Board Of Trustees For The Port Of Calcutta v. Mahalakshmi Constructions

1. The Court: There are two appeals before us, one from a judgement and order refusing to set aside an award, and another from the decree passed after such refusal.

2. Although an appeal from the decree itself does not lie and is wholly unnecessary, we propose to dispose of both the appeals by this common judgement and order.

3. At the outset we make it clear that we are in full agreement with the conclusions reached by the Hon'ble Mr. Justice Ronojit Kumar Mitra and we are of the opinion that the award passed should not be set aside and decree thereupon should also remain untouched.

4. The award was passed by the Hon'ble Mr. Monoranjan Mallick, after his Lordship retired from the Judgeship of this Court.

5. The award sets out the different heads of claim and counterclaim put forward on behalf of the constructing contractor and the port authorities. Thereafter the award proceeds to grant a lumpsum award of Rs. 13 lac in favour of the contractor and another lumpsum of Rs. 1 lakh in favour of the Port authorities.

6. In the result the principal sum awarded in favour of the contractor logically comes to Rs. 12 lac.

7. The heads under which this sum of Rs. 12 lac has been awarded are not exactly ascertainable from the award itself. The position is the same with regard to the award of Rs. 1 lakh.

8. Retired Justice Mallick has also awarded interest from 1984 and interest runs as per the award and the decree until payment should be completed by the Port authorities.

9. Mr. Majumdar appearing for the appellant submitted that amongst the several heads of claim appearing from the award itself, there is an amount of approximately Rs. 10 lac for work already done by the contractor but not paid for, and also a claim for price hike between Rs. 7 lac and Rs. 8 lac, which is in the nature of an excalation claim.

10. According to Mr. Majumder unless substantial awards are made on these two heads, it is impossible to reach the figure of Rs. 13 lac. Thus, according to him although the award does not expressly state so, it is implied in the terms of the award that the claims for escalation and unfinished work have been entertained favourably by the Hon'ble Arbitrator.

11. Mr. Majumdar points out to us that as per clauses of the contract, payment is to be made only on R.A Bills as per details found from the M.B's and further that the contract expressly contains a clause prohibiting payment of escalation of price hike excepting only for the price rise of steel.

12. According to Mr. Majumdar, since the Arbitrator made awards contrary to express provisions of the contract, the award is bad and the learned Arbitrator must be held to have exceeded his jurisdiction. Mr. Majumdar submitted that the learned Arbitrator is a creature of the contract and if the contract itself contains prohibitory clauses then the learned Arbitrator has no jurisdiction to go outside those prohibitory clauses and grant awards none-the-less against the spirit and letter of those clauses.

13. Mr. Majumdar also submitted that the award of interest from 1984 is in supportable and it would mean a very large extra additional amount to be paid by the Port authorities to the contractor. According to him the contract itself was terminated only in 1986 and therefore award of interest from a date even prior to that is illegal and harsh.

14. Although Mr. Majumdar's submissions as above, excepting on the point of interest, are backed up by authorities, and even high authorities, we were greatly troubled and disturbed to hear those submissions are wholly contrary to long and well-settled principles followed by the Arbitration Court. What we are about to say, should not be necessary, excepting for a mere handful of lawyers, and even that handful should be found only amongst that class who have thick hair without a speak of grey, perfect skin, no reading glasses, no dental work. However, the situation now prevailing in our country is such that this is not so and even though what we are about to say is elementary and should be well-known, these things have to be repeated.

JURISDICTIONAL ERROR:

15. This is not arbitration terminology. It is writ terminology. However, the idea that the Arbitrator has no authority to exceed his jurisdiction is a sound idea provided what his jurisdiction is, is properly understood. In all usual contracts containing an arbitration clause, there are, not one but two contracts. The clause which is the arbitration clause is one contract, and the other clauses, delineating the terms and conditions agreed upon by and between the parties, for the commercial transaction, form another contract. Although the two contracts are in the same document, usually, and not separately signed but signed only once by the parties, yet it is a matter of paramount importance to understand and distinguish these two contracts as separate and distinct. Even if the commercial contract is unenforceable due to illegality or fraud, the arbitration contract does not become fainted, and the arbitrator can pronounce upon the illegality or fraud.

16. So far as the learned Arbitrator's jurisdiction is concerned, the Courts are to look at the arbitration clause, i.e, the forum choosing contract. A long long time ago, which is much more than 100 years, the Courts decided, that the ouster of the ordinary Commercial Court's jurisdiction by the insertion of an arbitration clause is valid in law and not contrary to public policy. That is why an Arbitrator can function, subject of course to certain exceptions, exactly like a court of law. An Arbitrator can award almost anything on which a Court can pass a decree. The Arbitrator's procedure is different from the formal procedure of a court of law and usually the Arbitrator can choose his own procedure, provided it is fair and just.

