1. This is an appeal under Section 39 of the Arbitration Act.
2. The appellant-contractor entered into an agreement in F-2 form with the State Government for construction of a dyke in the Balimela Dam Project for a certain sum of money. Some disputes arose between the appellant and the State Government in respect of that work, and the appellant filed an application under Section 8 of the Arbitration Act in the court of the Subordinate Judge, Jeypore, Dist. Koraput, for reference of the disputes and its claims to an arbitrator to be appointed by the court. The said application was converted to a suit under Section 20 of the Arbitration Act, 1940 (hereinafter referred, to as the Act) and was registered as Title Suit No. 32/73. By the order of this High Court Sri B.R Swamy, Chief Engineer, Roads and Buildings, Orissa, a Chief Engineer in service unconnected with the work in question, was ultimately appointed as the arbitrator in the case. The following questions were referred to him for arbitration:—
(1) Whether the order of the defendant No. 3 rescinding the contract is mala fide, illegal and wrongful?
(2) Is the plaintiff entitled to compensation from the defendant for the loss sustained by them on account of the termination of the work; if so to what extent?
(3) What is the amount due to the plaintiff for the work done till the rescission of the contract?
(4) Whether all or any of the recoveries sought to be made by defendant no. 3 from the plaintiff as indicated in Ext. 7/21 are correct and legal?
(5) Whether the sum of Rupees 8,00,000/- claimed by the defendant no. 3 by enforcement of the Bank Guarantee from the Andhra Bank Ltd. is due from the plaintiff?
(6) Whether the forfeiture of S.D is justified and legal?
(7) Whether the amount of Rs. 2.64 lakhs (Z-19) demanded by way of forefeiture of the S.D from Andhra Bank Ltd. by defendant no. 3 is proper?”
Both the parties filed their respective claims before the arbitrator, who after hearing both the parties submitted his award dated 29-12-77 to the court below. The respondents, on receiving notice from the court about the filing of the said award, submitted their objection to the same challenging the award on various grounds. The Subordinate Judge, Jeypore by his judgment dated 31-8-73 set aside the said award and hence this appeal.
3. The Subordinate Judge has set aside the award mostly on the grounds that (i) the finding of the arbitrator on the question of the rescission of the contract and his award granting performance bonus are illegal due to non-consideration of the material portions of the letter dated 23-11-70 of the Executive Engineer, Balimela Dam Project, to the plaintiff-contractor (hereinafter referred to as the ‘letter dated 23-11-70’); (ii) the question of interest not having been referred to the arbitrator, the arbitrator enlarged the scope of the reference by entering in to the said claim; (iii) the decisions of the arbitrator on Issues 5, 6 and 7 is erroneous on the face of the award as the said decision is based on his erroneous finding that the rescission of the contract by the defendant is illegal; (iv) that the award allowing compensation of Rs. 50,000/- in favour of the plaintiffs towards the staff colony on the ground that the contract was illegally terminated by the defendants, is an error on the face of the award, and the claim on this item was not a part and parcel of the contract; and that (v) the award under item No. 18 is vitiated due to inconsistency.
The court below finds that the above-mentioned defects in the award constitute legal misconduct and on that ground it has set aside the award.
4. Mr. Rath, the learned counsel for the appellant, at first contends that the award is a non-speaking or non-reasoned award, and as the above-mentioned letter dated 23-11-70 has not been made a part of the award or is not in any way incorporated in the award, it was not open to the court below to assess the correctness of the award on any aspect whatsoever by looking at or referring to the contents of that letter. According to Mr. Rath, mere reference to the letter in the narrative portion of the award while dealing with the history of the disputes and the contentions of the parties without quoting or mentioning the contents of the same in the award or annexing the letter as a part of the award does not constitute ‘incorporation’ of the said letter in the award, as that word is understood in the relevant legal parlance, and therefore the court acted illegally in bringing out that letter from the records of the case and utilising the same to test the correctness of the award.
