Puskar Raj Wason Vs. Union of India (Uoi) (S.E. Railway) and anr. - Court Judgment

Pranab Kumar Chattopadhyay, J.

1. The instant appeal has been preferred from the judgment and order dated 21st March, 2005 passed by a learned single Judge of this Hon'ble Court on the application filed by the appellant herein under Sections 30 and 33 of the Arbitration Act, 1940. By the said application, appellant herein challenged the legality and validity of the award dated August, 30, 1990 passed by the learned Sole Arbitrator.

2. It has been argued on behalf of the appellant that the learned single Judge has modified the award made by the learned Sole Arbitrator and virtually passed a new award in respect of the disputes between the parties. The learned Senior Counsel representing the appellant referred to the concluding portions of the judgment under appeal and submitted that the learned single Judge had observed that the learned Arbitrator might have for a noble cause directed payment of costs to the Army Central Welfare Fund, but the awarding of costs to a non-party is not permissible. The observations of the learned single Judge are set out hereunder:

On the issue of cost, I feel that in an adversary proceeding cost awarded to non-party is not permissible. The Arbitrator for a noble cause directed cost to be paid to the Army Central Welfare Fund. However, I am of the view that this was not permitted in law and this is an error ex-facie apparent on the face of the award.

The learned single Judge modified the award of the learned Arbitrator to the extent that the claimant would be entitled to Rs. 2,25,437/- to be paid by the Railways. The learned single Judge also deleted the cost awarded by the learned Arbitrator.

3. Mr. P.K. Das, learned Senior Counsel representing the appellant submits that the learned single Judge has power to set aside an award but under no circumstances could modify the same. Mr. Das referred to the provisions of Sections 15 and 16 of the Arbitration Act, 1940. It has been specifically submitted on behalf of the appellant that the learned single Judge has no jurisdiction to make an award in favour of the appellant in view of the provisions contained in Section 15 of the Arbitration Act, 1940. Mr. Das further submits that the learned single Judge should have remitted the matter to the Arbitrator for a fresh decision.

4. The learned Senior Counsel of the appellant also relied on a decision of the Division Bench of this Hon'ble Court in the case of Union of India v. Badridas Kedia reported in : AIR1981Cal341 in support of his aforesaid contentions. Paragraph 14 of the aforesaid judgment is set out hereunder:

14. In this case the arbitrator has stated in his award that he has examined and considered the statement and counter-statement and all documents and on that basis has made his award. To my mind, the sole arbitrator Kudari had no material before him to enable him to reduce the said sum of Rupees 10,181.07 by half the amount. But at the same time it has to be borne in mind that it is not a matter to be modified by the Court by deriving its powers under Section 15(b) or (c) of the Arbitration Act, 1940. It is essentially within the domain of the arbitrator to appreciate the position and to make a proper award. The award under the circumstances could not have been said to be made in imperfect form or that it contained an obvious error which could be amended without affecting the decision of the arbitrator. The said arbitrator without appreciating the scope of the reference before him had made a perverse award without any material before him to arrive at that finding. It was totally against the materials placed before him and any reasonable person sitting in this position could not have arrived at such a finding on the materials before him. In my opinion, it is a fit case which ought to be remitted to the said arbitrator so that he could make a proper award on the materials before him. That is the only way the award can be made an arbitrator's award; otherwise, if the amount is allowed to be enhanced by Court it would be an award made on the basis of a decision taken by the Court which the parties did not agree to by making the reference. That would amount to the taking of a decision contrary to that of the arbitrator and thereby affecting his decision. The error is neither an obvious error nor an error of such a character that it can be corrected or amended or rectified without affecting the decision of the arbitrator. (Mahendra Nath Kundu v. Suresh Chandra Pramanik : AIR1925Cal332 ).

5. It has also been submitted on behalf of the appellant that the award made by the learned Arbitrator has been vitiated by legal misconduct. According to the learned senior counsel of the appellant, the legal misconduct of the learned Arbitrator is apparent on the face of the award atleast on two occasions. Firstly, on an admitted claim the learned Arbitrator has made a NIL award and secondly, the said learned Arbitrator has awarded costs in favour of a non-party which the said learned single Judge also held to be not permissible in law. Mr. Das, learned senior counsel of the appellant submits that in view of the aforesaid defects the award stands vitiated and, therefore, the same is liable to be set aside. Mr. Das referred to and relied on a decision of the Hon'ble Supreme Court in the case of K.P. Poulose v. State of Kerala reported in : AIR1975SC1259 .

