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PETITIONER: THE HINDUSTAN CORPORATION CO. LTD.

       Vs.

RESPONDENT: GOVERNOR OF ORISSA & ORS.

DATE OF JUDGMENT02/03/1995

BENCH: SINGH N.P. (J) BENCH: SINGH N.P. (J) AHMADI A.M. (CJ) MANOHAR SUJATA V. (J)

CITATION:  1995 AIR 2189            1995 SCC  (3)   8  JT 1995 (2)   561        1995 SCALE  (2)105

ACT:

HEADNOTE:

JUDGMENT: 1.   Leave granted. 2.The  award  given  by  the  Special  Arbitration  Tribunal (hereinafter referred to as ’the Special Tribunal’) has been set  aside  by the High Court and the  proceeding  has  been remitted to the Arbitration Tribunal for fresh adjudication. That order is under challenge in the present appeal. 3.On 16.7.1979, tenders were invited by the respondents  for construction  work  of concrete cum-masonary  dam  of  Upper Kolab, Multi Purpose River Project, in the State of  Orissa. The tender of the appellant having been accepted, an  agree- ment was executed between the appellant and the  respondent- State for the execution of the said project.  The work order issued  to  the appellant on 2.1.1981. The work  was  to  be completed   by  30.9.1982.  In  terms  of   the   agreement, escalation  charges were to be paid to the contractor.   The respondents  granted  extension for the  completion  of  the project  by end of the December, 1985.  There is no  dispute that   work  was  completed  before  that  date.    However, escalation  charges were paid by the Executive  Engineer  in the running bills only till 31.3.1985 after which no payment in this respect was made.  Some other amounts also  remained to be paid including the refund of security deposits,  which led  to  the  reference of the dispute  to  the  Arbitration Tribunal, constituted under Section 4 1 A of the Arbitration Act,  as introduced by Arbitration (Orissa  Amendment)  Act, 1982.  A counter claim was also filed before the Arbitration Tribunal, on behalf of the State.  The Arbitration  Tribunal having found that the dispute involved a claim for more than Rs.one crore directed the State Government to exercise power under  proviso  to Section 41A (1) of  the  Arbitration  Act (hereinafter  referred  to as ’the Act’) as amended  by  the Arbitration  (Orissa Amendment) Act, 1982 and to  refer  the dispute to the Special Tribunal.  We do not express any view on the question whether the initial jurisdiction exercisable

