parties in deciding the claim and counter claim advanced by the parties. There is no specific allegation as regards non-consideration of a particular document or documents which being so material and relevant that either their non-consideration or improper consideration has impacted the award. Thus I find that the Courts below has rightly negated that limb of the objection.

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The next limb of objection as to the delayed passing of the award, the Court below appears to have relied upon

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Clause-25 of the agreement which permits the Arbitrator with the consent of the parties to enlarge the time for making and publishing the award. The record does not reveal that the Appellant (Claimant-Contractor) had ever objected to such progress of the Arbitral proceeding beyond the period prescribed. Therefore, when section 3 of the Arb. Act provides that an arbitration agreement unless a different intention is expressed therein shall be deemed to include the provision set out in the first schedule in so far as they are applicable to the reference, the extension of time for making and publishing the award cannot be found fault with and the award passed during the extended period cannot be turned down on that ground.

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16 . Coming to the main objection as to the nonapplication of judicial mind by the Arbitrator in disallowing the claim of the Appellant (Claimant-Contractor) under Item No.1 and allowing the claim under Item No.5 in part which amounts to misconduct, let us first of all take note of the settled legal principles.

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17 . It is the settled position of law that the Arbitrator being a creature of the agreement must operate within the four corners of the agreement and cannot travel beyond it. The provision of law does not empower the Arbitrator to act arbitrarily or capriciously. His existence depends upon the

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agreement and his function is to act within the limits of the said agreement.

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The Arbitrator derives its Authority from the contract and if he acts in manifest disregard of the contract, the award given by him would be an arbitrary one. The deliberate departure from the contracts must not only amount manifest disregard of the Authority or misconduct on its part but it should also tantamount to mala fide action.

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18 . In the touchstone of the above settled position of law when the award is carefully gone through and the judgment of the court below is perused and trekked as to how the said limb of objection has been so addressed, this Court finds that each of the item of the claim raised by the Appellant (Claimant-Contractor) has been dealt by the Arbitrator within the four corners of the agreement and in doing so, the Arbitrator is found to have not at all travelled beyond the agreement, exceeding the limit.

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In respect of Item No.1 of the claim, the vouchers were not relied upon by giving good reasons and in respect of claim on Item No.2, taking the materials available, the Arbitrator appears to have found the RespondentDepartment to compensate the loos/damages suffered by the Appellant (Claimant-Contractor) for such delay in execution and closure of the contract without completion of

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work, has quantified the same at Rs.7,000/- which cannot be said to be an error apparent on the face of the record. Similarly, in respect of the other claims, the Arbitrator, as it appears assigning very good reasons culling out those from the materials available before it has recorded the conclusions. This Court, therefore, finds no justifiable reason/ground to interfere with the impugned judgment passed by the learned Civil Judge (Sr. Division), Bhubaneswar whereunder the award of the Arbitrator has been made rule of the Court.

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19 . In the result, the Appeal stands dismissed. There shall, however, no order as to cost.

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Himansu

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(D. Dash), Judge.

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Signature Not Verified

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Digitally Signed Signed by: HIMANSU SEKHAR DASH Reason: Authentication Location: OHC Date: 30-Jan-2024 16:00:49

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