{"id":5120,"date":"1994-04-19T00:00:00","date_gmt":"1994-04-18T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/union-of-india-vs-jain-associates-on-19-april-1994"},"modified":"2017-06-05T03:04:53","modified_gmt":"2017-06-04T21:34:53","slug":"union-of-india-vs-jain-associates-on-19-april-1994","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/union-of-india-vs-jain-associates-on-19-april-1994","title":{"rendered":"Union Of India vs Jain Associates on 19 April, 1994"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Union Of India vs Jain Associates on 19 April, 1994<\/div>\n
Equivalent citations: 1994 SCC (4) 665, \t JT 1994 (3)\t303<\/div>\n
Author: K Ramaswamy<\/div>\n
Bench: Ramaswamy, K.<\/div>\n
           PETITIONER:\nUNION OF INDIA\n\n\tVs.\n\nRESPONDENT:\nJAIN ASSOCIATES\n\nDATE OF JUDGMENT19\/04\/1994\n\nBENCH:\nRAMASWAMY, K.\nBENCH:\nRAMASWAMY, K.\nVENKATACHALA N. (J)\n\nCITATION:\n 1994 SCC  (4) 665\t  JT 1994 (3)\t303\n 1994 SCALE  (2)604\n\n\nACT:\n\n\n\nHEADNOTE:\n\n\n\nJUDGMENT:\n<\/pre>\n
The Judgment of the Court was delivered by
\nK.   RAMASWAMY, J.- Special leave granted.\n<\/p>\n
2.   The respondent had entered into a contract on  7-1-1983
\nto construct
\n13  units  of Type-V Quarters at the estimated\tcost  of  Rs
\n27,34,000.   He\t was to complete the construction  and\thand
\nover possession on 13-8-1984.  Despite extension of the time
\non  7 occasions, finally up to 30-6-1988,  the\tconstruction
\nwas not completed resulting in termination of the  contract.
\nAs  up to 34th bill the appellant paid to the  respondent  a
\nsum  of Rs 24,34,100.91 ps. towards the executed work.\t The
\ncontractor   laid  proceedings\tunder  Section\t20  of\t the
\nArbitration Act, 1940 (for short ‘the Act’) for reference to
\narbitrate  the\tdisputes.  The joint  arbitrators  appointed
\nthereon entered upon reference on 10-4-1989 and nominated Mr
\nA.  Biswas, the second respondent as an umpire.\t  Since\t the
\njoint  arbitrators  could  not make and\t publish  the  award
\nwithin\tthe time, the umpire was called upon to\t enter\tupon
\nthe  reference.\t  Accordingly on 25-4-1990  the\t umpire\t had
\nentered\t upon  the reference and made an  interim  award  on
\n26-7-1990 for a sum of Rs 6,02,000.  The contractor laid his
\nclaim  for  a  sum  of Rs  37,37,885.\tThe  appellant\tlaid
\ncounter-claim  for  Rs\t9,49,701.50  ps.   On  3-9-1990\t the
\nappellant  requested  the umpire to  consider  the  counter-
\nclaim.\t On  4-9-1990, the umpire refused  to  consider\t the
\ncounter-claim  on the ground of belated\t counter-claim.\t  On
\nrequest the time to make and publish the award was  extended
\nup to 31-1-1991.  The umpire held finally sitting on  19-12-
\n1990  (it is disputed across the bar by the contractor)\t and
\nhe made the award on 24-12-1990 for a sum of Rs 24,18,320 in
\nfavour of the contractor.  The umpire also awarded  interest
\nat 18% up to 10-4-1989 and post-award interest.\t He did\t not
\ngrant any pendente lite interest.  The appellant  challenged
\nthe award on diverse grounds under Sections 30 and 33 of the
\nAct.   Ultimately  the Division Bench of the  Calcutta\tHigh
\nCourt in Appeal No. 453 of 1991 dated 16-9-1992
\n668<\/span>
\nconfirmed  the award for a sum of Rs 20,07,320\tand  awarded
\npendente  lite\tinterest.  On a review, it was\theld  by  an
\norder  dated  4-2-1993 that the Bench committed\t mistake  in
\nthinking that the umpire granted pendente lite interest\t and