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by  the Arbitration Tribunal got lost on the opposite  party laying  a  counterclaim exceeding Rs. one crore.   That  may have  to  be  answered in an  appropriate  case.  -Me  State Government referred the dispute 563 aforesaid  by a Notification dated 6.5.1988 to  the  Special Tribunal, which had been constituted with a refired Judge of the High Court.  The Special Tribunal issued notices to  the parties on 14.5.1988 and had its first sitting on 28.5.1988. No  party raised any dispute on the question whether or  not the  Special Tribunal had any jurisdiction.   On  28.8.1988, the Special Tribunal extended the time for making the  award by  four  months from the date of expiry of time  i.e.  from 27.9.1988, pursuant to a memorandum put in by both sides for such  extension.   On 27.9.1988, the four  months  statutory time calculated from 28.5.1988 expired.  But in view of  the aforesaid extension on 28.8.1988 on basis of the  memorandum put  in  by  both  sides for  such  extension,  the  Special Tribunal  proceeded  with the dispute.  However,  the  award could not be given.  On 18.1.1988, another joint  memorandum was  filed on behalf of both the parties before the  Special Tribunal  for extension of time for submission of the  award by four months from 27.1.1989. With the consent of both  the parties,  the period for making the award was extended.   On 10.2.1989,  the Special Tribunal made and signed its  award. Objection  was  filed on behalf of the  respondents  to  the award.  On 26.9.1989 the Subordinate Judge rejected the said objection  and made the award Rule of the Court granting  6% pendente lite interest and 4% future interest An appeal  was filed  on  behalf of the respondent-State  before  the  High Court.  That appeal has been allowed by the High Court  -and the  award  of the Special Tribunal has been set  aside.   A direction  has  been given to the  Arbitration  Tribunal  to proceed with the adjudication of the disputes afresh. 4.   From  the Order of the High Court, it appears that  the award aforesaid has been set-aside primarily on the  grounds (1)  The constitution of the Special Tribunal under  Section 41A  of  the  Act and the reference of the  dispute  by  the State,  Government which was already pending before the  Ar- bitration Tribunal for adjudication was without jurisdiction (2) The Special Tribunal had no jurisdiction to enlarge  the time for making of the award and (3) The award was otherwise invalid due to nonconsideration of relevant materials avail- able  on  the record in respect of a question which  was  at issue. 5.   The relevant         part of Section 41 A, which  was introduced  by the Arbitration (Orissa Amendment)  Act  1982 aforesaid is as follows:-               "41-A.   Constitution of and reference to  the               Arbitration Tribunal -               (1)   Notwithstanding  anything  contained  in               the  Act  or  in any  contract  or  any  other               instrument,  but  without  prejudice  to   the               provisions  contained  in Section 47,  in  all               cases  where the State Government, a local  or               other   authority  controlled  by  the   State               Government,  a  statutory  corporation  or   a               Government company is a party to the  dispute,               all references to arbitration shall be made to               the Arbitration Tribunal.               Provided that reference to arbitration of  the               disputes   specified   in   sub-section    (1)               involving claims of rupees one crore or  above               may  be  made  by the State  Government  to  a               Special Arbitration Tribunal comprising of one

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             or  more retired High Court Judges, as may  be               constituted by the State Government from  time               to time.               (2)   to (6) xxx xxx        xxx               (7)   All arbitration proceedings relating  to                             a dispute of the nature specified in               564               sub- section (1) which are pending before  any               arbitrator on the date of commencement of  the               Arbitration (Orissa Amendment) Act, 1982,  and               in  which no award has been made by  the  said               date. shall transferred to and disposed of  by               the Arbitration Tribunal.               Provided that the State Government my by order               in   writing  direct  that   the   arbitration               proceedings  relating to disputes  and  claims               involving  rupees one crore or above,  pending               before any Arbitrator or Board of  Arbitrators               on  the  date  of  the  commencement  of   the               Arbitration  (Orissa  Amendment)  Act.   1982,               (Orissa Act 3 of 1983) shall be transferred to               any  special arbitration tribunal  constituted               under  the  proviso  to  sub-section  (1)  for               disposal in accordance with law". In  view  of sub-section (1) of Section 41 A, in  all  cases where  the  State  Government a  local  or  other  authority controlled by the State Government, a statutory  corporation or  a  government  company  is  a  party  to  the   dispute, references shall be made for arbitration to the  Arbitration Tribunal.   Proviso to the said sub-section says that  where the  dispute involves a claim of Rs.one crore or above,  the reference  for arbitration shall be made by the  State  Gov- ernment  to the Special Tribunal comprising of one  or  more retired  judges of the High Court as may be  constituted  by the  State  Government from time to time.  Because  of  sub- section  (7)  of  Section 41A,  any  arbitration  proceeding pending  before  any  Arbitrator on the  date  of  the  com- mencement  of the Arbitration (Orissa Amendment) Act,  1982, in  which  no award has been made by the  said  date,  shall stand  transferred,  to be disposed of  by  the  Arbitration Tribunal.   Proviso to the said subsection (7) says that  if in the dispute so pending, the claim is in respect of Rs.one crore  or  above,  it shall be transferred  to  any  Special Tribunal  constituted under the proviso to  sub-section  (1) for  disposal in accordance with law.  It appears  that  the aforesaid  Arbitration  Act,  1982 (Orissa Act  3  of  1983) received  the assent of the President on 21.3.1983  and  was published in the extra-ordinary issue of the Orissa  Gazette on 26.3.1983. According to the High Court, as the dispute in question arose in the year 198586, there was no question  of exercise  of power by the State Government under  subsection (7) of Section 4 1 A aforesaid, which was applicable only to such disputes which were pending on 26.3.1983, when the  Ar- bitration  (Orissa Amendment) Act, 1982 came in force.   The High  Court was of the view that even proviso to  subsection (7),  of  Section  41 A shall be  applicable  to  only  such disputes  which  were pending when the  Arbitration  (Orissa Amendment)  Act 1982 came in force and the State  Government could  have  transferred only such disputes to  the  Special Tribunal. 6.   The  learned  counsel  appearing  for  the   appellant, pointed  out that from a bare reference to the  Notification dated  6.5.1988  issued by the State  Government,  it  shall appear  that  the State Government had not  transferred  the dispute  pending  before  Arbitration  Tribunal  to  Special