6. From the records we find that the respondent-Railway authorities decided to pay additional sum or Rs. 2,25,437/- to the appellant herein over and above the contractual rate and mentioned the same in the Affidavit-in-opposition filed before the learned single Judge. The learned single Judge also quoted relevant portions from the said Affidavit-in-opposition filed by the Railway authorities before the said learned single Judge in the judgment and order under appeal which are reproduced hereunder:

The Contractor's claim for the extended period of contract 1st January, 1990 to 2nd August, 1991 had been examined by a High Level Committee of the respondent Railway Administration and after examining the same it was found that an amount of Rs. 2,25,437/- was reasonable against all the demands of the claimant contractor.

7. The learned Senior Counsel for the appellant further submits that on the concluding day of arbitration, Railway authorities submitted a Calculation sheet wherein it was shown that the difference between the contractual rate and the accepted tendered rate came to Rs. 6,77,288/-. The said learned senior counsel of the appellant also submits that in spite of the aforesaid specific admission by the Railway authorities,', learned Arbitrator did not look into the calculation sheet submitted on behalf of the Railway authorities. The aforesaid calculation sheet filed by the Railway authorities before the learned Arbitrator was annexed with the application filed herein before the learned single Judge.

8. The respondent-Railway authorities, however, did not explain in the affidavit-in-opposition filed before the learned single Judge why the aforesaid admission with regard to the difference between the contractual rate and the accepted tendered rate to the tune of Rs. 6,77,288/- was not at all taken into consideration by the learned Arbitrator. Undisputedly, the aforesaid calculation sheet filed by the Railway authorities is a part of the records of the arbitration proceeding although the learned Arbitrator totally ignored the same. According to the learned Senior Counsel of the appellant, aforesaid instance should be regarded either as legal misconduct on the part of the Arbitrator or an error apparent on the face of the record.

9. Mr. N.C. Roychowdhury, learned Senior Counsel representing the respondent-Railway authorities could not properly explain before us with reference to the award how a NIL award could be passed by the learned Arbitrator in the facts of the present case when the said Railway authorities admitted the claim of the appellant/writ petitioner to the extent of Rs. 2,25,437/-. It was submitted on behalf of the Railways that the Arbitrator had refused to award the sum of Rs. 2.25,437/- even on admission as the claimant did not agree to it. According to the learned Counsel of the Railways, the trial Court has rectified the error, if any, by awarding the said sum. The Arbitrator's award, in our opinion, cannot be contingent on whether the party agrees to it or not and the learned Arbitrator is expected to pass his own award. The Court cannot make an award on behalf of the parties. Mr. Roychowdhury further submits that the learned Arbitrator has the right to make a mistake and that cannot be interfered with by the Court. When the error is apparent in the face of the award and forms the basis of the award, the same is to be set aside.

10. The decision cited by the learned Senior counsel of the respondent-Railway authorities in the case of Alopi Parshad and Sons Ltd. v. Union of India reported in : [1960]2SCR793 cannot be of any assistance in the facts of the present case. The Hon'ble Supreme Court in the aforesaid decision has categorically held that the award of the Arbitrator may be set aside on the ground of an error apparent on the face thereof. The meaning of the expression 'error apparent on the face of the award' has been explained in paragraph 16 of the aforesaid decision, which is set out hereunder:

16. The extent of the jurisdiction of the Court to set aside an award on the ground of an error in making the award is well-defined. The award of an arbitrator may be set aside on the ground of an error on the face thereof only when in the award or in any document incorporated with it, as for instance, a note appended by the arbitrators, stating the reasons for his decision, there is found some legal proposition which is the basis of the award and which is erroneous - Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Co. Ltd. 50 Ind App 324 : AIR 1923 PC 66. If, however, a specific question is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law, does not make the award bad on its face so as the permit of its being set aside, In re King and Duveen 1913-2 KB 32, and Govt. of Kelantan v. Duff Development Co. Ltd. 1923 AC 395.

