State of Kerala v. N C Sobhitha Prasad (Arb.A.12/2017)

# **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.12 OF 2017** **OS(Arb) 242/1986 OF PRINCIPAL SUB COURT,TRIVANDRUM** ## **APPELLANTS/RESPONDENTS IN O.S.:** **1 STATE OF KERALA REP. BY THE CHIEF SECRETARY, GOVT.SECRETARIAT, THIRUVANANTHAPURAM 2 THE EXECUTIVE ENGINEER IRRIGATION DIVISION, THIRUVANANTHAPURAM** **BY SRI.K.V.SOHAN, STATE ATTORNEY SRI.K.DILEEP,GOVERNMENT PLEADER** ## **RESPONDENT/CLAIMANT IN O.S.:** ## **N C SOBHITHA PRASAD** **PWD CONTRACTOR , MANIYALLOOR VEEDU, VAZHUTHOOR, NEYYATTINKARA** **R1 BY ADV. SRI.T.KRISHNANUNNI SR. R1 BY ADV. SRI.SABU S.KALLARAMOOLA(CAVEATOR)** **THIS ARBITRATION APPEAL HAVING BEEN FINALLY HEARD ON 22.01.2021, THE COURT ON 15.03.2021 DELIVERED THE FOLLOWING:** Arb.A.12/2017 :2: ## **JUDGMENT** _Haripal, J._ Work by name “NIP-forming a jeep road from Pattakulam to Mylottumoozhi in between 7[th] and 9[th] kilometres of RBC- 1[st] section” was awarded to the respondent by agreement dated 05.04.1980. The respondent undertook to execute the work by 20.06.1980, based on the schedule of rates prevailing in 1979-80. After executing the agreement he made a security deposit of Rs.1,850/- also. During the course of execution, disputes arose between the parties and the contractor could not complete the work. At the time when the parties were blaming each other for not completing the work, the respondent staked amounts from the appellants, the State of Kerala represented by the Chief Secretary and the Executive Engineer, Irrigation Division, Thiruvananthapuram. As his demands were not met, he moved the Principal Sub Court, Thiruvananthapuram with O.S.(Arb.) No.242/1986 under Sections 5, 8 and 20 of the Indian Arbitration Act, 1940, hereinafter referred to as the Act. The learned Sub Judge, by judgment dated 26.02.1991, decreed the suit and the Chief Engineer (Arbitration), Government of Kerala was appointed as Arbitrator for the purpose of the settlement of the Arb.A.12/2017 :3: disputes. However, by the time the matter was taken up, the post of Chief Engineer (Arbitration) stood abolished and thereafter Sri.S. Krishna Iyer was appointed as Arbitrator, who did not take up the proceedings. Ultimately, Sri.V. Ganesan, former Chief Engineer, PWD was appointed as Arbitrator, who passed the impugned award dated 05.12.2015 whereby the appellants were directed to pay an amount of Rs.38,48,773.71/-, including refund of security deposit of Rs.1,850/-, Rs.4,36,324.05/- towards hill tract allowance at the rate of 15% and Rs.5,01,772.656/- as loss of profit at 15%; the appellants were also directed to pay interest at the rate of 18% per annum with effect from 12.06.1986. 2. Aggrieved by the award, the appellants moved the Principal Sub Court, Thiruvananthapuram under Section 30 of the Act seeking to set aside the award; the respondent also filed an application under Section 17 of the Act for passing a decree in terms of the award. By a common order dated 29.07.2016 the learned Principal Sub Judge dismissed the application for setting aside the award, whereas the application moved by the respondent was allowed except in respect of the rate of interest. The court had granted interest only @ 9% per Arb.A.12/2017 :4: annum from 12.06.1986. Aggrieved by the same, the State and the Executive Engineer have preferred this appeal under Section 39 of the Act. 3. We heard Sri.K.V. Sohan, the learned State Attorney for the appellants and Sri. T. Krishnanunni, the learned senior counsel appearing for the respondent. 4. The learned State Attorney has submitted that there are overwhelming materials to find that the Arbitrator had misconducted himself and the proceedings. Still, without considering the vital aspects, the learned Sub Judge proceeded to pass a decree in terms of the award passed by the Arbitrator and it is illegal. There was no uniformity in the contentions of the parties with regard to the agreement, works done, rate of amount payable to the contractor, etc. Still, purely basing on the claim statement filed by the respondent, the Arbitrator granted an award in terms of the claim statement alone, without taking any evidence. Referring to a judgment of the Enquiry Commissioner and Special Judge, Thiruvananthapuram in C.C.No.67/2008, the learned State Attorney said that the Arbitrator is a convict in a serious offence registered under the provisions of the Arb.A.12/2017 :5: Prevention of Corruption Act. It is evident from the impugned award that the basis of the finding is a local inspection conducted by the Arbitrator after more than three and a half decades of the alleged completion of the work. In fact, the respondent had abandoned the work in the midway. Later, it had to be got done through another contractor, Sri. Damodaran Nair, at an estimated amount of Rs.1,09,254/-. According to the learned State Attorney, such an award should not have been given the stamp of approval by the Sub Court. Relying on the decisions reported in **State v. Jolly [ILR 1992 (1) Kerala 113]** and **V.G. George v. Indian Rare Earths Ltd. and another [(1999) 3 SCC 762]** he said that the court should not hesitate to interfere with the