5. Mr. Patnaik, the learned Government Advocate, on the other hand, contends that the question whether the said document is ‘incorporated in the award’ or not is a question of construing award, and in the present case it appears from the award that the main finding and conclusions of the arbitrator are based on the contents of the letter dated 23-11-70 and so the letter is incorporated in the award and forms a part of the same, and hence the court was justified-in looking into that letter for the purpose of assessing the correctness of the award.
6. At the outset it must be said that the award is not a speaking award, that is the arbitrator does not give reasons for his decision on disputed issues or on the amounts awarded by him on the claims and counterclaims of the parties. In the first paragraph of the award he has stated the name of the work in respect of which the dispute arose, the amount for which that work was to be performed, the date of the commencement of the said work and the time stipulated for the completion of the same. In the second paragraph he states how he acted as the arbitrator in this case. In the third paragraph it is merely stated that the claimants submitted their written statement of claims on 10-1-77 and the respondents submitted their counter statement on 10-5-77. In the fourth, fifth and sixth paragraphs the dates on which the case was heard by him and the names of the lawyers who appeared before him for the parties have been mentioned. In the seventh paragraph the total number of items of claim preferred by the contractor and the amounts claimed by him have been stated. In the eighth paragraph it is merely stated that the respondents denied the aforesaid claims and preferred a counter claim of a particular amount against the contractor. In the ninth and the tenth paragraphs it is mentioned that both the parties, on being given full opportunity to produce documents in respect of their claims and to argue their respective cases, produced documents and argued their cases on each item of claim and counter-claim, and that the award was given after thoroughly examining all the documents produced by the parties and after getting clarifications wherever required by the arbitrator. Paragraphs eleventh to fifteenth narrate the facts and history of the case in a nutshell. In the sixteenth paragraph it is stated that as per the letter dated 23-11-70 the contract in question was liable to be terminated in case of continuous default by the contractor to achieve progress for three consecutive months; and that the monthwise programme was communicated on 23-11-70 and the rescission of the contract was communicated on 28-1-71. A gist of the arguments advanced by the claimants has also been mentioned in that paragraph. In the seventeenth paragraph the arbitrator says that after examining all the documents placed before him and on hearing the arguments advanced by the Advocates for both the parties he finds that the rescission of the contract is unjustfied and illegal. No reason for the said conclusion is assigned in the award. In the subsequent portion of the award the items of claim and counter-claim preferred by the contractor and the respondents respectively and the amounts awarded against each of the said items have been narrated in seriatim, without giving any reasons, grounds or basis for the amounts awarded against each item. At the end the net amount which the contractor is entitled to receive has been calculated after deducting the total amount awarded in favour of the State from the total amount awarded in favour of the contractor.
As the arbitrator in arrving at his decision that the rescission of the contract was unjustified and illegal has not given any reason, ground or basis for his said conclusions nor has he stated any reason, basis or grounds for awarding different amounts on the different items of claims and counter claims preferred by the contractor-appellant and the respondents, the award in the present case is not a speaking award.
7. The Court below has found fault with the finding of the arbitrator on the question of rescission of the contract and also on the award given in respect of preference bonus by considering and interpreting in its own way the text and contents of the letter dated 23-11-70. The conclusions in the award on both the above matters, as also in respect of all other matters for decision, are bald findings, without any reason, basis or ground. The letter dated 23-11-70 is neither directly, indirectly or impliedly incorporated in the award, nor the terms, conditions and stipulations thereof are narrated therein. Even the relevant portions of the letter on which the court below has assailed the above conclusions in the award are not quoted or narrated in the award. That letter has not also been made an Annexure to the award. That being the position and the entire award is a non-speaking award, merely because in paragraph 11 of the award it is stated that “This letter indicates that the Department agreed to extension of time till June, 1973”, and in paragraph 16 thereof it is mentioned that it is stated in the said letter “that in case of continuous default by the claimants to achieve the progress for three consecutive months the contract is liable for termination”, it cannot be said that the document is incorporated in the award. So in this case the Court acted illegally in assessing and assailing the findings and conclusions in the award by deciphering in its own way the contents of that letter by possibly bringing it out from the case records of the arbitrator.
