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KARNATAKA HIGH COURT
M. Rama Jois, S. Rajendra Babu, JJ.
STATE OF KARNATAKA AND ANOTHER – APPELLANTS
v.
R.N. SETTY AND CO. – RESPONDENT
M.F.A. No. 2478 of 1988 with cross objections
Decided on: January 19, 1990.
Arbitration Act - Construction Work - Clauses 71 and 72 of the agreement provided for arbitration in the event of disputes - Appellants raised objections to the award - Court found no substance in the objections and made a decree in terms of the award - Appellants appealed - Appellants' grievance confined to three claims of the contractors - Counsel for appellants contended that conclusions reached by the arbitrators in regard to items referred to above are wholly unjustified - Counsel for respondent contended that arbitrators' decision is final and binding and it is not permissible for the court to interfere with the same - Court held that the arbitrators' decision is binding on the parties - Court rejected the contention raised by the appellants - Court found no error apparent on the face of the record in the arbitrators' decision - Court held that extension of time does not release the appellants from damages for breach of contract by delay caused by them - Court rejected the contention that the rates that could be allowed to the contractors for the work done by them under the claim should be allowed on a reasonable basis - Court held that the contractors would be entitled to the rates awarded by the arbitrators - Court held that the arbitrators have not committed any error in awarding damages for delay caused by the appellants - Court held that the arbitrators have not committed any illegality in awarding interest - Court set aside the award of interest pendente lite by the arbitrators
Fact of the Case:
The construction work in respect of Upper Krishan Project Narayanapur Left Bank Canal Reach No. 1 was granted to the respondent under an agreement dated 7.1.1980. Disputes arose between the contractors and the appellants during the progress of the work which could not be settled between them. Clauses 71 and 72 of the agreement provided for arbitration in the event of disputes. A panel of three arbitrators was appointed to go into the dispute. The contractors filed their statement of claims and the appellants filed their counter statement. The arbitrators concluded the proceedings by making an award which was filed into court and a decree in terms thereof was made by the court. Before the trial court, the appellants raised several objections. The trial court, however, did not find any substance in any of the objections, overruled them and made a decree in terms of the award. Aggrieved by the said award as affirmed by the decree of the civil court, the appellants have approached this court in this appeal.
Finding of the Court:
The court found no error apparent on the face of the record in the arbitrators' decision. The court held that the extension of time does not release the appellants from damages for breach of contract by delay caused by them. The court rejected the contention that the rates that could be allowed to the contractors for the work done by them under the claim should be allowed on a reasonable basis. The court held that the contractors would be entitled to the rates awarded by the arbitrators. The court held that the arbitrators have not committed any error in awarding damages for delay caused by the appellants. The court held that the arbitrators have not committed any illegality in awarding interest. The court set aside the award of interest pendente lite by the arbitrators.
Issues: The main issues in the case were the validity of the arbitrators' decision, the entitlement of the contractors to the rates awarded by the arbitrators, and the award of interest by the arbitrators.
Ratio Decidendi: The court held that the arbitrators' decision is final and binding and it is not permissible for the court to interfere with the same. The court rejected the contention that the rates that could be allowed to the contractors for the work done by them under the claim should be allowed on a reasonable basis and held that the contractors would be entitled to the rates awarded by the arbitrators. The court set aside the award of interest pendente lite by the arbitrators.
Final Decision: The court partly allowed the appeal and dismissed the cross objections. The court set aside the award of interest pendente lite by the arbitrators and upheld the award in all other respects.
Rajendra Babu, J. - This appeal is filed under Section 39(1) of the Arbitration Act questioning the legality and correctness of the judgment and decree dated 18.4.1987 made by the learned Civil Judge, Yadgir, in Misc. No. 2/1987, on his file, making award Rule of the Court.
2. The essential facts, in brief, are as follow :
The construction work in respect of Upper Krishan Project Narayanapur Left Bank Canal Reach No. 1 from Km. 35.5 to Km. 41 excluding Rajankollur Tunnel from Ch. 26.231 to 39.834, was granted to the respondent under an agreement dated 7.1.1980. The value of the contract was fixed at Rs. 115.12 lakhs with increases by 3.22 per cent above the estimated cost. The agreement dated 7.1.1980 stipulated that the contract was to be executed within thirty months fixing the date of completion of the contract on 23.7.1982. Disputes arose between the contractors and the appellants during the progress of the work which could not be settled between them. Clauses 71 and 72 of the agreement provided that in the event of disputes the mattes in dispute could be arbitrated in the manner provided therein. Consequently, a panel of three arbitrators was appointed to go into the dispute.
3. Before the arbitrators the contractors filed their statement of claims and the appellants filed their counter statement. Neither party adduced any oral evidence, but wholly relied on documentary evidence. The arbitrators concluded the proceedings by making an award which was filed into court and a decree in terms thereof was made by the court. Before the trial court the appellants raised several objections. The trial court, however, did not find any substance in any of the objections, overruled them and made a decree in terms of the award. Aggrieved by the said award as affirmed by the decree of the civil court the appellants have approached this court in this appeal.
4. The appellant's grievance is confined to three claims of the contractors, which are as follows :
(i) Payment for excavation in over breakages and filling in cement concrete or uncoursed rubble masonry;
(ii) Payment of compensation for damages in respect of tendered items executed after the expiry of the original contract period; and
(iii) The award of interest made by the arbitrators.
5. The learned counsel for the appellants contended that there are errors apparent on the face of the record in that the conclusions reached by the arbitrators in regard to items referred to above are wholly unjustified and submitted that the arbitrators could not have granted claim No. 1 regarding excavation in overbreakages and filling in cement concrete or uncoursed rubble masonry. Further, placing reliance on Clause 39 of the contract agreement which provides for satisfaction of the contractors regarding infrastructure and data of works and conditions of the work site, it was also submitted that no payment could have been made towards overbrekages. Secondly, he contended that the arbitrators and the court below could not have granted any compensation by way of damages for the work done in the extended period of contract. According to the learned counsel, what the arbitrators at best could have done is to award damages only at the rate as provided under Clauses 19A and 67 of the contract dated 7.1.1980. Lastly, the learned Government Advocate relying on decisions of the Supreme Court in Food Corporation of India v. M/s. Surendra Devendra and Mohendra Transport Co. (AIR 1988 SC 734), Executive Engineer, Irrigation v. Abhaduta Jena (AIR 1988 SC 1520), State of Orissa v. Construction India (AIR 1988 SC 1530) and State of Orissa v. Dandasi Sahu (AIR 1988 SC 1791) submitted that the arbitrators could not grant interest for period between commencement of reference and date of award or future interest.
6. The learned counsel for the respondent, per contra, submitted that :
(i) any enquiry into a matter of this nature falling under Section 39 of the Indian Arbitration Act, 1940 (hereinafter refer
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