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Tribunal  in exercise of power under proviso  to  subsection (7)  of  Section  41A but the dispute was  referred  to  the Special Tribunal in exercise of power under proviso to  sub- section  (1) of Section 41A of the Act.  The High Court  was in  error  in proceeding on the assumption  that  the  State Government  had  exercised the power of  transfer  from  the Arbitration Tribunal to the Special Tribunal in exercise  of the power under proviso to sub-section (7) of Section 41A of 565 the  Act.  In the Notification dated 6.5.1988, it  has  been clearly  stated  that  a  dispute  had  arisen  between  the appellant  and  the State Government involving  rupees  more than one crore and the Arbitration Tribunal has also given a direction to appoint Special Tribunal; because of which  "in exercise  of  the powers conferred by the  proviso  to  sub- section  (1) of Section 41A of the Arbitration Act, 1948  (X of  1948) as amended by the Arbitration  (Orissa  Amendment) Act, 1984, (Orissa Act 17 of 1984), the State Government  do hereby  constituted Special Arbitration Tribunal  comprising Mr.Justice  B.Behra,  retired Justice Orissa High  Court  to settle  the said disputes.............. It may be  mentioned that the Arbitration Act was further amended by  Arbitration (Orissa  Amendment) Act, 1984 (Orissa Act 17 of 1984)  which has  been referred to in the aforesaid Notification  of  the State  Government.  But we are not concerned in the  present appeal in respect of the said amendment and as such  details thereof need not be mentioned. 7.   According to us, the Notification dated 6.5.1988 constituting the Special Tribunal  and referring the dispute to  such  Special  Tribunal  cannot be held  to  be  one  in exercise of power under proviso to subsection (7) of Section 41A.  The said notification of reference to Special Tribunal is within the scope of proviso to subsection (1) of  Section 41  A. The State Government exercised the said power  taking into  consideration all the facts and circumstances  of  the case  including  the direction of the  Arbitration  Tribunal because  it involved a claim of Rs.one crore and above.   It is an admitted position that the State Government had not at any  stage  questioned before the Special Tribunal  the  ju- risdiction  thereof  to adjudicate the  said  dispute.   The State Government itself by a’ statutory notification  having constituted the Special Tribunal and referred the dispute to said  Special Tribunal, we fail to appreciate as to how  for the first time this stand was taken before the High Court by the  State  Government  &a  the  Special  Tribunal  had   no jurisdiction to adjudicate the dispute or to make the award. According to us, in the facts and circumstances of the case, the  High  Court  ought  not to  have  permitted  the  State Government to raise such a contention after it had submitted to  the jurisdiction of the Special Tribunal merely  because the  award  went against it.  It hardly  behaves  the  State Government to question the jurisdiction of the Special  Tri- bunal  at such a belated stage merely because the award  was not to its liking.  The State Government cannot be permitted to  behave like an ordinary dishonest litigant who takes  an off  chance hoping to succeed and if the outcome is  not  to his liking to turn back and question the Special  Tribunal’s jurisdiction.  The High Court should not have permitted such a  somersault.   We, therefore, set-aside the  High  Court’s finding on this issue for the above reasons. 8.   So far the question of extension of time for making the award  is  concerned,  it is an  admitted  position  that  a memorandum was filed on behalf of both the parties including the  State  Government  on 28.8.1988 for  extension  of  the period for making the award by four months from the date  of

