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                         REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.2880-2881 OF 2005

Tamil Nadu Water Supply & Drainage Board … Appellant                 

Vs.

M/s. Satyanarayana Brothers Pvt.Ltd. … Respondent

O R D E R

1. In order to overcome the shortage of drinking water in  the  City  of  Chennai,  the  Government  of  Tamil  Nadu  formulated a scheme known as “Veeranam Project” to provide  drinking water to the city.  Tenders were invited for the  said  scheme  and  ultimately,  the  tender  submitted  by  the  respondent  M/s.  Satyanarayana  Brothers  Pvt.  Ltd.  was  accepted.   The  work  undertaken  could  not  be  completed  within  the  stipulated  time  and  the  respondent  sought

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extension  to  complete  the  work.   Though  the  time  was  extended,  the  respondent  could  not  complete  the  same  on  account of disputes which were ultimately referred to the  arbitration of two arbitrators appointed by the parties.  The  arbitrators  appointed  Hon’ble  Mr.  Justice  K.S.  Palaniswamy, a retired Judge of the Madras High Court, as  their  umpire.   On  account  of  disagreement  between  the  arbitrators the matter was referred to the umpire who held  that the respondent was entitled to Rs.40,02,591/- from the  appellant and after allowing the deduction for the same the  respondent  was  liable  to  pay  to  the  appellant  a  sum  of  Rs.2,69,93,674/- with interest @9% per annum from the date  of  the  Award.   Out  of  the  said  Award,  only  a  sum  of  Rs.5,000/- was awarded as damages for breach of contract.   

2. The Award was filed by the umpire in the Madras High  Court  and  was  numbered  as  O.P.No.428/79.  While  the  appellant  filed  Application  No.560/80  in  the  said  O.P.No.428/79 praying for a decree to be passed in terms of  the  Award,  the  respondent  being  aggrieved  by  the  Award,  filed  O.P.No.122/80  for  setting  aside  the  Award.   The  learned single Judge allowed the prayer for setting aside  the Award and consequently, the other application filed by

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the appellant for a decree to be passed in terms of the  Award was dismissed.  C.S.No.176/78, which had been filed  by the appellant, was also dismissed.   

3. Thereafter,  the  appellants  preferred  appeals,  being  O.S.A.Nos.248 of 1989 and 59 of 1993, against the order of  the  Single  Judge.  The  said  appeals  were  allowed  by  the  Division  Bench  of  the  High  Court  by  its  order  dated  18/10/2001 and a decree was passed in terms of the Award  dated  10th September,  1979,  passed  by  the  umpire.  Aggrieved  by  the  order  dated  18/10/2001,  by  which  OSA  248/89 and 59/93 had been initially allowed by the Division  Bench, the respondent filed  SLP(C)Nos.2096-2097 of 2002.  The  said  special  leave  petitions  were  re-numbered  as  C.A.Nos.9136-9137  of  2003,  and  were  disposed  of  by  this  Court  on  18/11/2003.   The  matter  was   remitted  to  the  Division  Bench  of  the  High  Court  and  on  remand,  the  Division  Bench  dismissed  the  said  appeals,  holding  that  foreign exchange was to be obtained by the joint efforts of  the appellant and the respondent and that the Government  was  not  extending  time  reasonably  but  in  a  piece  meal  manner.    Accordingly,  the  High  Court  held  that  the  respondent had not committed any breach of the contract.

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Aggrieved  by  the  said  order  dated  24th March,  2004,  the  appellant  preferred  these  appeals  (C.A.Nos.2880-2881/05),  which were dismissed by this Court    on 7th February, 2007.  By consent of parties, the Hon’ble Mr. Justice S. Mohan, a  retired  Judge  of  this  Court  was  appointed  as  Sole  Arbitrator to decide the disputes between the parties.  The  learned  Arbitrator  submitted  his  Award  on  26th October,  2007,  holding  that  the  respondent/claimant  would  be  entitled  to  a  sum  of  Rs.15,84,933.76p.   Thereafter,  the  parties  were  given  the  opportunity  of  filing  their  respective objections to the said Award and ultimately the  matter has come up for the acceptance of the Award.

4. At the very outset, it was sought to be urged on behalf  of both the parties that the said Award dated 26th October,  2007 was not acceptable to either party on account of an  erroneous understanding of the respective cases made out by  the parties.  While the appellant questioned the rejection  of its case that the respondent had no claim against the  appellant  and  the  innocuous    finding  that  the  breach  committed by the contractor was no longer available in view  of  the  earlier  decision,  the  respondent-contractor  questioned the Award on the ground that its just claims had

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been  wrongly  rejected  in  respect  of  damages  suffered  in  view  of  the  stoppage  of  the  work  on  account  of  the  appellant’s  failure  to  provide  necessary  assistance  for  obtaining foreign exchange for completion of the project.

5. Both the parties are aggrieved by the Award on the  ground of non-application of mind by the Arbitrator to the  material before him.    It is the common ground of the  parties that the learned Arbitrator misconducted himself in  appreciating the case made out by of the respective parties  vis-a-vis the materials on record.   We have considered the  submissions made and we have also looked into the Award,  which  indicates  that  the  learned  Arbitrator  had  legally  misconducted himself thereby attracting the provisions of  Section  30(a)  of  the  Arbitration  Act,  1940.   We,  accordingly, set aside the Award and remit the matter to  the learned Arbitrator for a fresh decision.  However, in  place of Justice S. Mohan, who had submitted his Award, we  appoint  Justice  Shivraj  Patil,  a  retired  Judge  of  this  Court to be the sole Arbitrator to consider the matter and  pass a fresh Award in the light of the judgment of this  Court  dated  07/02/2007  in  C.A.Nos.2880-2881  of  2005  and  file the same in this Court.   The learned Arbitrator shall

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be entitled to settle his   fees and other expenses which  are to be equally shared by the parties and work out the  procedure  to  be  followed  in  conducting  the  arbitration  proceedings.  The learned Arbitrator is requested to make  his Award expeditiously, but preferably within a period of  six months from the date of entering upon the reference.  

…………………………………………J. (ALTAMAS KABIR)

…………………………………………J. (CYRIAC JOSEPH)

New Delhi Dated: November 05, 2009.