JUDGMENT
B. Seshasayana Reddy, J.
1. This Civil Miscellaneous Appeal is filed under Section 39 of the Indian Arbitration Act, 1940 questioning the order dated 5.1.20.00 passed in O.P.No.14 of 1990 on the file of 1st Additional Senior Civil Judge, Visakhapatnam, whereby and where under the learned Additional Senior Civil Judge allowed the application filed under Section 30 of the Indian Arbitration Act, 1940 and set aside the award dated 25.9.1989 and directed the appellant herein to pay seigniorages fee and cess amounting to Rs. 27,84,617.10 together with interest @ 12 percent from 23.6.1988.
2. Back ground facts of the case, in brief, are:
Visakhapatnam Port Trust (hereinafter referred to as Claimant) invited tenders for execution of C2 and C3 contract works. They are land based works at Lova Gardens, and Marine Works and break water construction. Continental Construction Company (hereinafter referred to as the Contractor) submitted tender and the same came to be accepted after due negotiations. The letter of intent for both C2 and C3 contracts were issued on 7.5.1971 and agreements were entered into between the parties. The contractor was permitted to use the quarries of the claimant and the claimant agreed to pay value of sized rocks. The contractor agreed to pay royalty to the claimant @ Rs. 2.50/- per 100 eft. However, royalty was to be paid only on quantity of rock actually used on works. While quarrying operations were in progress, demand notices came to be issued by District Revenue Officer under A.P. Minor, Mineral Concessions Rules demanding seigniorage fee. District Collector, Visakhapatnam attached the dumpers of the contractor. Thereupon, the contractor filed W.P.No.3386 of 1974, The said writ petition came to be allowed on 9.12.1974 directing the District Collector to issue appropriate notice to the claimant and the contractor. Accordingly, notices came to be issued to the contractor and the claimant. Ultimately, liability to pay seigniorage fee came to be fastened on the claimant by the Department of Mines and Geology vide proceedings No. 2195/Sl/75 dated 14.9.1978 of the Director of Mines and Geology, Hyderabad.
3. The claimant filed W.P.No.4940 of 1978 assailing the order of the Director of Mines and Geology as confirmed by Government of A.P. The said writ petition came to be allowed in part setting aside the penalty and giving liberty to the claimant to recover seigniorage fee if it is permissible according to law. For better appreciation, we may refer the relevant portion of the order and it is thus:
It is well settled that levy of penalty is not automatic nor is the levy at ten times obligatory. It depends upon the facts of a given case. The Collector himself had informed the petitioner on an earlier occasion that no such permission is required. The petitioner bona fide believed in the said representation, and did not think it necessary to apply for permission for the said quarrying. There was also some ambiguity about the language of the proviso to Rule 5(1). In all the circumstances, the levy of penalty, in our opinion, is totally unwarranted and uncalled for. After all, the petitioner is a public sector concern, and it cannot be believed that it carried on quarrying operations inspite of knowing that it is illegal. Not that we are saying that such knowledge is necessary. What is important is the letter of the Collector dated 28.2.1970, which clearly told the petitioner that such permission is not necessary. In these circumstances, the levy of penalty must be held to be bad.
The writ petition is, accordingly, allowed in part, and the levy of penalty in a sum of Rs. 2,03,25,672.90 ps., is quashed. The rest of the demand shall, however, stand undisturbed. There shall be no order as to costs.
So far as the question as to who is liable to pay the said fee is concerned, it is a matter between the petitioner and the contractor. The contractor is not represented before us. Without hearing him it is not possible for us to express any opinion on the said question. We, therefore, decline to express any opinion on this question. If, however, the petitioner thinks that it is entitled to recover the said amount of fee or cess from the contractor, it is open to it to adopt such remedies as are open to it according to law.
