K.R Rao And Others v. State Of Orissa And Another

1. This is an appeal under S. 39 of the Arbitration Act, 1940 (hereinafter referred to as ‘the Act’).

2. Appellant K.R Rao, who died during the pendency of this appeal and whose legal representatives have been substituted, undertook to execute the work “Construction of Dyke No. 2 Balimela Dam Project”. An agreement was entered into between the parties numbered 146-F. 2 of 1968-1969. In course of work, another agreement has been entered into which is termed as Supplementary to the original agreement and has been separately numbered as 47-F. 2 of 1970-1971. The contract was rescinded. Thereafter some disputes were referred to Arbitration whose award was made in October, 1975. A Judgment in terms of the award was passed under S. 17 of the Act by the Jeypore Court. Some claims not having been included, appellant requested the authorities to nominate an Arbitrator. Ultimately a Court was moved under S. 8 for appointment of an Arbitrator and a retired-Judge of Patna High Court was appointed by the Court. The appointment was unsuccessfully challenged in this Court and the Supreme Court While appointing the Arbitrator by order in Misc. Case No. 437 of 1980, trial court observed in paragraph 4:

“…..In course of argument it is admitted by the petitioner that disputes arising under the Agreement No. 146 F2 of 1968-1969 have been concluded in T.S No. 42 of 1975 decided by the Sub-Judge, Jeypore. The learned Advocate for the petitioner submits that the present agreement No. 47 F2 of 70-71 is a distinct and separate agreement executed for other items of work in respect of the main work done by the petitioner under agreement No. 146 F2 of 1968-1969. Disputes arising under the supplementary agreement have not been arbitrated while arbitrating the disputes arising out of the original agreement nor the earlier arbitration proceedings covers the present disputes. Law is well settled that when there are two separate agreements, even if one is supplementary to the other, disputes arising out of the supplementary agreement can be referred to the Arbitrator at a later stage……”

On the above premises the Arbitrator having been appointed, the scope of the Arbitrator was only in respect of the disputes relating to the supplementary agreement.

3. After the Arbitrator was appointed, statement of claim was filed before him. Counter claim was also filed before the Arbitrator. The Arbitrator gave the following award:

“On a careful perusal of all the statements of claim and counter claim of the parties and the documents filed by them and after consideration of the arguments advanced by the learned counsel on both sides, I have come to the conclusion that the first party (claimant) is entitled to be paid by the second party, the State of Orissa, a sum of Rupees 14,16,262/- (Fourteen lacs sixteen thousand two hundred sistytwo) with interest at the rate of 12 per cent per annum with effect from the 1st, December, 1981. The second party, the State of Orissa is not entitled to any claim (counter claim) against the first party.”

4. The Arbitrator caused the award to be filed on 30th, of April, 1982. He filed the award along with the claim statement with Annexures as well as the counter-claim with annexures and also a preliminary counter before him. When the award was filed, the same was registered as a suit. The parties entered appearance on 3-5-1982. Respondent filed objection under S. 30 of the Act which was registered as a miscellaneous case. In the objection it was claimed that the consideration of the claims by the Arbitrator is beyond the scope of his appointment since the appointment related to the disputes arising out of Agreement No. 47 F-2 of 1970-1971 and not the dispute arising from the original agreement which has become final. It was further claimed that the claims in the statement before the Arbitrator were grossly barred by limitation. Objection to the aforesaid application was filed by the appellant wherein it was stated that the claims were in respect of the original agreement and not the supplementary agreement and those claims are not covered under the earlier award. As regards the limitation, it was stated that there is no limitation and this would not be available to be urged since the State Government also made counter claim before the Arbitrator.

5. Trial Court, on consideration of the objections, has set aside the award on three grounds: (i) the appointment of the Arbitrator under S. 8(2) of the Act is barred by limitation; (ii) the Court had no jurisdiction to make the appointment and (iii) the claims in the award are covered under the earlier award. Aggrieved by the aforesaid order, the present appeal has been filed.

6. Mr. R.K Rath, the learned counsel for the appellant, submitted that the trial court is not justified in going into the question of limitation for appointment of the Arbitrator. I am inclined to hold that Mr. Rath is justified in his submission. The question of limitation could have been raised at the time of appointment of the Arbitrator. At no stage till the Supreme Court this question was raised. It will be against the public policy in case such a question is allowed to be raised while raising objection to the award.

