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PETITIONER: DANDASI SAHU

       Vs.

RESPONDENT: STATE OF ORISSA

DATE OF JUDGMENT30/11/1989

BENCH: RAMASWAMI, V. (J) II BENCH: RAMASWAMI, V. (J) II MUKHARJI, SABYASACHI (J)

CITATION:  1990 AIR 1128            1989 SCR  Supl. (2) 348  1990 SCC  (1) 214        JT 1989 (4)   466  1989 SCALE  (2)1234

ACT:     A rbitration Act, 1940: Sections 30 and 16---A ward  not disclosing  documentary  evidence  considered--Original  and supplemental  claims  not making total  claim--Inclusion  of interest    amount     Award    amount     disproportonately excessive--Validity    of--Whether    amounts    to    legal misconduct--Non-application of mind.

HEADNOTE:     The  appellant-contractor claimed a sum  of  Rs.3,87,796 before the sole arbitrator on April 5, 1977 for the value of 15 items of works not paid. To this he added interest to the tune  of  Rs.2, 95,894 at 18 per cent from  the  date  which according  to him each of the claims should have  been  set- tled,  making  a total of Rs.6,83,690. He  also  prayed  for further interest at 18 per cent from April 6, 1977 till date of award and thereafter until payment. The respondent  State filed its written statement and the arbitration  proceedings continued  for  some time. But before the  arbitrator  could make  an award, an application under ss. 8(2) and 12 of  the Arbitration  Act was filed before Subordinate Judge  who  by his  order  removed  the arbitrator  and  appointed  another person as the sole arbitrator. The new arbitrator entered on the  reference, got all the records from the previous  arbi- trator  and  continued  the hearing. The  appellant  made  a supplemental claim for a sum of Rs.8,27,857 and also  prayed for interest on that amount at 18 per cent from October  14, 1973 till date of payment. The respondent State objected  to the  entertainment  of  additional  claim.  The  arbitrator, however,  proceeded with the hearing. On November  8,  1981, the  day  the hearing was closed,  the  appellant-contractor filed  one consolidated ’abstract’ of his two  claim  state- ments showing a total claim of Rs.31.44.437 and also  prayed for interest at 18 per cent per annum from November 9,  1981 till the date of payment.     The arbitrator made an award on December 7, 1981  allow- ing  a lump-sum of Rs.25,00,156 together with interest at  9 per cent after the expiry of 30 days from the date of making the award, till the date of payment or decree whichever  was earlier.  The  award  was made a decree of  the  court.  The court, however, disallowed interest from the date of  decree

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till realisation. 349     On appeal by the respondent-State the High Court came to the  conclusion that the award was vitiated by  non-applica- tion of mind amounting to legal misconduct. In that view, it set  aside  the award and remitted the matter  back  to  the Arbitration  Tribunal constituted under s. 41A of the  Arbi- tration Act, as amended by Orissa Act 3 of 1983. Dismissing the appeal, the Court,            HELD:  1.1 Though the arbitrator is not bound  to disclose  as  to what interpretation he has  made  and  what inference  he has derived from the documentary evidence,  he is  bound to refer in the award that he had  considered  all the documents placed before him, no matter whether he relies on them or discards them from consideration. [353A]     1.2  In  the instant case, the arbitrator in  his  award ex-facie did not mention that he had referred to or  consid- ered  the  documents  placed before him in  respect  of  the original  claim. The order-sheet mentions about the  nearing on  different  dates  relating to  tile  supplemental  claim statement  which was filed before him. It was this  argument in respect of the supplemental claim that has been mentioned in the award. [353B]     2.1  The  arbitrator in case of a reference  to  him  in pursuance  of an arbitration agreement between the  parties, being a person chosen by parties is constituted as the  sole and  final judge of all the questions and the  parties  bind themselves  as a rule to accept the award as final and  con- clusive.  Even in a case where the arbitrator does not  give any reason or he commits a mistake either in law or in  fact in determining the matter referred to him and such a mistake does not appear on the face of the award, the same cannot be assailed.  It could be interfered with only in limited  cir- cumstances  as provided under ss. 16 and 30 of the Act.  The court has, therefore, to test the award with circumspection. 1354F, E, G]     2..2  All the same, if the amount awarded is  dispropor- tionately high having regard to the original claim made  and the  totality of the circumstances, it would certainly be  a case where the arbitrator could be said to have not  applied his mind amounting to legal misconduct. [354G-H] State  of Orissa v. Dandasi Sahu, [1988] 4 SCC 12,  referred to.     In  the instant case, in the original claim made  before the arbitrator the value of the work not paid was stated  as Rs.3,87,796.  The  supplemental  claim   made   before   the arbitrator  amounted  to 350 Rs.8,27,857. Thus, the total value of work not paid, accord- ing  to  the appellant, was Rs.12,15,653.  As  against  this claim,   the   arbitrator  had  awarded  a   lump   sum   of Rs.25,00,156. No doubt, the appellant had asked for  payment of   interest   and  including  interest   his   claim   was Rs.31,44,437. [354H; 355A]     2.3  Where a reference to arbitration was made prior  to the  commencement of the Interest Act, 1978 which came  into force on August 19, 1981 the arbitrator is not empowered  to grant interest for the period upto the date of submission of the claim or the period during which the dispute was pending before  the arbitrator, and where the award granted  a  lump sum amount it shall deem to have included the interest  also if  interest had been claimed before the arbitrator and  the inclusion  of such interest would render that part of  award invalid. [355B-C]     In the instant case, if the interest portion is  exclud-

