Arb.A.No.15 of 2017

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR** **&** **THE HONOURABLE MR. JUSTICE K.HARIPAL** **MONDAY, THE 15TH DAY OF MARCH 2021 / 24TH PHALGUNA, 1942** ## **Arb.A.No.15 OF 2017** **AGAINST THE COMPOSITE ORDER IN I.A. NO. 861/2015, I.A.NO. 1071/2015 AND OP(ARB)NO. 42/2000 DATED 22-02-2016 OF THE SUB COURT,THIRUVANANTHAPURAM** **APPELLANTS/PETITIONERS IN I.A. NO. 861/2015 AND RESPONDENTS IN I.A. NO. 1071/2015 & 1070/2015:** **1 THE STATE OF KERALA REPRESENTED BY THE CHIEF SECRETARY TO GOVERNMENT, SECRETARIAT, THIRUVANANTHAPURAM - 695 001.** **2 THE EXECUTIVE ENGINEER IRRIGATION DIVISION, THIRUVANANTHAPURAM .** **BY SRI. K. DILEEP, GOVERNMENT PLEADER SRI.K.V.SOHAN, STATE ATTORNEY** **RESPONDENT/RESPONDENT IN I.A. NO. 861/2015 AND PETITIONER IN I.A. NO. 1071/2015 & 1070/2015:** **N.C.SOBHITHA PRASAD PWD CONTRACTOR, MANIYALLUR HOUSE, VAZHUTHOOR, NEYYATTINKARA.** **BY ADVS. SRI.T.KRISHNANUNNI (SR.) SRI.SABU S.KALLARAMOOLA** **THIS ARBITRATION APPEAL HAVING BEEN FINALLY HEARD ON 22-01-2021,THE COURT ON 15-03-2021 DELIVERED THE FOLLOWING:** Arb. Appeal No. 15 of 2017 -2- ## **JUDGMENT** ## Haripal, J. This is an appeal preferred under Section 39 of the Arbitration Act, 1940, hereinafter referred to as the Act, by the State of Kerala, represented by the Chief Secretary and the Executive Engineer, Irrigation Division, Thiruvananathapuram, challenging the correctness of the order passed by the Principal Sub Judge, Thiruvananthapuram in I.A. No. 861 of 2015 in I.A. Nos. 1071/2015 and 1070/2015 in O.P. (Arb.) No. 42/2000. 2. It is the common case that the work of 'Maintenance of Neyyar Irrigation Project (NIP) - Extending the river training wall on the right bank of the Neyyar River downstream of Neyyar Garden' was awarded to the respondent by agreement No. 31/EE/79/80 dated 04.02.1980. The probable amount of contract (PAC) was Rs.68,685/-. The contractor, the respondent agreed to undertake the work 25.1% below the estimate amount. After executing necessary agreement and also depositing a sum of Rs.2,800/- as security deposit, the respondent agreed to complete the work by 30.04.1980. But the Arb. Appeal No. 15 of 2017 -3- work could not be completed by the respondent in time. In this regard, divergent contentions were raised by the parties. According to the appellant State, in spite of repeated requests made by the officials of the Public Works Department, the respondent was lagging; ultimately, he did not complete the work despite granting extensions of time to him. On the other hand, the version of the respondent is that he was ready and willing to complete the work on the scheduled time/extended time, he had to undertake extra works as and when directed by the officials of the department, for which payments were not made in spite of repeated demands; works could be undertaken only on supply of items, especially cement, which was a controlled commodity at the relevant time. He could not commence the work as scheduled owing to the laches on the part of the officials of the department and non-supply of items. Moreover, unexpected heavy rains also had caused obstructions and damaged the constructions already made; he had to re-do the work for making good the damage caused due to heavy rain. In spite of his diligent efforts to complete the work, at the fag end of the contract, payments were not made. Ultimately, he had to resort to arbitration proceedings for getting his due amount. By the award dated 19.02.2015, a sum of Rs. 46,72,610/- Arb. Appeal No. 15 of 2017 -4- was awarded to him including 15% hill allowance and loss of profit calculated at 15%, which is the actual amount due to him; 18% interest with effect from 28.05.1986 was also slapped on the State. The Principal Sub Judge, Thiruvananthapuram, who vetted the award dismissed the application filed by the State to set aside the same and granted him a decree in terms of the award and therefore, so much amount is due to him. 3. The appellants have disputed the claims. According to them, the contract had failed owing to the laches on the part of the respondent. All the extra works done were reckoned by the officials, part payments were made and the Arbitrator is not justified in passing such a huge award. It has no basis at all. 4. We heard Sri. K.V.Sohan, the learned State Attorney for the appellants and Sri. T. Krishnanunni, learned Senior Counsel for the respondent. 