T. Omanakuttan Pillai v Union of India and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MRS.JUSTICE K.HEMA** **&** **THE HONOURABLE MR.JUSTICE. P.S.GOPINATHAN** **FRIDAY, THE 11TH DAY OF JANUARY 2013/21ST POUSHA 1934** **Arb.A.No. 14 of 2006 ( ) -----------------------AGAINST THE ORDER/JUDGMENT IN OPARB.78/2001 of DISTRICT COURT,TRIVANDRUM DATED 24-02-2006** **APPELLANT(S)/PETITIONER/APPELLANT.:** **------------------------------------** **T.OMANAKUTTAN PILLAI, CHERUVELIL HOUSE, THAZHAVA P.O., KARUNAGAPPALLY, KOLLAM-690 523.** **BY ADV. SRI.K.BABU THOMAS** ## **RESPONDENT(S)/RESPONDENTS:** **----------------------------** **1. UNION OF INDIA, REP. BY THE GENERAL MANAGER, SOUTHERN RAILWAY, SOUTHERN RAILWAY HEAD QUARTERS, MADRAS 3.** **2. THE DIVISIONAL MANAGER (WORKS), SOUTHERN RAILWAY, TRIVANDRUM DIVISION, TRIVANDRUM 14.** **3. SMT. MANJULA RANGARAJAN, DEPUTY FINANCIAL ADVISOR & CHIEF ACCOUNTS OFFICER, SOUTHERN RAILWAYS, CHENNAI 600 048, C/O.FIRST RESPONDENT.** **4. D.R.GUPTA, DIRECTOR/LAND MANAGEMENT RAILWAY BOARD, RAIL BHAVAN, NEW DELHI 110 001 IST RESPONDENT. R,R1 &2 BY ADV. SRI.M.C.CHERIAN,SR.SC.,RAILWAYS** **THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 11-01-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **Arb.A.No. 14 of 2006** **ANNEXURE A1: COPY OF AGREEMENT NO.117/TVC/1993-94. ANNEXURE A2: COPY OF AWARD PASSED BY RESPONDENTS 3 AND 4.** **/TRUE COPY/** **P.S. TO JUDGE** **“CR”** ## **K. HEMA & P.S. GOPINATHAN, JJ.** ...................................................... Arb.A.NO.14 OF 2006 ...................................................... Dated this the 11[th] day of January, 2013 ## **JUDGMENT** Gopinathan, J. Basing upon a works contract dated 3.11.1993, a dispute arose between the appellant and the respondents. Ultimately the mater was referred to the arbitrator in the year 1998 as per order dated 2.12.1998 in A.R.No.14/1998 on the file of this Court. This Court directed the arbitrator to publish the award within six months. Thereafter, the period for publishing the award was extended till 1.4.2000. The arbitrator did not publish the award within the time limit prescribed by this Court. It appears that after the expiry of the period, the parties were heard till 26.9.2000 and an award was published on 16.5.2001. Assailing the said award, the appellant approached the District Judge, Trivandrum in O.P.(Arb)No.78/2001 raising various grounds under Section 34 of the Arbitration and Conciliation Act, 1966 (hereinafter referred to as 'the Act'). By the impugned order dated 24.2.2006, that petition was dismissed. Assailing the above order, this appeal was preferred under Section 37 : 2: ## Arb.A.NO.14 OF 2006 of the Act. 2. Heard both sides. Perused the impugned order as well as the impugned award. Before us mainly three grounds were urged. They are: - (i) The award is in contravention of Section 31(3) of the Act as it lacks reasons. - (ii) The impugned award was passed without the mandate of this Court. - (iii) The award is vitiated by fraud. 3. We shall first consider whether the award is a speaking one or not. It is not in dispute that the parties have not agreed for a non speaking award. Therefore, the arbitrator is bound to state the reason upon which the arbitration award is based upon. That is the mandate of Section 31(3) of the Act which reads as follows: ## 31. Form and contents of arbitral award: - (1) An arbitral award shall be made in writing and shall be signed by the members of the abitral tribunal. - (2)For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the : 3: Arb.A.NO.14 OF 2006 signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated. - (3)The arbitral award shall state the reasons upon which it is based, unless- - (a) the parties have agreed that no reasons are to be given, or - (b) the award is an arbitral award on agreed terms under Section 30. - (4) Rest is omitted as not relevant. The provision quoted above would show that except for the two reasons coming under sub clauses (a) and (b) to Clause (3) of Section 31 specifically mandates that the arbitral award shall be a speaking award. Here, the parties have no case that sub clauses (a) and (b) are applicable. Therefore, the award should be a speaking one. If not, it cannot be sustained. 