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CASE NO.: Appeal (civil)  5489-5490 of 1995

PETITIONER: Bharat Coking Coal Ltd.

RESPONDENT: L.K. Ahuja       

DATE OF JUDGMENT: 12/04/2004

BENCH: S. RAJENDRA BABU & BHAN.

JUDGMENT: JUDGMENT

RAJENDRA BABU,  J.  :  

       In respect of certain contracts of work assigned  by the appellant certain disputes having been arisen,   the matter was referred to arbitration.  Two awards  were made and the same were filed in the court of the  Civil Judge in two Title (Arbitration) Suits Nos. 37/86  and 40/86.  By a common order, the trial court made  the awards rule of court in entirety and decrees were  drawn in terms thereof.    An appeal was filed against  the said common order before the High Court.  The  High Court having dismissed the said appeal, the  matter was carried to this Court.   

       On February 21, 2001 by an order made by this  Court, the awards were set aside after quashing the  orders made by the High Court and the trial court and  the matter was remanded to the arbitration for a fresh  consideration of all points by appointing a new  arbitrator Shri Justice Uday Sinha, former Judge, High  Court of Patna.  He made an award and on  25.01.2002 sent the copies of the award and on  12.02.2002 minutes of the proceedings before the him  to the Court.  Report in this regard was placed before  this Court on 18.02.2002, copies of which were served  upon the concerned advocates.    Objections to the  award and application to set aside the award have  been filed on 11.04.2002.  Now, an objection is raised  on behalf of the respondents that the application filed  for setting aside the award in terms of Article 119(b)  of the Limitation Act should have been filed within a  period of 30 days from the date of filing of the award  into the Court; that inasmuch as the office report had  been served upon all the parties,  it must be deemed  that the said office report gives sufficient notice of  filing of the award in the Court; that the period of  limitation of counting 30 days commenced on  18.02.2002; that, therefore,  the objections filed on  11.04.2002 are hopelessly barred by limitation.  It is  further submitted that the Court itself may order a  notice of filing of the award or even the Registry can  take steps to issue such a notice and reliance is placed  on certain decisions of this Court as to how in  situations of this nature 30 days limitation period is to  be computed in Indian Rayon Corporation Ltd.    vs.  Raunaq and Company Pvt. Ltd.,  1988 (4) SCC

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31;  Food Corporation of India & Ors.   vs.  E.  Kuttappan,  1993 (3)  SCC 445,  and State of Bihar     vs.  Hanuman Mal Jain,  1997 (11) SCC 40.  In our  view,  none of these decisions can have any  application to the situation arising in the present case.    

       The office report was prepared on 18.02.2002  and the matter was listed before this Court on  11.03.2002 when this Court ordered that "call after  four weeks".   On 02.04.2002 the learned counsel for  the respondents filed a separate application in both  the appeals  under Section 17 of the Arbitration Act,   while on 11.04.2002  the appellant filed an application  under Section 15 read with Section 30 of the  Arbitration Act raising objections to the passing of  decree in terms of the award.   

       Article 119(b) of the Limitation Act has been  enacted to fix a definite time limit within which the  validity of the award can be challenged after the  award is filed in the court.  The said provision  prescribes a period of limitation of 30 days for making  an application after the required notice regarding filing  of the award in the court is given to the parties.  If  there is no material to show that a notice of filing of  the award has ever been given to the parties, any  period of limitation as prescribed in Article 119(b)  loses its significance.   The law is clearly to the effect  that mere knowledge of passing of an award is not  enough. The period of limitation will commence as  provided in Article 119(b) of the Limitation Act only  upon notice as to filing of the award in the court has  been given to the parties concerned.  