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the  expiry  of the time on 27,9.1988. In  the  order  dated 28.8.1988 the Special Tribunal said:               "While   receiving   the   notification    the               Irrigation  and Power Department, Orissa,  has               given a direction for submission of               566               the  Award  within 120 days from the  date  of               first  sitting.   The  first  sitting  of  the               Special  Arbitration Tribunal had taken  place               on  28th May, 1988.  The learned  Counsel  for               both  the  sides  have  put  in  a  memorandum               stating that time for submission of the  Award               may  be  enlarged by a period of  four  months               from  the  date of expiry of  time.   Time  is               enlarged  as submitted by learned counsel  for               both the sides." Again  on  18.  1. 1989, a joint memorandum  signed  by  the Advocates  for  the appellant and the  respondent-State  was filed, saying that both parties agree for extension of  time for submission of the Award by a period of four months  with effect  from the due date i.e. 27.1.1989. On the said  joint memorandum,the Special Tribunal passed an order the same day saying that the learned counsel for both the sides on behalf of the parties had filed a joint memorandum for extension of time for submission of the award by a period of four  months ’with  the consent of both the parties time is extended  for submission  of  the Award by a period of  four  months  with effect  from 27.1.1989 keeping in mind the  legal  principle laid  down by the Supreme Court in 1987 (4) SCC 93.’  Within the extended period as already mentioned above the award was made on 10.2.1989. 9.   The first schedule to the Arbitration Act specifies the implied  conditions of the arbitration agreements.   Because of  condition No.3, the arbitrator has to make award  within four months of his entering on the reference or after having been called upon to act by notice in writing from any  party to the arbitration agreement or within such  extended   time as the Court may allow:  In other words, the power to extend the  time  of  four months has been  vested  in  the  Court, otherwise  the award after expiry may become  invalid.   But that  condition has to be read along with Section 28 of  the Act.               "28.Power  to Court only to enlarge  time  for               making award.-(1) Court may if it thinks  fit,               whether  the  time for making  the  award  has               expired or not and whether the award has  been               made  or  not, enlarge from time to  time  the               time for making the award.               (2)any   provisions   in   an   arbitration               agreement  whereby the arbitrators  or  umpire                             may, except with the consent of all the partie s               to  the  agreement, the time  for  the  award,               shall be void and of no effect. Sub-section  (1) of Section 28 vests power in the  Court  to enlarge  the  time for making the award from time  to  time. Subsection  (2) of Section 28 says in clear and  unambiguous terms that any provision in an arbitration agreement whereby the  arbitrators or umpire can enlarge the time  for  making the  award shall be void and of  no effect ’except with  the consent of all the  parties to the agreement’.   Sub-section (2)  of   Section  28  has  been  the  subject   matter   of controversy, as to whether even if the time is extended with the consent of both the parties, the restrictions prescribed in sub-section (1) of Section 28 and under condition No.3 of