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ed,  then  it  becomes evident that  award  of  Rs.25.00,156 suffers  from  the vice of  giving  disproportionately  high amount. [355C-D]     2.4  Since  the award suffers not merely on  the  ground that  it  included interest but also on the ground  of  non- application  of the mind the question of setting aside  only the invalid part relating to the grant of interest does  not arise. [355F-G]     State  of  Orissa v. Niranjan Swain, [1989] 4  SCC  269, distinguished.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 4800  of 1989.     From  the  Judgment  and Order dated  20.3.1987  of  the Orissa High Court in Misc. Appeal No. 453 of 1982. Anil B. Divan and Vinoo Bhagat for the Appellant. G.L. Sanghi and A.K. Panda for the Respondent. The Judgment of the Court was delivered by V. RAMASWAMI, J. Special leave granted.     In  respect of a dispute relating to the work  Lankagada Minor Irrigation Project (Balance Work) in  Jagannathaprasad Block which 351 was  entrusted  to him, the  appellant-contractor,  invoking clause 23 of the agreement and section 8 of the  Arbitration Act requested the Chief Engineer, Rural Engineering  Organi- sation,  Bhubaneswar, Orissa, to nominate an arbitrator.  It may be mentioned that before making this request for nomina- tion  of an arbitrator the appellant made a claim  on  16.6. 1975  before the Executive Engineer, M.I. Division,  Berham- pur,  Ganjam, claiming to be paid a sum of  Rs.2,81,745.  He had also claimed interest on this at the rate of 18 per cent from  the date of receiving of the claim book till  payment. The work entrusted to the appellant was to commence on 6.12. 1971 and to be completed within 18 months i.e. on or  before 5.6.1973 and the total cost of the work was Rs.9.98,970. One Shri D.C. Panda, Superintending Engineer, Central Range, was nominated  as the sole arbitrator to decide the dispute  and give the award. This arbitrator having accepted the appoint- ment entered on the reference and issued notices to both the parties  directing them to file their claims. The  appellant filed a claim statement on 5.4. 1977 before the  arbitrator. In  this claim statement he had made a detailed  description of  each of the items of the claim and the total of  the  15 items claimed came to Rs. 3,87,796. To this he added  inter- est at 18 per cent from the date which according to him each of the claims should have been settled making a total  claim of  interest to the tune of Rs.2,95,894. He thus prayed  for an award of Rs.6,83,690 and also prayed for further interest on Rs.3,87,796 from 6.4. 1977 till date of award and  there- after until payment at 18 per cent. It may be mentioned that in  this statement of claim made before the arbitrator  some of the claims made before the Executive Engineer were  omit- ted,  some were reduced whereas some new claims were  intro- duced and some other items of claim were enhanced. The State of  Orissa  filed a written statement  and  the  arbitration proceedings continued for some time but before the  arbitra- tor could make the award an application before the  Subordi- nate Judge, Bhubaneswar was filed under sections 8(2) and 12 of  the  Arbitration Act. By an order dated  17.12.1979  the learned  Subordinate  Judge removed the arbitrator  and  ap- pointed  one  Shri  J. Pati,  Chief  Construction  Engineer,

