JUDGMENT
Vijender Jain, J.
1. Letter of Intent dated 31st March, 1983 was
issued in favor of the petitioner/Walchand Nagar
Industries Ltd. (hereinafter referred to the ‘WIL’) for
supply, erection and Commissioning of a Clinkerisation
package for 3000 tonnes per day at
respondent/objector’s/Cement Corporation of India’s
(hereinafter referred to the ‘CCI’) Plant at Yerraguntla
Distt. Cuddapah Andhra Pradesh. Disputes arose between
the parties and parties appointed Sh.Y.V. Chandrachud,
retired Chief Justice of India as the sole Arbitrator.
The Sole Arbitrator awarded a sum of Rs. 6,50,74,341/=
along with interest @ Rs. 12 per annum w.e.f. 3.1.1989
until payment. The Arbitrator made his Award on 26th
April, 1995.
2. Mr. V.R. Reddy, learned counsel appearing for CCI
has contended that the Arbitrator has not made any
reference to the additional counter claim filed by CCI
for Rs. 143.29 crores on account of discontinuance of the
work by the will during the arbitration proceedings.
Arbitrator during the course of arbitration proceedings
held on 3rd March, 1992 made reference to the additional
counter claim filed by the CCI and observed that he would
take up the issue of additional counter claim at the time
of the hearing of the entire matter. It was contended by
Mr. Reddy that in the award the arbitrator had not
discussed the additional counter claim of the CCI that
clearly demonstrates non-application of mind and error
apparent on record. It was contended that on this ground
alone, the impugned Award is liable to be set aside or in
the alternative be remitted back to the Arbitrator for
considering the same.
3. Mr. Reddy contended that non-consideration of the
counter claim by the arbitrator amounts to legal
mis-conduct. In support of his contention, learned
counsel for CCI has cited K.V. George v. Secretary to
Government, Water & Power Deptt. Trivandrum and Anr.
, Union of India v. Jain Associates and
Anr. , Indian Oil Corporation Ltd. v.
Amritsar Gas Service and Ors. 1990 (3) SCR Suppl. 196.
4. Secondly, Sh. Reddy assailed the Award on the
ground that the learned Arbitrator awarded an amount of
Rs. 2,66,97,341/- against CCI relying on the Valuation
Report of Mr. A.L. Kochar. Mr. Reddy contended that as
per the Valuation Report of Mr. Kochar, the value of
unadjusted advance allegedly paid by will to its suppliers
and sub contractors was assessed at Rs. 97,41,613/-
whereas the very amount which will claimed separately
under its item No. 2 of annexure 1 to the statement of claim
filed by will was rejected by the Arbitrator on the ground
that there was no privity o contract between CCI and the
persons to whom will is stated to have paid such advances.
What has been contended before me by Mr. Reddy is that the
said amount of Rs. 97,41,613/- having been denied on
account of no privity of contract between CCI and the
persons to whom such advances were paid, award of the
said amount on the basis of the report of the Valuer
Mr. A.L. Kochar was patently erroneous and inconsistent
with its own finding and, therefore, the Arbitrator has
committed legal misconduct in awarding a sum of
Rs. 97,41,613/- and award be set aside.
5. Mr. Reddy has contended that the Arbitrator in
paragraph 32 of the impugned Award has clearly mentioned
that Valuer Mr. A.L. Kochar was appointed for assessing
and valuing the finished equipment work in progress,
material and components in the stock lying at Walchand
Nagar and to verify certain other claims in connection
with Yerraguntla project. Therefore, allowing a sum of
Rs. 97,41,613/- with was on account of payment made to
suppliers and sub contractors was not proper and was
unwarranted. In support of his contention, Mr. Reddy
relied upon K.P. Poulose v. State of Kerala and Anr.
, State of Kerala v. Poulose 1988(2)
Arbitration Law Reporter 15, Ishwar Singh & sons v.
D.D.A. 1994 (1) Arbitration Law Reporter 526, Rajasthan
State Mines & Minerals Ltd. v. Eastern Engineering
Enterprises and Anr. .
6. Mr. Reddy took objection to the award under item
No. 7.1 to the claim statement of the claimant will on
account of dismantling infrastructure to the extent of
Rs. 93.32 lakhs. It was contended that said claim would
be manifestly beyond the scope of the contract as it was
observed by the arbitrator in para 7 of the award that
the cost of overall infrastructure at site was to be
borne by the CCI. It was a contended that neither the
claim statement nor the affidavit contained any
particular with respect to the so called dismantling of
the infrastructure. It was contended that even affidavit
of Mr. S.C. Bhagwat cannot remotely support any claim for
dismantling since infrastructure referred to is not
something to be dismantled by incurring cost and on that
score has assailed the award of Rs. 93.32 lakhs towards
cost of dismantling infrastructure. He says that it
shows non-application of mind by the arbitrator and in
support of his contention has cited Dandasi Sahu v.
State of Orissa , State of Orissa v.
Orient Paper & Industries Ltd. .
