State Of Orissa vs M/S Samantary Constn.Pvt.Ltd.

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.2991 OF 2007

STATE OF ORISSA … APPELLANT

VERSUS

M/S. SAMANTARY CONSTN. PVT. LTD. & ANR. … RESPONDENTS

JUDGMENT

ADARSH KUMAR GOEL, J.

1. The question raised in this appeal is whether any interference is

called for with the award dated 29 th June, 2003 on the basis of objections

of the appellant-State of Orissa.

2. The Respondent-Company (“the Contractor”) was awarded the work

of “Construction of Mahanadi Barrage on the Right Side from the Right

Divide Wall including Right Head Regulator”

vide Agreement dated 11th February, 1986 at approximate cost of Rs.5

crore.

Signature Not Verified The project was to be completed by 11 th November, 1987. Digitally signed by Sarita Purohit Date: 2015.09.15 However, within the said period only 24.99% work was executed. Further 10:13:28 IST Reason: 1 extension of time was granted upto 21st March, 1988. Till then, only

36.81% of the work was executed. In these circumstances, vide letter

dated 21st April, 1988, the contract was terminated under Clause 46 of

the General Conditions of Contract. The work executed till then was only

47.67%.

3. The Contractor made a claim for Rs.6.99 crore towards its dues. The

dispute was referred to the Arbitration. Retired Justice B.K. Behera (‘the

Arbitrator’) vide award dated 29th June, 2003 upheld the claim of the

Contractor to the extent of Rs.4.45 crore. The Arbitrator also allowed

counter claim of the Department to the extent of Rs.1.37 crores.

4. The Contractor had raised 26 items of claim, out of which 21 were

rejected and five were accepted. The major item of claim was Item No.18

against which award of Rs.3 crore was made. The said claim was towards

hire charges of the machinery and equipment as follows :

“The various machineries which were purchased by the claimants against sanction of advance from the respondents along with the own machineries of the claimants and those brought on hire from the private parties have been seized by the respondents. The respondents are to pay hire charges on each machinery as calculated in Annexure-P for the period those machineries are detained by the respondents. The hire charges of the machineries calculated till 31-10-1989 amount to Rs.68,44,332.00.”

5. The Annexure referred to above, is as follows :

Sl. No. Description of plants and Nos. Period Rate/each Amount in machineries Day Rs. Rs.

1 2 3 4 5 6 2 1 L&T poclain (Excavator) 1 21.4.88 7,475.00 44,77,525.00 to 31.10.89 = 559 days 2 Hand Winch 6 -do- 210.00 1,17,390.00 3 Derrick for sheetpiling 1 -do- 70.00 39,130.00 4 Vibrator for concreting 2 -do- 48.00 26,832.00 5 Concrete Mixer 4 -do- 648.00 3,62,232.00 (Jay Pee) 6 Wee Point Pump with 5 -do- 2405.00 13,44,395.00 accessories 7 Diesel Pump (ship) 6 -do- 517.00 2,89,003.00 8 Electric Pump Pan (ship) 6 -do- 175.00 97,825.00 9 Trucks 4 21.4.88 to 500.00 90,000.00 4.6.88 = 45 days 68,44,332.00

N.B. This amount has been calculated till the preparation of this claim statement, i.e. up to 31-10-89 and the actual amount shall be arrived at after taking into consideration the period from 1-11-1989 till the date of handing over all the aforesaid plants and machinery by the respondents to the claimants.

6. It is not necessary to refer to the other items of dispute as learned

counsel for the parties have raised contentions mainly in respect of Item

No.18.

7. The Arbitrator held that the seizure of the machinery and other

equipments was illegal as termination of contract itself was illegal. The

Contractor was therefore, entitled to hire charges as per Government

rates which amounted to Rs.5 crores but since no men were employed to

maintain the machines and no oil was used, the fair amount of claim to be

upheld was Rs.3 crores.

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8. The appellant filed objections under Section 34 of the Arbitration and

Conciliation Act, 1996 (“the Act”) to the award including the award of Rs.3

crores against the above Item No.18 in favour of the Contractor.

9. The District Judge held that the Arbitrator committed gross illegality

in awarding the amount of Rs.3 crore with interest @ 18% p.a. from the

date of award till the date of payment. The termination of the agreement

was not justified in absence of lack of diligence on the part of the

Contractor. The claim of the Contractor was to the extent of Rs.

68,44,332/- against which award of Rs.3 crore could not be made. The

letter of the Engineer-in-Chief to the Government could not be looked into

in support of the stand of the Contractor.