4. The claimant invoked clause 67 of the contract and requested the ‘engineer’ to enter into arbitration and adjudicate upon the dispute. The ‘engineer’ failed to give his decision within the time provided in the contract. Therefore, the dispute was referred to two arbitrators; one appointed by the claimant and the other appointed by the contractor, as provided in clause 67 of the agreement. The arbitrators did not make agreed award and therefore the dispute came to be referred to an Umpire.
5. Before the learned Umpire, the claimant submitted its claim along with the supporting documents. The contractor filed counter disputing the claim of the claimant. The claimant also filed rejoinder. The learned Umpire, on considering the material brought on record and on hearing learned Counsel for the parties, came to the conclusion that it is the claimant who has to pay seigniorage fee, being the owner of the quarries. For better appreciation, we may refer the relevant portion of the award passed by the learned Umpire and it is thus:
In view of the above conclusion reached by me it may not be necessary to seriously consider some other contentions advanced by the respondent. It has been argued that the claimant is not entitled to retain the royalty paid to him by the respondent and that it is to be paid to the Government in lieu of seigniorage fee. It is, further argued that the word royalty is synonymous with seigniorage and the respondent having paid the royalty to the claimant he must be deemed to have paid the seigniorage. I cannot accept these contentions. The respondent having undertaken to pay royalty to the claimant under the terms of the agreement, cannot now escape from this liability or challenge the right of the claimant to receive the royalty. Though, the two words royalty and seigniorage may be synonymous yet under the terms of the agreement the royalty is payable to the claimant as the owner of the quarries while seigniorage is payable only to the Government for unauthorized quarrying of stones from the mines.
But as in my view the respondent is not the owner of the mine within the meaning of the Section 2(1)(L) of the Mines Act, it cannot be made liable to pay the seigniorge either under law or under the terms of the contract. The claim of the claimant to recover the seigniorge from the respondent is therefore, rejected.
6. The claimant filed O.P. under Section 30 of the Indian Arbitration Act, 1940 before the 1st Additional Senior Civil Judge, Viakhapatnam to set aide the award dated 25.8.1989 and direct the contractor to pay seigniorge fee and cess. The claimant contended before the court below that the contractor utilized the quarry for extracting rock and since the contractor received the value of rock, it is the contractor who is liable to pay seigniorge. It was also contended before the court below that under the terms of the contract, it was the contractor who has to pay all the fees payable to the Government. Whereas the contractor contended before the court below that it was the claimant who is the owner of the quarries and therefore the claimant is liable to pay seigniorge fee. The court below, on considering the rival contentions of the parties, came to the conclusion that the Umpire has not considered the settled legal position and also the documents placed on record and thereby misconducted himself in disallowing the claim of the claimant and accordingly set aside the award and directed the contractor to pay Rs. 27,84,617.10 with interest @ 12 percent, by judgment dated 5.1.2000. For better appreciation, we may refer paragraphs 14 to 17 of the order of the court below and they read as under:
14. In the present case also it is evident that there is an error committed by the learned Umpire in not considering the legal position and there is a mistake with regard to the legal position on the face of the record.
15. Apart from these as rightly contended by the learned Counsel for the petitioner as seen from the entire award the learned umpire has not considered the two documents (Annexure-A of the claim statement) are not at all discussed and considered by the learned arbitrator. The learned Counsel for the petitioner has submitted since the learned Umpire has not considered the above said two documents, it amounts to legal misconduct on the part of the Arbitrator and the award is liable to be set aside. In support of his contention he placed reliance on the decision in Dandasi Sahu v. State of Orissa wherein it has been held as under:
Arbitration Act, 1940 – Section 30 and 16 – legal mis-conduct – Non-application of mind – Award amount disproportionately excessive – Held vitiated by non-application of mind.
Though the Arbitrator is not bound to disclose as to what interpretation has made and what inference he has derived from the documentary evidence, he is bound to refer in the award, that he had considered all the documents placed before him no matter whether he relies on them or discards them from consideration. The arbitrator in his award in this case ex-facie did not mention that he had referred to consider the documents placed before him in respect of the original claim.
