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TMI Blog2009 (4) TMI 997X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of the alterations in the CTR. 3. Thereafter the offer of the respondent was accepted and a work order dated 23.8.1988 was issued to him stipulating the period for completing the contract as two years from that date. There was an amendment to the work order on 8.11.1988. The employer and the contractor entered into an agreement dated 11.1.1989 enumerating and stipulating the documents which will form part of the contract and the modifications agreed in regard to certain terms. The value of the work as per the work order was Rs. 9,91,94,602.50. Ten percent of the value of work (Rs. 99.19 lakhs) which was agreed to be released as mobilization advance, was released to the contractor between 25.1.1989 and 5.5.1989. The contractor created an equitable mortgage over its plant by depositing its title deeds thereto as security for the mobilization advance. By letter dated 15.12.1990, the contractor confirmed that the original title deeds will remain in deposit with the employer till the entire amount of advance was repaid in full with interest. 4. The contract (clause 23 of General Conditions of Contract) provided for settlement of disputes by arbitration. By letter dated 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The contractor revised its claim to Rs. 5,51,90,306/- in the notice of appointment of arbitrator. The employer challenged the order of the District Judge and the High Court allowed the appeal on 9.8.1991 and set aside the order of the District Judge. The contractor in turn approached this Court. On 12.11.1991, this Court recorded the consent of parties for appointment of Mr. B L Mathur as sole arbitrator and directed the employer (Chief Engineer, Public Health Engineering Department, State of Rajasthan) to appoint him as the arbitrator. On being appointed, the arbitrator entered upon the reference and the contractor filed a claim statement before the arbitrator on 13.1.1992 making 43 claims aggregating to Rs. 6,21,29,626/-. 7. The employer filed its reply to the claim statement, and also made five counter-claims aggregating for Rs. 863,46,505/- before the arbitrator. In the meanwhile, the employer having concluded the arrangements to get the work completed through an alternative agency, on the contractor's failure to resume the work, awarded the work to M/s. Indian Hume Pipes Co. Ltd. on 10.8.1992. On the basis of the contract value in regard to the balance work, the employer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er challenged the award by filing objections under Section 30 read with Section 33 of the Act. By order dated 17.2.2003, the District Judge, Ajmer allowed the application of the contractor and made the award a rule of the court subject to a modification in regard to the award made on claim No. 37A. In place of the award made by the Arbitrator (direction to employer to pay Rs. 12072/- per day from the date of award), the District Judge directed that the employer shall return the original title deeds to the contractor and pay the amounts awarded to the contractor after deducting the amount awarded by way of counter-claim (that is Rs. 59,42,275/- towards refund of mobilization advance due with 18% interest) within 30 days from the date of decree, failing which, the employer shall pay Rs. 12072 per day from the date of decree. 10. The employer filed an appeal (Civil Misc. Appeal No. 872/2003) against the said judgment and decree contending that the award ought to have been set aside. The contractor also filed an appeal (Civil Misc. Appeal No. 910/2003) aggrieved by the modification by the Learned District Judge directing compensation of Rs. 12,072/- per day only from the date of decre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is a ground for setting aside the award under Section 30 or for remitting the award to the Arbitrator under Section 16(1)(c) of the Act. In Champsey Bhara & Co. v. Jivraj Balloo Spinning & Weaving Co. Ltd. AIR 1923 PC 66 the Privy Council explained the term `an error of law on the face of the award' thus: An error of law on the face of the award means that you can find in the award or a document actually incorporated thereto as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It was well settled that under the Arbitration Act, 1940, an award was not open to challenge on the ground that the arbitrator has reached a wrong conclusion or failed to appreciate facts, as under the law, the arbitrator is made the final arbiter of the dispute between the parties. While considering the challenge to an award, the court will not sit in appeal over the award nor re-appreciate the evidence for the purpose of finding whether on the facts and circumstances, the award in question could have been made. When there is no allegation of moral misconduct against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as invalid. It is necessary, however, to put a note of caution that in the anxiety to render justice to the party to arbitration, the court should not reappraise the evidences intrinsically with a close scrutiny for finding out that the conclusion drawn from some facts, by the arbitrator is, according to the understanding of the court, erroneous. Such exercise of power which can be exercised by an appellate court with power to reverse the finding of fact, is alien to the scope and ambit of challenge of an award under the Arbitration Act. Where the error of finding of facts having a bearing on the award is patent and is easily demonstrable without the necessity of carefully weighing the various possible viewpoints, the interference with award based on erroneous finding of fact is permissible. Similarly, if an award is based by applying a principle of law which is patently erroneous, and but for such erroneous application of legal principle, the award could not have been made, such award is liable to be set aside by holding that there has been a legal misconduct on the part of the arbitrator. In ultimate analysis, it is a question of delicate balancing between the permissible limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilization advance was released in installments in terms of contract and there was no delay no breach on their part. 16. We may refer to the relevant provisions of the contract in this behalf. Clause 8 of the Special Conditions relating to establishment of factory at site provided thus: Establishment of factory at site: The contractor, if he so desires, may establish the pipe factory at site to avoid transportation of pipes. All material and equipment and land required for the purpose shall be arranged by the contractor at his own cost. The department may assist him in acquisition of land. However, the work should not be delayed on this account. The firm should commence and continue to supply the pipes etc. from their existing set up till the factory at site is established. As already stated, the supply of pipes etc. should commence within 30 days, from the award of contract. The above clause was superseded by Clause 3 of the Common Terms of Reference which is extracted below: Mobilisation advance (for PSC Pipes only) 10% of the contract value shall be given against Bank Guarantee as mobilization advance at a simple interest rate of 18%. Recovery of mobilization advance s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontractor out of the mobilization advance shall be mortgaged with the Government. Such assets will not be mortgaged with any other agency for any purposes. (c) In case contractor fails to complete the work in specified time, the contractor shall pay the compensation as liquidated damages as per the terms and conditions of the contract and the assets built by the contractor for manufacturing of pipes will be the property of the government and the department will have right to use it as government property for completion of remaining work. xxx 17. The arbitrator held that Clause 8 of the special conditions of contract stood superseded by Clause 3 of the Common Terms of Reference which required the mobilization advance to be released in one installment and not in three installments. He held that Clause 5(1)(b) inserted by the amendment to the work order dated 8.11.1988 was an unilateral incorporation by the employer and was not binding on the contractor. He further held that the employer ought to have released the mobilization advance along with the work order dated 23.8.1988, and the employer had abnormally delayed the release of mobilization advance by a total period of 8.5 mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contractor fails to complete the work, the assets built by the contractor would become the property of the employer and the department could use it as government property for completion of the remaining work. Sub-clause (d) of Clause 7 provided that if the contractor failed to establish the factory within three months of payment the mobilization advance, the said advance would be recovered by enforcing the bank guarantee given in lieu of the mobilization advance. Thus it is evident that the mobilization advance had to be released only against a bank guarantee to be furnished by the contractor. 19. If according to the contractor, the mobilization advance had to be released in a single installment and if the contractor wanted the entire mobilization money to be released in one lump sum instead of in three installments, it ought to have given a single bank guarantee for the entire sum. But strangely the contractor did not give such a bank guarantee. It gave four bank guarantees for Rs. 40 lacs on 21.5.1989, Rs. 25 lacs on 1.2.1989, Rs. 15 lacs on 17.2.1989 and Rs. 25 lacs on 23.3.1989. It is thus evident that the contractor had also proceeded on the basis that the condition in Cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an award in respect of the claim on the ground that there was delay in releasing the mobilization advance and during that period of delay, one third of the contract work could have been done and the value of the work that could have been done was Rs. 3,30,64,867, and 10% thereof was the loss of profit. Firstly, there was no such plea. Secondly, we have already held that the delay relating to mobilisation advance, was not on the part of the employer. Thirdly, even if there was delay, it was nobody's case that no work was done or that the contractor had suffered loss for non-execution of the work during the contract period. Therefore we are of the view that the award of compensation of Rs. 33,03,500/- towards claim No. (1) is liable to be set aside. Re : Claim 37A: 21. Claim No. 37A was linked to mobilization advance. The contractor claimed that it had mortgaged its pipe manufacturing unit in favour of the employer by deposit of title deeds, as security for repayment of the mobilization advance; that the machinery installed in the said factory had not been released by the employer in its favour and as a consequence, it could not be shifted to another place to enable it to star ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actory from 13.1.1992 Rs. 12,072 per day The arbitrator held that none of the four claims was maintainable as the factory built out of mobilization advance had been mortgaged in favour of the employer. As a consequence he did not award any amount in respect of the four claims. But strangely he directed payment of Rs. 12,072 per day from the date of award not because he held that there was any loss of production as a consequence of any breach by the employer, but on the following reasoning: After perusal of the arguments of the parties and the evidence on record, I come to the finding that it is a case of real hardship to the claimants for having been denied the use of the factory and machinery elsewhere in their business venture, but because of legalities involved, such as mortgage, the claimants cannot be given the benefit of any award. Had the assets of factory built out of mobilization advance not being mortgaged in favour of the respondent I would have considered making an award in favour of the claimants. In view of the fact that I have allowed counter claim No. 3 of the respondent for balance amount of mobilization advance in full along with interest, there is no reason wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return the documents and if it failed to return the documents, the contractor was entitled to damages of Rs. 12,072/- per day from the date of award. 