7. The next objection of Mr. Reddy was to the award
of a sum of Rs. 2 crores towards loss of profit due to
non-execution of orders in given period. Mr. Reddy
contended that the award does not disclose the basis on
which this figure has been arrived at. Mr. Reddy has
contended that no basis has been given in the award as to
why from a claim of Rs. 4 crores which was claimed by the
claimant on loss of profit, the arbitrator has awarded a
sum of Rs. 2 crores. Lastly, it was contended by Mr. Reddy
that the unadjusted advance recoverable from will was
substantial sum of Rs. 4.87 crores which was the advance
paid on the will under the contract and the same remained
unadjusted and any amount which was found payable to WIL
by CCI was to be adjusted towards the said advance and
payment of the balance to CCI ought to have been provided
for. Mr. Reddy took exception to the reasoning given by
the arbitrator on the plea of will that will has not
diverted the said amount for any other purpose and items
worth more than the amount given as unadjusted advance
were manufactured by WIL, its vendors and sub-contractors
and advance paid by the CCI was utilised by will for
procurement of services, establishing infrastructural
facilities, incidental and related outlays like travel,
office expenses and overheads.
8. Controverting the arguments of Mr. Reddy, Mr. Arun
Mohan, learned counsel for the will argued that argument
of the CCI regarding award of Rs. 93.52 lakhs was not
based on any evidence, is not correct as far as Award
under item No. 7.3.1 is concerned. The said amount was
granted by the arbitrator based on the evidence which was
filed on behalf of will by Mr. V.K. Heblikar and
Mr. Bhagwat who had deposed in their affidavits that the
aforesaid sum of Rs. 93.52 lakhs was spent by will as
dismantling cost of infrastructure. It was contended by
Mr. Arun Mohan that opportunity was given by the
Arbitrator to cross examine the said deponents which was
not availed by the CCI.
9. Learned counsel for will has contended that the
arbitrator was the best judge to adjudicate upon the
disputes as letter of contract was issued on 31.3.1983
and the project completion date was 31.7.1986. Import
license was to be obtained by the CCI but it could not
obtain the same till August, 1985. As per the contract
in October, 1985 letter of credit was to be opened and
opening of letter of credit was condition precedent to
the fulfillment of the obligation under letter of intent.
As back as 22.2.1986, will informed CCI that all the
activities relating to the project has come to a stand
still since CCI lacked necessary funds. On 17.3.1987 CCI
informed that project was re-scheduled for commissioning
in October, 1989. However, in August, 1987, i.e. 2 &
1/2 years after the contractual date partial LC was
opened. Requirement of the LC was for Rs. 22 crores . CCI
could only opened partial LC for Rs. 2.75 crores and in
this background the arbitrator entered upon the reference
on 3.3.1989.
10. will claimed Rs. 19 crores on the ground that CCI
was in breach of the contract. Mr. Arun Mohan contended
that CCI in turn contended that will was in breach.
Objector CCI filed a counter claim of Rs. 68 crores and
later on they made an additional claim of Rs. 143 crores.
Learned counsel for the non-objector contended that the
disputes was one of pure fact and the question before the
arbitrator was who was in breach and what was the extent
of loss and to whom.
11. Mr. Arun Mohan contended that in order to
understand the award, one cannot pick and choose one para
of the award as award runs into 66 pages and if one goes
to the layout of the award after giving the history of
the matter, the award begin with the process of fact
finding from para 18 and after discussing the same till
para 21, arbitrator returned its finding in para 22 read
with para 20.34 that it was CCI who was in breach of the
contract and responsible for the delay. Counsel for
non-objector contended that it was wrong on the part of
CCI to say that the non-consideration of the additional
counter claim would vitiate the award. It was contended
by Mr. Arun Mohan that one has to understand as to what
was additional counter claim. The additional counter
claim was filed on the basis of the averment made by the
CCI that they were ready and willing to go ahead with the
work but the contractor was not working. Same was based
on the hypothesis that failure of the contractore to
continue to irk caused CCI a loss of Rs. 143 crores. It
was contended by Mr. Arun Mohan that additional counter
claim was nothing but sequel to the fact finding as to
who was in breach.
12. It was contended that the additional counter
claim of the CCI related to the same items at same rates
which found part of the original counter claim. The
additional counter claim was for an extended period up to
january, 1992. It was contended by Mr. Arun Mohan that
since the contractual relationship between will and CCI
ended on 7th March, 1987 as has been observed in the
award, claims for period from Objector, 1988 to January,
1992 are irrelevant and without any basis. He relied
upon the observation of the arbitrator in para 30 of the
award that after 17th March. 1987 contractual
relationship between the parties came to an end and on
the basis of the above observation it was contended
before me that the additional counter claim pertained for
a period after October, 1987 to January, 1992 during
which time there was no contractual relationship between
WIL and CCI. It was contended by Mr. Arun Mohan that para
39 of the award dealt with various counter claims and in
para 39.6 each of the nine counter claims stood rejected.
Therefore, there was no need for the Arbitrator to again
dwell on the additional counter claim which was rejected
as the additional counter claim was nothing than the
original counter claim. The award was to be read in
entirety. In support of his contention, learned counsel
for will has relied upon J.G. Engineering v. Calcutta
Improvement Trust .
13. Repelling the contention of Mr. Reddy, counsel for
WIL contended that the valuation report of Mr. A.L.
Kochar was perfectly in order and valuation as such was
agreed by CCI. He has contended that Mr. Kochar was
appointed by the arbitrator at the instance of CCI his
name was also supplied by CCI. It was contended by
Mr. Arun Mohan that there was no need for the arbitrator
to specifically direct CCI to take the semi-finished or
finished equipment as per the report of Mr. Kochar as in
para 38.8 of the award it was specifically mentioned “CCI
will take charge of the project on as is where is basis”.