10. The District Judge accepted the objection and held that the claimed

amount was Rs. 68,44,332/- which was calculated upto 31 st October,

1989. There was no tangible material beyond oral submission of the

Contractor to substantiate the claim.

11. The High Court reversed the said view. It was observed that the

claim was not limited to Rs. 68,44,332/- as erroneously assumed. The

claim was for the entire period for which the Contractor was deprived of

the machinery and the equipment. Calculation of figure of Rs.

68,44,332/- was till 31st October, 1989. It was further observed that the

scope of Section 34 of the Act was limited to patent illegality or total

perversity on the face of the record. The Court could not substitute its

own decision for the decision of the Arbitrator on merits. Reliance was

4 placed on the decisions of this Court in M/s. Trading Co. vs.

Government of Kerala1, Coimbatore Distt. Podu Thozillar Samgam

vs. Balasubramania Foundry2, State of Rajasthan vs. Puri

Construction Co.3, Bhagbati Oxygen Ltd. vs. Hindustan Copper

Ltd.4, Hindustan Construction Co. Ltd. vs. State of Jammu and

Kashmir5, Oil Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.6 and

Olympus Superstructures Pvt. Ltd. vs. Meena Vijay Khetan7.

12. As regards the objection of the appellant against the admissibility of

letter of the Engineer-in-Chief dated 21 st July, 1991, it was observed that

authenticity of the said document was not disputed. The said Chief

Engineer was in charge of the project and he had given his report after

thorough verification of the work done. The Arbitrator was not debarred

from looking into the same. The Arbitrator was not bound by the

technical rules of evidence and was to follow the principles of natural

justice. Section 19(4) of the Act empowered the Tribunal to determine

admissibility, relevance, materiality and weight of evidence of a

document. The said letter showed that termination of the contract was

not justified as the Contractor had not neglected or failed to execute the

work with due diligence and had also not violated any of the provisions of

the contract. The Contractor had reasonable grounds for the delay and

the entire delay was not attributable to the Contractor. The Contractor

1 1989 (2) SCC 38 2 1987 (3) SCC 723 3 1994 (6) SCC 485 4 2005 (6) SCC 462 5 1992 (4) SCC 217 6 2003 (5) SCC 705 7 1999 (5) SCC 651

5 had completed most difficult part of the work and there was justification

for further extension of time.

13. We have heard learned counsel for the parties.

14. Principal contention raised on behalf of the appellant is that the

District Judge rightly upheld the objection against the award in

respect of Item No.18. The claim based on hire charges could not

be for indefinite period and could in no case exceed the price of the

machinery and other equipment. Moreover, the contract itself

provides for idling charges and the Contractor could at best claim

the said charges for the machinery and the equipment. It was also

submitted that termination of the contract itself was justified and

the Contractor wrongly relied upon the report of the Chief Engineer

which was inadmissible in view of Section 81 of the Act. Reference

was made to Explanation to Section 34 to the effect that if the award was

in violation of Section 81, the same will be in conflict with the public

policy of India which is a ground for setting aside the award under Section

34(2)(b)(ii).

15. Learned counsel for the respondents-Contractor supported the view

taken by the High Court. It was pointed out that Section 81 of the Act

had no relevance as the said section was in part III dealing with

conciliation. The conciliation commenced, under Section 62, by

acceptance of a written invitation to conciliate and if the parties

6 thereafter appoint a Conciliator who proceeds as per the procedure laid

down under the said Chapter of the Act. No such procedure having been

followed, the letter of the Chief Engineer cannot be treated to be covered

by Section 81 of the Act. The said letter could not be treated to be

irrelevant or inadmissible in evidence. In any case, the decision of the

Arbitrator with regard to its admissibility and reliability had to be

accepted as final.

16. Having considered the rival submission and perused the record, we

are of the view that the appeal deserves to be partly allowed.

17. Undoubtedly, the award of the Arbitrator may not be interfered with

on the ground that the same was erroneous or on the ground that a

different view could be taken on merits of the controversy. In considering

an objection to the award, the Court does not sit in appeal over the

decision on merits. However, patent error or perversity could certainly

provide basis for interference.

18. In Saw Pipes Ltd. (supra), it was held that the expression ‘public

policy of India’ has to be construed as being consistent with :

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality; or

(d) if it is patently illegal.

