1. Road construction contract — Dispute over additional work — Arbitration award challenged under Sections 30/33, Indian Arbitration Act, 1940 — Award set aside by lower courts. (Para 1 , 2 , 3 , 4 , 5 )
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2023 Supreme(SC) 781
SUPREME COURT OF INDIA
S. RAVINDRA BHAT, DIPANKAR DATTA, JJ.
M/s S.D. Shinde Tr. Partner - Appellant
Versus
Govt. of Maharashtra & Ors. - Respondents
Civil Appeal No(s). 6107-6108 of 2017 With Civil Appeal No(s). 6109 of 2017
Decided On : 22-08-2023
Important Points
IMPORTANT POINT
Setting aside arbitral award – Courts, while adjudging whether an arbitration award calls for interference has to be conscious that Arbitrator is sole Judge of facts – Unless an error of law is shown, interference with award should be avoided.
Setting aside arbitral award – Courts, while adjudging whether an arbitration award calls for interference has to be conscious that Arbitrator is sole Judge of facts – Unless an error of law is shown, interference with award should be avoided.
Subject
Arbitration Law - Award
Act Referred
Headnote
Arbitration Act, 1940 – Section 30/33 – [Now, Arbitration and Conciliation Act, 1996 – Section 34] – Setting aside arbitral award – Road construction contract – Courts, while adjudging whether an arbitration award calls for interference has to be conscious that Arbitrator is sole Judge of facts – Unless an error of law is shown, interference with award should be avoided – Scope of jurisdiction of court under Section 30/33 of Act, never extended beyond discerning if award disclosed an “error apparent on face of award” which is an “error of law apparent on face of award and not an error of fact – Error of law can be discovered from award itself or from a document actually incorporated therein – In present case, award did not, facially disclose any error of law; damages were awarded in accordance with principles embodied in law and findings were based on evidence placed before Tribunal – Ruling of trial courts and High Court is nothing short of intense appellate review which is impermissible in law and beyond courts’ jurisdiction – Impugned judgments set aside and award restored. (Paras 23, 24 and 25)
Facts of the case:
Present appeals challenge a common judgment of the Aurangabad Bench of the Bombay High Court1. Appellant was aggrieved by the judgment of trial court. The trial court had set aside an award made in the appellant’s favour awarding substantial amounts towards its claim, in backdrop of a road construction contract.
Findings of Court:
Impugned judgment as well as the judgment of the trial court, cannot be sustained; they are accordingly set aside. The award is restored. The respondents shall ensure full payment in terms of the award, to the appellant, within eight weeks from today.
Result : Appeals allowed.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) : Mr. Vinay Navare, Sr. Adv. Mr. Shashibhushan P. Adgaonkar, AOR Mr. Omkar Jayant Deshpande, Adv. Mrs. Pradnya S Adgaonkar, Adv. Mr. Rana Sandeep Bussa, Adv. Mr. Shashwat Goel, AOR
For the Respondent(s): Mr. V. K. Sidharthan, AOR Mr. Rahul Chitnis, Adv. Mr. Sanjay Kharde, Adv. Mr. Satyajeet Kharde, Adv. Mr. Sunil Kumar Verma, AOR Mr. Umang Shankar, AOR Mr. Shekhar Kumar, AOR Mr. Shashibhushan P. Adgaonkar, AOR Mr. Saurabh Mishra, AOR Mr. J. N. Singh, Adv.
For the Appellant(s) : Mr. Vinay Navare, Sr. Adv. Mr. Shashibhushan P. Adgaonkar, AOR Mr. Omkar Jayant Deshpande, Adv. Mrs. Pradnya S Adgaonkar, Adv. Mr. Rana Sandeep Bussa, Adv. Mr. Shashwat Goel, AOR
For the Respondent(s): Mr. V. K. Sidharthan, AOR Mr. Rahul Chitnis, Adv. Mr. Sanjay Kharde, Adv. Mr. Satyajeet Kharde, Adv. Mr. Sunil Kumar Verma, AOR Mr. Umang Shankar, AOR Mr. Shekhar Kumar, AOR Mr. Shashibhushan P. Adgaonkar, AOR Mr. Saurabh Mishra, AOR Mr. J. N. Singh, Adv.