5. The learned State Attorney has made scathing attack on the award. According to him, on the face of the records, it is evident that the award was obtained playing fraud on the Arbitrator. At the time of taking evidence, even the agreement was not made available to the Arbitrator. All the material documents are missing. Still a huge Arb. Appeal No. 15 of 2017 -5- amount was passed in favour of the contractor. Even though the total amount of contract was Rs.68,685/-, Rs.49,901/- was already paid through two part bills for Rs.39,305/- and Rs.10,696/- and what remained was only Rs.18,784/-; in contrast to the same, the Arbitrator has passed an award of Rs.46,72,610/-, which cannot stand scrutiny. Producing certain documents as Annexures to the appeal memorandum, the learned State Attorney has pointed out that the integrity of the Arbitrator, who is a former Chief Engineer is liable to be doubted, that by a judgment of the Enquiry Commissioner and Special Judge, Thiruvananthapuram, he stands convicted in C.C. No. 67/2008 under the provisions of the Prevention of Corruption Act. The respondent had abandoned the work leaving 23%, which had to be got done through another contractor. The total amount of Rs. 68,685/- was payable to the respondent only if he had completed the entire work. Similarly, there is no reasoning for the quantity of work claimed to have been done by the respondent and the rate etc. There is also no basis in claiming 15% hill allowance or loss of profit at the rate of 15%. The award is lacking legal foundation and liable to be interfered with. The learned State Attorney also placed reliance on the decisions reported in **State v. Jolly [ ILR 1992 (1) Kerala 113]** and Arb. Appeal No. 15 of 2017 -6- ## **V.G. George v. Indian Rare Earths Ltd. and Another [(1999) 3 SCC 762]** 6. On the other hand, the learned Senior Counsel for the respondent strongly supported the award and the finding of the Sub Judge. He took us through various heads made in the claim statement of the respondent and also the parawise comments made by the appellants to such claims. According to the learned counsel, after having admitted that the respondent had done additional work for which the department is liable to pay, now they are estopped from disputing the claim of the contractor. Merely for the reason that a non-speaking award was passed, the Arbitrator cannot be found fault with; he was appointed with the consent of the appellants. The contention that he had faced criminal proceedings etc., have no reason for challenging the award. He relied on the decision reported in **A.T.** **Brij Paul Singh and Others. v. State of Gujarat [AIR 1984 SC** **1703]** to buttress the contention that the claimant is justified in claiming 15% of the price of the PAC towards loss of profit. Similarly, he also brought to our notice the copy of Government Order No. G.O.(M.S.) No. 394/81/GAD dated 21.11.1981 and justified in claiming hill allowance. According to him, the place of work is a hill Arb. Appeal No. 15 of 2017 -7- tract in Neyyattinkara taluk, so that hill tract allowance is admissible to the employees who were engaged by him. Relying on the decision reported in **Mohammed Zakir K.V. v. Regional Sports Centre [ILR 2009 (4) Kerala 317]** he said that the 'the reasonableness of the reasons' set forth by the Arbitrator is not open to judicial scrutiny unless the Arbitrator has exceeded his jurisdiction or committed any legal misconduct. 7. According to learned counsel, though the agreement was executed in 1980, works could be done only during 1981-82. He had claimed only rates which were in vogue in 1980. Referring to the reply to the claim statement, he urged that the appellants have no case that additional items of works were not done by him or rain damaged works were not undertaken. The counsel claimed that the respondent had completed the work and that was how second instalment was also paid by the department. According to learned counsel, there is no material to say that somebody else had completed the work; no legal misconduct could be attributed against the Arbitrator. In fact, the Arbitrator, a former Chief Engineer was the fourth Arbitrator engaged for the purpose; at first, the Chief Engineer (Arbitration) was authorised to do the work, but in course of time that post was Arb. Appeal No. 15 of 2017 -8- abolished; and later one Krishna Iyer was appointed, who abandoned the work, following which one K. Ganapathy Iyyer was nominated as Arbitrator who died and then, V. Ganesan, former Chief Engineer was appointed as consented by the appellants as well. Measurement and rates reckoned by the Arbitrator alone are under dispute. But the Arbitrator had proceeded to hear the parties after conducting a local inspection; local