16. As it is evident from the award passed by the learned Umpire that there is an error of Law on the face of the record in connection with the determination or the point that he is the owner (as per the Mines Act) I hold that the award passed by the learned Umpire is liable to be set aside.
17. In the result, the petition is allowed with costs. The award passed the learned Umpire dated 25.8.1989 is set aside holding that the respondent should pay the seigniorge charges, cess and mining of Rs. 27,84,617.10 together with costs and interest at 12 % per annum from the date of judgment of the Hon’ble High Court of A.P.
The order passed by the court below is under challenge in this Civil Miscellaneous Appeal.
7. Heard learned Counsel appearing for the appellant/ contractor and learned Counsel appearing for the respondent/claimant?
8. Learned Counsel appearing for the contractor submits that the court below went beyond its jurisdiction in upsetting the finding recorded by the Umpire. He would further submit that the contractor does not come within the meaning of ‘owner’ of the quarry as defined under the provisions of Mines Act, 1952 and in which case he is under no obligation to pay seigniorge fee. A further contention has been advanced by him that the terms of the contract did not provide payment of seigniorge fee by the contractor and that the Umpire considered the terms of the contract in right perspective and came to the conclusion that the contractor had no independent right in quarries and was acting only as an agent of the claimant. To buttress his submissions, reliance has been placed on the decisions of Supreme Court in Union of India v. Kalinga Construction Co. , Hindustan Tea Co. v. K. Sashikant and Co. , Puri Construction Private Limited v. Union of India , BOC India Ltd. v. Bhagwati Oxygen Ltd. (2007) 9 SCC 503 and the decision of Delhi High Court in A.I.I. of Medical Sciences v. American refgn. Co. Ltd. .
9. In the first cited decision, the Supreme Court held that in a proceeding to set aside award, the court cannot sit in appeal over the conclusion of the arbitrator by re-examining and reappraising the evidence considered by the arbitrator. In the second cited decision, the Supreme Court held that where the award which was a reasoned one, it could not be set aside on the ground that the arbitrator acted contrary to the provisions of Section 70 of the Contract Act. In the third cited decision, the Supreme Court held that when a Court is called upon to decide the objections raised by the party against an arbitration award, the jurisdiction of the Court is limited, as expressly indicated in the Arbitration Act, and it has no jurisdiction to sit in an appeal and examine the correctness of the award on merits with reference to the materials produced before the arbitrator. The Court cannot sit in an appeal over the views of the arbitrator by re-examining and re-assessing the materials. In the fourth cited decision, the Supreme Court held that the arbitral award could not at all be interfered with as it was neither based upon an unsound legal proposition nor had an erroneous legal proposition being established.
10. It is further held that when arbitrator had taken a plausible view of the interpretation of the contract, court cannot set aside the award on the ground of mis-conduct of arbitral proceedings. In the fifth cited decision, the Delhi High Court held that an award cannot be impeached on the ground of an error on the face unless some legal proposition is stated which is the basis of the award and which can be said to be erroneous.
11. Learned Counsel appearing for the claimant submits that the terms of the contract are clear and there is no scope for any ambiguity that it is the contractor to pay all the necessary taxes or fees payable to either State or Central Government or Corporation. He would further submit that “Instructions to Tenderers’ forms part of the contract and a reading of the ‘Instructions to tenderers’ gives a clear indication that a bill of quantities shall be inclusive of sales tax, royalty, octroi, custom and import duties or any other State Union or Corporation tax or duty or levy or any other imposition of like nature. The terms of the contract and tender conditions have been referred to by the learned Counsel during the course of arguments. In a way the contention of the learned Counsel is that the court below assigned valid, cogent and convincing reasons for setting aside the award of the Umpire and therefore the order of the court below does not warrant interference.