8. In Allen Berry's case, (AIR 1971 SC 696). their Lordships after taking into account several other cases have in paragraph 9 of that decision held as follows:
“9. The question whether a can tract or a clause of it is incorporated in the award is a question of construction of the award. The test is, does the arbitrator come to a finding on the wording of the contract. If he does, he can be said to have impliedly incorporated the contract or a clause in it, whichever be the case. But a mere general reference to the contract in the award is not to be held as incorporating it. The principle of reading contracts or other documents into the award is not to be encouraged or extended (see Babu Ram v. Nanhemal C.A No. 107 of 1966, D/- 5-12-1963).** The rule thus is that as the parties choose their own arbitrator to be the Judge in the dispute between them, they cannot, when the award is good on the face of it, object to the decision either upon the law or the facts. Therefore, even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him but such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award will neither be remitted nor set aside notwithstanding the mistake.”
In paragraph 13 of the decision in N. Chellappan's case (AIR 1975 SC 230) their Lordships of the Supreme Court have observed as follows:—
“13. An error of law on the face of the award means that you can find in the award of 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 (see Lord Dunedin in Champsey Bhara and Co. v. Jivraj Balloo Co., 1923 AC 480 : (AIR 1923 PC 66). In Union of India v. Bungo Steel Furniture Pvt. Ltd., (1967) 1 SCD 234 : (AIR 1967 SC 1032) this Court adopted the proposition laid down by the Privy Council and applied it. The Court has no jurisdiction to investigate into the merits of the case and to examine the documentary and oral evidence on the record for the purpose of finding out, whether or not the arbitrator has committed an error of law.”
In this connection the decisions of this Court reported in (1976) 42 Cut LT 787; (1977) 44 Cut LT 666; (1977) 43 Cut LT 633 : (AIR 1978 Orissa 135) and (1978) 45 Cut LT 443 : (AIR 1978 Orissa 121) may also be seen.
9. In the case of K.P Poulose v. State of Kerala (AIR 1975 SC 1259) cited on behalf of the respondents their Lordships declared the award illegal on a consideration of certain documents on record as the award in that case was a speaking award giving detailed reasons for the findings and conclusions arrived at therein. As the award in the case before me is a non-speaking award and the letter dated 23 November, 1970 is not any way incorporated in the award, the court below acted illegally in assailing the correctness of the finding and conclusions in the award by going through and scrutinising the contents of that letter. Hence the findings of the learned Subordinate Judge on the above aspects are without jurisdiction and illegal, and are hereby set aside.
10. The finding of the court below, that the arbitrator's decisions on Issues 5, 6 and 7 are incorrect ‘on the face of the award’ as his said decisions are based on his erroneous finding that the rescission of the con tract by the defendant was illegal, is without jurisdiction, and illegal. For reasons stated above, the Court's finding on the arbitrator's above decision on the question of rescission of the contract is illegal. Hence the conclusion of the court below on the above issues based on the said illegal finding, cannot be sustained, and is hereby set aside.
11. Likewise, the finding of the court below, that the award allowing compensation of Rs. 50,000/- in favour of the plaintiffs in respect of the staff colony is illegal, cannot be sustained as the said finding is based on the court's illegal conclusion that the arbitrator was not justified in holding that the contract was illegally terminated by the defendant. Moreover, the court was also not justified in finding fault with the arbitrator's award on this aspect by saying that the claim on this item was not a part and parcel of the contract. Assessment of damages on this item of claim undoubtedly was necessary for the purpose of determining the total compensation to be paid to the contractor by reason of the arbitrator's leading finding of illegal rescission of the contract. So the court was wrong in finding fault with the award in respect of this item.