11. In the present case, the Railway authorities undisputedly filed the calculation sheet before the learned Arbitrator admitting the claim of the appellant to the tune of Rs. 6,77,288/- apart from the other admitted amount to the tune of Rs. 2,25,437/- which have been totally ignored by the said learned Arbitrator and, therefore, the award of the Arbitrator is liable to be set aside on the ground of an error apparent on the face of the award. The aforesaid decision of the Hon'ble Supreme Court in the case of Alopi Parshad and Sons Ltd. AIR 1960 SC 588 (supra) actually helps the appellant in the present case.

From the impugned award we find that the learned Arbitrator recorded the aforesaid admitted claim of the appellant in the following manner:.the said railway administration offered Rs. 2,25,437/- to the claimant/contractor for the period from 1-1-1990 to 2-8-1991 in full and final settlement of whole claim of the claimant/contractor under the said original contract....

12. We also do not find any reason why the learned Arbitrator altogether ignored the other admitted claim of the appellant herein to the tune of Rs. 6,77,288/- payable by the respondent-Railway authorities under different heads in respect of Sections (vii) and (viii) on the basis of the calculation sheet filed by the said Railway authorities before the learned Arbitrator.

13. The learned single Judge held that the appellant herein would be entitled to receive the aforesaid amount of Rs. 2,25,437/- from the respondent-Railway authorities and modified the award to the extent. The learned single Judge also detected the illegalities in the award passed by the learned Arbitrator with regard to the direction for payment of cost to a non-party and deleted the same.

14. Here the misconduct is not moral misconduct but legal misconduct and includes such breach of duty (though honest) which causes miscarriage of justice. If there has been some mishandling of the arbitration proceedings or serious neglect of duties on the part of the arbitrator which is likely to lead to substantial miscarriage of justice, the Court should set aside an award. There may be ample misconduct in the legal sense to induce the Court to set aside the award though there is no ground for imputing the slightest improper motive to the arbitrator. It includes failure to perform the essential duties and responsibilities. If the conduct of the Arbitrator is not in consonance with the general principles of equity and good conscience then, the same amounts to misconduct.

Let us now consider whether the learned Arbitrator committed any legal misconduct as argued by the learned Senior counsel of the appellant.

15. The Hon'ble Supreme Court in the case of K.P. Poulose AIR 1975 SC 1259 (supra) specifically held:

6. Under Section 30(a) of the Arbitration Act an award can be set aside when an Arbitrator has misconducted himself or the proceedings. Misconduct under Section 30(a) has not a connotation of moral lapse. It comprises legal misconduct which is complete if the Arbitrator on the face of the award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to help a just and fair decision. It is in this sense that the Arbitrator has misconducted the proceedings in this case. We have, therefore, no hesitation in setting aside such an award. In the result the judgment of the High Court is set aside and that of the Subordinate Judge is restored. The award of the Arbitrator thus stands quashed. The Arbitrator will complete the proceeding after considering all the relevant documents including Ext. P. 11 and Ext. P. 16 after giving opportunity to the parties. The appeal is allowed with costs.

16. We, however, find herein that the legal misconduct of the learned Arbitrator is apparent on the face of the award since the said learned Arbitrator altogether ignored the aforesaid admitted claim of Rs. 2,25,437/- and subsequently, another admitted claim of the Rs. 6,77,288/- payable to the appellant herein under different heads in respect of Sections (vii) and (viii) as specifically mentioned in the calculation sheet filed before the learned Arbitrator by the Railway administration.

17. In view of the provisions of Section 30(a) of the Arbitration Act, 1940, an award can be set aside if an Arbitrator passes an award ignoring material documents. It is not in dispute that the Railway Administration not only admitted the aforesaid claim of Rs. 2,25,437/- but also submitted calculation sheet before the learned Arbitrator admitting the claim of the appellant to the tune of Rs. 6,77,288/-. The aforesaid document could not be altogether ignored by the learned Arbitrator and in doing so, in the instant case; the learned Arbitrator has committed misconduct within the meaning of Section 30(a) of the Arbitration Act, 1940 even though such misconduct does not come within the meaning of moral lapses.