14. Controverting the argument of the learned counsel
for CCI that the arbitrator could not have allowed cost
on account of dismantled infrastructure it was contended
that in answer to the claim of the claimant/WIL, there
was no denial in CCI’s written statement on this claim.
It was further contended that on the aforesaid claim
evidence was given by Mr. S.C. Bhagwat, who was not
cross-examined at all as also by Mr. Heblikar who also
made a statement, even he was not cross-examined. It was
contended that for such a large project there had to be
an infrastructure. The work remained idle for 69 months
and had to be dismantled and Rs. 1.35 lakhs per months
awarded by the arbitrator was only a pittance as compared
to what the CCI spent on its own infrastructure for that
kind of project. It was also contended that what was
allowed by the arbitrator was not for dismantling of any
infrastructure but the claim pertained to creation of
infrastructure by WIL, comprising of experts, necessary
office accommodation and reserving manufacturing
facilities for execution of this large size one million
ton per annum turkey project which was to be completed
on a time bound schedule and was subject to stringent
liquidated damages. Learned counsel for will contended
that the claim on this head was for Rs. 366.84 lakhs which
was totally justified by Mr. Bhagwat in his affidavit.
The arbitrator only awarded a sum of Rs. 93.32 lakhs on
this score and even otherwise this finding of the
arbitrator was a finding of fact and this Court would not
interfere in the said finding.
15. Mr. Arun Mohan further contended that the claim
towards loss of profit and award of Rs. 2 crores towards
loss of profit cannot be considered in any way an error
apparent on the record of the arbitrator. It was
contended that all the claims were duly supported by an
affidavit of Mr. S.C. Bhagwat and the amount claimed
under this head was Rs. 495.63 lakhs plus interest at the
rate of 18% per annum from 1.1.1988 till the date of
payment and the loss of profit and the particular of the
same was given in Annexure marked as ‘Exhibit Q’ of the
affidavit. It was contended before me that the project
was abandoned in mid stream and contractor lost an
opportunity to earn profit on the contract as well as
earn bonus of 5% of contract value (Rs. 185 lakhs) if it
had been allowed to execute the job without delay from
CCI.
16. Lastly it was contended that unadjusted advance
amounting to Rs. 97.42 lakhs given by the arbitrator
cannot be faulted with as the award has its own layout
and its own feature and if the award is read as whole
in its entirety, the sum of Rs. 97.42 lakhs awarded in
favor of the claimant are correctly awarded by the
arbitrator. The refusal to award the same in para
38.3(d) of the award cannot be read in isolation. It was
contended that after returning finding in para 33, the
arbitrator in para 33.1 dealt with the CCI’s contention
regarding adjustment of advance which is reiterated in
specific words at the end of para 33.1. It was contended
that even after para 38.3(d), the arbitrator in para 38.6
reiterated that said amount had to be paid to the
contactor. It was contended that the formal award was
contained in para 38.7 and there was no ambiguity of any
kind in the operative portion of the award and, therefore
on that basis it was contended that the award being a
reasoned award, mental process of the arbitrator cannot
be gone into or examined in reaching the conclusion. In
the judicial mind it was the sum total that matters and
if there was error of expression for one small point, the
award cannot be set aside. He relied upon a judgment of
Supreme Court in Arosan Enterprises v. UOI and Anr.
in support of his submission, where
Supreme Court held :-
“The common phraseology ‘error apparent
on the face of the record’ does not itself,
however, mean and imply closer scrutiny of
the merits of documents and materials on
record. The Court as a matter of fact,
cannot substitute its evaluation and come to
the conclusion that the arbitrator had acted
contrary to the bargain between the parties.
If the view of the arbitrator is a possible
view the award or the reasoning contained
therein cannot be examined.”
17. I have given my careful consideration to the
arguments advanced by learned counsel for both the
parties. In Union of India v. A.L. Rallia Ram , Supreme Court held as
under :
“In order to make arbitration effective
and the awards enforceable, machinery was
devised by the Arbitration Act for lending
the assistance of the ordinary courts. The
Court was also entrusted with the power to
modify or correct the award on the ground of
imperfect form or clerical errors, or
decision on questions not referred, which
were severable from those referred. The
Court had also power to remit the award when
it had left some matters referred
undetermined, or when the award was
indefinite, where the objection to the
legality of the award was apparent on the
face of award. The Court might also set
aside an award on the ground of corruption or
misconduct of the arbitrator, or that a party
had been guilty of fraudulent concealment or
willful deception. But the Court could not
interfere with the award if otherwise proper
on the ground that the decision appeared to
it to be erroneous. The award of the
arbitrator was ordinarily final and
conclusive, unless a contrary intention was
disclosed by the agreement.”