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Paradip  Port as the sole arbitrator to decide  the  dispute between  the parties. However, since Shri J. Pati  expressed his inability to arbitrate, by another order dated 16.4.1980 the  court appointed Shri Banabasi  Patnaik,  Superintending Engineer, Sambalpur as the sole arbitrator in place of  Shri J.  Pati. This arbitrator entered on the reference, got  all the relevant records from the previous arbitrator  continued the  hearing  on  the 9th June and 9th July,  1980.  On  the ground  that  the  appellant has not included  some  of  his claims  "relating to this work" in the claim statement  sub- mitted  to the previous arbitrator, he made  a  supplemental claim for a sum of 352 Rs.8,27,857 and prayed that in addition to the claim  stated in  the  original claim statement a sum  of  Rs.8,27,857  be awarded in his favour with interest at 18 per cent per annum on  Rs.8.27,857 from 14.10. 1973 till date of  payment.  The State  of Orissa not only disputed the claim made  but  also objected  to  the entertainment of an  additional  claim  in their written statement dated August 13, 1981. The  arbitra- tor,  however, decided to entertain the  supplemental  claim and  proceeded with the hearing of the dispute. The  supple- ment  claim  consisted of 11 items. As seen  from  the  note papers,  the  arguments on supplemental claims 1 to  6  were heard  on two different dates and the hearing was  adjourned to  8.11. 1981. On that day arguments in respect of rest  of the supplemental claim items were heard and the hearing  was closed. On the same day the appellant-contractor filed  what he  termed as one consolidated ’abstract’ of his  two  claim statements  and  the  abstract  showed  a  total  claim   of Rs.31,44,437  and  he had further prayed in  this  that  the total  amount of Rs.31,44,437 may be allowed along  with  an interest  at 18 per cent per annum on the said  amount  from 9.11.  198  1 till date of payment. The arbitrator  made  an award  on  7.12. 1981 allowing a lump  sum  of  Rs.25,00,156 together with interest at 9 per cent after the expiry of  30 days  from  the date of making the award, till the  date  of payment or decree whichever is earlier. The award was  filed in  court  for making a decree and the Government  filed  an application  to set aside the award on various grounds.  The trial  court overruled the objections of the State  and  the award was made a decree of the court. However, learned Judge disallowed the interest from the date of decree till  reali- sation.  On appeal by the State Government, the  High  Court came to the conclusion that award suffers from  non-applica- tion of the mind amounting to legal misconduct. In that view the award was set aside and the matter was remitted back  to the  Arbitration Tribunal constituted under section 41-A  of the Arbitration Act as amended by Orissa Act 3 of 1983.  The contractor-claimant  has  filed  this  appeal  against  this judgment of the High Court.     As  is seen from the award though it refers  to  getting all  the relevant record from the ex-arbitrator there is  no reference to the heating of the parties or consideration  of the  documents relating to the original claim made  on  6.4. 1977.  In  the order-sheet it has been mentioned  that  both parties had agreed that they had nothing more to add  except what  had been already given in their respective  claim  and counter statement and what had been recorded in the  deposi- tions  already  made  before the  previous  arbitrator.  The reference to depositions already made is incorrect as it  is admitted  by both the parties that no deposition was at  all recorded before the previous arbitrator nor 353 there is any record of the previous arbitrator showing  such

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oral  evidence was recorded by him. Neither of  the  parties adduced any oral evidence before the new arbitrator.  Though the arbitrator is not bound to disclose as to what interpre- tation  he has made and what inference he has  derived  from the documentary evidence, he is bound to refer in the  award that  he had considered all the documents placed before  him no  matter whether he relies on them or discards  them  from consideration. The arbitrator in his award ex facie does not mention that he has referred to or considered the  documents placed  before  him in respect of the  original  claim.  The order-sheet  mentions about the hearing on  different  dates relating to the supplemental claim statement which was filed before him. It is this argument in respect of the supplemen- tal claim that has been mentioned in the award.     The other point to be noted. is that the original  claim together with the supplemental claim do not make total claim of Rs.31,44,437. It is seen from the records that the  arbi- trator directed the claimant to submit a consolidated  claim abstract  which was submitted by him on 8.11. 1981 the  date on which the hearing by the arbitrator was concluded.  There is  clearly  some discrepancy while consolidating  both  the claims.  In  addition to the total of both the  claims  some other amounts, may be by way of extra interest or otherwise, have  been  included  but the arbitrator seem  to  have  not applied his mind. Then again in the award it is stated  that the total amount claimed by the claimantappellant  inclusive of  "damages,  compensation and interest"  is  Rs.31,44,437. Even  the  ’abstract’ filed before the arbitrator  does  not show  any  claim of "damages" or "compensation". As  may  be seen  from  the facts set out above,  before  the  appellant demanded  the  appointment of an arbitrator he  had  made  a claim   before   the  Executive  Engineer  for  a   sum   of Rs.2.81,745. This is an iternised claim. This claim was made in the claim book kept by the Executive Engineer. It may  be that this claim did not cover the entire amount due. We  may point out that in the letter demanding the appointment of an arbitrator  he had stated that during the execution  of  the work he had executed many extra items of work as per  direc- tions of the Department and also incurred heavy  expenditure which  were  not covered in the agreement and  that  he  had submitted "most of my claims in the claim book on  16.6.1965 but  these have not yet been decided". It may also  be  men- tioned that in this letter itself he has stated that he  has completed  the  work in all respects on 14.9.1973  and  that though the final bill which should have been prepared within one  month  of the completion of the work has not  yet  been paid to him. The claim made before the arbitrator originally as already stated was Rs.6,83,690 of which a sum 354 of  Rs.3,87,796 represented the value of the work  not  paid and  the remaining represented interest claimed.  The  total agreed  value  of the work entrusted to  the  appellant  was Rs.9,98,970. In the counter affidavit filed by the State  of Orissa  in  the special leave petition it is stated  that  a total of Rs.23,11,887 had been paid to the appellantcontrac- tor by 20.11. 1976 which was with reference to the  original work  entrusted  and the extra work done by  the  appellant. Arejoinder was filed by the appellant to this counter  affi- davit but the fact of payment of Rs.23, 11,887 is  admitted. The  supplemental  claim itself was filed on  10.7.1980  and that  amounted  to Rs.8,27,857 over  and  above  Rs.6,83,690 which he had claimed originally before the arbitrator.  Then again  the  ’abstract’ filed by him on  8.11.1981  showed  a figure of Rs.31,44,437 as the claim. We have already pointed out  that the total of the claim made on 5.4. 1976  and  the