judgment of the Sub Court. He also pointed out that there is absolutely no basis in awarding hill allowance and loss of profit, at 15% each. According to the learned State Attorney, the contract was given to the respondent for Rs.46,207/-, which is 36% below the estimated amount of Rs.62,139/-. The first part payment of Rs.9,093/- was paid on 31.01.1981. Still, basing on no materials, the respondent claimed an amount of Rs.38,48,773.71/-, and the very same amount has been awarded by the Arbitrator. Arb.A.12/2017 :6: 5. The learned senior counsel, on the other hand, pointed out that the scope of interference by this Court under Section 39 of the Act is very narrow. The appellants have no case that the contractor had not done extra works. But the delay that had occurred in completing the work was attributable to the officials of the appellants. The appellants did not make available the material files. He also invited our pointed attention to the detailed claim statement filed by the respondent before the Arbitrator, its para-wise reply given by the appellants and also the replication given by the respondent. The award was passed taking into consideration the totality of the circumstances. The argument that the Arbitrator was convicted by a court is no ground to challenge the correctness of the award. The appellants have no case that they wanted the Arbitrator to pass a reasoned award. Therefore, 'the reasonableness of the reasons' of the award cannot be called in question. He placed reliance on the decision in **Mohammed Zakir K.V. v. Regional Sports Centre [ILR 2009 (4) Kerala 317]** . According to the learned counsel, since the contract had failed owing to the laches on the part of the appellants, the respondent is entitled to claim loss of profit. In this connection, he placed reliance on the decision in **A.T. Brij Paul Singh** Arb.A.12/2017 :7: **and others v. State of Gujarat [AIR 1984 SC 1703]** . According to him, the site of work is a remote hill tract in Neyyattinkara taluk and, therefore, basing on the Government Order, G.O.(M.S.) No. 394/81/GAD dated 21.11.1981, he is entitled to get 15% hill tract allowance payable to the employees. 6. It is the common case that the work mentioned supra, was awarded to the respondent by an agreement dated 05.04.1980. It seems that the contractor was expected to complete the work, i.e. beating a jeep road through the forest, before 20.06.1980. From the pleadings of the parties, it is quite certain that the work was not completed by the respondent on time. The parties blame each other for the failure of timely execution of the work. While the respondent alleged that, after executing an agreement and depositing the security amount though he was prepared to do the work, it could not be commenced owing to the laches on the part of the officials of the appellants, since the land was not handed over to him after eviction of huts in the locality. This allegation has been stoutly denied by the appellants in the objection to the claim statement. 7. Similarly, there was also dispute as to the rate under which Arb.A.12/2017 :8: the work was executed by the respondent. It is certain that the work was not commenced, as agreed to between the parties. It also appears that at the time when the agreement was executed, rates of 1978 was prevailing. Later, the PWD rates were enhanced so that, the respondent claims that, he is entitled to get remuneration at the revised rates. The appellants dispute his claim. According to them, in the absence of a supplementary agreement, the rates in vogue on the date of execution of the agreement alone could be claimed by the respondent. Similarly, there were other areas of dispute also. While the respondent claimed that the indent for the supply of materials like cement and iron was not issued on time as agreed to earlier, the appellants denied the same. According to them, the laches were entirely on the respondent; he had shown no eagerness in getting the indent and executing the work. 8. It is not disputed that the respondent had moved the Sub Court, Thiruvananthapuram with O.S.(Arb.) No.242/1986; it is certain that there were areas of disputes between the parties justifying appointment of an Arbitrator for resolving the disputes. By judgment dated 26.02.1991, the suit was decreed and the Chief Engineer (Arbitration), Government of Kerala was appointed as Arbitrator. In Arb.A.12/2017 :9: I.A. No.3447/2006, filed on 02.08.2016, it is stated that since the post of Chief Engineer (Arbitration) was abolished by the Government the appointment of another Arbitrator became necessary. Thus, by order dated 27.11.2006, the learned Sub Judge appointed Sri. S. Krishna Iyer as Arbitrator to adjudicate the dispute. I.A. No.1578/2014 indicates that the said Krishna Iyer was not willing to do the work and, in that circumstance, the present Arbitrator Sri. V. Ganesan, Retired Chief Engineer was appointed as the Arbitrator. 