18. Similarly in Sudarsan Trading Co. v. Govt.
of Kerala Court
observed as under :
“A Court of competent
jurisdiction has both right and duty to
decide the lis presented before it for
adjudication according to the best
understanding of law and facts involved
in the lis by the judge presiding over
the Court. Such decision even if
erroneous either in factual
determination or application of law
correctly, is a valid one and binding
inter parties. It does not, therefore,
stand to reason that the arbitrator’s
award will be per se invalid and
inoperative for the simple reason that
the arbitrator has failed to appreciate
the facts and has committed error in
appreciating correct legal principle in
basing the award. An erroneous
decision of a Court of law is open to
judicial review by way of appeal or
revision in accordance with the
provisions of law. Similarly, an award
rendered by an arbitrator is open to
challenge within the parameters of
several provisions of the Arbitration
Act. Since the arbitrator is a judge
by choice of the parties and more often
than not a person with little or no
legal background, the adjudication of
disputes by an arbitration by way of an
award can be challenged only within the
limited scope of several provisions of
the Arbitration Act and the legislature
in its wisdom has limited the scope and
ambit of challenge to an award in the
Arbitration Act. Over the decades,
judicial decisions have indicated the
parameters of such challenge consistent
with the provisions of the Arbitration
Act…..”
19. It is in these parameters I have to examine the
objections filed by the objector. Broadly speaking the
challenge to the award by CCI is five fold. First,
non-consideration of the additional counter claim filed
by the CCI on 3.3.1992: second, award on account of cost
of dismantled infrastructure; third, claim towards loss
of profit and fourth, accepting the report of the
valuer/assessor, which has two parts (i) report as a
whole and (ii) where it discusses award of Rs. 97,41,613/-
towards payment made by will to its sub-contractors.
20. Mr. Reddy took great pain in contending that as
the additional counter claim was not decision by the
arbitrator, even though the arbitrator had recorded in
its order dated 3.3.1992 that same will be decided at the
time of making the award but in the award nothing has
been said about additional counter claim which was filed
on 3.3.1992, therefore award be set aside. The award
runs into 66 pages. The arbitrator was Justice Y.V.
Chandrachud. The award is not only a reasoned award but
the same is exhaustive in all respects. up to paragraph
17 of the award arbitrator discused in detail the
respective contentions of the parties and took up issue
No. 4 which was an issue as to whether at the materia;
time CCI was ready and willing to perform its obligation
at the time specified in the LOI particularly regarding
the opening of the LC in favor of will and in favor of
other foreign and local suppliers and regarding obtaining
the import license for imported equipments. In para 20.3
of the award the arbitrator returned its finding as
under:
“20.3 These facts and circumstances show that
supplying funds to will against the L/C to
enable it to manufacture or purchase
equipments was a vital term of the LOI. The
opening of the L/C by CCI was in the nature
of a pre-condition to the fulfillment by WIL
of its obligations under the LOI.
20.4 Under Clause 6 of the LOI, CCI had to
arrange for the import license for the
imported equipments within 6 months of the
date of acceptance of LOI by WIL. CCI opted
under Clause 7.1. of the LOI to place the
purchase orders of foreign vendors and pay
the price thereof.
20.5 The correspondence between the parties
shows that though import licenses were to be
arranged by CCI within 6 months, no such
arrangement was made until June, 1986 in
regard to supplies from a foreign supplier
M/s. Hazemaag. In relation to supplies from
M/s Pfeiffer, the L/C was not opened till
June, 1987. In so far as the foreign vendors
are concerned, CCI did not open the L/Cs or
pay the advance until the end of 1985 and the
middle of 1986. The L/Cs in respect of some
of important foreign items were opened by CCI
in 1987. Thus, CCI made it impossible by its
conduct to enable will to commission the Plant
by July, 1986. The relevant letters in this
behalf are dated 5.6.1984, 22.10.1984,
29.1.1985, 13.3.1985, 5.4.1985, 13.8.1985,
14.9.1985, 14.12.1985 and 21.7.1986.
20.6 In paragraph 11 of its written
submissions CCI has raised a new point to the
effect that thee was no need to open the L/C
as provided for in the LOI because “the
parties understood that even before opening
the L/C the payments could be made for the
supplies of the equipments made directly to
the parties on presentation of bills”. Such
is not the evidence, the correspondence
belies the argument and such a stand was
taken for the first time in the written
submissions. In paragraph 9 of his affidavit
(Examination-in-chief) dated 20.5.1991, WIL’s
witness Shri V.K. Hablikar, has stated that
CCI had to establish the L/C one or two
months prior to 1.4.1985. The so-called
understanding between the parties which is
referred in paragraph 11 of the written
submissions was not even put to the witness
in his cross-examination.”
21. Then the arbitrator after discusing in many
sub-paras returned the finding in following terms in
para 20.12 which is as under :
“These facts and circumstances show
that will was disabled from performing its
part of the contract on account of the
failure of CCI to perform its obligations
under the contract. The financial constrains
which faced CCI constituted a stumbling block
in its commitment to perform its obligations
under the contract.”
22. And after exhaustively discussing all the
aspects of the controversy and the issues raised before
him, the arbitrator returned its finding that it was CCI
and not will which was responsible for the delay in
completing the project on Schedule. An application was
filed before the arbitrator by the CCI during the
pendency of the arbitration proceedings the during the
pendency of the arbitration proceedings will be directed
to continue to perform its obligation under the letter of
intent and that should be treated as a preliminary issue.
The arbitrator had declined this prayer. CCI preferred
an appeal to the High Court, the same was dismissed.