inspection was done after giving notice to both parties and in the presence of the officials of the appellants as well. According to the learned counsel absolutely no blemish can be attributed against the award and the order of the court is not liable to be interfered with. 8. We have perused the records called for from the Principal Sub Court, Thiruvananthapuram. It is quite patent from the impugned award that material documents were not available before the Arbitrator. At the time when the matter was placed before the Arbitrator, it was reported that the file including the records leading to the execution of the agreement are missing. At one point of time, it was stated that all the records were sent to the Sub Court, but from the order of this Court in O.P. (C.) Nos. 303 and 318 of 2013, dated 27.02.2013, which is available in trial court records, it is clear that Arb. Appeal No. 15 of 2017 -9- documents relating to the award of contract etc., were not produced before the Sub Court, despite the claim to the contrary. It is evident from the award also that even the M Books or the Level Field Registers were not made available to the Arbitrator. In such a setting, the Arbitrator proceeded to pass the award after making a local inspection at the site, where the works were claimed to have been done by the respondent. 9. No doubt the Arbitrator had passed a non-speaking award. Basing on the decisions in **Raipur Development Authority and Others v. Chokhamal Contractors and Others [(1989) 2 SCC 721]** and **Rajendra Construction Company v. Maharashtra Housing and Area Development Authority and Others [AIR 2005 SC 3701]** , the learned Sub Judge held that an award cannot be challenged for the mere reason that it is a non-speaking order. The appellants have no case that they had made a specific contention at the commencement of the proceedings before Court while appointing the Arbitrator that it should be a speaking award. Therefore, for the mere reason that it happened to be a non-speaking award, its correctness cannot be called in question. Arb. Appeal No. 15 of 2017 -10- 10. We are also conscious of the limitation of this Court in interfering with an award while considering an appeal under Section 39 of the Act. An award cannot be set aside except on one or more of the grounds stated in Section 30 of the Act. It is the settled proposition of law that unless bias or partiality of the arbitrator is manifestly demonstrated, the award should not be set aside because parties themselves had chosen the forum on their own volition; assailing the findings of facts based upon the materials produced by the parties amounts to stultifying the statute and its objects and purpose. The object of Arbitration Act is to minimise disputes between parties. Scrutiny of finding of facts of the arbitrator is neither permissible nor warranted unless a party succeeds in establishing any of the grounds under Section 30 of the Act. 11. In this connection, it is apposite to extract the following observations of the Hon'ble Supreme Court in **V.G. George v. Indian Rare Earths Ltd. and Another [(1999) 3 SCC 762]** :- “9. In _Associated Engg. Co. v. Govt. of A.P._ it was held that the arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract and his sole function is to arbitrate in terms of the contract as his authority is derived from the contract. It was also held that if he has remained Arb. Appeal No. 15 of 2017 -11- inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it. 10. Thus, the law is well settled that if the award is non-speaking, the court can look into the question as to whether arbitrator has travelled beyond the scope of the contract as he derives his jurisdiction from the contract and if the arbitrator exceeds his jurisdiction the award can be set aside. An award can also be set aside in case of misconduct apparent on the face of the award. It can also be interfered with if the arbitrator has given reasons for the award disclosing an error apparent on the face of it.” 12. In **State of Kerala and Another v. K. Kurian P. Paul** **[AIR 1992 Ker 180]** , a Division Bench of this Court held that an Arbitrator misconducts the proceedings '(i) when there is a defect in the procedure followed by him (ii) commits breach and neglect of duty and responsibility (iii) acts contrary to the principles of equity and good conscience (iv) acts beyond the reference (vi) proceeds on extraneous circumstances (vii) ignores material documents (viii) bases the award on no evidence'. According to the court, while it is difficult to give an exhaustive list of acts which constitute misconduct of the proceedings, the above stated grounds broadly cover such grounds, Arb. Appeal No. 15 of 2017 -12- these acts constitute legal misconduct. 