9. Accordingly, the respondent filed a statement before the Arbitrator claiming an amount of Rs.38,48,733.71/-, which includes Rs.29,08,827/- towards the works done under various heads, Rs.4,36,324.05/- as 15% hill tract allowance and Rs.5,01,772.656/- as loss of profit at 15%. The amount claimed includes the above stated sums besides security deposit of Rs.1,850/-. The award dated 05.12.2015 passed by the said Arbitrator Sri. Ganesan indicates that the very same amount, including Rs.29,08,827/- towards the works done under various heads, Rs,4,36,324.05 towards 15% hill tract allowance, Rs.501772.656/- towards 15% loss of profit and also security deposit of Rs.1,850/- is sanctioned to the contractor. We highlighted these figures Arb.A.12/2017 :10: to say that even the decimal '.656 paise' has been reproduced in the award by the Arbitrator. It is also evident from the award that the Arbitrator had prepared the same with the available documents alone, without verifying any other document or files. It is also evident from the trial court records that when the material files were not produced, this Court was moved with an original petition, O.P.(C). No.1823/2014. A learned Single Judge of this Court, by judgment dated 05.02.2015, following the judgments in O.P.(C) No.303/2013 and O.P.(C) No.1725/2014, disposed of the same, directing the Sub Court to forward the documents to the Arbitrator. But such documents were not produced before the Arbitrator and thus the award was passed without referring to the files leading to the execution of the agreement and implementation of the work. 10. As rightly pointed out by the learned senior counsel, the Arbitrator cannot be found fault with for passing a non-speaking award, since neither party had insisted to pass a detailed award. Therefore, the mere reason that the Arbitrator had passed a non-speaking award is not a ground to mount attack on the impugned award. Moreover, the learned Sub Judge has found support of authorities of the Hon'ble Arb.A.12/2017 :11: Supreme Court in passing such a non-speaking award. 11. We are also very much conscious of the limitations of this Court while considering an appeal under Section 39 of the Act. This is not a regular court of appeal. The scope of interference in an award passed by an Arbitrator under Section 30 of the Act is rather thin. While considering an appeal under Section 39 of the Act, we are at the tapering end of the proceedings. Still, if the award passed by the Arbitrator is perverse and patently illegal, the court cannot hesitate to extend its hands to do complete justice between the parties. Now the moot question is whether the award is vitiated under the provisions contained in Section 30 of the Act. 12. In this connection, the following passage from the decision in **V.G. George** , cited supra, is worth to be reproduced: “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 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. Arb.A.12/2017 :12: 10. Thus, the law is well settled that if the award is nonspeaking, 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.” ## 13. In **State of Kerala and another v. K. Kurian P. Paul [AIR** **1992 Ker 180]** , this Court has stated how an Arbitrator can be said to be guilty of misconduct. According to the Court, the 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'. Even though it is difficult to give an exhaustive list of acts which constitute misconduct of the proceedings, according to the court, the above stated grounds broadly cover such grounds. Arb.A.12/2017 :13: 14. An arbitration proceeding is essentially a judicial proceeding. It has all the trappings of the court. It is a body discharging judicial functions and the award is the outcome of such a judicial decision. Therefore, even though the Arbitrator is said to have passed a non-speaking award, he has a duty to make others believe that he had acted judicially and impartially. An Arbitrator is the Judge of both the questions of law and facts referred to him for taking the decision. If the procedure followed and the decision taken are patently perverse and illegal, such a decision falls within the scope of misconduct. Similarly, if the conclusion of the Arbitrator is found to be without any evidence, the award can be held perverse and such perversity on the part of the Arbitrator amounts to misconduct within the scope and ambit of Section 30 of the Act, enabling the court to interfere with the same. In spite of all limitations, the court retains sufficient control over the proceedings to prevent and redress any injustice committed by the Arbitrators. 15. Now, having said the law, we have to consider whether the award under challenge falls within the mischief of misconduct by the Arbitrator himself or the proceedings. As indicated earlier, at the time when the Arbitrator was taking evidence, none of the files were made Arb.A.12/2017 :14: available to him. That means, the Arbitrator had no occasion to see the nature and the scope of the agreement entered into between the parties, schedule of work, the agreed rates, etc. The Arbitrator has noticed that at the instance of the respondent contractor, vakalath and exhibits 1 to 10 were marked. But, we do not know what are the documents produced by the respondent before the Arbitrator, which had led for passing the award. Details of such documents are not appended to the award also. 16. Secondly, it is succinctly stated in the award that the 2[nd] respondent Executive Engineer, who is liable to produce records such as Measurement Book, LF Registers and agreement were not produced before the Arbitrator. That means, the Arbitrator proceeded to pass the award without looking at the relevant records like MBook and LF Registers etc., which are the most important documents to find the nature and extent of the work done by the contractor. 