12. While interpreting Section 30 of the Arbitration Act, 1940 the Courts have laid stress on limitation of exercise of jurisdiction for setting aside or interfering with an award in umpteen number of cases. Some of the well recognized grounds on which interference is permissible are:
i) Violation of principles of natural justice;
ii) An error apparent on the face of the record;
iii) The arbitrator has ignored or deliberately violated a clause in the agreement prohibiting the dispute of the nature entertained;
iv) The award on the face of it based on a proposition of law, which is erroneous.
If the arbitrator has mis-conducted himself of the proceedings, then the impugned award is certainly liable to be set aside. If the award is contrary to the substantive propositions of law or the. provisions of the Act or against the terms of the contract, it would be patently illegal which could be interfered under Section 30 of the Arbitration Act, 1940. The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. His authority is derived from the contract and is governed by the Arbitration Act.
13. Indisputably, the claimant is the owner of the quarries from where material (rock) has been extracted. The contractor paid royalty to the claimant @ 2.50 for 100 eft. The amount paid by the contractor to the claimant towards royalty is Rs. 20,62,708.05. The dispute is with regard to the payment of seigniorge fee and cess. Initially proceedings were initiated against the contractor and the claimant for recovery of seigniorge fee and penalty, Both of them submitted statements before the authorities disowning their liability. Indeed it is the contractor who initially approached the High Court by filing W.P.No.3386 of 1974 questioning the notice issued by the authorities wherein a demand for payment of seigniorge fee and penalty has been made. The writ petition came to be allowed directing the authorities to issue appropriate notice to both parties (claimant and contractor). Thereupon, the authorities fastened the liability of payment of seigniorage fee and cess on the claimant on the ground that the claimant is the owner of the quarries. The claimant filed writ petition being W.P.No.4940 of 1978 questioning the proceedings of the Director of Mines and Geology, Hyderabad. The writ petition came to be allowed in part setting aside the penalty and giving liberty to the claimant to recover the amount paid towards seigniorge fee and cess in accordance with law.
14. It is the contention of the claimant that the ‘Instructions to Tenderers’ and the agreement entered into in respect of C2 and C3 contracts are very clear with regard to the liability of the contractor to pay all taxes and fees. Per contra, it is contended by the contractor that ‘Instructions to Tenderers’ does not form part of the contract and therefore they cannot be looked into. This contention can be repelled by referring to the definition of the contract in the general conditions where under the contract is defined as follows:
‘Contract’ means the General Conditions, Special Conditions, Technical Specifications, Drawings and priced Bill of Quantities, Schedule of Rates and prices (if any) tender and contract agreement.
The definition of contract in the general conditions indicates that ‘Instructions to Tenderers’ forms part and parcel of it. Clause 9 of ‘Instructions to Tenderers’ reads as under:
9. The rates to be filled in the Bill of Quantities attached herewith shall be inclusive of sales tax, royalty, octroi custom and import duties or any other State, Union or Corporation tax or duty or levy or any other imposition of like nature.
Any corrections to rates shall be supported by the tenderer’s signature thereagainst.
Corrections to quoted rates shall not be allowed after opening of the tender.
Clause 13 of ‘Instructions to Tenderers’ reads as under:
It must be clearly understood that the rates quoted in the Bill of Quantities are to include for everything required to be done by the instructions to the tenderers, conditions of contract, specifications and drawings, and also for all such work as is necessary for the proper completion of the contract although specific mention thereof may not have been made in the specification or drawings. The rates are for works in site and should be inclusive of incidentals necessary for carrying out the works.
15. A plain reading of the above two clauses indicates that the contractor has to keep in mind all the taxes and fee required to be paid while quoting the rate in the bill of quantities. It is an undisputed fact that the claimant paid the value of the rock extracted from the quarries. Indeed it is the contractor who utilized the material from the quarry for converting rocks of required sizes as provided in the contract.
