The arbitrator has awarded 10% of the profit on the incomplete work in all these three contracts, and this is alleged to be a bias on the part of the arbitrator. In M/s. A.T. Brijpal Singh & Bros. v. State of Gujarat MANU/SC/0081/1984 : AIR1984SC1703 , the Supreme Court has held that in a works contract, when there was breach of contract on account of which the contractor could not complete the work, he is entitled to claim damages on the basis of the expected profit on the balance of the in-completed work. In that case, 15% of the value of the balance of the work, was awarded as damages. So, when the contract of the second respondent herein was illegally terminated before the completion of the work certainly the contractor is entitled to claim damages on the basis of the expected profit in the unfinished work. When such a right is available to the contractor under law and the quantum fixed by the arbitrator is only 10%, which according to the arbitrator is a reasonable compensation, the Court cannot, set aside this finding of the arbitrator as illegal or biased.Print Page
Madras High Court
The Superintending Engineer ... vs A.V. Rangaraju And Another on 8 April, 1994
1. These petitions O.P. Nos. 40, 47 and 62/94, have been filed under Section 30 of the Arbitration Act to set aside the award. The averments in all these petitions are common except the number of agreement and the value of the work.
2. The petitioners Tamil Nadu Housing Board entrusted the constructions work with the second respondent contractor and for the agreement bearing No. WBR/51/90-91 dated 19-3-1991, the value of the contract given to the second respondent was Rs. 55,41,702/- and the work had to be completed within 12 months from the date of handing over the site. O.P. No. 40/94 relates to this work.
3. O.P. No. 47 of 1994 relates to the contract work under the agreement No. WBCR/60/90-91 dated 23-2-1991 and the value of the work covered under this agreement was Rs. 10.74 lakhs. The period of contract was 4 months from the date of handing over the site.
4. O.P. No. 62 of 1994 relates to the agreement No. 11/89-90 dated 28-6-1989 and the value of the work covered under the contract was Rs. 40,37,881.85 and the period of contract was 10 month from the date of handing over the site.
5. As the works were not completed within the contractual period, the contracts were terminated and therefore on the request of the second respondent contractor, Arbitrator was appointed under the orders of this court, to decide the dispute between them. The Arbitrator has passed the awards allowing the claim of the second respondent contractor to certain extent only. In O.P. No. 40/94, the Arbitrator has awarded Rs. 5,26,530/- whereas in the other 2 matters, the amount awarded to the second respondent is Rs. 5,18,854/- and Rs. 1,53,355/- respectively. Therefore, the Tamil Nadu Housing Board has filed these petitions under Section 30 of the Arbitration Act to set aside the awards.
6. The averments made in the petitions are as follows :
As the second respondent contractor did not complete the work within the stipulated period, the contracts were terminated. The Arbitrator has not found whether the contractor has committed the breach of contract, which is the very core of the arbitration proceedings and the Arbitrator ought to have held that the termination order passed by the Tamil Nadu Housing Board was legal and valid one. The delay in carrying out the work is purely due to the negligence of the second respondent contractor. But in spite of that, he has been awarded 10% of the profit on the balance work, which is totally unsustainable in law and directing the Tamil Nadu Housing Board to pay for the incomplete work is a total bias on the part of the arbitrator. The arbitrator has not given any reasons for his conclusion and the documents also have not been considered in his awards. When once the arbitrator relies upon the documents filed by the second respondent, he ought to have given weight to the records and referred to in his awards and this will amount to error of law on the face of it and therefore, the award is liable to be set aside. The Tamil Nadu Housing Board supplied the materials to the second respondent contractor within time and in spite of that he has not completed the work and the Tamil Nadu Housing Boards claim for the cost of the materials has been rejected without giving valid reasons. The Arbitrator's award at 16% interest is against the principles of law and the rate of interest allowed also is very much high. Therefore, the awards filed by the Arbitrator in the 3 Original Petitions have to be set aside.