       In the present case the situation has arisen in  very special features.  This Court made an order  appointing a new arbitrator who was directed to file an  award in the Court and he submitted the award in the  Court after publishing the same to the parties. Though  on 18.02.2002 the Registry notified the submission of  the award in the Court by way of an office report, but  the same cannot be treated to be in the nature of a  notice.  The noting made by the Registry in the office  report merely brought to the notice of the Court as to  what had transpired and as the matter was being  listed before the Court,  a copy was served upon the  parties concerned.  It is only thereafter it can be said  that the Court directed issue of notice to the parties  regarding filing of the award which has been sent by  the Registry.   The Registry on its own could not have  issued a notice without a direction from the Court in  this regard.  In that view of the matter, we do not  think, there is any notice of filing of the award in the  Court to the parties as contemplated in Article 119(b)  of the Limitation Act.  Further, on 11.03.2002 when  the matter was listed before the Court, the parties  concerned took notice of the same and thereafter,  objections have been filed by the parties. In these  circumstances, we think that the first contention  urged on behalf of the respondents that the objections  raised by the appellant are barred by limitation is  incorrect and the same stands rejected.  

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       In the view we have taken, it is unnecessary to  refer to the various decisions relied upon by the  learned counsel for the respondent.

       Further, it may be useful to refer to one decision  of this Court, which was not cited by either party, in  which the effect of non-service of notice was  considered by this Court.   In Dewan Singh  vs.   Champat Singh & Ors.,  AIR 1970 SC 967, it is  observed by this Court  "that if a party files an  objection before the service of notice, the question of  limitation does not arise at all.  But also in the  absence of clear proof to the effect that notice of the  filing of the award had ever been given to the  applicant,  application filed by him cannot be rejected  on the ground of limitation."  

       Originally, though the respondent had made  large claims totalling to a sum of Rs. 78,41,350.00,  the same got slashed to Rs. 32,03,755.10p.  Now, the  subsisting claims are :- "Claim No.                                      Rs. 1. Payment of final bill                                2,18,862.42 2.      Payment of P.O.L. escalation               18,417.31 3.      Compensation for making late             Payment of running account bill         3,75,500.00 4.      Payment of labour escalation            2,66,321.55 5.      Refund of sales tax                             35.050.95 6.      Payment of extra items                  8,77,115.82 7.      Payment of material escalation          4,12,487.46 8.      Keep back account                                 N I L  9.      Payment of compensation to loss arising out of turn over due to  prolongation of work                            10,00,000.00                                                      -------------------                                         Total                   32,03,755.10                                                      -------------------"                   

       The arbitrator took notice of the fact that the  difference in the original claim and the subsequent  claim is to the order of Rs. 45,62,376/-  which casts  serious doubt as to the nature of the claim and the  veracity of quantum of the claim.      

       Out of the claims mentioned above, Shri Mukul  Rohtagi, learned Additional Solicitor General who  appears for the appellant, did not contest the award  made by the arbitrator in respect of claim Nos. 2 and  3.  However, serious contest has been raised in regard  to interest awarded by the arbitrator.   

       There are limitations upon the scope of  interference in awards passed by an arbitrator.  When  the arbitrator has applied his mind to the pleadings,  the evidence adduced before him and the terms of the  contract, there is no scope for the court to reappraise  the matter as if this were an appeal and even if two  views are possible, the view taken by the arbitrator  would prevail. So long as an award made by an  arbitrator can be said to be one by a reasonable  person no interference is called for.  However, in  cases where an arbitrator exceeds the terms of the  agreement or passes an award in the absence of any  evidence, which is apparent on the face of the award,

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the same could be set aside.    

The learned Additional Solicitor General  submitted that in the present case the arbitrator found  that there was delay in execution of the contract of  work for which both the parties were liable and  apportioned the same between them without clearly  examining whether there was any material for that  claim at all.    His contention is that there is absolutely  no evidence to sustain any of the claims and in the  absence of the same, it is not permissible for the  arbitrator to have made the award.   

       Shri V.A.Mohta, learned Senior Advocate  appearing for the respondent, submitted that the  material on record clearly indicated that there were  certain joint statements before the arbitrator and they  were all based on the measurement books or other  material and if that piece of material is treated as  evidence,  there cannot be serious doubt that the view  taken by the arbitrator is justified and no interference  would be call for.