18. We should now examine whether the learned single Judge was justified in modifying the award passed by the learned Arbitrator. The power of the Court to modify the award has been specifically provided in Section 15 of the Arbitration Act, 1940. The same is set out hereunder:

15. Power of Court to modify award.- The Court may by order, modify or correct an award:

(a) where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred; or

(b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision; or

(c) where the award contains a clerical mistake or an error arising from an accidental slip or omission.

19. Going through the judgment under appeal we find that the learned single Judge actually modified the award of the learned Arbitrator upon holding that the claimant would be entitled to Rs. 2,25,437/- to be paid by the Railway administration and also by deleting the costs awarded by the learned Arbitrator. In view of the specific provisions of Section 15 of the Arbitration Act, 1940, the learned single Judge could not modify the award and, therefore, we cannot approve the aforesaid decision of the learned single Judge.

20. The claims of the appellant herein should have been considered by the learned Arbitrator in the light of the documents submitted by the parties particularly the Railway Administration. By not doing so, the learned Arbitrator committed an error on the face of the record. Non-consideration of the documents filed by the Railway administration would appear on the face of the award which would give rise to the objection with regard to the legality of the award.

21. It has been urged on behalf of the respondent-railway authorities that the appellant herein unconditionally accepted the payment in full and final settlement of his claim and, therefore, no future claim can be raised by the said appellant. Mr. Roychowdhury, learned Senior Counsel of the respondent-Railway authorities submits that the learned Arbitrator cannot consider the claim raised on behalf of the appellant towards the escalation when there is no clause in the contract for payment of any amount towards such escalation.

22. Mr. Roychowdhury referred to and relied on a decision of the Supreme Court in the case of State of Orissa v. Sudhakar Das reported in : [2000]1SCR1136 . Mr. Roychowdhury further submits that the appellant herein duly received full and final payment both under the original contract as well as under the supplementary agreement and upon receipt of full and final payments submitted no claim certificate.

23. Mr. Das, learned senior counsel of me appellant, however, submits that the said no claim certificate was submitted solely for the purpose of getting refund of the security deposit.

24. On examination of the aforesaid no claim certificate we find that certain claims were not covered by the said no claim certificate since the same were expressly kept outside the purview of the said no claim certificate. The no claim certificate submitted by the appellant herein is set out hereunder:

Certified that I have no claim against S.E. Railway as per Clause 24(b) for Goods and Parcel handling contract at Gondia and group of station executed during the period from 1-1-1987 to 31-12-1989 subsequently extended upto 2-8-1991 except the following claim listed below:

List of Claims'

(1) Claim for payment of accepted Tender rates for the period from 1-1-1990 to 2-8-1991 in all Sections of the schedule of rates including lump-sum rate.

2) Claim for refund of security deposit in full made in shape of a Bank Guarantee Bond.

Thanking you, Yours faithfully,sd/-(Pushkar Raj Wason)

25. From the statement of facts submitted on behalf of the appellant before the learned Arbitrator we find that the appellant herein claimed a sum of Rs. 13,37,420/- on account of increase is accepted tendered rates for the period from 1-1-1990 to 2-8-1991. The aforesaid claim for the period between 1-1-1990 to 2-8-1991 was not covered by the no claim certificate submitted by the appellant herein.

26. Mr. Roychowdhury submits that the appellant herein unconditionally accepted payment from the Railway administration in full and final settlement of the claim and, therefore, the appellant can neither raise further claim nor the same should be entertained. Mr. Roychowdhury relied on the decision of the Supreme Court in the case of P.K. Ramaiah & Co. v. Chairman and Managing Director, National Thermal Power Corporation reported in 1994 Supp (3) SCC 126.

27. The aforesaid decision cannot be made applicable in the facts of the present case since the no claim certificate submitted by the appellant herein was not an unconditional one. Certain claims were undisputedly kept outside the purview of the said no claim certificate submitted by the appellant herein whereas in the aforesaid case of P.K. Ramaiah & Co. (supra) we find voluntary and unconditional written acceptance of payment by the claimant in full and final settlement of the contract.

