Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2009 Supreme(SC) 1591

2009(6) Supreme 723
SUPREME COURT OF INDIA
Tarun Chatterjee and R. M. Lodha, JJ.
M/s. Som Datt Builders Ltd. — Appellant
versus
State of Kerala — Respondent
Civil Appeal No. 3089 of 2006
Decided on : 17-09-2009

Advocates Appeared:
For the Appellants :V. A. Mohta, Sr. Adv., Arvind Minocha, Mrs. Veena Minocha and Nilakant Nayak, Advocates, with him, for the Appellants.
For the Respondents:T.L.V. Iyer, Sr. Adv., G. Prakash and B. Anand, Advocates, with him, for the Respondents.

IMPORTANT POINT
The requirement of reasons in support of the award under Section 31(3) of Arbitration and Conciliation Act, 1996 is not an empty formality. It guarantees fair and legitimate consideration of the controversy by the arbitral tribunal.

Headnote:Arbitration and Conciliation Act, 1996 -– Section 34 -– Award of contract by State of Kerala to contractor relating to road work of National Highway – 47 –- Contractor, raised claims under diverse heads before Engineer -– Grievance of contractor, that Engineer took decision concerning claim no. 1 but the said decision was not implemented and regarding other claims, no decision was taken necessitating the contractor to seek reference of dispute to arbitration-Award passed by Arbitral Tribunal – -Petition for setting aside award on plea that award was not a reasoned award –- 2nd Additional District Judge dismissed the petition – -Appeal –- Division Bench allowed the appeal in part and setaside the award relating to claim nos. 1 and 4B on ground that findings thereon did not have supporting reasons –- Appeals thereagainst-Perusal of award showed that there were no reasons in support of claim no. 1 -– The position was no better in respect of award for claim no. 4B – -As a matter of fact, no reason whatsoever had been assigned for awarding that claim –- Section 31(3) mandates that arbitral award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or award is an arbitral award under Section 30 -– In the circumstances, it was obligatory for the arbitral tribunal to state reasons in support of its award in respect of claim nos. 1 and 4B -– Hence it could not be said that High Court was wrong in observing that no reasons had been assigned by arbitral tribunal as to whether the period of completion extended by employer for 18 months was due to reasons not attributable to the claimant- However, High Court ought to have given the arbitral tribunal an opportunity to give reasons- Impugned judgments of High Court and 2nd Additional District Judge,set aside -– Petition filed by State of Kerala against the award restored to the file of the 2nd Additional District Judge, Ernakulam for fresh hearing and consideration of the objections in respect of claim nos. 1, 4B, 5 and 6- However, 2nd Additional District Judge, Ernakulam shall first remit the award to the Arbitral Tribunal for stating their reasons in support of claim nos. 1 and 4B and after receipt of the reasons from arbitral tribunal proceed with the hearing and disposal of objections-Appeals disposed of (Paras 20 to 28)
       Facts of the Case :
        State of Kerala herein in the instant case awarded contract to contractor relating to road work of National Highway – 47. Contractor, raised claims under diverse heads before Engineer. Grievance of contractor, that Engineer took decision concerning claim no. 1 but the said decision was not implemented and regarding other claims, no decision was taken necessitating the contractor to seek reference of dispute to arbitration. An Award was passed by Arbitral Tribunal. Petition for setting aside award was filed on plea that award was not a reasoned award.2nd Additional District Judge dismissed the petition. On Appeal, Division Bench allowed the appeal in part and set aside the award relating to claim nos. 1 and 4B on ground that findings thereon did not have supporting reasons.
       2.Present appeals have been filed against said order of High Court.
       Findings of the Court :
        Perusal of awrard showed that there were no reasons in support of claim no. 1. The position was no better in respect of award for claim no. 4B. As a matter of fact, no reason whatsoever had been assigned for awarding that claim. Section 31(3) mandates that arbitral award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or award is an arbitral award under Section 30.In the circumstances, it was obligatory for the arbitral tribunal to state reasons in support of its award in respect of claim nos. 1 and 4B.Hence it could not be said that High Court was wrong in observing that no reasons had been assigned by arbitral tribunal as to whether the period of completion extended by employer for 18 = months was due to reasons not attributable to the claimant. However, High Court ought to have given the arbitral tribunal an opportunity to give reasons. Impugned judgments of High Court and 2nd Additional District Judge,set aside. Petition was filed by State of Kerala against the award restored to the file of the 2nd Additional District Judge, Ernakulam for fresh hearing and consideration of the objections in respect of claim nos. 1, 4B, 5 and 6. However, direction given that 2nd Additional District Judge, Ernakulam shall first remit the award to the Arbitral Tribunal for stating their reasons in support of claim nos. 1 and 4B and after receipt of the reasons from arbitral tribunal proceed with the hearing and disposal of objections.
       Result : Appeals disposed of

JUDGEMENT

R.M. Lodha, J.—

1. These two appeals by special leave arise from the Judgment and Order dated June 3, 2005 passed by the High Court of Kerala and hence were heard together and are being disposed of by this common judgment.