On the first claim regarding non-payment of the  final bill, reliance was placed by the parties before the  arbitrator on a joint statement and the entries made  in the measurement book.  On the question whether  reliance could be placed on the joint statement, the  arbitrator held that he cannot attach any  conclusiveness to the joint statement.  However, he  would examine the claims on their intrinsic merit.   One of the contentions raised was that the final bill  had been fully paid inasmuch as 13th and 14th running  account bills having been passed, the arbitrator relied  upon a letter sent on 14.3.1986 by Sri Srinathan,  Deputy Chief Engineer [Civil] that the final bill had not  been paid and that clinched the matter in favour of  the claimant.  Thereafter having held that the final bill  is yet to be paid, he proceeded to examine the  quantum of the same.  The final bill disclosed that as  per the agreement, the value of the work is  Rs.86,43,730/- as against this amount, the actual cost  of the work was Rs.90,46,842.14, out of which a sum  of Rs.89,97,311.12 had been paid.  Thus a balance of  Rs.49,531/- had not been paid.  Therefore, he held  that this part of the claim is allowed.   

In addition to this, he also stated that certain  work had been done by him by way of extra works  and made a claim of Rs.91,013.72.  There is a  separate claim made by the claimant under claim No.6  as claim for extra work done.  Claim made therein is  to the extent of Rs.1,02,350/-.  On this aspect of the  matter, the contention advanced on behalf of the  appellant is that separate claim for extra works of  items under claim No.6 includes the claim of  Rs.91,013.72 and the claim for extra items of work  can be made only on the written order of the  Engineer-in-Charge in terms of clause 11 of the  agreement and, therefore, the contractor will not be  entitled to make any claim unless he has received  such an order for substituted or altered work in terms  of clause 11 of the agreement.  On this aspect while  dealing with the claim for extra works under claim  No.6, the arbitrator adverted to the decision of this

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Court in State of Bihar & Ors. vs. Hanuman Mal  Jain, 1997(11) SCC 40, wherein this Court interpreted  a similar clause as laying down the procedure as to  how a claim could be lodged and not to oust the  jurisdiction of the arbitrator in deciding the dispute on  merits.  It is not clear from the pleadings raised on  behalf of the appellant before the arbitrator whether  the claim covered by the final bill as extra items to the  tune of Rs.91,013.72 is included in the extra item of  works which had been rejected by the arbitrator.  The  arbitrator adverted to this aspect of the matter while  deciding claim No. 6 and held that out of the claim of  Rs.1,02,517/-, Rs.11,503/- had been paid leaving a  balance of claim of Rs.91,013/- which has been clearly  allowed by him while consider claim No.1 regarding  non-payment of final bill and having claimed  Rs.91,013.72 which had been allowed by him the  contractor could not once again claim the same  amount under another head and the arbitrator  rejected this claim on two grounds, namely, that there  is no order in writing by the Engineer-in-Chief and  secondly  even if it had been executed, it had been  paid for.  The contention put forth on behalf of the  appellant that there is absolutely no material to make  a claim by the contractor in this regard cannot be  accepted because these extra items have been  mentioned in the measurement book and which  clearly indicated that the work had been executed and  he treated that the entry in the measurement book  will itself amount to order in writing in terms of clause  11 of the agreement and, therefore, allowed the  claim.  In these circumstances, it cannot be said that  the item claimed for extra works referred to in the  final bill is the same as the claim under claim No.6 for  extra works wherever such a situation has arisen the  arbitrator has examined the same, say for example, in  regard to petrol, oil and lubricant, he has separately,  treated the same.  If appropriate pleadings had been  raised, the arbitrator would have certainly considered  this aspect and in the absence of the same we think  that the view taken by the arbitrator in this regard  cannot be interfered.  Only two items which had been  allowed by the arbitrator which have been adverted to  by us as a sum of Rs.49,513.02 which was still to be  paid and a sum of Rs.91,013.72 as extra items of  works which was disclosed in the measurement book.   Therefore, we find no infirmity on this aspect of the  claim.