\nis   a\tmistake\t of  fact  and law  but\t had  confirmed\t the
\npendente lite interest on its power.\t Thus\tthese\t two
\nappeals, with a delay of 137 days in filing the appeal against
\noriginal judgment.  The delay is condoned.\n<\/p>\n
3.   The  learned  Solicitor  General  contended  that\t the
\nDivision Bench having\t held  that  the  umpire   committed
\nillegality  in awarding damages twice over on claims 11\t and
\n12,  though the contractor was entitled to damages  only  in
\nrespect\t of  one claim, committed manifest error of  law  in
\nupholding  the entire award.  The fact that the\t umpire\t had
\ncommitted  illegality in awarding damages twice\t over  would
\nindicate his non-application of judicious mind to the claims
\nin  an\tobjective  manner.  In a non-speaking  award  it  is
\ndifficult to decide how he adjudged the claims.\t Thereby  he
\ncommitted misconduct which entails the setting aside of\t the
\naward  as a whole and the doctrine of  severability  becomes
\ninapplicable to the facts of this case.\t His next contention
\nwas that under clause 62 of the general conditions,  certain
\nmatters\t were to be finally determined by the  Railways\t and
\nthe  arbitrator lacked jurisdiction to decide  these  claims
\nand  thereby the award gets vitiated by manifest  illegality
\non its face.  There was sufficient time for the\t arbitrator,
\neven after the extended time to make the award in respect of
\nthe counter-claim.  But was not done, which would also prove
\nthe  non-application of judicious mind in an  objective\t and
\ndispassionate manner and thereby the award gets vitiated  by
\nmisconduct  committed by the umpire.  The 3rd contention  is
\nthat the court lacked power to award pendente lite  interest
\nby operation of Section 29 of the Act.\tShri Soli  Sorabjee,
\nthe  learned  Senior Counsel for  the  respondent-contractor
\ncontended inter alia that though the award is a non-speaking
\naward  since the umpire granted each claim  separately,\t the
\nclaims on items 11 and 12 are severable from the rest of the
\naward.\tThe High Court upheld the highest of the two  claims
\ngranted\t by  the umpire.  The claim for loss of\t profits  on
\nitem 11 and for damages on item 12 are distinct and separate
\nconcepts.   The\t umpire, therefore, was justified  to  grant
\nseparate  amounts  on each of the claims  which\t would\tshow
\nactive consideration and application of the mind.  Hence  it
\nis Dot a misconduct.  Even otherwise they are severable from
\nthe rest of the award, which could be sustained.  The  grant
\nof  pendente lite interest by arbitrator was not  a  settled
\nprinciple till the Constitution Bench decision of this Court
\nin  Secretary,\tIrrigation  Department v.  G.  C.  Roy’<\/a>\t was
\nrendered.  Earlier Division Bench of this Court in Executive
\nEngineer  (Irrigation) v. Abhaduta Jena2 where it  was\theld
\nthat  arbitrator  had no power to  award  interest  pendente
\nlite,  was  overruled.\tIn this twilight zone  of  law,\t the
\narbitrator did not award interest pendente lite.  In view of
\nthe Constitution Bench judgment in G. C. Roy case, the grant
\nof  pendente  lite  interest by the court  is  legal.\tEven
\notherwise if this
\n1  (1992) 1 SCC 508
\n2 (1988) 1 SCC 418:(1988) 1 SCR 253
\n669<\/span>
\nCourt  finds  that the High Court  committed  illegality  in
\ngranting   interest  pendente  lite  the   matter   requires
\nremittance to the umpire, for fresh decision in this behalf.