25. The arbitrator noticed the fact that the plant and machinery was mortgaged by deposit of title deeds in favour of the employer and that the contract was that "the original documents will remain in deposit with the employer till the amount of advance is repaid with full interest." The arbitrator in fact makes an award for return of Rs. 59,42,276 in favour of the employer with interest at 18% per annum from 1.9.1990 to 17.9.1990 and interest at 18% per annum on Rs. 59,42,275/- from 18.9.1990 till date of decree or payment, whichever was earlier. Therefore evidently until the amount of Rs. 59,42,275/- with interest was paid by the contractor to the employer, the mortgage would continue. If the mortgage continued, there was no obligation on the part of the employer to return the documents; and if there was no obligation on the part of the employer to return the documents, the contractor could not complain that the documents were wrongly held by the employer nor could it claim loss of production as a result of employer wrongly withhol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said figure to be true, at best the blocked up investment was only Rs. 36,84,161/- and the loss would be around 1% thereon per month by way of interest which would be Rs. 36,841/- per month. What is more strange is nowhere in the award the arbitrator considers the validity of the claim of Rs. 12072 per day nor accepts the said claim as valid or correct. In a reasoned award if the claim of a contractor is equated to proof of the claim, then it is obviously a legal misconduct and an error apparent on the face of the award. While the quantum of evidence required to accept a claim, may be a matter within the exclusive jurisdiction of the arbitrator to decide, if there was no evidence at all and if the arbitrator makes an award of the amount claimed in the claim statement, merely on the basis of the claim statement without anything more, it has to be held that the award on that account would be invalid. Suffice it to say that the entire award under this head is wholly illegal and beyond the jurisdiction of the arbitrator, and wholly unsustainable. 28. Learned Counsel for the contractor submitted that though there was an award in favour of the employer for refund of mobilization advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st, but the High Court, however, granted interest from the date of decree till date of payment at 18% per annum. 31. The appellants contend that there was no provision in the contract for payment of interest on any of the amounts payable to the contractor and therefore no interest ought to be awarded. But this Court has held that in the absence of an express bar, the arbitrator has the jurisdiction and authority to award interest for all the three periods - pre reference, pendente lite and future (vide decisions of Constitution Bench in Secretary, Irrigation Department, Government of Orissa v. G. C. Roy [1991] 3 SCR 417 , Executive Engineer, Dhenkanal Minor Irrigation Division v. N. C. Budharaj 2001 (2) SCC 721 and the subsequent decision in Bhagawati Oxygen v. Hindustan Copper Ltd. 2005 (6) SCC 462). In this case as there was no express bar in the contract in regard to interest, the Arbitrator could award interest. 32. The appellant next contended that in regard to claims in the nature of damages, as contrasted from ascertained sums due, interest becomes payable only on quantification and therefore award of interest prior to the date of arbitrator's award was illegal. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed, to the date of institution of the proceedings. Sub-section (3) of Section 3 made it clear that nothing in that section shall apply to any debt or damages upon which interest is payable as of right, by virtue of any agreement; or to any debt or damages upon which payment of interest is barred, by virtue of an express agreement. The said Sub-section also made it clear that nothing in that section shall empower the court to award interest upon interest. Section 5 of the said Act provides that nothing in the said Act shall affect the provisions of Section 34 of Code of Civil Procedure 1908. 34. The position regarding award of interest after the Interest Act, 1978 came into force, can be stated thus: (a) where a provision has been made in any contract, for interest on any debt or damages, interest shall be paid in accordance with the such contract. (b) where payment of interest on any debt or damages is expressly barred by the contract, no interest shall be awarded. (c) where there is no express bar in the contract an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with the directions given or issued to banking companies generally by the Reserve Bank of India under the Banking Regulation Act. Therefore, we are of the view that pre-reference interest should be only at the rate of 9% per annum. It is appropriate to award the same rate of interest even by way of pendente lite interest and future interest upto date of payment. Re: Claims 2 and 16, 3 and 15, 5 and 18, 6 and 17, 9 and 19, 11 and 20, 24, 27, and 28, 29, 30, 31, 32, 33, 35 (with 25 and 34) of the contractor. 37. Claims 9 & 19, 27 & 28, 29, 33, 35 (with 25 & 35) are for payment for work done by the contractor. Claims 2 & 16, 3 & 15, 5 & 18, 24, 30, 31 and 32 are for release/refund of amounts withheld or excess deductions. Claims 6 & 17 are for escalation in prices. Claims 11 & 20 are for compensation for slow progress due to reduction of width of trench. The arbitrator has awarded certain amounts against these claims by examining the material placed before him and the terms of contract. He has also assigned reasons for awarding the amount against these claims. Courts can not sit in judgment over the award of the arbitrator, nor re-appreciate the evidence. The awards on thes ..... 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