4. For a correct appraisal of the argument, we find that a reading of the relevant portion of the award would be relevant. “CLAIM NO.1: works carried out between 24.5.94 and 30.3.95 (Supply of ballast). - claim amount Rs.,1,28,240/- The original currency of the work was upto 24.5.94 which was subsequently extended 3 times duly executing 3 rider agreements, the final being upto 30.5.95. Collection : 4: Arb.A.NO.14 OF 2006 of ballast was commenced from 28.4.94 and the first measurement was offered on 30.5.94/6.6.94. The tribunal observe that the first measurement was made after expiry of initial currency of the contract. Number of letters have been exchanged between the defendant and the claimant attributing the delays to each other. After going through the reasons for delays available on record and the various letters exchanged between the defendant and the claimant, this tribunal is of the view that the d elay in the work is on account of the default of the contractor and hence this claim cannot be agreed to. Award is NIL. CLAIM NO.2: Additional establishment cost between 24.5.94to 31.8.95 – claim amount Rs.40,000/CLAIM NO.3: Advances become irrecoverable – claim amount Rs.32,000/-. Since Claim No.2 & 3 arise out of Claim No.1, no amount is payable. Award is NIL. CLAIM NO.4: Last bill- CC3 and part with interest at the rate of 21% from 30.3.95 till the date of payment. Claim amount Rs.1,80,779/-. CLAIM NO.5: Security Deposit. Claim amount Rs.1,15,912/- CLAIM NO.6 Permanent Earnest Money Deposit – Claim amount Rs.25,000/-. The Arbitral tribunal have examined all the papers : 5: Arb.A.NO.14 OF 2006 presented by both the parties and heard them for these claims also. It is the view of this tribunal that forfeiture of the amounts payable in the final bill, Security Deposit and permanent EMD has been done in accordance with the conditions of the contract. Therefore these amounts are not payable/refundable as the case may be, to the claimant. However the arbitral tribunal takes note that the Railways did not inform the Claimant of the fact that the sums due to him have been forfeited against the risk and cost amounts recoverable from the Claimant after signing of the final bill by the Claimant. It was only in March '96 i.e. on 15/3/96 to be precise that the administration, in response to the Claimant's lawyer notice of 24/10/95, had advised him details of the risk & cost amount due from him and the amounts adjusted towards the risk and cost amount from the final bill, SD & permanent EMD. The arbitral tribunal notes that there has been a delay of 8 months on the part of the administration to advice the contractor that a sum of Rs2,38,735/- which was available in the Claimants favour would not, in fact be paid to him. This, the tribunal considers, is unfair. Giving the benefit of the doubt to the Claimant that, had he been advised in time that a sum of Rs.3,37,827/being the risk & cost amount was due from him he would have remitted the same, the tribunal considers it just & fair to award a sum of Rs.30,000/- as compensation for possible indirect loss to the Claimant. : 6: ## Arb.A.NO.14 OF 2006 CLAIM NO.7: Interest payment from 30.03.95 till the date of payment – not quantified. Since none of the Claims from 1 to 6 is payable, Claim No.7 does not arise. Going by the impugned order quoted above, we find that as regards claim No.1 what is stated is that 'the reasons for delays available on record and the various letters exchanged between the defendant and the claimant, this tribunal is of the view that the delay in the work is on account of the default of the contractor and hence this claim cannot be agreed to'. What were the letters exchanged and what was the default on the side of the appellant, is not at all mentioned. The contents of the letters exchanged are also not stated. What was the default on the side of the appellant to defeat the claims is not at all explained. So, we find that for rejecting Claim No.1, there is no reason stated. 