Claim Nos. 2 and 3 not having been disputed  before us, we now proceed to consider claim NO.4.   The arbitrator considered various aspects made under  this head for claim for payment of labour escalation.   The arbitrator took the view that the appellant alone  was not responsible for prolongation of the works and  there were lapses on the part of the contractor as well  and both were responsible for the delay.  The  arbitrator, after into consideration that there was  definitely a escalation between April 1983 and April  1984 in regard to wage bill of the claimant, took the  view that as against a claim of Rs.2,66,343/- awarded  a sum of Rs.1,30,000/-.  When on the basis of the  pleadings and overall view of the situation arising as  to the rise in the cost of wages, having awarded a  lumpsum amount under this head, we do not think it

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is necessary to interfere with the award on this aspect  of the matter.

The claim for refund of sales tax in a sum of  Rs.35,050/- has been upheld by the arbitrator on the  basis that in terms of a notification issued by the  Government which lays down that if the works had  been handed over prior to 1.4.1984, sales tax was not  leviable but the works having been executed on  31.5.1984, it cannot be said that the terms of the  notification had been complied with and, therefore, no  claim could have been made by the claimant and,  therefore, an award of Rs.35,050/- based on the  notification dated 19.2.1985 would not be correct and,  thus, this amount of award in a sum of Rs.35,050/-  stands allowed.  There is a clear error apparent on the  face of the award in having allowed this claim by the  arbitrator.   

Claim No. 6 consists of four items.  So far as the  first item regarding extra work is concerned, the claim  has been rejected by the arbitrator which we have  adverted to while considering claim no. 1 under final  bill.  The second item under this claim relates to watch  and ward expenses.  The arbitrator, after examining  various aspects of the matter, took the view that the  expenditure over watch and ward staff could not be  more than Rs.10,000/- per month for 14 months and  the bill on that account would come down to  Rs.1,40,000/-.  However, taking all the factors in  respect of this claim, the expenditure under this head  would not come to more than Rs.84,000/- for the  whole period and taking a lenient view of the matter,  the arbitrator awarded a sum of Rs.1,25,000/- under  this head.

The arbitrator considered the fact that the  appellant took possession of the quarters for two days  on 30.4.1984 and 1.5.1984 to accommodate  delegation for the All-India Labour Union Congress but  it was not in dispute that the same was handed over  after a couple of days.  Thereafter the quarters were  allotted to employees in stages and actual delivery of  possession was made on 10.3.1986.  While the  arbitrator considered that the claim on account of  watch and ward to the tune of Rs.7,09,000/- is  fantastically high and in the written submissions it had  been claimed that the building had to be maintained  at a cost of Rs.5,500/- per month, he doubts as to  whether the claimant had retained any watch and  ward staff to the extent of 18 members, he held that  three watch and ward staff would have been enough  and the period for which the same had been  maintained comes down to 18 months and with  reference to the pleadings raised in this Court on  earlier occasion took note of the fact that possession  had not been given since April 1984.  Therefore, he  reduced the period to 14 months.  He rejected the  claim that for the whole period from April 1986 it had  retained the services of plumber, electrician,  carpenters, supervisory, etc. and watch and ward staff  and he held that the flats were not in such a condition  that the appellant could have taken possession and,  therefore, the entire claim cannot be justified.  Having  taken into consideration the fact that the watch and

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ward staff could be three, he awarded a sum @  Rs.10,000/- per month for 14 months.

The learned Additional Solicitor General  submitted that there is absolutely no basis for  awarding this item as no material had been placed  before the arbitrator.  We cannot say that in assessing  such a situation, the arbitrator has exceeded his  jurisdiction or that there was no material at all before  him in assessing the situation that there was some  delay in handing over the flats and watch and ward  had to be maintained, he has awarded for a reduced  period of 14 months @ Rs.10,000/- per month.   Therefore, we cannot hold this conclusion as suffering  from an error apparent on the face of the award.