13. Here, it is the specific contention of the appellants that the Arbitrator has misconducted himself and the proceedings. As noticed earlier, the learned State Attorney has stated that the Arbitrator was simply toeing the line of the respondent by giving the stamp of approval to the claim statement submitted by him. After hearing counsel on both sides and perusing the materials on record, we are convinced that there are overwhelming reasons to upset the award. 14. Arbitration essentially is an adjudicatory process and the arbitrator is the adjudicator; he has to arrive at the conclusions based on the materials placed before him. He is discharging the functions of the Court. Therefore, arbitration process should be undertaken with due solemnity required, as done by a Court. That is why it is said that an arbitration award shall not be arbitrary, but shall be based on sound principles of equity, justice and good conscience. It should demonstrably be judicious. But after perusing the materials, we have no doubt that here the Arbitrator was acting arbitrarily, flouting all principles of the adjudicatory process. 15. In order to appreciate the contention challenging the award, the following statement in tabular form would give a general Arb. Appeal No. 15 of 2017 -13- ## idea :- |**Sl. No. of**<br>**the work**|**Name of the work**|**Claim of the**<br>**Contractor**|**Award**| |---|---|---|---| |1|Clearing jungle|2,731.25|2,375.00| |2|Puttingupringbund|2,22,870.00|2,22,870.00| |3|Earth work excavation|97,562.96|97,563.00| |4|Protecting the sides of<br>excavation|1,65,600.00|1,65,600.00| |5|Preparation ofpumpsump pit|1,000.00|1,000.00| |6|Bailingout water|91,080.00|91,080.00| |7|Bailingout springwater|23,220.00|23,220.00| |8|D.R. packing for bed<br>foundation|1,47,549.60|1,47,549.00| |9|Rubble<br>masonary<br>for<br>foundation|2,10,425.63|2,10,425.00| |10|Rubble masonary in cement<br>mortar|2,39,946.35|2,39,946.00| |11|Dryrubblepacking|85,699.99|85,699.99| |12|Earth work filling and<br>formingeroded bank|3,98,542.92|3,98,542.00| |13|Cementplastering|1,129.95|1,230.00| |14|Repairingrain damages:-||| ||1)|2,385.00|2,385.00| ||2)|765.00|765.00| ||3)|89,005.00|89,005.00| ||4)|34,540.00|34,540.00| ||5)|16,38,790.20|16,38,790.00| |15|Loading and unloading of<br>cement|810.00|810.00| |16|100 bags of cement issued to<br>another contractor|790.00|-| |17|Price of cement purchased by<br>the claimant|27,720.00|27,720.00| Arb. Appeal No. 15 of 2017 -14- |18|Refund of securitydeposit|2,800.00|2,800.00| |---|---|---|---| |19|15% Hill allowance|5,22,744.58|5,22,745.00| |20|15% loss of profit|6,09,470.01|6,09,470.00| ||**Total**|**46,72,610.31**|**46,72,610.00**| 16. It is the common case that the appellants or the respondent could not make available the relevant materials before the Arbitrator. The most vital records like the Measurement Books and the Level Field Registers were not available. All files are missing. The Arbitrator could not even have a glimpse of the terms of the agreement since even a copy of the agreement could not be made available by the parties before him. In other words, it was not known as to what precisely was the work entrusted with the respondent. The extent of the work done by the respondent, either in tune with the original terms of contract or extra works claimed to have been undertaken by him, could not be deciphered by the Arbitrator from any material placed before him. In other words, in passing the award, he was blindly following the claim statement submitted before him by the respondent. Of course the respondent has stated the nature and extent of the work, the rates claimed by him etc., in the claim statement. The agreement was executed on 04.02.1980. In all Arb. Appeal No. 15 of 2017 -15- probabilities, rates prevailing on the date of execution of the agreement must have been taken into reckoning. It was argued that after some time, while the respondent was doing the work, the PWD rates were revised. According to the learned Senior counsel, then the respondent is entitled to get the revised rates. Whatever it may be, we are in total darkness as to what was the rate prevailing on the date of agreement or what was the revised rates and which rates could be claimed/awarded to the respondent. Then only the correctness of the amount claimed by the respondent could be ascertained. 