12. It has been urged by Mr. Rath that the finding of the Subordinate Judge, that the arbitrator committed misconduct by exceeding his jurisdiction in awarding interest as that was not within the scope of the reference made to him, is wholly incorrect and illegal. He submits that in the facts of this case and in view of point No. 2 referred to the arbitrator for adjudication it is incorrect to say that the question of interest had not been referred to the arbitrator or that he exceeded his jurisdiction in awarding interest in this case. He has also urged that in such cases interest can be awarded by way of compensation. On the other hand, Mr. Patnaik, submits that in this case the question of interest was not referred to the arbitrator and he acted in excess of his jurisdiction and enlarged the scope of the reference without further order to that effect from the court by adverting to the question of interest and granting the same.
He further urged that interest on the amount awarded as damages could not be awarded by way of compensation.
13. In the present case, point No. 2 referred for arbitration is as follows:—
“(2). Is the plaintiff entitled to compensation from the defendant for the loss sustained by them on account of the termination of the work? If so, to what extent?”
In view of the above point of reference the arbitrator was required to assess the total compensation payable to the contractor on all possible scores and grounds in respect of the contract in question. There is nothing in the Arbitration Act or in the arbitration clause in the Agreement or in the order of reference by the Court that the arbitrator was not to grant interest on the principal amount assessed by the arbitrator to be paid as compensation to the contractor. Both the parties claimed interest on their claims and counter claims before the arbitrator. The arbitrator while assessing the total compensation to be paid in a case of this nature can legally take into account the loss suffered by the claimants due to the withholding of payment of the assessed amount of damage for a certain period, and he can justly compensate the claimant for the said loss by awarding a sum equivalent to the interest accruing on the said amount for that period. In Gobind Chowdhury's case (ILR (1977) 1 Cut 664): (1977 Tax LR 1223) it has been held that where interest was not admittedly payable either by statute or by contract, on the ratio indicated in Govindaraju Chetty's case (1967) 56 ITR 465 : (AIR 1968 SC 129), it must be held that though the arbitrator styled the payment as ‘interest’ it was indeed an ex gratia payment by way of compensation worked out through the medium of interest. Their Lordships of the Supreme Court in the case of Union of India v. Bungo Steel Furniture, (AIR 1967 SC 1032) have qouted with approval the observation made by Jervis, C.J in Edwards v. Great Western Railway, (1851) 11 CB 588 as follows:—
“A further answer would be that this is a submission, not only of the action, but of all matters in difference; and the interest would be a matter in difference, whether demanded by the notice of action or not. If the arbitrator could give it, he might give it in that way, notwithstanding the want of claim of interest in the notice.”
In the decision reported in AIR 1963 SC 90 (Waverly Jute Mills, Co. Ltd. v. Raymon and Co. (India) Pvt. Ltd.) it has been observed that:—
“xxxxxxxxxxx
It was open to the parties to enlarge the scope of a reference by inclusion of a fresh dispute, that they must be held to have done that when they filed their statements, putting forward claims not covered by the original agreement, that these statements satisfied the requirements of Section 2(1) of the Arbitration Act, and that it was competent to the arbitrators to decide the dispute. The point to be noticed is that in both, these cases there was no want of initial jurisdiction, but a feeding of existing jurisdiction by an enlargement of the scope of the reference. That this does not involve any question of jurisdiction in the arbitrators will be clear from the scheme of the Act. xx xx xx xx”
In Ashok Construction Company v. Union Of India reported in 1970 SCD 530, Justice Shah, in answering the question as to whether the arbitrator could award interest by way of damages for detention of money, has held that if the arbitration agreement did not exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amount due under the contract then his award on that account cannot be said to be invalid. That being the view of Justice Shah in the above-mentioned case his Lordship's decision in Rallia Ram's case (AIR 1963 SC 1685) must be confined to the facts of that case. Moreover, in the latter case the agreement had been cancelled by mutual consent, and that possibly was the prime reason for disallowing payment of interest.
In The State of Orissa v. R.S Das, (1977) 44 Cut LT 666 it has been observed in para 4 that the question of payment of interest, is certainly a matter incidental to the final settlement of the claim.