\nSimilarly  on the counter-claim, it was contended,  that  no
\ncounter-claim  in  fact\t was  laid,  although  belatedly   a
\ncounter-statement  was made, as found by the  umpire.\tThis
\npoint  was not argued before the Single Judge nor  seriously
\ndisputed  before the Division Bench.  Even  otherwise,\tthis
\ndispute\t  also\t could\tbe  remitted  to  the\tumpire\t for
\nreconsideration.\n<\/p>\n
4.  The\t first question that arises  for   consideration  is
\nwhether\t the  court   could award  interest  pendente  lite.
\nSection 29 of the Act says that insofar as award is, for the
\npayment\t of  money,  the  court may  in\t the  decree,  order
\ninterest  from\tthe date of the decree at such\trate  as  it
\ndeems  reasonable, to be paid on the principal sum  adjudged
\nby  the award and confirmed by the decree.  In\tSrikantia  &
\nCo.  v. Union of India3 it was held that Section 29  carries
\nwith it the negative import that it shall not be permissible
\nto the court to award interest on the principal sum adjudged
\nin  the award for a period prior to the date of the  passing
\nof  the\t decree.  The same principle was reiterated  in\t Ram
\nSingh  v.  Ram Singh4.\tSection 29 of the Act  empowers\t the
\ncourt,\tthat  where the award is for payment  of  money,  to
\ngrant  reasonable rate of interest on the  principal  amount
\nadjudged and confirmed in the decree, only from the date  of
\nthe decree.  Section 34 CPC empowers the court, where  there
\nis a decree for payment of money to grant interest  pendente
\nlite  and  future,  till the  date  of\trealisation.   Since
\nSection 29 of the Act enables the court to grant interest on
\nthe principal amount adjudged in the award and confirmed  in
\nthe  decree only from the date of the decree, it  carries  a
\nnegative import with it that the court has no power to grant
\ninterest pendente lite.\t The High Court, therefore, was\t not
\nright\tin  granting  interest\tpendente  lite,\t which\t the
\narbitrator himself had not granted.\n<\/p>\n
5. The second question relates to rejection of the  counter-
\nclaim. It is seen that the point was taken before the Single
\nJudge  that counter-claims were laid before the\t arbitrator.
\nThe  record also discloses that the appellant laid  counter-
\nclaim.\tOn  4-9-1990  the umpire  refused  to  consider\t the
\ncounter-claim. It is further seen that the parties  mutually
\nagreed\tto extend time to enable the arbitrator to make\t and
\npublish\t the  award by 31-1-1991. Whether or not  the  final
\nsitting was held on 19-12-1990, the fact remains that  there
\nwas ample time for the umpire to consider the  counter-claim
\nof the appellant and pass appropriate award in that  behalf.
\nBut he failed to do so. This would bear upon the finding  on
\nsecond\tquestion  raised by the parties and shows  that\t the
\nrejection of counter-claim was unwarranted.\n<\/p>\n
6.  The\t crucial question is whether  the  umpire  committed
\nmisconduct  by\tnon-application of mind to  the\t claims\t and
\ncounter-claims and of its consequences. Claim 11 is  founded
\nupon  the  allegations\tof  delay,  ]aches,  negligence\t and
\ndefault on the part of the appellant, said to have  resulted
\nin loss of profits to the contractor in a sum of Rs 4,93,696
\nand the umpire
\n3  AIR 1967 Bom 347
\n4  AIR 1985 Raj 148 : 1984 WLN 572
\n670<\/span>
\nawarded\t Rs 4,11,400.  Claim 12 again founded upon the\tself
\nsame alleged laches and negligence of the appellant for\t the
\ndamages suffered by the contractor in a sum of Rs  12,00,000
\nand the umpire awarded Rs 6,00,000.  The High Court found in
\nits judgment that “there is much substance in the submission
\nof  the learned counsel for the petitioner that\t the  umpire
\nhas  given damages twice over against the same claim  though
\nshown  as  two\tclaims, namely, claims 11  and\t12  and\t the
\nclaimant is not entitled to both the claims due to damages”.