28. Mr. Das, learned senior counsel of the appellant referred to the decision of this Court in the case of Jiwani Engineering Works (P) Ltd. v. Union of India reported in : AIR1981Cal101 and submits that the no claim certificate issued by the contractor in favour of the other party to works contract does not render order of reference a nullity and by granting no claim certificate the contractor would not be disentitled to refer any dispute under the arbitration clause in the works agreement between the parties. The relevant portions from Paragraph 6 of the aforesaid judgment are set out hereunder:

6. ...there is no question that by granting the no claim certificate the contractor becomes disentitled to refer any dispute which arises out of the contract to arbitration under the arbitration clause in the agreement between the parties. That has been unanimously held by this Court and also the unreported decision of the Division Bench and the Supreme Court decision in Damodar Valley Corporation] v. K.K. Kar in : [1974]2SCR240 . There are also other decisions of this Court and the Supreme Court where it has been held that the question of no claim certificate and validity of the same is itself a dispute which is within the scope of the arbitration clause and the arbitrator has jurisdiction to decide the same....

Mr. Das also relied on a Division Bench judgment of this Hon'ble Court in the case of Union of India v. D. Bose reported in : AIR1981Cal95 which, in our opinion, is also relevant to understand the effect of no claim certificate granted by a contractor.

29. We are, however, not inclined to express any opinion whether the Arbitrator was justified in not allowing the claim of the appellant towards the escalation of price due to increase in labour rates in view of increase in minimum wages. However, we find substance in the aforesaid argument that the no claim certificate submitted by the appellant herein cannot preclude the said appellant from raising the dispute in respect of the claims which are not covered by the said no claim certificate.

30. For the reasons discussed hereinbefore, we are of the opinion that not only the judgment under appeal passed by the learned single Judge is liable to be set aside but the award made by the learned Arbitrator should also be set aside.

31. In the aforesaid circumstances, this Court has no other alternative but to remit the award of the Arbitrator, The provisions of Section 16(1)(c) is specific and clear in this regard. The said Section 16(1)(c) is set out hereunder:

16. Power to remit award.- (1) The Court may from time to time remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks fit:

(a) and (b) xxx xxx xxx

xxx

(c) where an objection to the legality of the award is apparent upon the face of it.

32. Mr. Das, learned Senior counsel of the appellant submits that a new Arbitrator has to be appointed as per Clause 32(d) of the contract. Mr. Das further submits that no useful purpose will be served by sending the disputes back to the same Arbitrator as the appellant reasonably apprehends that the said Arbitrator will not do justice.

33. We have already held that the learned Arbitrator has committed legal misconduct and, therefore, it is not desirable to remit the matter back to the same Arbitrator because in such event, there may be failure of justice. The appellant is agreeable to a fresh reference by any other Arbitrator.

34. For the interest of justice we are of the opinion that a new Arbitrator should be appointed in the present case for deciding the disputes afresh. Therefore, we appoint Mr. Sagar Nath Ghosh, a former District Judge, 24-Parganas (South) at Alipre as the sole Arbitrator to decide de novo the disputes already referred to the arbitration and give the award on all matters referred to the said earlier arbitration on the basis of the papers and documents already submitted before the earlier Arbitrator and also taking note of the papers and documents submitted before this Court by the parties herein.

The newly appointed Arbitrator will commence hearing within a period of fortnight from the date of service of the signed copy of the minutes of this order.

35. The remuneration of the aforesaid Arbitrator appointed by us is fixed at 300 G.Ms., per sitting to be shared equally by the parties. The Arbitrator will be entitled to engage a Stenographer and Clerk of his choice and their remunerations should be fixed by the learned Arbitrator, which will be shared equally by the parties.

This appeal thus stands allowed and the judgment and order under appeal passed by the learned single Judge as well as the award passed by the previous learned Arbitrator are set aside.

In the facts and circumstances of the present case, there will be, however, no order as to costs.

36. Let xerox copies of this judgment duly countersigned by the Assistant Registrar of this Court be supplied to the parties herein on undertaking to apply for the certified copy of the same immediately.

Tapan Mukherjee, J.

44. I agree.