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the  first  schedule arc contravened.  In the case  of  Hari Krishan Wattal v. Vatkunth Nath Pandya,(1974) 1 SCR 259,  it was  pointed out that under clause 3 of the Schedule to  the Arbitration  Act,  the Arbitrator is expected  to  make  his award within four months from his entering on the  reference or  on his being called upon to act or within such  extended time as the court may allow.  But then it was said:- 567               "Sub-section   2  of  section   28,   however,               indicates one exception to the above rule that               the  Arbitrator cannot enlarge the  time,  and               that  is  when the parties agree  to  such  an               enlargment.   The occasion for the  Arbitrator               to  enlarge the time occurs only after  he  is               called upon to proceed with the arbitration or               he  enters upon the reference.  Hence,  it  is               clear  that  if  the  parties  agree  to   the               enlargement  of time after the Arbitrator  has               entered  on the reference, the Arbitrator  has               the power to enlarge it in accordance with the               mutual  agreement or consent of  the  parties.               That  such a consent must be a  post-reference               consent,  is  also clear  from  section  28(2)               which renders null and void a provision in the               original agreement to that effect.  In a sense               where  a  provision is made  in  the  original               agreement that the Arbitrator may enlarge  the               time,. such a provision always implies  mutual               consent   for  enlargement  but  such   mutual               consent  intially  expressed in  the  original               agreement  does  not save the  provision  from               being  void  It is, therefore clear  that  the               Arbitrator  gets the jurisdiction  to  enlarge               the  time for making the award only in a  case               where  after entering on the  arbitration  the               parties  to the arbitration agreement  consent               to such enlargement of time." Again in the case of State of Punjab v. Sri Hardayal, (1985) 3 SCR 649, it was said:               "Sub-section  (1)  of s.28 is  very  wide  and               confers  full  discretion  on  the  court   to               enlarge time for making the award at any time.               The direction under sub-s.(1) of s.28  should,               however,   be  exercised  judiciously.    Sub-                             section (2) of s.28 also makes it evident  tha t               the court alone has the power to extend  time.               It  further  provides  that a  clause  in  the               arbitration  agreement giving  the  arbitrator               power to enlarge time shall be void and of  no               effect except when all the parties consent to               567               such  enlargement.   It is not open  to  arbi-               trators at their own pleasure without  consent               of  the  parties to the agreement  to  enlarge               time for making the award." In  the case of Hindustan Steel Works Construction  Ltd.  v. C.Rajasekhar Rao, (1987) 4 SCC 93, this Court said:               "In  this connection reference may be made  to               H.K  Wattal  v. VN.Pandya,  where  this  Court               reiterated that sub-section (2) of Section  28               indicated one exception to the above rule that               the arbitrator could not enlarge the time, and               that  was when the parties agreed to  such  an               enlargement.   It is clear this Court  reiter-

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             ated  that  the arbitrator gets  the  jurisdic               tion to enlarge the time for making the  award               only  in  a case where after entering  on  the               arbitration  the  parties to  the  arbitration               agreement consent to such enlargement of time.               In this case precisely it so happened". According to us, the High Court overlooked the provision  of sub-section  (2) of Section 28.  After the Special  Tribunal had  entered into reference, by consent of the parties,  the time for making the award could have been extended.  In  the present case it is not in dispute that the appellant and the respondent-State  both had for extension of the  period  for making the award,after the Special Tribunal had entered into reference.   As such the award cannot be held to be  invalid on that ground 10.The  third ground for declaring the award invalid by  the High  Court is that the Special Tribunal had not  considered important  documents  which  were  on  the  record  of   the arbitration  proceeding.  In this connection  our  attention was  drawn to a letter dated 28.8.1982 ad by  the  appellant company to the Executive 568 Engineer  saying  that they were applying for  extension  of time for completion of works upto 30.6.1984 because of valid reasons  given in the prescribed proforma.  In that  letter, it was also mentioned that during the discussion between the Dy.General  Manager  of  the  company  with  the  Government Officials  at Bhubaneshwar on 20.2.1982, it had been  agreed to  consider  the extension of time upto 30.6.1984.  In  the proforma  attached to the said letter, again the same  thing was reiterated.  It was said in the said proforma on  behalf of the appellant company that they had undertaken that  they shall not claim any compensation or extra rate for executing the  work  beyond the stipulated date  except  whatever  was permissible  as  per the contract.  It was  urged  that  the letter and the proforma aforesaid was not considered by  the Special   Tribunal   while  making  order  in   respect   of escalations.   According  to  the  respondent-State  as  the extension  was given at the request of the  appellant,  they were not entitled for any escalation charges.  Reference was also made on behalf of the respondents to the  supplementary agreement,  especially clauses VI and VII thereof In  Clause VI,  it  has been stated that any extra arrangement  if  re- quired to be made by the company to complete the work as per the  above agreed schedule "shall, be done  by  them,without liability to the Government of Orissa".In Clause VII of  the said supplementary agreement, it has been said that  Govern- ment  of  Orissa  shall  consider  to  extend  the  date  of completion of the work upto 30.6.1984 "without liability  to the  both contracting parties".  On basis of  the  aforesaid clause  it was urged on behalf of the respondents which  has been  accepted by the High Court, that the State  Government was   not   bound  to  pay  any  charges  under   the   head ‘escalation’.    On   behalf  of  the  appellant,   it   was demonstrated  that the aforesaid no liability clause in  the supplementary  agreement  related  to  clause-  13  of   the original agreement under the heading ’Compensation for delay in works’.  It says that the contractor’s rates are based on the  assumption that the contract will be completed by  30th September,  1982  and the contractor shall  not  claim  "any compensation  or revision of rates if the work gets  delayed upto  6  months  beyond the contract  completion  time  i.e. 30.9.1982". It further says that if the contract  completion date  gets  delayed  beyond 31.3.1983 for  the  reasons  not attributable  to the contractor, the rates shall be  revised