In three Division Bench decisions of this Court it has been laid down that the arbitrator has jurisdiction to award interest from the due date, (1971) 37 Cut LT 937; ILR (1973) Cut 1218 (para 12) and ILR (1977) 1 Cut 684 at p. 677): (1977 Tax LR 1223)
On the facts of the present case and the law on the point as stated above there is no reason to hold that the arbitrator was not competent in awarding interest in this case.
14. Apart from the above consideration both the parties claimed interest on their claims and counter claims. They possibly did so as they were conscious of the fact that payment of interest was covered by the above-quoted point No. 2. Moreover, the parties by demanding interest on their claims and counter claims submitted to the jurisdiction, of the arbitrator to assess the quantum of interest on their respective claims and counter claims. Neither of them challenged the arbitrator's right to grant interest and there is nothing in the agreement to prevent the arbitrator to grant interest in this case. The Chief Engineer, who acted as the arbitrator in this case, was expected to know the usage of the trade in such cases. So the award of interest by him can justly be attributed to the usage of the trade in this case, (See AIR 1938 PC 67). On the above considerations also grant of interest by the arbitrator cannot be questioned.
15. Mr. Patnaik's contention, that in view of the decision in The Union Of India v. A.L Rallia Ram, (AIR 1963 SC 1685) and the decision in Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji, (AIR 1938 PC 67) interest cannot be allowed by way of damages caused to the respondents for wrongful detention of their money, cannot be accepted.
The facts on which questions of law raised in these two cases were decided are entirely different. In Rallia Ram's case the respondent claimed before the umpire, that he was entitled to interest on the money borrowed by him from his bankers for meeting his obligation under the contract. The considerations on which the claim of interest on the said amount was disallowed (See paragraphs 19 to 23) are entirely different from the reasons justifying payment of interest in the present case, and so the decision disallowing payment of interest in Rallia Ram's case cannot be applied to the present case.
The case reported in AIR 1938 PC 67 (supra) does not lay down a general rule that no interest can be paid by way of damages or compensation in any case whatsoever. That case was in respect of a suit, for an action against a Railway company for remuneration for the work done by the contractor not covered by the contract. In that case in answering the question, whether under Section 73 of the Contract Act interest could be recovered as damages when interest was not recoverable under the Interest Act, it was observed that the said section did not deal with the right of a creditor to recover interest from his debtor on a loan advanced to the latter by the former and so the former was not liable to make good to the latter anything except the principal sum which he promised to pay together with interest upto the date of payment and he was not liable to pay damages of a remote character. There is nothing in the said decision to say that interest in any case or in a case of the present nature cannot be granted as ex gratia payment by way of compensation. Rather in the left hand column at page 70 of that decision it has been observed that interest for the period prior to the date of the suit may be awarded” xx xx xx or if it is payable by the usage of trade having the force of law or xx xx xx.”
On the above considerations the finding of the court below that the arbitrator acted without jurisdiction in awarding interest in this case and the contentions of Mr. Patnaik in support of that finding are without any weight or substance.
16. The contention on behalf of the State, that the arbitrator misconducted himself by not giving any decision on point No. 5 referred to him by the court, is not tenable.
It appears from the judgment of the court below that the question of failure to decide point No. 5 was not agitated before that court in any manner whatsoever. It is stated by Mr. Rath that the dispute in respect of this matter did not exist at the time of the arbitration as is evident from the counter-claims preferred by the State before the arbitrator, and so the arbitrator was not required to decide that question, and hence the misconduct alleged is without any substance.