7 19. In ONGC vs. Western Geco International Ltd.8, it was observed

that the expression ‘fundamental policy of Indian law’ refers to the

principles providing basis for administration of justice and enforcement of

law in this country which included judicial approach, i.e. not acting

arbitrarily or whimsically and acting in a fair, reasonable and objective

manner without taking into account any extraneous consideration,

following the principles of natural justice, i.e. taking a decision by due

application of mind and by recording reasons and taking rational decision

which can be decided on the touchstone of Wednesbury9 .

20. In P.R. Shah, Shares & Stock Brokers (P) Ltd. vs. B.H.H.

Securities (P) Ltd.10, it was observed that dealing with an objection to

an award, a court does not sit in appeal over the award by reassessing or

reappreciating the evidence.

21. The above principles are well recognized and have been reiterated

recently in Navodaya Mass Entertainment Ltd. vs. J.M. Combines11

and Associate Builders vs. Delhi Development Authority12.

22. Coming to the present case, while we do not find any merit in the

contention that Section 81 of the Act vitiated the award on account of

inadmissibility of the letter of the Chief Engineer, we do find merit in the

contention that there is non application of mind in awarding the amount

of Rs.3 crores towards the hire charges. Under the 1996 Act, the award

8 2014 (9) SCC 263 9 Associated Provincial Picture Houses Ltd. vs. Wednesbury Corpn. (1948) 1 KB 223 : (1947) 2 ALL ER 680 (CA) 10 2012 (1) SCC 594 11 2015 (5) SCC 698 12 2015 (3) SCC 49

8 is required to be a reasoned one unless the parties agree that no reasons

are to be given or the award is based on agreement (Section 31(3)). The

Arbitrator ought to have ascertained the total value of the machinery.

Any reasonable person dealing with a claim on account of loss caused by

the wrongful seizure of machinery or equipment will certainly enquire

into the total value thereof. The hire charges may, at times furnish the

basis for determining the compensation but such determination cannot

normally exceed the price of the equipment as the loss caused cannot

normally be more than the price of the equipment itself. In absence of

such examination, the award can certainly be held to be perverse or

based on non application of mind. In this view of the matter, either the

parties have to be left free to have this issue re-determined which may

further delay the matter or we may ourselves determine the claim based

on the material on record. The latter course has been suggested by

learned counsel.

23. Learned counsel for the appellant has pointed out that as per

invoice of purchase of the excavator, the price was Rs.27,34,134.75. In

respect of the said machinery, claim of the Contractor is Rs.44,77,525/-

only upto 31st October, 1989 out of the total claim of Rs.68,44,332/-. The

claim could not be upheld beyond the price even if depreciation was not

considered. On that basis total claim under Item No.18, on the date of

the seizure could not exceed Rs.50 lakhs which appears to be the price of

the machinery.

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24. Taking an overall view including the interest component upto the

date of award (as the interest has been awarded only from the date of

award) claim of the Contractor could be assessed at

Rs. 1 crore 25 lakhs. We are conscious that we are not to substitute our

opinion for that of the Arbitrator but since this part of the Award is

outrightly perverse and not based on application of minds, we modify the

award in respect of Item No.18 to Rs.1 crore 25 lakhs as on the date of

the award instead of Rs.3 crores. Subject to this modification, the award

is upheld in all other respects. Final calculation and adjustment may be

made accordingly before the Executing Court.

24. The appeal is partly allowed to the above extent.

…………..……..…………………………….J. [ ANIL R. DAVE ]

…………..….………………………………..J. [ ADARSH KUMAR GOEL ]

NEW DELHI SEPTEMBER 11, 2015.

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ITEM NO.1A COURT NO.3 SECTION XIA (For Judgment)

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

Civil Appeal No(s).2991/2007

STATE OF ORISSA Appellant(s)

VERSUS

M/S SAMANTARY CONSTN.PVT.LTD.& ANR. Respondent(s)

Date : 11/09/2015 This appeal was called on for pronouncement of Judgment today.

For Appellant(s) Mr. Sibo Sankar Mishra,Adv.

For Respondent(s) Ms. Manjula Gupta,Adv.

UPON hearing the counsel the Court made the following O R D E R

Hon'ble Mr. Justice Adarsh Kumar Goel pronounced Reportable judgment of the Bench comprising Hon'ble Mr. Justice Anil R. Dave and His Lordship.

The appeal is partly allowed in terms of the signed Reportable judgment.

Pending application, if any, stands disposed of.

(Sarita Purohit) (Sneh Bala Mehra) Court Master Assistant Registrar

(Signed Reportable Judgment is placed on the file)

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