AI Drafter 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2009 (4) TMI 997
X X X X Extracts X X X X
X X X X Extracts X X X X
....original tender conditions stood modified to the extent of the alterations in the CTR. 3. Thereafter the offer of the respondent was accepted and a work order dated 23.8.1988 was issued to him stipulating the period for completing the contract as two years from that date. There was an amendment to the work order on 8.11.1988. The employer and the contractor entered into an agreement dated 11.1.1989 enumerating and stipulating the documents which will form part of the contract and the modifications agreed in regard to certain terms. The value of the work as per the work order was Rs. 9,91,94,602.50. Ten percent of the value of work (Rs. 99.19 lakhs) which was agreed to be released as mobilization advance, was released to the contractor between 25.1.1989 and 5.5.1989. The contractor created an equitable mortgage over its plant by depositing its title deeds thereto as security for the mobilization advance. By letter dated 15.12.1990, the contractor confirmed that the original title deeds will remain in deposit with the employer till the entire amount of advance was repaid in full with interest. 4. The contract (clause 23 of General Conditions of Contract) provided for settlement....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t deferred the actual appointment to a future date. The contractor revised its claim to Rs. 5,51,90,306/- in the notice of appointment of arbitrator. The employer challenged the order of the District Judge and the High Court allowed the appeal on 9.8.1991 and set aside the order of the District Judge. The contractor in turn approached this Court. On 12.11.1991, this Court recorded the consent of parties for appointment of Mr. B L Mathur as sole arbitrator and directed the employer (Chief Engineer, Public Health Engineering Department, State of Rajasthan) to appoint him as the arbitrator. On being appointed, the arbitrator entered upon the reference and the contractor filed a claim statement before the arbitrator on 13.1.1992 making 43 claims aggregating to Rs. 6,21,29,626/-. 7. The employer filed its reply to the claim statement, and also made five counter-claims aggregating for Rs. 863,46,505/- before the arbitrator. In the meanwhile, the employer having concluded the arrangements to get the work completed through an alternative agency, on the contractor's failure to resume the work, awarded the work to M/s. Indian Hume Pipes Co. Ltd. on 10.8.1992. On the basis of the contr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he arbitrator awarded a sum of Rs. 59,42,275 with interest at 18% per annum from 18.9.1990 up to the date or decree or payment whichever was earlier. 9. The contractor made an application for making the award, a rule of the court. The employer challenged the award by filing objections under Section 30 read with Section 33 of the Act. By order dated 17.2.2003, the District Judge, Ajmer allowed the application of the contractor and made the award a rule of the court subject to a modification in regard to the award made on claim No. 37A. In place of the award made by the Arbitrator (direction to employer to pay Rs. 12072/- per day from the date of award), the District Judge directed that the employer shall return the original title deeds to the contractor and pay the amounts awarded to the contractor after deducting the amount awarded by way of counter-claim (that is Rs. 59,42,275/- towards refund of mobilization advance due with 18% interest) within 30 days from the date of decree, failing which, the employer shall pay Rs. 12072 per day from the date of decree. 10. The employer filed an appeal (Civil Misc. Appeal No. 872/2003) against the said judgment and decree contending tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Act inter alia provides that an award can be set aside on the ground that an arbitrator had misconducted himself or the proceedings, or that the award had been improperly procured or is otherwise invalid. An error apparent on the face of the award, is a ground for setting aside the award under Section 30 or for remitting the award to the Arbitrator under Section 16(1)(c) of the Act. In Champsey Bhara & Co. v. Jivraj Balloo Spinning & Weaving Co. Ltd. AIR 1923 PC 66 the Privy Council explained the term `an error of law on the face of the award' thus: An error of law on the face of the award means that you can find in the award or a document actually incorporated thereto as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It was well settled that under the Arbitration Act, 1940, an award was not open to challenge on the ground that the arbitrator has reached a wrong conclusion or failed to appreciate facts, as under the law, the arbitrator is made the final arbiter of the dispute between the parties. While considering the challenge ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of law constituting the very basis of the award and improper and incorrect findings of fact, which without closer and intrinsic scrutiny, are demonstrable on the face of the materials on record, have been held, very rightly, as legal misconduct rendering the award as invalid. It is necessary, however, to put a note of caution that in the anxiety to render justice to the party to arbitration, the court should not reappraise the evidences intrinsically with a close scrutiny for finding out that the conclusion drawn from some facts, by the arbitrator is, according to the understanding of the court, erroneous. Such exercise of power which can be exercised by an appellate court with power to reverse the finding of fact, is alien to the scope and ambit of challenge of an award under the Arbitration Act. Where the error of finding of facts having a bearing on the award is patent and is easily demonstrable without the necessity of carefully weighing the various possible viewpoints, the interference with award based on erroneous finding of fact is permissible. Similarly, if an award is based by applying a principle of law which is patently erroneous, and