After the arbitrator took up the arbitration proceeding the claimant submitted its written statement of claims before the arbitrator on 10-1-1977 and the respondents submitted their counter statement containing their counter-claims against the claimant on 10-5-1977. Both the claims and the counter-claims are exhaustive as is evident from the award. As the claim of the State against the contractor on which point No. 5 was framed and referred by the court to the arbitrator was not included in the statement of counter-claims filed by the State at the stage of the arbitration proceeding it can be said that the claim on this account did not exist at that stage. Moreover, there is nothing in the award to show that the State in any manner agitated this claim before the arbitrator. In paragraphs 9 and 10 of the award the arbitrator says that both the parties were given full opportunity by him to produce documents' in support of their respective claims against each other and to argue their case; and he thoroughly examined all the records produced by them, and after obtaining from them all necessary clarification, explanation and details of the work and on a perusal of all materials on record and considering all the allegations and contentions of both the parties and giving due consideration to all materials and matters placed before him, he drew up the award. Thus, it is evident from the award that the arbitrator applied his attention to all the matters and questions raised by the parties and considered all materials on record and the submissions of both the parties, and then he proceeded to give his award on the different questions and items of claims and counter claims raised by them.
On the above facts and considerations it cannot be said that the arbitrator has failed to decide the aforesaid question. So, the allegation of misconduct against the arbitrator raised by Mr. Patnaik on the above score is without any weight or substance.
17. The court below finds that the award under item No. 18 of the claim of the contractor is inconsistent with the claim preferred under the said item, and hence the award on this score is vitiated and void. The learned Government Advocate contends that the arbitrator acted illegally and misconducted himself in granting a sum of money higher than that claimed under this item.
The appellant-claimant claimed Rs. 69,000/- under this item, but the arbitrator has awarded Rs. 64,316.70 on this item. It is well settled that in respect of a particular item of claim the arbitrator cannot award a sum higher than that claimed under the said item. (See AIR 1977 SC 2014 at page 2017). Therefore, the arbitrator in granting Rs. 64 thousand and odd against a claim of Rs. 60,000/- under the said item has acted without jurisdiction in respect of this item of claim, and this is an error apparent on the face of the record. But merely because of this defect the award in its entirety cannot be set aside, as urged by the counsel for the State. In the facts and circumstances of this case it would be perfectly legal if the award under this item is confined to the amount claimed under this head, i.e Rs. 60,000/-. So the excess amount of Rs. 4,316.70 Paise awarded on this item is set aside and the award on this item be modified accordingly.
18. The interest amount of Rupees 7,30,679.10 Paise granted in favour of the claimant under item No. 22 of its claim has been calculated on the total sum awarded on the different items of claim including the excess amount awarded under item No. 18. On modification of the award under item No. 18 as ordered above, the interest has to be calculated afresh, and the award under item No. 22 and the total amount of award granted in favour of the claimant will stand corrected and be modified accordingly.
19. The direction of the arbitrator appearing in the 2nd paragraph at page 69 of the paper book to pay further interest on the total amount of award granted in favour of the claimant, for the period from 2-3-1978 till payment of the said amount to the claimant or till the date of the decree whichever is earlier evidenly entails payment of interest on interest granted under item No. 22 of the contractor's claim. This is challenged by Mr. Patnaik as an illegality on the face of the record. I agree that the said award, so far as it relates to payment of interest on the interest amount calculated under item No. 22, cannot be sustained. Hence the said direction to that extent is set aside. But that direction shall hold good in respect of the total principal sum awarded in favour of the claimant under item Nos. 1 to 3, 6 to 9, 11, 15, 16, 18 (as modified) to 20 and 21(a). So the above direction of the arbitrator for the payment of interest for the period beginning from 2-3-1978 stands modified as stated above and the award be modified accordingly.
20. In the facts of this case the claimant should get interest on the principal amount as permissible under Section 29 of the Arbitration Act. It is accordingly hereby ordered that apart from making the above-mentioned payments to the claimant, the respondent shall also pay interest on the said principal sum at the rate of 6 per cent per annum from the date of the decree till the payment of the entire decretal dues to the claimant.
21. In the result therefore the order of the court below is set aside; the award is modified as specifically stated above, and the appeal is partly allowed. Parties to bear their own costs of this appeal.
Appeal partly allowed.