17. The jurisdiction of the Arbitrator is to be determined with reference to the arbitration clause, i.e the forum choosing clause. The phrases used in that clause are to be looked at to see whether any and every dispute arising out of the commercial contract has been made the subject of a possible reference or not. If it from that clause that it has to be gathered whether even a specific question of law has been left to be arbitrated upon, thus allowing the Arbitrator to go wrong even on a question of law even if such error should appear on the face of the award.

18. If a commercial contract with prohibitory clauses like escalation prohibition were to become a subject matter of a suit, before an ordinary court of law, nobody would dream of arguing that a decree passed allowing escalation is a decree without jurisdiction. Such a decree might be wrong, and might be upset in appeal. But jurisdiction the Court has, and such possession of jurisdiction also entails the power of the Court to go wrong. The Court will interpret the contract considering all the clauses. The Court will consider the entirety of the surrounding circumstances. The Court will consider the complicated law of contract. The Court will consider the evidence given by the different parties and on this basis if the Court thinks that it is just and legal to grant escalation it will grant escalation even if there should be one clause in a big contract appearing to prohibit such grant.

19. The jurisdiction of the Court is not derived from the commercial contract but it is derived from the general law of the land. The jurisdiction of the Arbitrator is not derived from the commercial contract but it is derived from the general law of the land and the separate contract which is the forum choosing contract agreed upon by and between the parties. Exactly like a Court of law the Arbitrator can also award escalation amounts, even if there should be one clause in the contract prohibiting such grant.

PERVERSITY:

20. It is possible, in a very rare handful of cases, that although misconduct or legal misconduct of the Arbitrator cannot be demonstrated, yet it can be demonstrated that the award is perverse, perversely high and so against the contract, evidence, the documents and all the surrounding circumstances that no honest person in his senses could have made such an award. This is rare head of perversity. It should be demonstrable in a very stark and comparatively easy manner, without the Arbitration Court having to sit like a Court of Appeal over the Arbitrator's award. On the ground of perversity, extraordinarily huge and large awards can be struck out, and it is not outside the possibilities, that in the matter of arguing perversity, clauses like prohibition of escalation will be material. But this is quite separate from merely picking out one clause in the contract, showing it to Court, and treating it as if that is an end of the matter, and any award of escalation is bound to be perverse. Proceeding in this way would be proceeding to make elementary mistakes.

THE FACE OF THE AWARD:

21. There is a great problem in the Arbitration Court, which faced with an application for setting aside of the award, even to look at the commercial contract between the parties, which is separate from the arbitration contract. The arbitration contract can always be looked into. The arbitration clause is the foundation of the Arbitrator's jurisdiction. But for the Arbitration Court to be able to look at the commercial contract, it must from part of the award. And, the part of the award must appear along with some propostion of law, which should also be a part of the award, which is wrong, and which is at the root of the award so that without such propostion the award is not sustainable. It might be that the commercial contract has to be looked into to demonstrate that the proposition of law contained in the award is wrong. It can be looked into only when the commercial contract or the required material part of it forms a part of the face of the award, otherwise, even if the error of law might be demonstrable with reference to it, the award is not vitiated.

22. The best and the oldest authority for our purposes for this, is the case of Champsey Bhara, reported at AIR 1923 Privy Council 66.

23. Although the case is old, it is still good law. It should be read, and the judgement is not too long, just about three pages to understand the basics of arbitration law. It explains what is a part of the award. It explains that for setting aside an award for error apparent on its face the materials to be looked into must either form part of the award or be in some document or other paper appended or annexed to the award. It is not permissible for the Arbitration Court to rummage through the commercial contract even though it does not form part of the award. Thus, one cannot even look at the commercial contractual clause prohibiting grant of escalation, and thus come to the conclusion that the Arbitrator has erred in law, unless that prohibition clause is apparent on the face of the award itself.

24. In so far as the comparatively old Supreme Court authorities, which lay down the above propositions also, are concerned, and which bind us, it suffices to mention the case of N. Chellappan, a decision of a Bench of strength 3, the case being reported at AIR 1975 SC 230, and Sudarsan Trading, a decision of a Bench of strength 2, reported at AIR 1989 SC 890.

25. In so far as new authorities are concerned, which are equally binding upon us, mention has to be made of the case of the State Of Orissa v. Sudhakar Das (Dead) By Lrs, which is a short judgement delivered by a Bench of strength 3, the report being at (2000) 3 SCC 27, of two cases, each decided by Supreme Court Benches of strength 2, being the case of New India Civil and Balasore Technical, reported at AIR 1997 SC 980 and (2000) 9 SCC 552; the last of these cases mentions the case of Chellappan and also the case of Associated Engineering, a decision of 1991, wherein also the escalation prohibition, and consequent setting aside of award were decided upon in a similar manner.