but for such erroneous applicat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o be released in three installments against Bank Guarantees; that the second and third installments had to be released only on production of the certificate of a chartered accountant on the utilization of the previously paid amount and on verification of the department of the progress; and that the mobilization advance was released in installments in terms of contract and there was no delay no breach on their part. 16. We may refer to the relevant provisions of the contract in this behalf. Clause 8 of the Special Conditions relating to establishment of factory at site provided thus: Establishment of factory at site: The contractor, if he so desires, may establish the pipe factory at site to avoid transportation of pipes. All material and equipment and land required for the purpose shall be arranged by the contractor at his own cost. The department may assist him in acquisition of land. However, the work should not be delayed on this account. The firm should commence and continue to supply the pipes etc. from their existing set up till the factory at site is established. As already stated, the supply of pipes etc. should commence within 30 days, from the award o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e from any of the Nationalised Bank equal to the amount of such advance. The recovery of such advance shall be effected from 1st running bill on prorate basis in such a way that recovery of this advance is made by the time when 75% of the work is completed. Amount of interest is recoverable along with the recovery of principal amount. (b) The assets built by the contractor out of the mobilization advance shall be mortgaged with the Government. Such assets will not be mortgaged with any other agency for any purposes. (c) In case contractor fails to complete the work in specified time, the contractor shall pay the compensation as liquidated damages as per the terms and conditions of the contract and the assets built by the contractor for manufacturing of pipes will be the property of the government and the department will have right to use it as government property for completion of remaining work. xxx 17. The arbitrator held that Clause 8 of the special conditions of contract stood superseded by Clause 3 of the Common Terms of Reference which required the mobilization advance to be released in one installment and not in three installments. He held that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ained in the CTR. Clause 5(1)(b) of the work order, as amended, specifically provided that the contractor had to provide a Bank guarantee for the mobilization advance. Sub-clause (b) of Clause 7 of the agreement dated 11.1.1989 provided that assets built by the contractor by utilizing the mobilization advance should be mortgaged to the employer. Sub-clause (c) of Clause 7 provided that if the contractor fails to complete the work, the assets built by the contractor would become the property of the employer and the department could use it as government property for completion of the remaining work. Sub-clause (d) of Clause 7 provided that if the contractor failed to establish the factory within three months of payment the mobilization advance, the said advance would be recovered by enforcing the bank guarantee given in lieu of the mobilization advance. Thus it is evident that the mobilization advance had to be released only against a bank guarantee to be furnished by the contractor. 19. If according to the contractor, the mobilization advance had to be released in a single installment and if the contractor wanted the entire mobilization money to be released in one lump sum instea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he contractor was itself responsible for the delay. If so, the question of compensating the contractor on that score does not arise. 20. There is yet another aspect. The contractor claimed compensation on the basis that he could not do work of the value of Rs. 5,56,66,086/- in view of the delay and he was entitled to 15% thereof namely Rs. 83,49,913/- as compensation. But the arbitrator made an award in respect of the claim on the ground that there was delay in releasing the mobilization advance and during that period of delay, one third of the contract work could have been done and the value of the work that could have been done was Rs. 3,30,64,867, and 10% thereof was the loss of profit. Firstly, there was no such plea. Secondly, we have already held that the delay relating to mobilisation advance, was not on the part of the employer. Thirdly, even if there was delay, it was nobody's case that no work was done or that the contractor had suffered loss for non-execution of the work during the contract period. Therefore we are of the view that the award of compensation of Rs. 33,03,500/- towards claim No. (1) is liable to be set aside. Re : Claim 37A: 21. Claim No. 37A ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are: Claim 36 Compensation for idling machinery, labour, staff due to delay and wrong decisions (for the period up to 12.1.1992) Rs. 48.21 lacs Claim 36 A Compensation for idling machinery, staff & Labour etc. from 13.1.1992 Rs. 6370 per day Claim 37 Compensation for loss of production in the Factory (for the period upto 12.1.1992) Rs. 61.48 lacs Claim 37A Compensation for loss of production in the Factory from 13.1.1992 Rs. 12,072 per day The arbitrator held that none of the four claims was maintainable as the factory built out of mobilization advance had been mortgaged in favour of the employer. As a consequence he did not award any amount in respect of the four claims. But strangely he directed payment of Rs. 12,072 per day from the date of award not because he held that there was any loss of production as a consequence of any breach by the employer, but on the following reasoning: After perusal of the arguments of the parties and the evidence on record, I come to the finding that it is a case of real hardship to the claimants for having been denied the use of the factory and machinery elsewhere in their business venture, but because of legalities involved, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....permitted to remove and take away the plant when the mortgage subsisted. Having rejected the claim, the Arbitrator evolved a strange reasoning that though there was a subsisting valid mortgage in respect of the mobilization advance with interest in favour of the employer, because he had made an award in favour of the employer for Rs. 59,42,275 plus interest, the mortgage came to an end and the employer became liable to return the documents and if it failed to return the documents, the contractor was entitled to damages of Rs. 12,072/- per day from the date of award. 