Non -Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1256  OF 2005

O.P. Pathrose …   Appellant

Versus

State of  Kerala & Anr.        … Respondents    

J U D G M E N T

K.S. Radhakrishnan, J.   

1. This appeal arises out of the judgment of the Kerala High Court  

in M.F.A. No.45/1996 whereby the High Court has interfered with an  

arbitration award dated 2.4.1993 and set aside few claims allowed by  

the Arbitrator.    

2. An agreement dated 14.9.1988 was entered into between the  

Appellant-contractor and the Superintending Engineer, KIP LP Circle,  

Kottarakkara, for execution of the work for the formation of Kottayam  

Branch Canal including siphons and cross drainage works.  Later, a  

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supplementary agreement No.1 was executed between the parties on  

16.6.1989 extending the time for completion of work by six months  

from  7.4.1989  to  6.10.1989.   The  appellant  vide  letter  dated  

25.9.1989 sought  further  extension  of  time for  completion  of  work  

without  prejudice  to  his  rights  and  claims.  On  29.11.1989,  

supplemental  agreement  No.2  for  extension of  time was executed  

between the parties whereby the period of completion of work was  

extended  from  6.10.1989  to  31.3.1990.   Supplemental  agreement  

No.3 was also signed between the parties on 29.11.1989 for carrying  

out the extra work.  During the pendency of the extended period of  

contract,  the  appellant  addressed  a  letter  to  Respondent  No.2  

enumerating the various extra payments due and payable to him and  

further  stated  that  execution  of  work  by  the  appellant  within  the  

extended time would be without prejudice and subject to his rights for  

all claims and compensation for all losses and damages sustained. It  

was  stated  that  the  work  was  completed  on  31.3.1990  within  the  

extended period in terms of the supplemental agreement No.2.   On  

5.7.1990,  the  appellant  addressed  a  letter  to  Respondent  No.2  

informing him that the supplemental agreements as aforesaid were  

executed  by  him  under  pressure  and  coercion.   Supplemental  

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agreement  No.4  was  signed  between  the  parties  on  9.7.1990  for  

carrying  out  the extra  work,  which according to  the appellant  was  

beyond  the  terms  of  the  original  agreement.  On  18.7.1990,  the  

appellant had sent a letter to Respondent No.2 stating that he had  

signed the final bill under coercion, duress and undue influence.   

3. Disputes  and  differences  arose between the  parties  and the  

claim raised by the appellant was referred to the Arbitrator who was  

the  Superintending  Engineer  of  the  Department.   Before  the  

Arbitrator,  the  appellant  raised claims Nos.  a  to  l.   The Arbitrator  

passed a reasoned award on 2.4.1993 whereby the claims Nos. a, b,  

c,  d,  g  were allowed.   Award was made rule of  the Court  by the  

Subordinate Judge’s Court, Thiruvananthapuram on 26.10.1993 and  

the  application  preferred  by the  respondents  for  setting  aside  the  

award under Section 30 of the Arbitration Act, 1940 was rejected.  

4. The Respondents took up the matter in appeal before the High  

Court  by  filing  M.F.A.  No.45/1996.   A Division Bench of  the  High  

Court set aside the claims Nos. ‘a’ to ‘d’ and decree was passed only  

in terms of claim ‘g’.  Aggrieved by the judgment of the High Court,  

this appeal was preferred by the appellant.  

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5. Mr. L.Nageswara Rao, learned senior counsel appearing for the  

appellant submitted that the High Court has committed a grave error  

in interfering with the reasoned award passed by the Arbitrator and  

setting aside the claims a to d.  Learned senior counsel submitted  

that the Arbitrator has given cogent reasons for allowing  the claims in  

respect of losses and damages suffered due to breach of contract by  

the respondents.  Learned senior counsel submitted, in any view, the  

unreasonableness  of  an  Award  is  not  a  matter  for  the  court  to  

consider  unless  the  award  is  per  se  preposterous  or  absurd.  

Learned senior  counsel  referred to  the judgments  of  this  Court  in  

Indian Oil Corporation Ltd. v.  Indian Carbon Ltd., (1988) 3 SCC  

36, Arosan Enterprises Ltd. v. Union of India & Anr. (1999) 9 SCC  

449, Md. Salamatullah & Ors. V. Government of Andhra Pradesh,  

(1977) 3 SCC 590.   

