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1974 Supreme(Cal) 46
HIGH COURT OF CALCUTTA
B. C. MITRA, S. C. GHOSH
UNION OF INDIA (UOI) - Appellant
Versus
ROMESH KUMAR RAJGHARIA - Respondent
Special Suit 17 Of 1971
Decided On : FEBRUARY 19, 1974
Arbitrators cannot make an interim award on a matter that is not the subject-matter of the reference and must give proper opportunity to the parties to present their cases.
Headnote:
ARBITRATION - INTERIM AWARD - JURISDICTION - REFUND OF SECURITY DEPOSIT - SUBJECT-MATTER OF REFERENCE - MISCONDUCT OF ARBITRATORS - SET-OFF AND COUNTERCLAIM - DAMAGES AND EXTRA EXPENSES.
Fact of the Case:
The appellant, Union of India, entered into three contracts with the respondent, a contractor, for the execution of certain earth-works and construction of minor bridges in connection with the diversion of the main line at the end of and/or relating to the Bokaro Steel City Marshalling and Exchange Yard, as well as the Departure Yard Zone I in connection with the said Marshalling and Exchange Yard. Disputes and differences arose between the parties, and the appellant claimed to have rescinded the contracts. The respondent filed an application under Section 20 of the Arbitration Act, inter alia, for filing the arbitration agreements contained in the general conditions forming part of the contracts and for referring the disputes to arbitration. The arbitrators were appointed, and the respondent filed a statement of claim, which did not include a claim for refund of the security deposit lying in deposit under the contracts. The appellant filed its counter statement of facts, which included a claim for the refund of the security deposit. The respondent, for the first time, filed a letter requesting an interim award directing the appellant to pay the security deposit. The arbitrators made and published an interim award directing the appellant to refund the security deposit.
Finding of the Court:
The court held that the arbitrators exceeded their jurisdiction in making the interim award as the refund of the security deposit was not the subject-matter of the reference. The court also held that the arbitrators misconducted the proceedings by not giving proper opportunity to the appellant to present its case on the question of refundability of the security deposit and by making the award hastily. Further, the court held that the interim award was bad as it purported to reject the appellant's claim to have the damages suffered by it for non-performance by the respondent set off against the security deposit.
Issues: 1. Whether the arbitrators had jurisdiction to make the interim award directing the refund of the security deposit? 2. Whether the arbitrators misconducted the proceedings? 3. Whether the interim award was bad as it purported to reject the appellant's claim to have the damages suffered by it for non-performance by the respondent set off against the security deposit?
Ratio Decidendi: 1. The refund of the security deposit was not the subject-matter of the reference as it was not included in the statement of claim filed by the respondent and was not raised in the petition filed under Section 20 of the Arbitration Act. 2. The arbitrators misconducted the proceedings by not giving proper opportunity to the appellant to present its case on the question of refundability of the security deposit and by making the award hastily. 3. The interim award was bad as it purported to reject the appellant's claim to have the damages suffered by it for non-performance by the respondent set off against the security deposit.
Final Decision: The appeal was allowed, the judgment and order of the court of first instance was set aside, and the interim award was set aside.
( 1 ) THIS appeal is directed against the judgment and order dated February 15, 1973 passed by the Court of first instance dismissing the application made by the appellant for setting aside an interim award dated September, 30, 1972 made by the joint arbitrators directing the appellant to refund to the respondent the sum of Rs. 2. 24,582/-on or before November 15, 1972; with interest on the said sum at 9% per annum, if the same were not paid by the appellant on or before November 15, 1972. The said sum was lying deposited with the appellant as and by way of security and or earnest for due performance by the respondent of three several contracts dated July 22, 1969, June 7, 1970 and February 28, 1970 executed by the parties.
( 2 ) BY and under the above mentioned three several contracts, the respondent agreed to execute certain earth-works and to construct certain minor bridges in connection with the diversion of the main line at the end of and/or relating to the Bokaro Steel City Marshalling and Exchange Yard, as well as the Departure Yard Zone I in connection with the said Marshalling and Exchange Yard.
( 3 ) ALL the said three contracts provided inter alia that the general conditions of the contracts, the special conditions, specification of work and memoranda of measurement of the South Eastern Railway, Schedule of Rates forming parts III and IV respectively of the South Eastern Railway Schedule of Rules revised edition 1958 corrected upto the correction slip No. 62 dated January 17, 1969 and the additional special conditions and special specifications annexed thereto would form part of the said contracts.
( 4 ) CLAUSE 16 of the general conditions of contracts of South Eastern Railway Schedule of Rates inter alia provide for deposit of security for due and faithful performance of his obligations by the contractor under the contract. Such security deposit will consist of. the earnest money initially deposited by the contractor along with the tender submitted by him, together with the balance of the stipulated amount of security deposit either paid by him or deducted by the Railway authorities usually @ 10% from the periodic payments to be made to the contractor on account of the work done by him. In the instant case the security deposit of Rs. 2,24,582/-consisted of the earnest money initially paid by the respondent and deductions made by the Railway Authorities from periodic payments made to the respondent on account of works done by him.
( 5 ) CLAUSE 52 of the said general conditions provides that the Railway shall have a lien on any money that may become due and payable to the contractor under the contract and/or also on and over the deposit or security amount lying in deposit and which may become repayable to the contractor, for any debt or sum that may become due and repayable to the Railway by the contractor under the contract or under any other contract or transaction of any nature whatsoever between the Railway and the contractor. The said clause also provides that if the contractor fails to pay the claims of the Railway on demand the Railway would be entitled to deduct the said debt or sum due by the contractor from the monies, securities or deposits which may become payable to the contractor under that contract or under any other contract or transactions whatsoever between the contractor and the Railway.
( 6 ) CLAUSE 61 of the said general conditions provides for rescission of the contract by the Railway after giving seven days' notice to the contractor to make good the default committed by the contractor under the contract and thereafter by serving another 48 hours' notice, if the default is not made good. If the respondent abandons the contract or persistently disregards the directions of the engineer in carrying out the said contract to the satisfaction of such engineer or contravenes any provision of the contract, then upon such rescission the Railway would be at liberty to measure the work done