17. Secondly, the respondent had claimed to have done some extra works like clearing the jungle, earth filling, putting up of a ring bund for draining water and other draining operations with the help of a 5 HP pump, doing protective works etc. Some of the above items like clearing jungle, earth filling and draining operations are seen admitted in the statement filed by the appellants before the Arbitrator. Even then the claim of the respondent that he had to transport earth from a place by name Vazhichal, that it had to be first unloaded on the side of the road and then re-conveyed to the work site by head and in that process he had to incur additional expenses, are denied by the appellants. Similarly, the extent of the work claimed by the respondent Arb. Appeal No. 15 of 2017 -16- for draining operations is also disputed. The appellants have denied extra works under the head protective works on the side of the banks, ring bund etc. According to them, these works were done during summer season, in February and March, 1980, when there was no rain at all. It was also stated that works were done downstream the dam where there is no flow of water in summer, that there will be flow in the river at the site only when spillway shutters are opened only during rainy season for discharge of flood water. The appellants have thus denied the claim of putting up of a ring bund, attending protective works etc. These are disputed questions of facts which could be resolved only by taking evidence. But no such evidence has been taken. 18. There is also no consistency in the contentions as to when the work had started, when the work was stopped and then resumed, reason for such discontinuation etc. In the absence of M Books and LF Registers which are contemporaneous documents, the extent of work undertaken by the respondent could not be ascertained by the Arbitrator. There is also no consistency as to when and how many bags of cement were supplied to the respondent etc. Without getting a clear picture on such contentions, it is not known as to how the Arb. Appeal No. 15 of 2017 -17- Arbitrator could conclude that there was short supply of cement. 19. Another major dispute hinges around the question whether the respondent had completed the work. While the respondent claimed that he had finished the work, the appellants have a clear case that he had abandoned the work after doing only 77% of the works, the balance 23% had to be got done through another contractor. These contentions are cutting each other. Even when the respondent claimed that he had completed the work, the replication dated 29.11.2014, filed by him before the Arbitrator indicates that he had left at the final stage leaving some finishing works, 'that the works could not be proceeded with because of inability of refusal of the officials to make prompt payment as per agreement, the balance material in the store was very little as the claimant has used it on the work'. He has further averred that he could not complete the repair works at the length 12 m to the upstream side due to lack of funds and non-availability of cement. At the same breath, it is averred that the Executive Engineer had ordered on 11.06.1985 to cancel the work and re-arrange balance works at his risk and costs. We said these aspects to highlight the total lack of consistency between the contentions of the parties. Still an award was passed by the Arbitrator as claimed by the respondent. Arb. Appeal No. 15 of 2017 -18- 20. After re-visiting the limited materials on record, we have no hesitation in saying that such an award is clearly startling, shocking the judicial conscience of this Court. It is astonishing that for passing such an award, the Arbitrator did not require any material documents. He also did not examine any witness to ascertain the facts and unravel disputed questions. 21. It is claimed that he had inspected the site. Such an inspection was done on 28.11.2014, after more than three decades. We have already indicated that the contention of the parties with regard to the claim that the respondent had completed his work is inconsistent. Even assuming that the entire work was done by the respondent himself, it is not known as to how the Arbitrator could gather and assimilate the extent of the works done at the place, by an inspection done by him. Secondly and more importantly, when such an inspection is done, it is peremptory under Rule 18 of Order XVIII of the Code of Civil Procedure that a memorandum of relevant facts observed at such inspection shall be recorded and that shall form part of record of the proceedings. But here, the Arbitrator who is supposed to act as a substitute to the court did not deem it necessary to prepare any such memorandum. Arb. Appeal No. 15 of 2017 -19- 22. As stated at the outset, the total amount of the contract was Rs.68,685/-. Admittedly, at least two part payments were made to the respondent. But the Arbitrator has passed a whopping award of Rs.46,72,610/-, which has no nexus with the agreement between the parties. 