M/S. Vellappally Brothers (Cochin) v. Kerala Co-operative Milk Marketing Federation Ltd. and Sri A. John Cherian

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR** **TUESDAY, THE 7TH DAY OF FEBRUARY 2012/18TH MAGHA 1933** **ARBA.No. 19 of 2007 ( ) -----------------------** **OP ARB.15/1997 of III ADDL.SUB COURT, ERNAKULAM ---------** **APPELLANT/PETITIONER: ---------------------** **M/S.VELLAPALLY BROTHERS (COCHIN), JAWAHARLAL NEHRU ROAD, KALAMASSERY- 683 503 REPRESENTED BY THE MANAGING PARTNER.** **BY ADVS.SRI.K.L.VARGHESE (SR) SMT.SANTHA VARGHESE** **RESPONDENTS/RESPONDENTS:** **-----------------------** **1. THE KERALA CO-OPERATIVE MILK MARKETING FEDERATION LTD., ARKANILAYAM, VAZHUTHAKKAD THIRUVANANTHAPURAM- 695 014 REPRESENTED BY THE MANAGING DIRECTOR.** **2. SRI.A.JOHN CHERIAN, RETD.CHIEF ENGINEER, PWD, 9/3 AVICOTE, TENNIS CLUB ENCLAVE, JAWAHAR NAGAR P.O. THIRUVANANTHAPURAM- 695 041.** **R1 BY ADVS.SRI.B.S.KRISHNAN(SR.), SC, MILMA SRI.K.ANAND (A.201) SMT.LATHA KRISHNAN** **THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 07-02-2012, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **VK** ## Thottathil B.Radhakrishnan & ## C.T.Ravikumar, JJ. = = = = = = = = = = = = = = = = = = = = = = = = Arb.A.No.19 of 2007 = = = = = = = = = = = = = = = = = = = = = = = = Dated this the 7th day of February, 2012 ## Judgment ## Thottathil B.Radhakrishnan, J. - 1.This appeal arises from an award governed by the provisions of the Arbitration Act, 1940, for short, the ‘Act’. The appellant's application to set aside the award under section 30(a) of the Act stands dismissed and hence, this appeal under section 39 thereof. 2.Before proceeding further it is appropriate to remind ourselves of the jurisdictional limitations as regards this appeal. Section 39 (1) (vi) of the Act provides that an appeal lies from an order setting aside or refusing to set aside an award. Therefore, when the appeal is against an order refusing to set aside an award, what needs to be considered is whether, before Arb.A19/07 -: 2 :- the court below, any ground was established, to set aside the award in terms of section 30 of the Act. We immediately recall the reminder indicated by the learned counsel for the first respondent that section 30 of the Act opens by making a prescription to the negative; namely that, an award shall not be set aside except on one or more of the grounds mentioned in that section. This provision, obviously, prescribes the jurisdictional limitations within which the Court as defined in section 2(c) of the Act, or the appellate court, could interfere with an arbitration award passed under the Act. 3.Before proceeding further, we need to note that it has often been restated, as a principle of law, that, neither the court of first instance nor the appellate court, hearing an application to set aside an award, could sit as if it were a court of appeal on the arbitration award under the Act. – For support, see State of Rajasthan v. Puri Construction Co.Ltd.[(1994) 6 SCC 485], Trustees of the Port of Madras v. Engg. Constructions Corpn. Ltd.[(1995) 5 SCC 531], BOC Arb.A19/07 -: 3 :- India Ltd. v. Bhagwati Oxygen Ltd.[(2007) 9 SCC 503], G.Ramachandra Reddy v. Union of India [(2009) 6 SCC 414], Ramnath International Construction(P) Ltd. v. Union of India[(2007) 2 SCC 453] and Ravindra & Associates v. Union of India[(2010) 1 SCC 80]. - 4.On the basis of the submissions made by the learned senior counsel on behalf of the appellant and the learned counsel for the first respondent, we have gone through the impugned order of the court below and the award which was impeached before it. - 5.The appellant’s learned senior counsel argued that there are no two ways of interpreting the contract between the parties in relation to payment of escalation and the answer given by the learned arbitrator under Claim No.1 cannot stand having regard to the terms of the contract. - 6.Per contra, the learned counsel for the first respondent argued that the award discloses that the learned arbitrator had applied mind and had Arb.A19/07 -: 4 :- deliberated on the terms of the contract. He submitted that, the learned arbitrator has adverted to and answered the controversy on the basis of the clauses of the contract between the parties and had recorded reasons for the award. The reason given by the arbitrator being a possible view on the interpretation of the contract between the parties, the court below has rightly refused to interfere with the award, it is argued. 7.Insofar as the controversy between the parties as regards the claim in question is concerned, the answer of the arbitrator, in our view, is rendered on a fair application of mind to all the relevant aspects. The arbitrator is himself a person of competence in relation to contracts. He retired as a Chief Engineer of the Public Works Department in the Government of Kerala. No personal allegations are raised against him. What requires to be established; is legal misconduct, meaning thereby, misconduct in terms of the wellestablished principles governing the field. Arb.A19/07 -: 5 :- 8.As observed by the Honourable Apex Court in Indu Engineering & Textiles Ltd. v. Delhi Development Authority[(2001) 5 SCC 691], the scope for interference by the court with an award passed by the arbitrator is limited. It was held in that case, as rightly pointed out by the learned counsel for the first respondent, that section 30 of the Act, provides in somewhat mandatory terms that an award shall not be set aside except on one or more of the grounds enumerated in that provision. Noticing the three grounds laid down in that provision, their Lordships stated that interpreting those statutory provisions, courts have laid stress on the limitations on exercise of jurisdiction by the court for setting aside or interfering with an award in umpteen cases. Encapsulating the principles of law governing the field, their Lordships stated that some of the well recognized grounds on which inference