6. Learned senior  counsel  further  submitted that  with  regard  to  

claim No.(b), the Arbitrator derives his jurisdiction in terms of clause  

52  of  the  principal  agreement  and  not  in  terms  of  any  clause  

contained in any of the supplemental agreements.  Learned senior  

counsel  submitted  that  the  arbitrator  has  clearly  found  that  the  

supplemental agreements were executed on account of coercion and  

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duress  and  on  account  of  threats  meted  out  by  the  respondents  

failing  which  the  final  bill  would  not  have  been  cleared.  Learned  

senior  counsel  submitted  that  the  High  Court  should  not  have  

interfered with the clear findings recorded by the Arbitrator on that  

claim.   Learned counsel  made reference to the judgments of  this  

Court  in  Pure  Helium  India (P)  Ltd. v.  Oil  &  Natural  Gas  

Commission, (2003) 8 SCC 593, T.P. George v. State of Kerala &  

Anr. (2001)  2 SCC 758,  K.N. Sathyapalan v.  State of  Kerala &  

Anr., (2007) 13 SCC 43, Ram Nath International Construction Pvt.   

Ltd. v.  State of U.P. (1997) 11 SCC 645.  Learned senior counsel  

further submitted with regard to claims nos. c and d that the appellant  

had to incur heavy expenses for transportation of extra cut spoils and  

to remove metamorphic rocks and Arbitrator has rightly allowed those  

claims.   In  support  of  his  contention  reference  was  made  to  the  

judgment of this Court  in  K.N. Sathyapalan v.  State of Kerala &  

Anr., (2007) 13 SCC 43.  

7. Mr. Chander Uday Singh, learned senior counsel appearing for  

the Respondents has submitted that the High Court was justified in  

interfering  with  the  award  in  respect  of  claims a  to  d  and cogent  

reasons have been given by the High Court  in interfering with the  

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award of the Arbitrator.  Learned senior  counsel submitted that  the  

supplemental agreements were executed by the appellant with open  

eyes  and  there  was  no  coercion  and  duress  on  the  part  of  the  

respondents in executing those supplemental agreements. Learned  

senior counsel further submitted that the work could not be completed  

by the  appellant  not  due to  the  fault  of  the  Department,  in  either  

handing over of the site or in discharging any obligation on its part.  

Learned senior counsel also submitted that there was no provision in  

the  contract  for  paying any amount  for  transportation  of  extra  cut  

spoils and for the removal of metamorphic rocks and the High Court  

was justified in rejecting those claims.   

8. We  have  heard  learned  counsels  for  the  parties  at  length.  

Dispute arose under the Arbitration Act,  1940.  The Arbitrator was  

none other than the Superintending Engineer of the Department.  The  

Arbitrator  had entered  on reference on 20.3.1991.   The claimants  

submitted their claims on 04.06.1991 and the respondents submitted  

their  pleading  in  defence  on  13.01.1992.   The  claimant  filed  28  

documents and the Respondent filed 8 documents which were also  

taken on file.  The Arbitrator inspected the site on 12.6.1992 in the  

presence of both the parties.  The claimant raised 13 claims viz. a to  

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m and the Arbitrator has allowed only claims nos. 1 to d, g and h and  

a  total  amount  of  Rs.46,14,079/-  was  awarded  in  full  and  final  

settlement  of  the  claims  with  16.5%  interest  per  annum  from  

20.2.1991  till  the  date  of  the  payment  or  decree   whichever   is  

earlier. While making the award rule of the Court, the Court directed  

the  Respondents  to  pay  the  claimant  Rs.46,14,079/-  with  interest  

thereon at the rate of 16.5% p.a. from 20.2.1991 to 26.2.1993 and  

12.% from 5.4.1993 to the date of the order and 9% thereafter till  

payment.   

9. We are of the considered view that  with regard to claims Nos.  

a and b, the Arbitrator has stated cogent reasons for allowing those  

claims.  After perusing the measurement book and inspecting the site  

with regard to claim No. a, the Arbitrator has stated as follows:

“It  is  seen admitted in the defence pleadings that  the hindrances at site were auctioned and cleared only by  25.4.89,  which  is  after  the  expiry  of  original  time  of  completion  contemplated  under  the  agreement.   The  original  time  of  completion  expired  on  6.4.89.   The  respondents admitted the change in the nature of work.  As per the agreement earthen canal  was to be formed  from ch: 11759m. to 11992m.  The earthen canal from ch:  11759m.  to  11799m.  has  been  changed  to  concrete  canal.  Earthen canal from ch:11928m. to 11998m. was  changed  into  covered  flume.   Flume  canal  from  ch:  11998m. to 12070m. was converted into siphon.  Open  flume has been constructed from ch:12406m. to 12524m.  