Table of Contents
2. Whether the claim was time-barred or contractually precluded — Whether the award exceeded terms of reference — Whether failure to join all legal heirs vitiated the award. (Para 6 , 7 , 8 , 12 , 13 , 14 )
3. Limitation begins from the final bill; contractual bars are inapplicable where foreclosure is accepted; arbitrator's factual findings on damages and interest are based on evidence. (Para 18 , 19 , 20 , 21 , 22 )
4. Courts cannot interfere with an arbitrator's factual findings unless there is an error of law apparent on the face of the award under Section 30/33. (Para 23 , 24 )
5. Impugned judgments set aside — Arbitration award restored — Respondents directed to make full payment within eight weeks. (Para 25 )
6. When does the limitation period for an arbitration claim typically begin in construction contracts?
The claim generally crystallizes upon the issuance of the final bill. A dispute arises when there is a claim and a subsequent denial or repudiation of that claim. (Para 18 )
7. Does a contractual requirement to lodge claims within a specific period after the defect liability period apply if the contract is foreclosed?
If the department accepts a request for foreclosure and the defect liability period is never formally concluded, such contractual bars to submitting claims for dispute resolution may not apply. (Para 19 )
8. What is the scope of a court's jurisdiction to set aside an award under Sections 30 and 33 of the Indian Arbitration Act, 1940?
Jurisdiction is limited to discerning if the award discloses an error of law apparent on the face of the award. Courts cannot conduct an intense appellate review of factual findings. (Para 23 , 24 )
9. Does the failure to bring all legal heirs of a deceased party on record during arbitration necessarily vitiate the award?
Not necessarily, especially if the irregularity is cured in subsequent court proceedings where all legal representatives are arrayed. (Para 21 )
JUDGMENT :
S. Ravindra Bhat, J.
1. These appeals challenge a common judgment of the Aurangabad Bench of the Bombay High Court,1[Dated 13.08.2009, in AO 108/2005; the appeal to the Division Bench was rejected on the ground of maintainability.]. The appellant was aggrieved by the judgment of the trial court,2[Joint Civil Judge, Senior Division, Ahmednagar, in R.C.S. No.595/1997.]. The trial court had set aside an award made in the appellant’s favour, 3[Dated 14.12.1997.] awarding substantial amounts towards its claim, in the backdrop of a road construction contract.
2. The first respondent, the Government of Maharashtra Irrigation Department, through Executive Engineer (hereafter EE), issued a tender notice for the work “Construction of Earth Work, structure and lining in Km. No.91 to 110 Kukadi Left Bank Canal”. This tender was accepted, and a work order was issued on 23.07.1983; the estimated cost of the work was Rs. 4,01,77,153/-. The contract between the parties visualized the period for completion of work to be 18 (Eighteen) English calendar months. The due date for completion of work, thus, was 22.01.1985. It was, however, not completed; several extensions were given, on the understanding that they were not due to the contractor’s fault.
3. Disputes arose; the appellant approached the civil court for appointment of an arbitrator, in terms of the contract. Eventually, the Civil Judge, Ahmednagar,4[By order dated 25.02.1997 in Arb. MA 1/1995.], appointed an arbitrator for “settling the dispute in respect of payment of additional and extra work carried by the petitioner outside of Contract LCB 9/83-84.”
4. The arbitrator, by his award,5[Dated 14.12.1997], held the claimant/contractor entitled to the sum of Rs. 1,50,07,000/- towards various heads and interest at 12% p.a. for the period 10.12.88 to the date of commencement of arbitration (working out to Rs. 133.22 lakhs). The arbitrator rejected the state’s counter claim.
5. The respondent state, aggrieved by the award of the arbitrator, challenged it under Sections 30/33 of the Indian Arbitration Act (hereafter “the Act”), claiming that it was the result of legal misconduct. The trial court set aside the award; this impelled the contractor to approach the High Court, which rejected his appeal.
Findings of the Court below
6. Both the trial court and the High Court held that the award was vitiated by the legal misconduct of the arbitrator under the old Arbitration Act,6[Indian Arbitration Act, 1940.]. The courts concluded that the claim was time-barred since the disputes in relation to the contract originally awarded in 1983 with the stipulation of the work being completed within eighteen months were no doubt extended with parties’ consent. It was only in 1991 that the claim for nomination of the arbitrator was made, which finally led the contractor to approach the Court under Section 8 of the Act in 1995. It was next held that the order referring the disputes to arbitration [by the Civil Judge (Senior Division)] on 25.02.1997 (in Arb. M.A. 1/1995) were in relation to the works carried on by the contractor under the contract. The courts held that the award of amounts exceeded the terms of reference in respect of at least three items. Consequently, it could not be sustained.
7. It was held that the claims could not be pursued because the original contractor died and all legal representatives had not joined in the proceedings: there appeared to be inter se disputes amongst them. This fact was not disclosed during arbitration proceedings, vitiating the award. It was also found that in terms of the contract, the claim had to be lodged within a particular time within 30 days of the expiration of the defect liability period. In this regard, it was held that the claim was made much beyond that period of time and, therefore, contractually precluded.
Contentions of the parties
8. Mr. Vinay Navare, learned senior counsel appearing for the contractor/appellant urged that the findings of the courts be