7. The next contention of Mr. Rath is that the trial court has erred in law in questioning the jurisdiction of the Arbitrator while appointing him under S. 8 of the Act. This contention of Mr. Rath is also sound. If there would be complete lack of inherent jurisdiction the question can be raised since the authority having no jurisdiction cannot exercise the same. There is no scope for exercising inherent power in appointment of an Arbitrator which is to be governed under the provisions of the Act. One of the basic requirements is the existence of a written agreement for arbitration. The very fact that the agreement in respect of which the dispute arises is supplementary to the original agreement contains provision for arbitration, the same would govern the supplementary agreement which is part of the original. Accordingly, the trial court was not justified in holding that there was no jurisdiction to make appointment merely because such a clause was absent in the supplementary agreement.

8. The last contention of Mr. Rath is that the award in respect of the claims is not covered by the original award. This requires careful consideration. A perusal of the supplementary agreement indicates that it relates to performance bonus only. The dispute relates to the supplementary agreement as was submitted by the advocate for the appellant at the time of appointment of Arbitrator. When on the basis of Such statement and on further statement that the disputes in respect of the original agreement have come to an end the Arbitrator was required to examine if the claims relate to supplementary agreement. The award also discloses that with reference to the said agreement the award has been given. It does not state that it relates to a dispute relating to the original agreement.

9. Mr. S.K Das, the learned Additional Standing Counsel, submitted that while considering the question of appointment of the Arbitrator it was clearly stated by the appellant, as the petitioner, that the dispute relates to the supplementary agreement and not to the original agreement. Mr. Das referred to the judgment given by the Jeypore Court on the basis of the award where it has clearly been stated that the question of performance bonus has been dealt with. In case the claim would have been confined to performance bonus, the order of the trial court would be justified. Several other claims have been made. If those claims would be otherwise justified and the claimant can explain the previous statements, the Arbitrator is not without jurisdiction to entertain those claims. This aspect has not been considered by the Arbitrator nor the trial court.

10. Award of the Arbitrator is based on no reason. Court cannot read into the mind of the Arbitrator. However, Arbitrator is required to act fairly. In the present case the Arbitrator is a retired Judge of a High Court. Thus, the training of judicial approach is inherent in his consideration of any dispute. If he would have maintained records of his proceeding there would not have been any scope for me to doubt about the conduct of the proceeding fairly by him. Arbitrator has full knowledge of the provision of S. 14(2) of the Act that he is required to send the records to the Court while filing the award. The Arbitrator sent only the claim statement with annexures and the counter claim with annexures to the Court under S. 14(2) of the Act with an additional counter. Rs. 14,16,262/- has been awarded. The figure indicates that the same is not a reasonable guess work. It has been based on mathematical calculation. Where an Arbitrator of the rank of a retired High Court Judge gives a figure on mathematical calculation normally he would have left a calculation sheet which would be of great assistance to the Court. There is no calculation sheet. After giving the award the calculation sheet is of no value to the Arbitrator to be detached from the record to be preserved by him. From this I can reasonably infer that the Arbitrator has not applied his mind while coming to the conclusion. Non-application of mind is a legal misconduct of the Arbitrator. In case the award as it discloses, is to be confined to the supplementary agreement, the same relates only to performance bonus and to no other claim.

11. As regards the claims, I have perused the same just to have an impression if the documents which were filed before the Arbitrator could relate to the claim to arrive at any amount. I am not able to come to the conclusion that the amount awarded can be arrived at reasonably by any reasonable man.

12. Therefore, I am satisfied that the award has rightly been set aside by the trial court. However, while setting aside the award it should have remitted the matter back to the Arbitrator for re-consideration. The same has not been done.

13. There being no factual misconduct of the Arbitrator, I would have normally sent the matter back to him. This cannot be done in the present case, in view of S. 41-A of the Act, as amended in Orissa. As per the legislative mandate reference is to be made to the Arbitration Tribunal constituted under that section. Therefore, the trial court is directed to refer the dispute to the Arbitration Tribunal for being dealt with in accordance with law.

14. In the result, the appeal is allowed to the extent indicated in my discussion above. No costs.

Appeal allowed.