16. It is the obligation of the contractor to take necessary precautions while extracting rock from the quarries. The contractor has also given liberty to secure rock from other than the quarries owned by the claimant subject to the approval of the quantity. For better appreciation, we may refer clause 2(6) of the General Conditions of the Contract vide page 98 of the material papers Vol.2 and it is thus:
2.6 Lova Garden, Dasarimetta Quarry & other quarries:
Lova Garden is located on the south bank of the inner entrance channel, the limits of Lova Garden are shown on drawings No. I-108/G-007/R-1 while P.T. Quarry at Dasarimetta is located near the Visakhapatnam Airport at a distance of about 19 kms from Lova Garden by road. The drawing I-108/G-006 shows the location of the Garden as well as all external quarries, few bore holes were taken in Lova Garden area, the locations and details of these boreholes are given in drawing I-108/G-007/R-1. This drawing also give results of the trial blasting -carried out at quarry T-4 in Lova Garden. Test results to be used for shown/guidance only, on concrete aggregate are under Clause 1, 2 of Special Application. This information is given in good faith and the tenderers shall examine the quarry sites and estimate the quality of the rock and the yield themselves and the claim will be/ no entertained due to any error in the information supplied above. The contractor is at liberty to open quarries in these areas for the purpose of quarrying stones for breakwater construction, however the exact location of quarry shall be selected by the contractor and approved by the engineer.
Royalty will be charged for material excavated or quarried at Lova Garden and Dasarimetta at the rate of Rs. 2.50 per 100 eft. Lova garden and dasarimetta quarries are reserved for containing the stone for contract C2 only.
Other quarry sites suggested for contractor’s consideration are Aganampudi and Patikonda. However, the contractor is free to obtain aggregates from other sources if approved by the engineer and if the aggregates satisfy the necessary tests. The location of the quarries at Aganampudi and Patikonda are also shown on drawing I-108/G-006 and they are at a distance of about 24 and 44 K.M. respectively from Lova Garden by road.
As per the above referred clause, the contractor is free to obtain aggregates from other sources. The contractor is at liberty to utilize the quarries owned by the claimant subject to payment of royalty. Section 2(1)(L) of Mines Act, 1952 defines owner, which reads as under:
2(1)(L) “owner”, when used in relation to a mine, means any person who is the immediate proprietor or lessee or occupier of the mine or of any part thereof and in the case of a mine the business whereof is being carried on by a liquidator or receiver such liquidator or receiver a[x x x x x]; but does not include a person who merely receives a royalty, rent or fine from the mine, or is merely the proprietor of the mine, subject o any lease, grant or licence for the working there of, or is merely the owner of the soil and not interested in the minerals of the mine; but b[any contractor or sub-lessee] for the working of a mine or any part thereof shall be subject to this Act in like manner as if he were an owner, but not so as to exempt the owner from any liability;
A close reading of the above-referred definition indicates that various persons have been classified as owners of a mine. Proprietor, lessee and occupier come within the meaning of owner. The ‘owner’ as defined under Section 2(1)(L) is considered, both the contractor and the claimant come within the ambit of it.
17. Indeed the court below has considered the decision of Supreme Court in Industrial Supplies Pvt. Ltd. v. Union of India to arrive at a conclusion that the contractor also would come within the meaning of owner as defined under Section 2(1)(L). As seen from the award, the learned Umpire at one stage recorded a finding that the contractor and the claimant are equally liable to pay the seigniorge fee and it cannot be said that the contractor alone is liable to pay seigniorge fee. For better appreciation, we may refer the relevant portion of the award and it is thus:
Sri. B.V. Sobha Rao, learned Counsel for the claimant seeks to rely upon the above observations of the Supreme Court in support of the contention that the respondent comes within the definition of ‘owner’ under Section 2(1)(L) of the Mines Act. Firstly, under the above rule laid down by the Supreme Court even if the contractor is construed as the owner, the contractor does not become the sole owner to the exclusion of the real owner. Both are made equally liable for the due observance of the Act. In other words both the claimant and the respondent are equally liable to pay the seigniorge and it cannot be said that the respondent alone is liable to pay the seigniorge fee and the claimant is totally absolved from such a liability. Secondly, the character of the respondent in respect of the working of the quarries owned by the claimant is not similar to that of the contractor in the case before the Supreme Court.