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supplemental  claim made on 10.7. 1980 itself will not  make anyway that figure of Rs.31,44,437 and, therefore, some more claims have been included. The foregoing facts do show  that the  award suffers from non-application of the mind  by  the arbitrator.     This Court in State of Orissa v. Dandasi Sahu, [1988]  4 SCC  12 to which one of us (Sabyasachi Mukharji, J.)  was  a party  while noting that the amount award is quite  high  or that  a  large amount has been awarded does  not  by  itself vitiate  the award as such, observed that one has  to  judge whether  the amount of the award was  so  disproportionately high to make it per se bad on the facts and circumstances of a  particular  case. In this connection we have to  keep  in mind that we are concerned with a situation where the  arbi- trator need not give any reason and that even if he  commits a mistake either in law or in fact in determining the matter referred  to him, where such mistake does not appear on  the face  of  the  award, the same could not  be  assailed.  The arbitrator,  in the case of a reference to him in  pursuance of  an  arbitration agreement between the parties,  being  a person  chosen  by parties is constituted as  the  sole  and final judge of all the questions and the parties bind  them- selves  as a rule to accept the award as final  and  conclu- sive.  The  award could be interfered with only  in  limited circumstances  as provided under sections 16 and 30  of  the Arbitration Act. In this situation we have to test the award with  circumspection. Even with all this limitations on  the power of Court and probably because of these limitations, we have  to hold that if the amount awarded was  disproportion- ately high having regard to the original claim made and  the totality  of the circumstances it would certainly be a  case where  the arbitrator could be said to have not applied  his mind  amounting to legal misconduct. It may be seen that  in this case in the 355 original  claim made before the arbitrator the value of  the work  not paid was stated as Rs.3,87,796,  The  supplemental claim  made before the arbitrator amounted  to  Rs.8,27,857. Thus the total value of the work not paid, according to  the appellant,  was  Rs. 12, 15,653. As against this  claim  the arbitrator  has  awarded a lump sum of Rs.25,00,156.  It  is true  that the appellant has asked for payment  of  interest and  including  interest his claim was  Rs.31,44,437.  In  a recent judgment of this Court in State of Orissa v. Niranjan Swain, [1989] 4 SCC 269 it has been held that where a refer- ence  to arbitration was made prior to the  commencement  of the Interest Act, 1978 (which Act came into force on  August 19, 198l) the arbitrator is not empowered to grant  interest for  the period upto the date of submission of the claim  or the  period during which the dispute was pending before  the arbitrator. It was further held that where the award granted a lump sum amount it shall deem to have included the  inter- est also if interest had been claimed before the  arbitrator and  the  inclusion of such interest rendered that  part  of award invalid. If we exclude the interest portion then there could  be no doubt that award of Rs.25,00,156  suffers  from the vice of giving disproportionately high amount.     The learned counsel for the appellant, however, contend- ed  that the invalid part relating to the grant of  interest may be set aside and the award may be accepted so far as the claim  for the value of the work done applying  the  formula adopted  in State of Orissa v. Niranjan Swain, (supra).  The learned  Judges  who  decided the case  after  holding  that inclusion  of the interest rendered the award invalid,  pro- ceeded  to separate the invalid part from the  rest  stating

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that  the total amount awarded is principal  plus  interest, the  rate of interest and the period for which the  interest was claimed before known, the principal could be  determined easily,  and  on  that basis the principal  amount  and  the interest out of the total amount awarded was divided and the award was sustained relating to the principal. We are unable to  apply this principle in this case as the State had  dis- puted  major part of the claim in their  counter  statements before  the arbitrator and we have held that the award  suf- fers not merely on the ground that it included interest  but also on the ground of non-application of the mind.      We are also of the view that there was nothing wrong in the  approach of the High Court and that this is not  a  fit case for interference under Article 136 of the Constitution. We accordingly dismiss the appeal with costs. P.S.S                                                 Appeal dismissed. 356