\n“There\tis  an\terror of law as well as fact”  but  “in\t the
\ninterest  of justice and fair play the lesser amount  of  Rs
\n4,11,400 against claim 11 is omitted and Rs 6,00,000 towards
\nclaim  12  is  retained”.  Section 73 of  the  Contract\t Act
\nprovides  that\twhen a contract has been broken,  the  party
\nwhich suffers by such breach is entitled to receive from the
\nparty  which has broken the contract, compensation  for\t any
\nloss or damages caused to him thereby which naturally  arose
\nin  the usual course of things from such breach.  A  perusal
\nof  both the claims would show that claim 11 is\t founded  on
\nloss  of profits and claim 12 is founded for damages,  based
\nupon  delay,  laches  and  negligence  alleged\tagainst\t the
\nappellant,  resulting in breach of the contract.   In  other
\nwords  the  contractor claimed compensation  for  breach  of
\ncontract arising under Section 73 of the Contract Act.\t The
\nrespondent, it is held by the Division Bench, is given\tsame
\ntype  of  damages  twice  over\tand  that  holding  is\t not
\nchallenged  by respondent.  Yet the question is whether\t the
\numpire\thad applied his mind in a judicious manner so as  to
\nbind  the parties by his award made on various\tclaims.\t  In
\nLaw  of Arbitration, by Justice Bachawat, a former Judge  of
\nthis Court at p. 316, it is stated that:\n<\/p>\n
\t      “An arbitrator is not a conciliator.  His duty
\n\t      is  to  decide the question submitted  to\t him
\n\t      according\t to the legal rights of the  parties
\n\t      and not according to what he may consider fair
\n\t      and reasonable.”\n<\/p><\/blockquote>\n
\t      Russell  on Arbitration, 20th Edn. at  p.\t 318
\n\t      also lays the same principle.\n<\/p><\/blockquote>\n
7.   In\t K.P.  Poulose v. State of Kerala5 this\t Court\theld
\nthat misconduct under Section 30(a) does not connote a moral
\nlapse.\t It comprises legal misconduct which is complete  if
\nthe  arbitrator,  on the face of the award,  arrives  at  an
\ninconsistent conclusion even on his own finding, by ignoring
\nmaterial  documents which would throw abundant light on\t the
\ncontroversy  and  help\tin  arriving  at  a  just  and\tfair
\ndecision.   It\tis  in this sense that\tthe  arbitrator\t has
\nmisconducted the proceedings in the case.  In that case\t the
\nomission  to consider the material documents to resolve\t the
\ncontroversy was held to suffer from manifest error  apparent
\nex  facie.  The award was accordingly quashed.\t In  Dandasi
\nSahu v. State of Orissa6 this Court held that the arbitrator
\nneed  not  give any reasons.  The award could  be  impeached
\nonly in limited circumstances as provided under Sections  16
\nand 30 of the Act.  If the award is disproportionately\thigh
\nhaving regard to the original claim made and the totality of
\nthe  circumstances  it\twould certainly be a  case  of\tnon-
\napplication of mind amounting to legal misconduct and it  is
\nnot
\n5  (1975) 2 SCC 236 : 1975 Supp SCR 214
\n6 (1990) 1 SCC 214
\n671<\/span>
\npossible to set aside only invalid part while retaining\t the
\nvalid part.  In other words the doctrine of severability was
\nheld  inapplicable in such a situation.\t It  is,  therefore,
\nclear  that the word ‘misconduct’ in Section 30(a) does\t not
\nnecessarily  comprehend or include misconduct of  fraudulent
\nor  improper conduct or moral lapse but does comprehend\t and
\ninclude actions on the part of the arbitrator, which on\t the
\nface  of  the  award,  are  opposed  to\t all  rational\t and
\nreasonable principles resulting in excessive award or unjust
\nresult\tor  the like circumstances which tend to  show\tnon-
\napplication of the mind to the material facts placed  before
\nthe  arbitrator or umpire.  In truth it points to fact\tthat
\nthe  arbitrator or umpire had not applied his mind  and\t not
\nadjudicated upon the matter, although the award professes to
\ndetermine them.\t Such situation would amount to\t misconduct.