Thereafter, CCI filed an SLP before Supreme Court and the
same was also dismissed. Arbitrator, therefore, returned
the finding in para 29 that if the letter of intent
itself is no longer in operation in its original form and
if CCI treated it by its own conduct as non-existent by
altering a material term thereof, will cannot be asked to
continue to work under the original term of the work
under LOI in existence any longer and, therefore, WIL’s
obligation under it have come to an end.
23. This observation has bearing on the objection
of CCI once the arbitrator held that will was under no
obligation to pay any amount to CCI on the basis of the
counter claim, there was no question of not returning a
specific finding on additional counter claim which was
filed much later in 1992. As the additional counter
claim of CCI related to the same item which formed part
of the original claims, the only difference being that
the counter claim first filed by the CCI was against WIL
in respect of period prior to commencement of arbitration
proceedings and the additional claim were extended
version of the counter claim from 1989 till the year
1992.
24. In para 30 the arbitrator gave a finding that
on 17.3.1987 CCI deferred the date of completion of the
project from July, 1986 to October, 1989 which was not
acceptable to WIL. Thus after 17th March, 1987 the
contractual relationship between the parties came to an
end.
25. Once counter claim was rejected by the
arbitrator in view of what is stated above, the
additional counter claim, as a matter of fact, was also
rejected as the same was based on the counter claim
except for extension of a period as I have stated
earlier. The award was a decision of the arbitrator
chosen by the parties. Wrong or right decision was
binding if the same was reached fairly after giving
adequate opportunities to the parties to place their
grievances. By not specifically rejecting the additional
counter affidavit it cannot be said that there has been a
legal misconduct or an error which is apparent on the
award. The award, if read, as a whole in its entirety
dealing with the discussions on he counter claim filed
initially by the arbitrator leaves no scope for any doubt
that the additional counter claim also stands rejected by
the arbitrator.
26. In Food Corporation of India v. Joginderpal
Mohinderpal Supreme Court observed that:
“…..We should make the law of
arbitration simple, less technical and more
responsible to the actual realities of the
situations but must be responsive to the
canone of justice and fair play and make the
arbitrator adhere to such process and norms
which will create confidence, not only by
doing justice between the parties, but by
creating sense that justice appears to have
been done….. It is
necessary to find whether the arbitrator has
misconducted himself or the proceedings
legally in the sense whether the arbitrator
has gone contrary to the terms of reference
between the parties or whether the arbitrator
has committed any error law apparent on the
face of the award. It is necessary to
emphasis that these are grounds for setting
aside the award but these are separate and
distinct grounds. Halsbury’s Laws of England
Vol.2, 4th Edn., para 623 reiterates that an
arbitrator’s award may be set aside for error
of law appearing on the face of it. Though
this jurisdiction is not to be lightly
exercised, the award can also be set aside
if, inter alia, the arbitrator has
misconducted himself or the proceedings. It
is difficult to give an exhaustive definition
what may amount to misconduct on the part of
the arbitrator. This is discussed in
Halsbury’s Laws of England (supra). It is
not misconduct on the part of an arbitrator
to come to an erroneous decision, whether his
error is one of fact or law, and whether or
not his findings of fact are supported by
evidence. See the observations of Russell on
Arbitration, 20th Edn., page 422.”
27. The authority of Indian Oil Corporation (supra)
is of no help to the case of CCI in the facts and
circumstances of this case.
28. That brings me to the next objection of CCI
with regard to award of cost of dismantled
infrastructure. I do not see there is any merit in this
objection. The total contract was for Rs. 37 crores
including all taxes, dues, customs etc. The tender
inquiry was floated on 28th August, 1981 for setting of a
clinkerisation unit. will submitted its tender in
response to the said inquiry on 12.8.1982. Same was
revised on 14.1.1983. CCI issued a letter of intent
dated 31.3.1983 in favor of will for the supply, erection
and commissioning of a clinkerisation packages for 3000
tonnes per day at CCI’s plant at Yerranguntla.
29. Arbitration in para 5 of the award took note
that out of the said amount of Rs. 37 crores, Rs. 607 lakhs
was for machinery/equipment to be manufactured by will in
its own Works, selected sub-contractors’ works and at the
site, Rs. 1726 lakhs for machinery/equipments to be
procured by will from indigenous suppliers, Rs. 738 lakhs
for imported equipment to be procured by will from foreign
vendors being the value according to the exchange rate
prevailing on 15.1.1983, and Rs. 625 lakhs for the cost of
engineering, designs, drawings and services such as
erection, commissioning, transportation, insurance and
storage at site. This amount was sub-divided into Indian
component of Rs. 517 lakhs and foreign component of Rs. 108
lakhs, the conversion value being as of January, 1983.
30. Learned counsel for CCI took the stand that as
there was no material on record to show t hat any expenses
towards infrastructure was incurred and contended that
this part of the award was based on merely conjectures
and surmises. Why I have reproduced the above figures
from the award of the arbitrator is to show that the
arbitrator was aware of the enormity of the project
taking that into consideration that the work which was to
be done within 40 months and the same was extended for 69
months, the work remained idle. The award of
Rs. 1,39,000/- per month cannot be said to be excessive by
the arbitrator. In para 38.3 (i), the arbitrator has
returned the finding in the following words :
“I allow the claim at Item No. 7.1 for
cost of dismantling the infrastructure in the
sum of Rs. 93.32 lakhs. I also allow the
claim under Item No. 7.3 for cost of material
testing, in the sum of Rs. 3 lakhs. I,
however, disallow the claim under Item No. 7.2
in the sum of Rs. 38.99 lakhs for expenses
incurred by will for “traveling for project”.