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for  the  unfinished work as on 31.3.1983  by  Engineer  in- charge  in consultation with the contractor, subject to  the approval  of  the  Government.  When  in  the  supplementary agreement  in  clauses  VI and VII it was  said  that  extra arrangement  for  completion of the work as per  the  agreed schedule  shall be done by the Contractor without  liability to  the  Government of Orissa or without liability  to  both contracting,,   parties,  it  was  with  reference  to   the aforesaid clause 13 which stipulated compensation for  delay in works.  According to the appellant, the Special  Tribunal has awarded extra amount in respect of escalations of labour charges  which  had  been stipulated in  para  12.1  of  the agreement saying that for the increase in the cost of labour the Contractor shall be paid extra as per the formula  given in the said clause.  In other words, the escalation  charges allowed  to  the  appellant by the Special  Tribunal  is  in respect  of escalation of the labour charges and  that,  was not  regulated  by clauses VI and VII of  the  supplementary agreement.   The Learned counsel for the  appellant  pointed out from the award that the Special Tribunal was 569 conscious  of Clause 13 relating to ’compensation for  delay in works’ and ’labour escalations’ under clause 12.1 of  the agreement.   It  has  been  said  in  the  award  that   the competent authority by a letter dated 16.10.1984,  addressed to  the  appellant,  had   categorically  assured  that  the appellant shall be paid the escalation charges under clauses 12.1, 12.2 and 12.3 of the special conditions.  The Tribunal has also held that the said authority was competent to  give such  assurance on behalf of the State apart from  the  fact that  under  clauses  12.1 ,12.2 and  12.3  of  the  special conditions,  the  appellant was entitled to  the  escalation charges.   In this background, it cannot be said that  there is  any  error  apparent on the  face  of  the  award  which required  an  inter ference by the High Court.  It  is  well known  that the Court while considering the question whether the  award  should  be  set aside,  does  not  examine  that question  as an Appellate Court. While exercising  the  said power the Court cannot reappreciate all the materials on the record for the purpose of recording a finding whether in the facts  and circumstances of a particular case the  award  in question  could have been made. Such award can be set  aside on  any of the grounds specified in "Section 30 of the  Act. According  to us, no ground has been made out on  behalf  of respondents to set aside the award holding it to be invalid. 11.  In the result, the appeal is allowed and the  order  of the High Court is set aside. The order making the award  the Rule  of  the  Court,by the  learned  Subordinate  Judge  is upheld. However, in the facts and circumstances of the case, there shall be no order as to costs. 570