\nIn other words, if the arbitrator or umpire is found to have
\nnot applied his mind to the matters in controversy and\tyet,
\nhas  adjudicated upon those matters in law, there can be  no
\nadjudication made on them.  The arbitrator\/umpire may not be
\nguilty\tof  any\t act  which can\t possibly  be  construed  as
\nindicative of partiality or unfairness.\t Misconduct is often
\nused,  in  a technical sense denoting irregularity  and\t not
\nguilt of any moral turpitude, that is, in the sense of\tnon-
\napplication  of\t the  mind to the relevant  aspects  of\t the
\ndispute\t in its adjudication.  In K. V. George v.  Secretary
\nto  Government, Water & Power Department,  Trivandrum7\tthis
\nCourt  held that the arbitrator had committed misconduct  in
\nthe proceedings by making an award without adjudicating\t the
\ncounter-claim made by the respondent.  In Indian Oil  Corpn.
\nLtd. v. Amritsar Gas Service8 the<\/a> counter-claim was rejected
\non  the ground of delay and non-consideration of the  claim,
\nit was held, constituted an error on the face of the award.\n<\/p>\n
8.  The\t question  therefore  is  whether  the\tumpire\t had
\ncommitted  misconduct in making the award.  It is seen\tthat
\nclaims 11 and 12 for damages and loss of profit are  founded
\non  the breach of contract and Section 73  encompasses\tboth
\nthe  claims as damages.\t The umpire, it is held by the\tHigh
\nCourt,\tawarded\t mechanically,\tdifferent  amounts  on\teach
\nclaim.\tHe also totally failed to consider the counter-claim
\non  the specious plea that it is belated  counter-statement.
\nThese  facts would show, not only the state of mind  of\t the
\numpire\t but  also  non-application  of\t the  mind,  as\t  is
\ndemonstrable from the above facts.  It would also show\tthat
\nhe  did\t not  act  in a\t judicious  manner  objectively\t and
\ndispassionately which would go to the root of the competence
\nof the arbitrator to decide the disputes.\n<\/p>\n
9.   It\t is  true that if the bad portion of  the  award  is
\nseverable from the good part the court may set aside the bad
\npart  and uphold the rest of the award.\t But when it  hinges
\nupon the state of mind of the arbitrator or the umpire,\t the
\naward  being  a\t non-speaking award, it\t is  not  reasonably
\ncertain as to what part of the award is good and vice versa.
\nAnd if such a part cannot be separated then the whole  award
\nmust be declared as invalid and it would be set aside on the
\nground of misconduct under Section 30(a) of the Act.\n<\/p>\n
7    (1989) 4 SCC 595
\n8  (1991) 1 SCC 533, 544
\n672<\/span>\n<\/p>\n
\t      10.   In Russell on Arbitration at p. 485,  it
\n\t      is stated thus:\n<\/p>\n
\t      “The  bad\t portion  however  must\t be  clearly
\n\t      separable\t in  its nature in  order  that\t the
\n\t      award may be good or the residue.\t Where it is
\n\t      divisible\t is the faulty direction will  alone
\n\t      be set aside or treated as null.”\n<\/p>\n
\t      At p. 486 it is stated that:\n<\/p>\n
\t      “If the objectionable portion in the award  is
\n\t      inseparable  from the rest, on not so  clearly
\n\t      separable that it can be seen that the part of
\n\t      the award attempted to be supported is not  at
\n\t      all affected by faulty portion, the award will
\n\t      be altogether avoided.”\n<\/p>\n
In Basant Lal Banarsi Lal v. Bansi Lal Dagdulal9<\/a> this  Court
\nfinding\t that  the  contract in\t question  was\tillegal\t and
\nprohibited by law and consequently the award made under\t the
\narbitration  clause this Court held that the award  was\t one
\nand inseparable from the rest of the disputes covered by  it
\nand  the  disputes might not have legally and  validly\tbeen
\nreferred,  the\twhole  award  was  rightly  set\t aside.\t  In
\nJivarajbhai  Ujamshi  Sheth v. Chintamanrao Bala<\/a>  ill’\tthis
\nCourt found that it was impossible to sever the award  since
\nthe arbitrator had committed not a mere error of fact or law
\nin reaching its conclusion, the entire award was set  aside.