Thus CCI will pay to will a sum of Rs. 96.32
lakhs for claims under Item Nos. 7.1 and 7.3.”
31. This finding of allowing a sum of Rs. 96.32
lakhs is taking into consideration the whole project and
taking into consideration that in order to start the work
of this magnitude the infrastructure is to be created and
office accommodation, manufacturing facilities were
created and therefore, it cannot be said that the award
of said amount is without any basis. I find force in the
arguments of Mr. Arun Mohan that Mr. Bhagwat and
Mr. Heblikar who have given evidence on this claim were
not cross-examined by the CCI. In any event of the
matter this finding of the arbitrator as a matter of fact
is a finding of fact. Supreme Court in Sudarsan Trading
Co.’s case (supra) observed as follows :
“….. By and large the Courts have
disfavored interference with arbitration
award on account of error of law and fact on
the score of misappreciation and misreading
of the materials on record and have shown
definite inclination to preserve the award as
far as possible. As reference to arbitration
of disputes in commercial and other
transactions involving substantial amount has
increased in recent times, the Courts were
impelled to have fresh look on the ambit of
challenge to an award by the arbitrator so
that the award does not get undesirable
immunity. In recent times, error in law and
fact in basing an award has not been given
the wide immunity as enjoyed earlier, by
expanding the import and implication of
“legal misconduct” of an arbitrator so that
award by he arbitration does not perpetrate
gross miscarriage of justice and the same is
not reduced to mockery of a fair decision of
the lis between the parties to arbitration.
Precisely for the aforesaid reasons, the
erroneous application of law constituting the
very basis of the award the improper and
incorrect findings of fact, which without
closer and intrinsic scrutiny, are
demonstrable on the fact of the materials on
record have been held, very rightly, as legal
misconduct rendering the award 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…..”
32. From the perusal of the discussions in the
award, the award of Rs. 1.39 lakhs per month under this
claim, keeping in view the time frame in which the
project was to be completed, the volume of the contract
and the various factors which I have detailed above, it
cannot be said that the decision of the arbitrator was
based on no evidence and, therefore, constituted legal
misconduct or was based on an error which was apparent on
the record.
33. That takes me to the next objection, i.e.
award of Rs. 2 crores towards los of profit in favor of
WIL. Reading the award in its entirety and keeping the
fact into consideration that the claim of will under this
heading was Rs. 499.66 lakhs plus interest at the rate of
18% p.a. from 1.1.1988 till the date of payment and
affidavit of Mr. Bhagwat having been filed giving
justification for the claim under loss of profit and
specific finding by the arbitrator that it was CCI who
was responsible for not performing its obligation under
the contract s it was always cash starved and clear
finding of the arbitrator that non-objector/WIL was to be
compensated on loss of profit as it lost an opportunity
to earn profit on the project. The learned arbitrator in
para 38.3(1) held as under :
“The claim under Item No. 10 is in the
sum of Rs. 400 lakhs for “Loss of profit due
to non-execution of orders in given period”.
Considering the oral and documentary evidence
on the record, this claim in the sum of Rs. 4
crores seems to me to be exaggerated. I
allow a sum of Rs. 2 crores only for this
claim. Accordingly, I direct that CCI will
pay to will a sum of Rs. 2 crores for the claim
under item No. 10.”
34. The arbitrator in the instance case has come to
a conclusion on a closer scrutiny of the evidence in the
matter and repraisal of evidence by the Court is not
permissible in proceedings under Section 30 of the
Arbitration Act. The award has to be considered in its
entirety and on its proper appreciation of the intent and
purport it would be seen the arbitrator as a best judge
awarded the sum of Rs. 2 crores after taking into
consideration all the material facts before him and this
Court merely on the ipse dixit of any party would not
like to lightly interfere in the said finding of the
learned arbitrator.
35. In Trustees of the Port of Madras v.
Engineering Construction Corpn. Ltd., ,
Court observed as under :
“The proposition that emerges from the
above decisions is this; in the case of a
reasoned award, the Court can interfere if
the award is based upon a proposition of law
which is unsound in law. The erroneous
proposition of law must be established to
have vitiated the decision. The error of law
must appear from the award itself or from any
document or note incorporated in it or
appended to it. It is not permissible to
travel beyond and consider material not
incorporated in or appended to the award.”
36. The next objection of Mr. Reddy is award of a
sum of Rs. 2,66,97,341/- based on the report of Mr. Kochar.
Mr. Reddy has contended that the same ought not to have
been accepted as learned arbitrator did not allow the
claim of Rs. 97,41,613/- which was the value of unadjusted
advances paid by will to its supplier and sub-contractors
was rejected by the arbitrator on the ground that there
was no privity of contract between CCI and the persons
whom will is stated to have paid such advances. This
argument I will deal in the last as as last objection.