7. The 2nd respondent contractor has filed counter stating that the Arbitrator had granted ample opportunity to both sides to present their case and he also made personal inspection of the site and only thereafter, the awards were passed, that the awards can be set aside only if there was error apparent on the face of the awards, which is not so in these petitions, and that unreasoned awards are not bad per se unless the agreement or the order of the court was specific to give reasons for the conclusions of the Arbitrator, and the arbitration after considering all aspects has passed his awards, which cannot be set aside.
8. The point for consideration in these petitions is whether the awards passed by the first respondent Arbitrator dated 20-10-1993 are to be set aside.
9. The second respondent in the above petitions has filed Applications No. 1265 to 1267 of 1994 to pass a decree in terms of the award.
POINT IN O.P. Nos. 40, 47 and 62 of 1994
10. The Arbitrator has found that the termination of the contract was legal. On this conclusion, in the award relating to the contract No. WBR/51/90-91 (O.P. No. 40/94), he has awarded Rs. 1,22,882/- towards the value of the work completed by the contractor, another sum of Rs. 65,468/-, which was withheld by the Housing Board and in addition to that, he has awarded the E.M.D. Security Deposit, apart from the loss of profit on the balance work, at Rs. 2,26,830/-. So, in total, he has passed the award for Rs. 5,26,530/-. In the agreement relating to No. 11/89-90 (O.P. No. 62/94), the Arbitrator has awarded Rs. 2,26,283/- towards the work done by the contractor, part rates to be released at Rs. 58,548/-, withheld amount Rs. 1,27,642/-, loss in the profit Rs. 44,981/- and damages at Rs. 45,000/- in addition to the security deposit, all in total Rs. 5,18,854/-. In the award relating to the agreement No. W.R.C.R./60/90-91 (O.P. No. 47.94) for the work done by the contractor but not paid for Rs. 66,607/- has been awarded. The withheld amount Rs. 18,276/-, loss of profit Rs. 27,718/- in addition to the E.M.D., Security Deposit and Additional Security Deposit have been awarded, to a total sum of Rs. 1,53,355/-.
11. The learned counsel for the petitioners Tamil Nadu Housing Board has attacked the awards of the Arbitrator on four grounds namely, (1) the awards are unreasoned and non-speaking;
(2) the Arbitrator has not referred to the documents relied upon by the second respondent contractor and this will amount to error of law for which the awards have to be set aside;
(3) the Arbitrator has awarded 10% of the profit for the incomplete and unfinished work on the ground that the contractor would have earned this profit and this is a total bias on the part of the Arbitrator requiring the quashing of the awards; and (4) the grant of interest at 16% is against law and this also is a ground to set aside the awards.
Now, I shall deal with these grounds set out by the petitioners Housing Board.