5. Claim No.2 was declined consequential to the declining of Claim No.1. Therefore the award declining Claim No.2 would be sustainable only if the award declining Claim No.1 is sustainable. 6. As regards the award declining Claim Nos.4, 5 and 6, : 7: ## Arb.A.NO.14 OF 2006 what is vaguely stated is 'that forfeiture of the amounts payable in the final bill, Security Deposit and permanent EMD has been done in accordance with the conditions of the contract. What are the conditions and on what basis the amounts were forfeited and how that forfeiture was justified were not at all mentioned. Such being the award, we are of the opinion that the arbitrator had not given reasons for arriving at the conclusion declining these claims also. Clause (3) of the Section 31 quoted above would show that unless the parties agreed for a nonspeaking award or for an award on agreed terms, the award shall state reasons upon which it is based. In other way, except for the two instances stated above, the statute mandates an award with reasons. If the arbitrators fail to give reasons, for that reason itself the award has to go as it is in conflict with the public policy of India, as disclosed by statutory provision quoted above, a ground enumerated under Section 34(2)(b)(ii) of Act. We find that the award impugned is not sustainable. 7. Going by the impugned order of the District Judge, we find that the District Jude had also not considered the above dispute, but it was vaguely stated that the court below did not : 8: ## Arb.A.NO.14 OF 2006 think that the petitioner was successful in showing that the award passed by the arbitrator is vitiated or that any of the grounds enumerated under Section 34 of the Act was available to the petitioner to set aside the award. It is apparent from the face of the records that such an observation was made by the learned District Judge without reading the award. Therefore, we are unable to sustain the order impugned. 8. We are also fortified by the decision of the Supreme Court of India rendered in Jajodia (Overseas) Pvt. Ltd.v. Industrial Development Corporation of Orissa Ltd. (1993 (2) SCC 106). At paragraph-8, it is held that: “It is, we think, necessary first, to clear some cobwebs. A speaking or reasoned award is one which discusses or sets out the reasons which led the arbitrator to make the award. Setting out the conclusions upon the questions or issues that arise in the arbitration proceedings without discussing the reasons for coming to these conclusions does not make an award a reasoned or speaking award. The arbitrator has in the award before us only answered the issues that were framed. He has not discussed or set out the reasons for the answers. The award is, therefore, not a speaking or reasoned award.” 9. In State of Uttar Pradesh v. Combined Chemicals : 9: ## Arb.A.NO.14 OF 2006 Company Private Limited (2011(2) SCC 151) at paragraph-31, it is held that: “In our view, the arbitrator was duty-bound to examine the tenability of the claim made by the respondent under different heads and decide the same by assigning some reasons, howsoever briefly. His failure to do so constituted a valid ground for setting aside the award and the trial court committed a serious error by making the award rule of the court. Unfortunately, the High Court also overlooked this lacuna in the award and approved the judgment of the trial court”. 10. In the above circumstance, we find that the order impugned is liable to be interfered and the award under challenge is liable to be set aside. Therefore, we do not go deep into the other contentions advanced by the learned counsel for the appellant. In the result, the appeal is allowed. While setting aside the order impugned, O.P.(Arb.)No.78/2001 before the District Judge, Thiruvananthapuram would stand allowed with no order as to costs. The award impugned would stand set aside. ## **K. HEMA, JUDGE.** ## **P.S. GOPINATHAN, JUDGE.** cl