25. The arbitrator noticed the fact that the plant and machinery was mortgaged by deposit of title deeds in favour of the employer and that the contract was that "the original documents will remain in deposit with the employer till the amount of advance is repaid with full interest." The arbitrator in fact makes an award for return of Rs. 59,42,276 in favour of the employer with interest at 18% per annum from 1.9.1990 to 17.9.1990 and interest at 18% per annum on Rs. 59,42,275/- from 18.9.1990 till date of decree or payment, whichever was earlier. Therefore evidently until the amount of Rs. 59,42,275/- with interest ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anufacture 15 pipes per day. If the plant and machinery was of the value of say Rs. 25 lakhs, or if the contractor could install another similar plant at a cost of Rs. 25 lakhs, then the loss at best would be interest on Rs. 25 lakhs and not anything more. In fact even though there is no evidence, while making claim Nos. 36 and 37 the contractor has given value of the plant and machinery as Rs. 36,84,161/-. Even assuming the said figure to be true, at best the blocked up investment was only Rs. 36,84,161/- and the loss would be around 1% thereon per month by way of interest which would be Rs. 36,841/- per month. What is more strange is nowhere in the award the arbitrator considers the validity of the claim of Rs. 12072 per day nor accepts the said claim as valid or correct. In a reasoned award if the claim of a contractor is equated to proof of the claim, then it is obviously a legal misconduct and an error apparent on the face of the award. While the quantum of evidence required to accept a claim, may be a matter within the exclusive jurisdiction of the arbitrator to decide, if there was no evidence at all and if the arbitrator makes an award of the amount claimed in the claim sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....), from 3.9.1990 (date of contractor's application under Section 8 and 20 of the Act) to 15.12.1991 at 18% per annum; (b) pendente lite interest on all sums awarded including claim No. 1, from 16,12.1991 to 21.9.1994 at 18% per annum; and (c) future interest on all sums awarded from 22.9.1994 till date of decree or payment whichever is earlier at the rate of 18% per annum. The District Court did not award any post decretal interest, but the High Court, however, granted interest from the date of decree till date of payment at 18% per annum. 31. The appellants contend that there was no provision in the contract for payment of interest on any of the amounts payable to the contractor and therefore no interest ought to be awarded. But this Court has held that in the absence of an express bar, the arbitrator has the jurisdiction and authority to award interest for all the three periods - pre reference, pendente lite and future (vide decisions of Constitution Bench in Secretary, Irrigation Department, Government of Orissa v. G. C. Roy [1991] 3 SCR 417 , Executive Engineer, Dhenkanal Minor Irrigation Division v. N. C. Budharaj 2001 (2) SCC 721 and the subsequent decision in Bhagawat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it, allow interest to the person entitled to the debt or damages at a rate not exceeding the current rate of interest, for the whole or part of the following period, that is to say, -- (a) if the proceedings relate to a debt payable by virtue of a written instrument at a certain time, then, from the date when the debt is payable to the date of institution of the proceedings; (b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed, to the date of institution of the proceedings. Sub-section (3) of Section 3 made it clear that nothing in that section shall apply to any debt or damages upon which interest is payable as of right, by virtue of any agreement; or to any debt or damages upon which payment of interest is barred, by virtue of an express agreement. The said Sub-section also made it clear that nothing in that section shall empower the court to award interest upon interest. Section 5 of the said Act provides that nothing in the said Act shall affect the provisions of Section 34 of Code ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f interest. 36. In regard to the rate of interest, we are of the view that the award of interest at 18% per annum, in an award governed by the old Act (Arbitration Act, 1940), was an error apparent on the face of the award. In regard to award of interest governed by the Interest Act, 1978, the rate of interest could not exceed the current rate of interest which means the highest of the maximum rates at which interest may be paid on different classes of deposits by different classes of scheduled banks in accordance with the directions given or issued to banking companies generally by the Reserve Bank of India under the Banking Regulation Act. Therefore, we are of the view that pre-reference interest should be only at the rate of 9% per annum. It is appropriate to award the same rate of interest even by way of pendente lite interest and future interest upto date of payment. Re: Claims 2 and 16, 3 and 15, 5 and 18, 6 and 17, 9 and 19, 11 and 20, 24, 27, and 28, 29, 30, 31, 32, 33, 35 (with 25 and 34) of the contractor. 37. Claims 9 & 19, 27 & 28, 29, 33, 35 (with 25 & 35) are for payment for work done by the contractor. Claims 2 & 16, 3 & 15, 5 & 18, 24, 30, 31 and 32 are for....