37. Report of Mr. A.L. Kochar, valuer was also
objected by the learned counsel for the CCI on the ground
that same could not have been accepted by the arbitrator
without proper scrutiny. How Mr. Kochar was appointed by
the arbitrator? Mr. Kochar was appointed by the
arbitrator with the consent of the parties and during the
course of arguments before this Court it was conceded by
Mr. Reddy that name of Mr. Kochar was given by the CCI to
the arbitrator. He was appointed as valuer as CCI had
refuted valuation as given by will on the following
claims:
“(a) Claim relating to
finished equipments lying at
Walchandnagar as mentioned in
the Affidavit of Shri S.C.
Bhagwat and as further
clarified in the affidavits of
Shri D.V. Vairagkar and Shri
D.K. Nagarseth…
Rs. 59,70,000.
(b) Claim relating to Work-
in-Progress at Walchandnagar
as mentioned in Exhibit C of
Shri Bhagwat’s affidavit and
as further clarified in the
affidavit of Shri D.K.
Nagarseth.
Rs. 1,14,01,379.
(c) Claim relating to material
and components lying in stock
at Walchandnagar as mentioned
in Shri S.C. Bhagwat’s
affidavit.
Rs. 39,23,718.
(d) Claim relating to
unadjusted advances paid by
WIL to sub-suppliers and sub-
contractors as mentioned in
Exhibit H of Shri Bhagwat’s
affidavit.
Rs. 97,41,613.
(e) Claim relating to Storage,
Handling and Insurance charges
as mentioned in Exhibit I of
Shri Bhagwat’s affidavit.
Rs. 31,94,264.
————-
TOTAL: Rs. 3,42,30,974.
============="
38. In support of the aforesaid claim, will has also
filed the affidavits of Mr. S.C. Bhagwat and affidavit of
Mr. D.V. Vairagkar and Mr. D.K. Nagarseth. CCI disputed
the quantum of work as mentioned in Ex.C of Mr. Bhagwat’s
affidavit, claim relating to material and components
lying in stock at Walchandnagar as mentioned in
Mr. Bhagwat’s affidavit and claim relating to unadjusted
advances paid by will to sub-suppliers and sub-
contractors as mentioned in Ex. H of Mr. Bhagwat’s
affidavit and claim relating to storage, handling and
insurance changes as mentioned in Ex.I of Mr. Bhagwat’s
affidavit.
39. CCI did not cross-examine Mr. Vairagkar and
Mr. Nagarseth but asked for appointment of an independent
assessor. In para 15 of the award the learned arbitrator
has recorded that when the witnesses were offered for
cross-examination the counsel for the CCI stated that CCI
cannot cross-examine the witnesses unless they had an
opportunity to verify those facts which are stated by the
witnesses in their affidavits. Therefore, after having
agreed for appointment of Mr. Kochar in para 32.2 the
arbitrator has recorded that Mr. Kochar camped at
Walchandnagar for about 12 days, 5 officers of the WIL
and 3 officers of CCI were present at the site along with
Mr. Kochar when he made verification and assessment. Then
in para 32.4. arbitrator again recorded that during the
course of hearing held at Delhi on 20.8.1994, counsel for
both the parties stated that they accept the report of
Mr. Kochar, however, with the rider that the advance given
by CCI be adjusted. On that the arbitrator has recorded
its finding in the award that that cannot be done. Out
of the aforesaid amount as claimed by will amounting to
Rs. 3,42,30,974/- for claims (a) to (e), Mr. Kochar has
assessed the value of the items from (a) to (e) as
follows :
"(a) For claim mentioned as
(a) above ... Rs. 48,08,830
(b) For claim mentioned as
(b) above ... Rs. 80,04,100
(c) For claim mentioned as
(c) above ... Rs. 38,62,504
(d) For claim mentioned as
(d) above ... Rs. 97,41,613
(e) For claim mentioned as
(e) above ... Rs. 02,80,294
-------------
Total : Rs. 2,66,97,341
============="
40. Therefore, there is no merit in the objections
of CCI that the report of the valuer/assessor was only to
lend assistance to the parties and the report of the
assessor/valuer was not to be accepted without scrutiny.
There can be no end to litigation. If I agree with the
submission of learned counsel for CCI that in view of the
objections filed by CCI to the report of the valuer,
report was not a final report on valuation. There is no
force in the arguments of objector that arbitrator has
not considered the objection of CCI. The argument of the
objector that report of Mr. Kochar was accepted on the
erroneous premises that the report was to be accepted
without a demur is without merit. The arbitrator was
conscious of the claims of both the parties. After
taking into consideration the rival contentions,
arbitrator recorded in para 32.5 of the award that both
the parties have filed further written submissions in
respect of the matters relating to or arising out of
Mr. Kochar’s report. It has also taken into consideration
that will has filed written submissions dated 6.7.1994 and
has claimed escalation by way of price variation and
interest on the valuation made by Mr. Kochar and in para
32.4 it has been observed by the arbitrator that CCI has
accepted the report with the rider that advance amount
given by the CCI to will be set off against the value
assessed by Mr. Kochar which found mention in para 32.6 of
the award. But how the arbitrator has recorded its
finding? Para 33 is reproduced below :
“33. Having considered the submissions made
by the parties as regards Mr. Kochar’s report
and having taken into account all the
relevant aspect of the matter into
consideration, including CCI’s contention
regarding non-inspection of the equipment and
component, I am of the opinion that Shri
Kochar has arrived at an acceptable value
approximating to the realities of the
situation, as best as is possible in the
circumstances of the case. CCI’s chronic
failure to inspect equipment was the result
of its lack of finances. To inspect was to
pay. And so, CCI was driven to postpone the
evil day.”