23. Similarly, it is not known to us how he has calculated the loss of profit at 15%. Such an amount could be reckoned only if the recession of the contract was the result of laches on the part of the appellants and breach of contract is proved. Here that is a disputed question of fact, which stands not resolved. Again, there is absolutely no basis in claiming 15% hill allowance. The Government Order relied on by the learned counsel is one granting hill allowance to the part time contingent employees working in hilly areas as specified in Appendix IX of Part I of the Kerala Service Rules at a flat rate of Rs.10/- per month. Therefore, this order also cannot support the claim of the respondent. 24. The arbitration proceeding was initiated at the instance of the respondent. After appointing the Arbitrator, he filed detailed claim Arb. Appeal No. 15 of 2017 -20- statement incorporating claims under various heads, extent of work done, rate of payment etc. He has also specifically stated that he had undertaken additional works. Though the appellants have admitted that certain additional works were done by the contractor, certain specific items claimed to have been done by the respondent have been denied or rather disputed by the appellants. However, the claimant cannot justifiably remain content with the plea that the files relating to the execution of the work should have been produced by the department. We have no doubt that the _onus probandi_ is on the contractor. He who asserts a fact or claim has to prove it. Merely for the reason that the appellants had admitted that some additional works were undertaken by the contractor, unless its details are forthcoming, no prudent decision could be taken on the extent of work and for that reason quantum to be paid. It is also certain that supplemental agreements were not executed between the parties. At any rate, no such supplemental agreements were produced by the respondentclaimant before the Arbitrator. Thus applying 'who will fail' theory, in the absence of supporting materials, the Arbitrator was not justified in passing an award solely based on the tall claims presented before him without any other supporting materials. It is sad to note that the Arb. Appeal No. 15 of 2017 -21- Arbitrator has not taken care to honour the elementary rules of adjudication. 25. To sum up, the award is a verbatim reproduction of the claim statement given by the respondent before the Arbitrator. At the risk of repetition, we may say that the Arbitrator had no records to assess the correctness of the claims made by the respondent. Vital records like M Books, LF Books and other files containing material documents have not seen the light of the day. Still the Arbitrator had no hesitation in passing an award as claimed by the respondent. To put it bluntly, the Arbitrator was doing a complete guess work, blindly believing the version of the contractor. He was acting as an amanuensis of the respondent. Such a weird award cannot stand judicial scrutiny. 26. On considering the entire facts and law, we have no doubt in our mind that the Arbitrator has misconducted himself and also the proceedings and such an award cannot stand judicial scrutiny. The learned Sub Judge made the award the rule of the court without considering these vital aspects and therefore, the order is liable to be interfered with. The award is liable to be set aside and we do so. Arb. Appeal No. 15 of 2017 -22- In the result, the appeal is allowed. No costs. Sd/- **C.T. RAVIKUMAR, JUDGE** sd/- **K.HARIPAL, JUDGE** DCS/22.02.2021 Arb. Appeal No. 15 of 2017 -23- ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** |**ANNEXURE A1**|**TRUE COPY OF THE LETTER DATED**| |---|---| ||**30.07.1981**| |**ANNEXURE A2**|**TRUE COPY OF THE FORM 83 NOTICE**| ||**INVITING TENDERS**| |**ANNEXURE A3**|**TRUE COPY OF FORM 84 GENERAL CONDITIONS**| |**ANNEXURE A4**|**TRUE COPY OF THE SPECIAL CONDITIONS OF**| ||**CONTRACT**| |**ANNEXURE I**|**TRUE COPY OF G.O.(Rt) NO. 23/2021/WRD**| ||**DATED 07.01.2021**| |**ANNEXURE II**|**TRUE COPY OF THE LETTER NO.**| ||**F2/6905/2021 DATED 13.01.2021 FROM THE**| ||**CHIEF ENGINEER, IRRIGATION AND**| ||**ADMINISTRATION, THIRUVANANTHAPURAM**|