Next two items regarding rolling margin and  refund of security deposit had been rejected by the  arbitrator and, therefore, do not require any  consideration.

On the question of material escalation, the  arbitrator considered the claim made in a sum of  Rs.4,12,487.46 under this head.  The arbitrator took  note of the situation that it was not the contention of  the appellant that the material referred under this  head had not been used for the completion of the  project but having secured a sum of Rs.17,70,085/-  by way of advance, the escalation would get off-set by  the advance paid and further running accounts  payments had been made from month to month which  must have taken into consideration the rise in prices.   He held that there was no evidence on record as to  the nature of the purchases made by the claimant  during the extended period although some purchases  had been made attracting escalation in the prices.   Secured advance was only made to the extent of 60 to  75%.  Therefore, he held that 25% of the escalation  has to be compensated on that basis and allowed half  of the claim of the contractor.  When there was no  dispute as to the fact that materials had been used for  the purpose of the project and the value thereof, the  claim made by the appellant having been duly  examined by the arbitrator and after giving due  allowance to the advances that have been made the  award made by the arbitrator cannot be stated to be  as one suffering from any error apparent on the face  of the award.  Therefore, this conclusion also cannot  be interfered with.   

Claim No. 8 has been rejected by the arbitrator.   Now we proceed to consider claim No. 9 for loss  arising out of turnover due to prolongation of work.   The claim made under this head is in a sum of Rs.10  lakhs.  The arbitrator rightly held that on account of  escalation in wage and prices of materials  compensation was obtained and, therefore, there is  not much justification in asking compensation for loss  of profits on account of prolongation of works.  However, he came to the conclusion that a sum of  Rs.6,00,000/- would be appropriate compensation in a  matter of this nature being 15% of the total profit  over the amount that has been agreed to be paid.   While a sum of Rs.12,00,000/- would be the  appropriate entitlement,  he held that a sum of

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Rs.6,00,000/- would be appropriate.  He also awarded  interest on the amounts payable at 15% per annum.

       Here when claim for escalation of wages bills and  price for materials compensation has been paid and  compensation for delay in the payment of the amount  payable under the contract or for other extra works is  to be paid with interest thereon, it is rather difficult for  us to accept the proposition that in addition 15% of  the total profit should be computed under the heading  ’Loss of Profit’.  It is not unusual for the contractors to  claim loss of profit arising out of diminution in turn  over on account of delay in the matter of completion  of the work.  What he should establish in such a  situation is that had he received the amount due  under the contract, he could have utilised the same  for some other business in which he could have  earned profit.  Unless such a plea is raised and  established,  claim for loss of profits could not have  been granted.   In this case, no such material is  available on record.  In the absence of any evidence,  the arbitrator could not have awarded the same.  This  aspect was very well settled in Sunleyn (B) & Co.  Ltd. vs. Cunard White Star Ltd., [1940] 1 K.B. 740,  by the Court of Appeal in England.   Therefore, we  have no hesitation in deleting a sum of Rs. 6,00,000/-  awarded to the claimant.

       So far as interest that is payable is concerned,   the arbitrator has appropriately  considered the same  and no real objection can be raised in this regard.   As  regards arbitration costs also there cannot be any  serious dispute.  Therefore, except for the sums  coming under the heading No. 5, that is, Refund of  Sales Tax and claim for payment of losses arising out  of turn over due to prolongation of work, other part of  the award having been upheld by us, the award made  by the arbitrator shall stand modified accordingly.    

       In similar terms in respect of second contract,  for the very reasons stated in this part of the order,  we disallow the claim for refund of sales tax and  compensation for losses arising out of on account of  prolongation of work.  In other respects, we maintain  the award made by the arbitrator.

       The civil appeals stand disposed of in the  aforesaid terms.