\nIn  Mattapalli Chelamayya v. M. Venkataratnam11\t this  Court
\nheld that where a severable part of an award cannot be given
\neffect\tto for a lawful reason, there is no bar\t to  enforce
\nthe  part to which effect could be justly given.   The\tsame
\nprinciple was reiterated in Upper Ganges Valley\t Electricity
\nSupply Co. Ltd. v. U.P. Electricity Board1<\/a> 2 holding (SCR at
\np.  1  15  :  SCC pp. 260-6 1) that  the  mere\terror  which
\noccurred in the award of the umpire relating to matter which
\nis  distinct  and separate from the rest of the\t award,\t the
\npart  which  is invalid being severable from that  which  is
\nvalid,\tthere  was no justification for\t setting  aside\t the
\nentire award.\n<\/p>\n
11.It  is  clear from the above facts and  legal  position
\nthat the arbitrator committed misconduct in  non-application
\nof  his mind in deciding claims 11 and 12.  It being a\tnon-
\nspeaking  award,  it  is difficult to find  whether  he\t had
\napplied\t his  judicious mind in deciding which\tof  the\t two
\nclaims\tthe respondent would be entitled to, in\t particular,
\non the finding of the High Court in this behalf.  Therefore,
\nthe award in respect of claims 11 and 12 is set aside.\t The
\norder  of  the High Court to award Rs  6,00,000\t stands\t set
\naside, Since the counter-claim was not considered the matter
\nrequires  determination.  Accordingly the rejection  of\t the
\ncounter-claim  would  be  treated  as a\t nil  award  of\t the
\ncounter-claim and for the above reasons it stands set  aside
\nand  the  matter  is remitted to be  adjusted  afresh.\t The
\ndecree of the High Court granting interest pendente is\talso
\nset aside.\n<\/p>\n
12.The appeals are accordingly allowed to the above extent
\nand  the  judgment of the Division Bench of the\t High  Court
\nstands modified and tile
\n9 (1961) 2 SCR 780: AIR 1961 SC 823
\n10 (1964) 5 SCR 480: AIR 1965 SC 214
\n11 (1972) 3 SCC 799 : AIR 1972 SC It 21, 1125 (para 12)
\n12 (1973) 1 SCC 254 :(1973) 3 SCR 107
\n673<\/span>
\naward  of the severable part stands  confirmed\taccordingly.
\nIn the circumstances parties are directed to bear their\t own
\ncosts.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Union Of India vs Jain Associates on 19 April, 1994 Equivalent citations: 1994 SCC (4) 665, JT 1994 (3) 303 Author: K Ramaswamy Bench: Ramaswamy, K. PETITIONER: UNION OF INDIA Vs. RESPONDENT: JAIN ASSOCIATES DATE OF JUDGMENT19\/04\/1994 BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. VENKATACHALA N. (J) CITATION: 1994 SCC (4) 665 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-5120","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nUnion Of India vs Jain Associates on 19 April, 1994 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/union-of-india-vs-jain-associates-on-19-april-1994\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Union Of India vs Jain Associates on 19 April, 1994 - 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