17. The respondent had blamed the appellants for not making available the material documents before the court. But there are reasons to think that such documents were missing. That was why the respondent had approached this Court with a writ petition for a Arb.A.12/2017 :15: direction to the court to send the records to the Arbitrator. From the award it is patent that such records were not made available to the Arbitrator. 18. The arbitration proceedings were initiated at the instance of the respondent. It was he who instituted a suit before the Sub Court for appointing an Arbitrator and for referring the disputes for arbitration. He had filed claim statement as well as replication before the Arbitrator. But he remained dormant without producing necessary documents before the Arbitrator to prove his case. It is certain that he had moved this Court for directing the Sub Court to send the documents to the Arbitrator. But such documents have not come to light. Whatever it may be, the initial burden is on the respondent as the claimant to prove his case. So long as that burden has not been discharged, he cannot get an award in his favour. It cannot be believed that the respondent could not even make available a copy of the agreement entered into between the parties. Blaming the appellants for not making available the material documents cannot advance his case. 19. Moreover, in such a setting, the Arbitrator had made an inspection on 14.10.2015. But we do not know how such an inspection Arb.A.12/2017 :16: had benefited the Arbitrator in reaching any conclusion. Firstly, the entire work was not done by the respondent; he had abandoned the work midway, whatever be the reason for such an abandonment. It is also stated by the appellants that the remaining part of the work was got done by another contractor. The Arbitrator had inspected the site on 14.10.2015, after a lapse of three and a half decades. In all probability, such an inspection was an idle exercise which could not have given him any idea about the work done by the respondent. An Arbitrator, even though not bound by the technicalities of the procedure followed by a court of law, still is bound to follow the settled principles of law. Though he had inspected the site, did not prepare any memorandum of inspection as required under Rule 18 of Order XVIII of the Code of Civil Procedure. That means, we do not know as to what little pieces of information he had gathered from the site inspection. 20. The total outlay of the work was Rs.46,207/-. But the Arbitrator has given an award for Rs.38,48,773.73/- with 18% interest, which does not stand to reason. 21. Moreover, the claim for 15% loss of profit is justified only if it is proved that the agreement was rescinded owing to the laches on Arb.A.12/2017 :17: the part of the appellants. Here, still it remains a disputed question of fact. Even though the Arbitrator proceeded to award amounts under various heads, there is not even a one-line finding as to who is responsible for the failure of the contract. Without adverting to such a vital aspect, the Arbitrator is not justified in passing an award against the appellants. 22. Similarly, the Government Order referred to by the learned senior counsel, justifying the claim of Rs.15% hill allowance, has no application to the facts. Such an order was passed granting hill allowance to the part-time/contingent employees, as specified in Appendix IX of Part I of the Kerala Service Rules at a flat rate of Rs.10/- per month. In other words, that amount also should not have been reckoned by the Arbitrator. We have already noticed that the total amount of Rs.38,48,773.71/- includes Rs.5,01,772.656/-. There is no sense in making such an award. The Arbitrator was passing an award literally reproducing the claim statement of the respondent. Absence of application of mind by the Arbitrator is clear like daylight. He was virtually playing second fiddle to the dictates of the respondent. 23. These are clear instances of total misconduct by the Arb.A.12/2017 :18: Arbitrator and the proceedings. Such an award should not have been given the stamp of approval by the learned Sub Judge. He should not have made the award the rule of the court. In the circumstances, this is an eminently fit case for interference by this Court, in the interest of justice. Thus the award cannot stand judicial scrutiny and consequently, it is set aside. In the result, the appeal is allowed. No costs. Sd/- **C.T. RAVIKUMAR JUDGE** Sd/- **K. HARIPAL JUDGE** okb/25.02 //True copy// P.S. to Judge Arb.A.12/2017 :19: ## APPENDIX Appellants' Annexures:- 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 Administation, Thiruvananthapuram