is permissible are; violation of principles of natural justice in passing the award; error apparent on the face of the award; the arbitrator has ignored or deliberately violated a clause in the agreement prohibiting dispute of the nature Arb.A19/07 -: 6 :- entertained; the award, on the face of it, is based on a proposition of law which is erroneous, etc. 9.That apart, the Apex Court in K.P.Poulose v. State of Kerala[(1975) 2 SCC 236] held that an award can be set aside under section 30 (a) of the Act when the arbitrator has misconducted himself or the proceedings; while, the misconduct for the purpose of that provision does not have the connotation of a moral lapse, it comprises legal misconduct. In that case, their Lordships held that if the arbitrator, on the face of the award, arrives at an inconsistent conclusion, even on his own findings 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 could be considered that the arbitrator has misconducted the proceedings. In Indu Engineering & Textiles Ltd.(supra), it was recalled that, while dealing with the powers of the courts to interfere with an award passed by an arbitrator, the Apex Court had consistently laid stress on the position that an arbitrator is Arb.A19/07 -: 7 :- a Judge appointed by the parties and as such, the award passed by him is not to be lightly interfered with. In Hindustan Tea Co. v. K.Sashikant Co.[1986 (Supp) SCC 506], it was held that the arbitrator is made the final arbiter of the dispute between the parties referred to him and that the award is not open to challenge on the ground that the arbitrator has reached a wrong conclusion or has failed to appreciate facts. Kanpur Nagar Mahapalika v. Narain Das Haribansh[(1969) 2 SCC 620] was referred to by the Apex Court in U.P.Hotels v. U.P.State Electricity Board[(1989) 1 SCC 359] to notice that in order to set aside an award, there must be a wrong proposition of law laid down in the award as the basis of the award. In Tarapore and Co. v. Cochin Shipyard Ltd.[(1984) 2 SCC 680], it was stated that a question of law might figure before an arbitrator in two ways. It may arise as an incidental point while deciding the main dispute referred to the arbitrator or in a given case parties may refer a specific question of law to the arbitrator for his decision. The Apex Court reiterated that arbitration has been Arb.A19/07 -: 8 :- considered a civilised way of resolving disputes avoiding court proceedings. If the parties refer a specific question of law to an arbitrator for his decision and agree to be bound by the same, such approach manifests faith of parties in the capacity of the tribunal of their choice and if they do so and obtain an award, then the court will not interfere with the award of the arbitrator on the ground that there was an error of law apparent on the face of the award even if the view of law taken by the arbitrator did not accord with the view of the court. - 10.Having noticed the position of law as above, adverting to the award, it was only claim no.1 in the award that became the subject matter of the appellant's application before the court below. Its grievance is regarding the refusal of claim no.1 and the reasons stated for such refusal. - 11.The finding of the arbitrator in the award under claim no.1 reads as follows: - “Claim No.1 – This claim is for payment of Arb.A19/07 -: 9 :- escalation for an amount of Rs.8,75,221.28. The Claimant admits having received Rs.6,46,902.90 from the Respondents and prays for payment of balance amount of Rs.2,28,318.38. As per conditions of contract, escalation/de-escalation amount is limited to 10% of value of work eligible for escalation. The value of work, deducting cost of extra works, comes to Rs.87,52,277.94. Since cement and steel are items issued by the Respondents at fixed recovery rates, the cost of this supply cannot be considered for escalation, and hence, deducting the value of Rs.21,40,429.00 towards value of materials supplied by the Respondents at fixed rates, the value that can be considered for escalation gets limited to Rs.66,11,848.94. Applying the admitted 10% escalation, the escalation amount works out to Rs.6,61,184.90. Of this, the Claimant admits having received Rs.6,46,902.90, and so the balance of Rs.14,282.00 becomes eligible for payment. This amount is seen (Exbt.C-84) recovered by the Respondents towards payment of Income-tax, and this recovery is seen not objected to by the Claimants. Claim No.1 is therefore disallowed.” Reading the aforesaid, it can be seen that the Arb.A19/07 -: 10 :- question whether the cost of cement and steel, which are items supplied by the respondents, should also be considered for escalation is an issue which revolves on the interpretation of the contract between the parties. It is not a case where the arbitrator has ignored the terms of the contract. The decision has been arrived at by applying the terms of the contract. The calculation made by the learned arbitrator is not a matter which could be treated as giving rise to an error of law apparent on the face of the record. The manner in which the escalation clause in Annexure-I ought to be applied has, obviously, been looked into by the arbitrator and a decision has been taken by a person of competence to do so. At any rate, he is the chosen arbitrator and the parties are bound by his decision as to the interpretation and application of the escalation clause as contained in the Annexure-I to the agreement between the parties. - 12.In the aforesaid fact situation, the court below was justified in concluding that the interpretation given by the arbitrator to the Arb.A19/07 -: 11 :- escalation clause is a possible one and therefore, the decision of the arbitrator could be visited on the application under Section 30(a) of the Act. Hence, this appeal under Section 39 of the Act also fails. In the result, this appeal is dismissed. No costs. Sd/Thottathil B.Radhakrishnan, Judge. Sd/C.T.Ravikumar, Judge. Sha/020212