26. There is absolutely no doubt that the older authorities pull us in one way, compelling us to uphold the award and the new authorities pull us the other way, compelling us to upset the award. Each side has a decision of a Bench of strength 3.

27. In a situation of this nature, it was opined by A.M Bhattacharjee, J., as His Lordship then was, sitting in a Special Bench, in the case of Bholanath Karmakar, reported at AIR 1988 Cal. 1 that, in a situation like this, the High Court is bound to follow that view of the Supreme Court, which, according to it, is better. Although the High Court has no jurisdiction to change in any manner the proposition of law laid down by the Supreme Court, yet it also has no jurisdiction to refuse to decide the matter until a sufficiently large Bench of the Supreme Court should set the entire controversy at rest. Until that is done, the High Court must choose that view amongst those of the Benches of the Supreme Court of equal strength, which according to it, is sounder. In the Special Bench Judgement in the above case it was said at paragraph 14, “……….where there are contrary decisions of the Supreme Court rendered by Benches of equal strength the High Court, in theory, being bound by each one is, in effect, bound by none and is not necessarily obliged to follow the later in point of time but may follow the one which, according to it, is better in point of law.”

28. In our opinion the older authorities of the Supreme Court being more in line with the usual Arbitration Law, we, with all due respect to all concerned, follow those. We mention here in passing that with the coming into force of the new Arbitration Act of 1996, the trend of refusing to allow parties to litigate in an ordinary manner, where they should rather go to Reference, has gained even greater momentum. So also has the bond of upholding awards, and making arbitrators full judges of the cause before them, even allowing them to rule on their own jurisdiction initially. Thus the old law accepted by the Supreme Court has become, with the new enactment, not obsolete but even stronger and even more correct.

29. So far as the interest part is concerned, we are in the happy position of being able to follow the dicta of the Supreme Court given in recent authoritative cases, which leave no manner of doubt about the Arbitrator's power to grant interest.

30. The periods for which the Arbitrator can grant interest are—

(1) Before the start of Reference which is parallel to the pre-suit period.

(2) During the pendency of the Reference which is parallel to pendente lite interest granted by the Courts of law;

(3) Interest between the date of the Award and the date when the Award should become a Rule of Court;

(4) After the decree has been passed by the Court, where the Court retains jurisdiction and it is not the Arbitrator who alone functions.

31. The cases recently decided are the Constitution Bench decision given in the case of Executive Engineer, Dhenkanol Minor Irrigation, reported at AIR 2001 SC 626 and, a most helpful (with respect) two Judges decision given in the case of T.P Georg v. State of Kerala, reported in JT 2001 (2) SC 438.

32. On the basis of the above the Arbitrator's jurisdiction to grant interest is in no manner curtailed for the period even prior to Reference. We are of the opinion that if a contractor can prove completion of work at certain time, which cannot be done without expenditure of money, by ordinary commercial principles, if the contractor is left unpaid, he can justly claim reasonable interests on his spent money.

33. For the above reason both the Appeals are dismissed, but without any order as to costs.

34. It appears that at the time of admitting the Appeal security was taken from the Appellants. As per the letter of their learned Advocate and Solicitors. Fox and Mondal dated 15th February, 2000 the security has taken the from of fixed deposit receipt dated 8.2.2000 for the sum of Rs. 33,11,600/-.

35. The copy letter, copy F.D receipt and three other sheets stapled together and handed over to us on behalf of the respondents be kept in Court as part of the Appeal papers countersigned by our Court Officer.

36. Since the grant of interest by the Honourable Arbitrator was 12% right from 1984 and as the balance principal sum is Rs. 12 lakhs interest exceeds the principal by far and the total amount goes above the F.D amount of Rs. 33 lakhs and odd.

37. The deposit was also made for complying with the Appellate order dated 4.1.2000 where the awarded amount was directed to be deposited.

38. Since we have dismissed the Appeals, we direct that the State Bank of India, Haldia Port and its Manager and concerned officers do had over the said fixed deposit amount alongwith all interest accrued to the respondent within a period of fortnight from date hereof. The said officers will act on an authenticated copy of the judgement and order. The Calcutta Port Trust, Haldia Dock Complex in whose name the FD lies shall, along with their concerned Trustees and Officers, render all assistance to the State Bank of India in causing encashment of the said F.D amount and payment over to the respondents. The Bank Officers shall make payment as ordered notwithstanding that the F.D was due to mature on 8.2.2001, and has probably not been renewed yet.

39. Mr. Majumdar prays for stay of operation of this order, but such prayer for stay is refused.

40. All parties and all others concerned will act on a signed copy of the judgement on the usual undertakings to have the order perfected.

Ajoy Nath Ray, J.

P.K Chattopadhyay, J.

Both the appeals dismissed.

Stay of Operation refused.

S.K.P