12. Under Section 30 of the Arbitration Act, the award of the Arbitrator can be set aside only on the ground that the error is apparent on the face of it. This court is not sitting in Appeal against the awards of the Arbitrator and only when it is brought out, the error, of law on the face of the award, the Court cannot interfere with the conclusion of the Arbitrator. In Bihar State Electricity Board v. M/s. Khasiba Brothers , the Patna High Court has observed that the court cannot sit in judgment of Arbitrator and if it was permissible for the court to re-examine the correctness of the award, the entire proceedings would amount to an exercise in futility and the grounds on which an award can be set aside are limited by the statute and Section 30 of the Act in mandatory terms declares that an award shall not be set aside on other grounds. It also further observes that the court cannot proceed to determine whether the conclusion is right or wrong on an assumption that the Arbitrator must have proceeded by certain process of reasoning. In Chinnasamy v. Superintendent Engineer, Execution Circle, Madurai the Bench of this court has held that the arbitrator is not bound to give a reasoned award while passing an award. If the arbitrator makes a mistake of law or of fact, not apparent on the face of the records, it is not open for challenge. It has also further held that the award is bad only on the ground of error of law on the face of records and the error of law apparent on the face of the record means that some erroneous legal proposition, which is the basis of the award, is found expressed in award itself or in a document actually incorporated or appended thereto as part and parcel of the award and the court has no jurisdiction to deal judicially with the merit of a case determined by the Arbitrator. The Madhya Pradesh High Court in Umrao Singh & Co. Lucknow v. State of Madhya Pradesh , has held that the the mere error of law or fact alone is not sufficient but it should be error apparent on the face of the award to set aside the award. In Combatore District Podhu Thozhilalargal Sangam v. Balasubramaniam Foundry , the Supreme Court has held that it is an error of law and not of fact committed by the Arbitrator which is justifiable in the application before the courts and if there is no legal proposition either in the award or in any documents annexed with the award which is erroneous and alleged mistake or alleged error are only mistake of fact and if the award is made fairly after giving adequate opportunity to the parties to place their grievences in the manner provided in the arbitration agreement, the award is not amenable to correction by the court. So, in view of the these judicial pronouncements, unless the petitioner. Tamil Nadu Housing Board is able to establish that there is error on the face of the award, the award cannot be set aside.
13. The allegation in these petitions are that as award are non-speaking and unreasoned, that even for the unfinished and incomplete work, 10% of the profit has been awarded and interest has been awarded at 16% the award is against law. But these grounds per se are not error apparent either of law or of fact. The Courts have held in a series of decisions that an award need not be reasoned unless the agreement or the order of the court at the time of appointing an arbitrator, there is a clause to give reasons for the conclusion of the Arbitrator. In Hindustan Construction Co. Ltd. v. State of Jammu and Kashmir , the Supreme Court has held that a non-speaking award cannot be an error apparent on the face of the award for impeaching its validity. In Secretary, Irrigation Department, Government of India v. G. C. Roy , also the Supreme Court has ruled that the arbitrator is not under a legal obligation to give reasons for his award unless it was so stipulated in the agreement itself. In Harcharan Singh v. Union of India , the Supreme Court observed :
"In the instant case, the arbitration agreement or the deed of submission did not require the Arbitrator to give reasons and therefore the award cannot be questioned on the ground of an error on the face of the award."
In State of Maharashtra v. Navbharat Builders (1991 (Supp.) (1) SCC 68), the same view is repeated by the Supreme Court holding that when there is no stipulation in the reference that the reasons be given in the award, for the non-speaking award in respect of payment of compensation, the Arbitrator cannot be said to have committed error apparent on the face of the award and court cannot set aside the award. In Raipur Development Authority v. Chokhamal Contractors (AIR 1990 SC 1435), the above view of the Supreme Court was again emphasised by observing.
"It is now well settled that an award can neither be permitted nor set aside merely on the ground that it does not contain reasons in support of the conclusion or decisions reached in it except where the arbitration agreement or the deed of submission requires him to give reasons. The Arbitrator or Umpire is under no obligation to give reasons in support of the decision reached by him unless under the arbitration agreement or in the deed of submission, he is required to give such reasons and if the Arbitrator or Umpire chooses to give reasons in support of his decision, it is open to the court to set aside the Award if it finds that an error of law has been committed by the Arbitrator or Umpire on the face of the record, on going through such reasons."
When the Supreme Court in so many cases have considered this question and has answered that the Arbitrator is under no obligation to give reasons for his award, it is futile on the part of the petitioner to attack the award on the ground it is unreasoned, when especially, neither in the agreement nor in the reference, there is any clause compelling the Arbitrator to give reasons for his award.