2. The State of Kerala represented by the Chief Engineer, National Highway, Public Works Department awarded a contract to M/s. Som Datt Builders Limited (for short, ‘contractor’) relating to road work of National Highway-47. The works were : (i) four laning and strengthening of Alwaye-Vyttila; (ii) four laning and strengthening of Vyttila-Aroor and (iii) four laning of Aroor-Cherthala stretches. The terms and conditions mentioned in the special and general conditions of the contract (Sections IV & III respectively) were integral part of the conditions specified in the contract. Under the contract, the contractor was to complete the works within forty-two months. That the work could not be completed within the agreed period is not in dispute. It is also an admitted position that the time for completion of work was extended on two occasions; in all by 25 months. The case of the contractor is that the extension of time was not for any fault of theirs and as a matter of fact they had to continue the site office in Cochin; that they also incurred additional expenditure in relation to their work at Cochin and that further expenditure towards equipment ownership charges in respect of the machinery worth crores of rupees continued to be employed for the work. The contractor, therefore, raised claims under diverse heads before the Engineer on February 22, 1998. According to the contractor, the Engineer took decision concerning claim no. 1 but the said decision was not implemented and regarding other claims, no decision was taken necessitating the contractor to seek reference of the dispute to arbitration.

3. On January 11, 1999 an arbitral tribunal comprising three Arbitrators was constituted and all claims of the contractor were referred for adjudication to the arbitral tribunal.

4. On March 20, 1999 the contractor submitted their claim along with supporting documents before the arbitral tribunal. Claim no. 1 made by the contractor related to additional cost on account of extended stay for reasons not attributable to them. Claim no. 1 as per statement of claim is under three heads, namely; (i) Equipment ownership charges for Rs. 10,43,49,369/-; (ii) Site over-heads for Rs. 9,16,31,609/-; and (iii) Head Office over-heads for Rs. 2,45,68,507/— totaling Rs.22.05,40,405/-. Claim no. 4B amounting to Rs. 3,33,924.69 related to additional expenditure incurred due to change in foundation from well foundation to open foundation. Claim no. 5 in the sum of Rs. 2,85,93,625/- was raised by the contractor towards compensation for the loss suffered on account of strikes by various local unions, bundh and interference by police and other authorities. Claim no. 6 for Rs. 2,46,817/- was raised by the contractor for reimbursement of the provident fund contributed by the contractor @ 10%.

5. The statement of defence was submitted on behalf of the State Government along with supporting documents before the arbitral tribunal on October 30, 1999.

6. The contractor submitted its rejoinder on November 27, 1999 while an additional statement of defence was filed by the State Government on March 17, 2001.

7. The arbitral tribunal passed its award on December 20, 2003. As regards, claim no. 1, the arbitral tribunal awarded an amount of Rs. 7,61,41,460/-. The arbitral tribunal awarded a sum of Rs. 2,86,985.23 towards claim no. 4B; Rs. 1,00,26,900/- towards claim no. 5 and Rs. 2,31,821/- towards claim no. 6. It is not necessary to deal with the other claims as they are not the subject matter of these two appeals.

8. A petition under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, ‘Act,1996’) was filed by the State of Kerala before the District judge, Ernakulam for setting aside the award dated December 20, 2003 on d

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2009 Supreme(SC) 1591

2009(6) Supreme 723SUPREME COURT OF INDIATarun Chatterjee and R. M. Lodha, JJ.M/s. Som Datt Builders Ltd. — AppellantversusState of Kerala — RespondentCivil Appeal No. 3089 of 2006Decided on : 17-09-2009

IMPORTANT POINTThe requirement of reasons in support of the award under Section 31(3) of Arbitration and Conciliation Act, 1996 is not an empty formality. It guarantees fair and legitimate consideration of the controversy by the arbitral tribunal.

Cases Referred (3)

2009(6) Supreme 723
SUPREME COURT OF INDIA
Tarun Chatterjee and R. M. Lodha, JJ.
M/s. Som Datt Builders Ltd. — Appellant
versus
State of Kerala — Respondent
Civil Appeal No. 3089 of 2006
Decided on : 17-09-2009

IMPORTANT POINT
The requirement of reasons in support of the award under Section 31(3) of Arbitration and Conciliation Act, 1996 is not an empty formality. It guarantees fair and legitimate consideration of the controversy by the arbitral tribunal.