41. In para 33.1 again the arbitrator has rejected
the rider of the CCI that the value determined by
Mr. Kochar should be adjusted against the advance of
Rs. 4.67 crores given by the CCI to WIL. In said
paragraph the arbitrator has returned a reasoned finding.
Para 33.1 is to the following effect :
“The submission of CCI’s learned
counsel that the value determined by Shri
Kochar should be adjusted against the advance
of Rs. 4.67 crores given by CCI to will cannot
be accepted. The amount advanced by CCI to
WIL was used by will for purpose of the
instant project. It was not diverted by WIL
to any other purposes, as contended by CCI.
WIL, its vendors and sub-contractors had
manufactured items worth much more than
Rs. 4.87 crores. Besides, the advance paid by
CCI was utilised by will for procurement of
services, establishing infrastructural
facilities, incidental and related outlays
like, travel, office expenses and overheads.
In addition, expenses on several other counts
must have gone up involving will in a larger
commitment on account of the delays caused by
CCI. That is why, the valuation made by Shri
Kochar cannot be adjusted against the advance
of Rs. 4.87 crores paid by CCI to WIL.”
42. Therefore, K.P. Poulose v. State of Kerala’s
case (supra) cited by learned counsel for CCI that the
arbitrator has committed a legal misconduct is not
applicable to this case.
43. Court cannot interfere with the award if
otherwise proper on the ground that the decision appeared
to be erroneous. The award of the arbitrator was final
and conclusive. Law is well settled. It is not the case
that the arbitrator has not considered the rider of the
CCI or the objection of the CCI. After considering the
same he has formed an opinion. This court cannot
substitute its opinion for that of the arbitrator.
44. Even otherwise, it is not the case of the
counsel for CCI that the arbitrator has made an award
which is contrary to the terms of reference.
45. Let me now deal with the last objection of
Mr. Reddy regarding grant of Rs. 97,41,613/- towards
unadjusted advance paid by will to its sub-suppliers and
sub-contractors. Mr. Reddy contended that will had claimed
under Item No. 2 of Annexure I under same head which was
rejected by the arbitrator on the ground that there was
no privity of contract between CCI and the persons to
whom will was stated to have paid such advances. It was
contended that said amount of Rs. 97,41,613/- having been
denied to will on account of non-privity of contract
between CCI and the persons to whom such advance were
paid but award of the said amount on the basis of the
report of Mr. A.L. Kochar whereby the arbitrator has
awarded a total amount of Rs. 2,66,97,341/- was patently
erroneous and inconsistent with the finding of the
arbitrator.
46. Mr. Arun Mohan had argued that if the award is
read as a whole, at one place in paragraph 32.1 of the
award, the arbitrator has discussed all the claims and in
para 32.3 has assessed the value of the items based on
the valuer’s report at Rs. 2,66,97,341/- and had recorded
in para 38.3(d) in which the arbitrator has stated that
he was not accepting the claim as there was no privity of
contract between CCI and the persons to who will had
stated to have paid the advances, same could not be read
in isolation. Mr. Arun Mohan took great pain in
explaining that the award of the arbitrator has to be
read in para 38.6 in which the arbitrator has held in the
following word :
“38.6 The result of the aforesaid discussion,
in regard to monetary claims made by WIL, is
that it will be entitled to receive the
following amounts from CCI:-
a) Under the report of Shri
Kochar as held in para 34
above … Rs. 2,66,97,314.
b) Under the ten sub-items
of Item No. 1 as held in para
38.3(e) above Rs. 87,45,000.
c) Under the two sub-items
of Item No. 7 as held in
para 38.3(i) above Rs. 96,32,000.
d) Under claim No. 10 as
held in para 38.3(1) above Rs. 2,00,00,000.
————–
Total : Rs. 6,50,74,341 =============="
47. In para 38.7 the arbitrator has directed that
the aforesaid amount be paid with interest at 12% per
annum with effect from 3.1.1989 until payment as the
arbitrator has entered upon the reference on 3.1.1989.
48. I unable to persuade myself with the contention
of Mr. Arun Mohan. As a matter of fact, arbitrator had
returned finding in para 38.3.(d) that the amount of
Rs. 97,41,613/- cannot be awarded to the will as there was
no privity of contract between CCI and sub-suppliers and
sub-contractors to whom will has paid the amount, award of
the same amount subsequently was an error. There is an
error to that extent on the face of the record. I hold
so. However, the award of the said amount of
Rs. 97,41,613/-, is severable from the rest of the award,
I modify the award to that extent. The result is that
award of the arbitrator is modified instead of an amount
of Rs. 6,50,74,341/-, will shall be entitled to an amount
of Rs. 5,53,32,728/- (Rs. 6,50,74,341/- minus
Rs. 97,41,613/-). There is no merit in other objections
of CCI. The same are dismissed.
49. Award of the arbitrator is made rule of the
Court as modified above. A decree in terms thereof is
passed. will shall be entitled to interest at the rate of
12% per annum from the date of decree till realisation.
50. Petition stands disposed of. Pending
applications also stand disposed of accordingly.