18. Under the Mines Act, both owner and the occupier are liable to pay seigniorgen fee. Let us now look to the terms of the agreement between the parties to decide as to which of the parties undertook to pay the necessary fees including seigniorge fee etc.
19. Clause 26(1) of the General Conditions of the Contract reads as under:
26 (1) The contractor shall give all notices and pay all fees required to be given or paid by any National or State Statute Ordinance or other Law or any Regulation or Bye Law of any local or other duly constituted authority in relation to the execution of the works or of any temporary works and by the rules and regulations of all public bodies and companies whose property or rights are affected or may be affected in any way by the works or any temporary works.
(2) The Contractor shall conform in all respects with the provisions of any such Statute Ordinance or Law as aforesaid and the Regulations or Bye-Laws of any local or other duly constituted authority which may be applicable to the works or to any temporary works and with such rules and regulations of public bodies and companies as aforesaid and shall keep the Board indemnified against all penalties and liability of every kind for breach of any such Statute Ordinance or Law Regulations or Bye Law.
Provided always that the Board will repay or allow to the Contractor all such sums as the Engineer shall certify to have been properly payable and paid by the Contractor in respect of such fees, other than fees which the Contract requires the Contractor to pay, which fees shall be included in the rates and prices entered in the priced Bill of Quantities.
20. Both the counsel referred the above clause copiously in support of their respective contentions. Therefore, we have given close reading of the above-referred clause. Under the proviso to the above-referred clause, the Board i.e. claimant undertook to reimburse all such sums as the engineers would certify to have properly payable and paid by the contractor in respect of such fee other than fee which the contract requires the contractor to pay.
21. It indicates that in case the terms of the contract do not require the contractor to pay such fees, the claimant undertook to reimburse. This clause is to be read along with clauses 9 and 13 of the Instructions to Tenderers. Under clauses 9 and 13 of Instructions to Tenderers, the rates mentioned in the bill of quantities by the contractor are inclusive of all taxes, duty, etc. The seigniorge fee comes within the meaning of any other imposition of like nature. Admittedly, the claimant paid the value of the rock extracted from the quarries. The contractor having received the value of the rock in accordance with the terms of the agreement cannot be permitted to contend that he is not liable to pay the seigniorge fee. If the contention of the contractor is accepted, the claimant has to pay more than what he received as royalty. The royalty received is approximately Rs. 20,62,708.05 and whereas the seigniorge fee is Rs. 27,84,617.10. Such a construction of the terms of the contract tends to absurdity. The learned arbitrator has totally misread the terms of the contract and fastened the liability of payment of seigniorge fee on the claimant. The court below considered the terms of the contract in right perspective and recorded a finding that it is the contractor who is liable to pay seigniorge fee. Therefore, the court below is justified in setting aside the findings of the learned Umpire with regard to payment of seigniorge fee and cess.
22. The next question is with regard to rate of interest. Both the parties contended before the authorities under the Mines Act, 1952 that the material extracted from the quarries had been used for personal use and therefore they were not liable to pay seigniorge fee and cess. Ultimately, the authorities imposed the liability on the claimant. The dispute with regard to seigniorge fee has been dragged for a considerable period.
23. Having regard to the facts and circumstances of the case, we deem it appropriate to modify the rate of interest awarded by the court below. There is depletion in the rate of interest of the financial institutions like Banks etc. The Supreme Court has taken note of substantial reduction of interest rate in Krishna Bhagya Jaya Nigam Limited v. G. Harischandra Reddy (2007) 2 SCC 729 and reduced the rate of interest awarded by the arbitrator to 9 (nine) percent per annum. Accordingly, the award amount shall carry interest @ 9 (nine) percent per annum from 23.6.1988 till the date of payment. In the result, this Civil Miscellaneous Appeal is partly allowed to the extent indicated above. No order as to costs.