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Earthen canal  from ch:12630m. to  12760m. have been  converted  into  concrete  canal.   Similarly  earthen  canal  from ch:  13080m. to 13100m. has been converted into  covered flume.  It is observed that there was substantial  changes in the design of canal as well  as the structure  constructed.  The respondents admitted in their pleadings  that  the said changes effected  in  order  to  suit  the site  condition.  The respondents ought to have considered this  factor while preparing the estimates.  The non preparation  of  estimates  based  on  the  site  condition  is  a  mistake  committed due to defective investigation.  The conversion  of bridges into covered flume is also seen admitted by the  respondents.  The  sides  of  the  covering  flume  were  protected  by  R.R.  Masonry  to  retain  the  earth  in  the  roadway.  Earth work filling was made on either sides of  the covered flume to get a smooth gradient according to  the  defence pleadings.   The respondents  stated in  the  defence statement that initial requirement of cement has  been increased due to additional work sanctioned.  There  was shortage of cement during April and July 1989.  It is  revealed from the pleadings of respondents that due to  acute scarcity of cement in the stores arrangements were  made by the department for local purchase.  Apparently  all  the  said  factors  based  on  the  admissions  of  the  respondents are breach of contract.”

10. The  Arbitrator  on  facts  found  that  there  were  substantial  

changes in the designs of the canal as well as the structure which, it  

was found, was effected to suit the site condition.  The above facts, it  

is seen have been admitted by the respondents in their pleadings and  

in the absence of any contra evidence, the Arbitrator in our view has  

rightly allowed that claim.

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11. We find with  regard to  claim No.b,  the Arbitrator  has clearly  

recorded findings which reads as follows:

“The claimant in his application for extension of time  dated 25.9.89 (Exhibit C-17) requested extension of time  without  prejudice  to  his  rights  and  claims  whatsoever.  Such stipulation in the application has been objected to  by the Executive Engineer vide Exhibit  C-16 mentioned  above.  C-27 is a letter from the claimant to the second  Respondent stating that he has been put to huge financial  losses due to breach of contract by the Respondents.  It  is to be perceived that the claimant recorded his protest  over  the  execution  of  agreement.   C-16  shows  the  compulsion exerted on the claimant by the Respondents.  During the course of arguments it  was admitted by the  Respondent  that  unless the supplemental  agreement  is  executed payment will not be made, and no materials will  be issued.  Further,  it  is pointed out that the refusal  to  execute supplemental agreement would be considered as  a  default  and  the  Respondent  could  terminate  the  agreement under clause 45 of LCB condition.  Further I  have verified the measurement book.  It is seen that from  the  substantial  work  has  been  done  which  are  seen  recorded in the Measurement Book before the execution  of  supplemental  agreement.   Evidently  there  was  considerable investment by the claimant under the above  circumstances the claimant was compelled to execute the  supplemental agreement for extension of time.”

12. The  findings  recorded  by  the  Arbitrator  have  not  been  

controverted by the respondents by adducing any evidence. Finding  

was recorded by the Arbitrator after site inspection and perusing the  

measurement book.

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13. We are  of  the  view that  the  High Court  has  not  stated  any  

cogent  reasons  for  upsetting  those  findings  recorded  by  the  

Arbitrator.  The unreasonableness of an Award is not a matter for the  

court to consider unless the award is per se preposterous or absurd.  

Primarily, it is for the Arbitrator to appraise the evidence adduced by  

the  parties.  Arbitrator  has  gone  through  the  defence statement  at  

length and the claims nos. a and b practically remain unopposed so  

recorded by  the  Arbitrator  in  the  award itself.   The  Arbitrator  has  

clearly stated in the award that the respondents had admitted in their  

pleadings that  the changes were  effected  in  order  to  suit  the  site  

conditions.  Further,  with regard to claim no. b it  has been clearly  

stated by the Arbitrator in the award that, during the course of the  

arguments,  it  was  submitted  by  the  respondents  that  unless  the  

supplemental  agreement  is  executed,  payments  would  not  be  

effected and no materials would be released.  Further, it was pointed  

out  that  refusal  to  execute  supplemental  agreement  would  be  

considered as  a  default  and  the  respondents  would  terminate  the  

agreement under clause 45 of LCB condition.  Those factual disputes  

have not been controverted by adducing any evidence.  That being  

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the factual position, we find no reason to interfere with the award of  

the Arbitrator in respect of claims (a) and (b).  In the absence of any  

specific terms of reference, we are of the view that the Arbitrator has  

committed an error in granting claims Nos. (c) and (d) and the High  

Court has rightly set aside those claims especially when there are no  

materials to support those claims.  

14. Under  the  above-mentioned  reasons  the  appeal  is  partly  

allowed and the judgment of the High Court in respect of claims (a)  

and  (b)  is  set  aside  and  in  respect  of  claims  Nos.  (c)  and  (d)  is  

sustained.  Resultantly  the award  and the decree passed by the  

subordinate-court in respect of claims (a),(b) and (g) are sustained  

with interest modified  at the rate of 9% from 20.02.1991 till the date  

of  payment  and  in  all  other  respects  the  award  and  the  decree  

passed by the subordinate Court stands set aside. Parties will bear  

respective costs through out.  

……………………….J. [Markandey Katju]

……………………….J. [K.S. Radhakrishnan]

New Delhi; March 16, 2010.  

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