14. The Arbitrator has found that the termination of the contract by the petitioner Tamil Nadu Housing Board is illegal. As found above, the Arbitrator was not bound to give reasons for arriving at this conclusion in the awards. The Arbitrator has stated that he considered all the relevant available evidence, oral and documentary, and he applied his mind judiciously to all the points raised by both sides. The appraisement of evidence placed before the Arbitrator is the task for the Arbitrator and the court cannot re-appraise such evidence. In Sudarsan Trading Co. v. Government of Kerala , the Supreme Court observes that the court has no jurisdiction to substitute its own evaluation of the conclusion of the law or fact to come to the conclusion that the Arbitrator had acted contrary to bargain between the parties and appraisement of evidence is left solely to the Arbitrator and the court cannot seek to re-appraise such evidence. Therefore, this court cannot re-appraised the evidence for the conclusion arrived at by the Arbitrator that the termination of the contracts is illegal. When, it is held, by the Arbitrator that the termination of the contracts is illegal, there is nothing wrong in passing an award for the payment of the amount for the work executed by the contractor, payment of the withheld amount and refund of the E.M.D. and security deposits.
15. When unreasoned and non-speaking award is permissible, there is no necessity for the Arbitrator to refer to the documents relied upon either by the second respondent contractor or the petitioner/Housing Board. Such documents may be relevant to certain question of fact. The Arbitrator has stated in the award that he made personal inspection of the site. Probably to ascertain the extent of the work, the Arbitrator might have personally visited the site. Any how, even if the documents relied on by the second respondent is referred to in the award and there was mistake in accepting the contents of the documents, the mistake of fact committed by the Arbitrator is not justifiable to set aside the awards. Therefore, the failure to refer the documents in the awards can never be an error of law to set aside the awards.
16. The Arbitrator has awarded 10% of the profit on the incomplete work in all these three contracts, and this is alleged to be a bias on the part of the arbitrator. In M/s. A. T. Brijpal Singh & Bros. v. State of Gujarat , the Supreme Court has held that in a works contracts, when there was breach of contract on account of which the contractor could not complete the work, be is entitled to claim damages on the basis of the expected profit on the balance of the incompleted work. In that case, 15% of the value of the balance of the work was awarded as damages. So, when the contract of the second respondent herein was illegally terminated before the completion of the work certainly the contractor is entitled to claim damages on the basis of the expected profit in the unfinished work. When such a right is available to the contractor under law and the quantum fixed by the Arbitrator is only 10%, which according to the Arbitrator is a reasonable compensation, the court cannot, set aside this finding of the Arbitrator as illegal or biased.
17. The last ground on which the awards are attacked is the award of interest at 16% from the date of the award till the date of the decree. In Hindustan Construction Co. Ltd. v. State of Jammu and Kashmir, referred (supra), the Supreme Court has held that Section 34, C.P.C. can be followed for the arbitration proceedings also to award interest even for the pendente lite period as well as for the post decree period. But in this case, the arbitrator has awarded interest only from the date of the award. Therefore, the powers of the Arbitrator to award interest in this case cannot be challenged by the petitioner. But the learned counsel would contend that 16% of interest is very high. The correctness with the regard to the rate of interest fixed by the arbitrator cannot be considered in this proceedings under Section 30 of the Arbitration Act and there is no law for clause in the arbitration agreement, not to fix the interest at 16% per annum. Therefore, there is no error on this decision of the Arbitrator.
18. Taking into consideration of all the grounds of attack against the awards, as I find no error apparent on the face of the awards either on law or of fact, the awards cannot be set aside. Therefore, Original Petitions No. 40, 47 and 62 of 1994 are liable to be set aside.
19. O.P. Nos. 40, 47 and 62 of 1994.
In the result, Original Petitions No. 40, 47 and 62 of 1994 are dismissed. No costs.
20. O.P. Nos. 8, 10 and 11 of 1994 and Applications No. 1265 to 1267 of 1994.
In view of the dismissal of O.P. No. 40, 47 and 62 of 1994, in O.P. No. 8, 10 and 11 of 1994, award are received and decrees are passed in terms of the award dated 20-10-1993.
21. Order accordingly.