# A STATE OF RAJASTHAN v. PURI CONSTRUCTION CO. LTD. AND ANOTHER

- **Citation:** [1994] Supp. 3 S.C.R. 616
- **Court:** Supreme Court of India
- **Decided:** 1994-09-16
- **Bench:** M.N. Venkatachaliah, G.N. Ray
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-state-of-rajasthan-v-puri-construction-co-ltd-and-another-12502
- **Pages:** 30

## Headnote

Arbitration Act, 1940-Section 30-Scope of-Setting aside of
award--Grounds for-Legal misconduct-Meaning of-evidence cannot be
reappraised by the Court-Conclusion on a question of law referred to the
C Arbitrator cannot be reversed merely because a different opinion is possible-Lumpsum award without detailed computation may be made-Sections
15 and 16--Arbitration Act, 1940.
Arbitration Act, 1940-Section 30-Misconduct-Meaning and scope
D of-Arbitrator accepting brief for a party during pendency of arbitration
proceedings-Fact within the knowledge of the other party-No objection
raised-Held, -misconduct cannot be alleged before the Court.
E
Limitation Act, 1963-Article 119-0bjection to award not raised
within 270 days of notice of filing of award-Held, barred by limitation.
Arbitration Act, 1940-Sections 29, 15, 17 and 2o-Interest-Claim of
interest from date of breach at an enhanced rate-Held, cannot be allowed
in the facts and circumstances of the case.
The applicant and the respondent entered into a contract for conF
struction of a dam. The contract had an arbitration clause. During the
course of the execution of the contract, certain disputes arose between the
parties. The High Court in a petition under Section 20 of the Arbitration
Act, 1940 referred the disputes for arbitration. Against the order of the
High Court, the applicant filed a Special Leave Petition before this Court.
G This Court appointed the nominee of the applicant, Shri C.M. Lodha and
the nominee of the respondent Shri A.B. Rohtagi as the arbitrators. Both
were retired High Court judges. A retired judge of this Court was appointed as the Umpire.
On 21.11.1992, the arbitrators made a joint award of Rupees one
H crore in favour of the respondent and filed it before this Court as per the
/
(\
616
-
STAIB v. PURI CONSTN. CO. LID.
617
direction of this Court. The applicant filed an objection petition to the said A
award alleging misconduct by the arbitrators. The applicant further alleged that the arbitrators misconstrued the clause of the contract, misappreciated evidence of the witnesses and that they have recorded incorrect
findings which are contrary to the record.
The respondents filed its written statement to the objection petition
filed by the applicant stating that the objections raised in the objection
petition were not admissible and the award could not be set aside or
modified or remitted to the arbitrators for reconsideration within the
ambit of Sections 15, 16 and 30 of the Arbitration Act, 1940. The respondent also filed an application under Sections 15, 17, 18, 28 and 29 of the
Arbitration Act, 1940 for making the award the rule of the Court, for award
of interest from 24.2.1979 of in lieu thereof from 30.5.1979 i.e., the date of
breach of contract by the appellant, and for enhancement of the rate of
interest to 18%.
B
c
The applicant filed an additional objection by way of affidavit of one D
of its employees in which it was alleged that the nominee of the respondent
Shri A.B. Rohatgi had accepted a brief for the respondent during the
pendency or the arbitration proceedings and had argued the appeal before
this Court. This, according to the applicant, amounted to grave and
serious misconduct on the part of the arbitrator. The respondent, in reply,
contended that the applicant had participated in the arbitration proceedings having full knowledge that Shri Rohatgi had appeared for the respondent in the appeal, but never raised any objection to his continuance as
an arbitrator. The respondent had also agreed to extend the time for
making of the award despite knowledge of the abov~ fact. The respondent
further contended that the additional objection filed by the applicant was
barred having been filed ~70 days after the notice of filing of the award.
Rejecting the objections raised by the applicant while disposing of
application, this Court:
E
F
HELD : 1.1. The a}>plicant was aware of Shri Rohatgi's appearance as G
a counsel of the respondent in an appeal

## Text

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.A
STATE OF RAJASTHAN
v.
PURI CONSTRUCTION CO. LTD. AND ANOTHER
SEPTEMBER 16, 1994
B
[M.N. VENKATACHALIAH, C.J. AND G.N. RAY, J.]
Arbitration Act, 1940-Section 30-Scope of-Setting aside of
award--Grounds for-Legal misconduct-Meaning of-evidence cannot be
reappraised by the Court-Conclusion on a question of law referred to the
C Arbitrator cannot be reversed merely because a different opinion is possible-Lumpsum award without detailed computation may be made-Sections
15 and 16--Arbitration Act, 1940.
Arbitration Act, 1940-Section 30-Misconduct-Meaning and scope
D of-Arbitrator accepting brief for a party during pendency of arbitration
proceedings-Fact within the knowledge of the other party-No objection
raised-Held, -misconduct cannot be alleged before the Court.
E
Limitation Act, 1963-Article 119-0bjection to award not raised
within 270 days of notice of filing of award-Held, barred by limitation.
Arbitration Act, 1940-Sections 29, 15, 17 and 2o-Interest-Claim of
interest from date of breach at an enhanced rate-Held, cannot be allowed
in the facts and circumstances of the case.
The applicant and the respondent entered into a contract for conF
struction of a dam. The contract had an arbitration clause. During the
course of the execution of the contract, certain disputes arose between the
parties. The High Court in a petition under Section 20 of the Arbitration
Act, 1940 referred the disputes for arbitration. Against the order of the
High Court, the applicant filed a Special Leave Petition before this Court.
G This Court appointed the nominee of the applicant, Shri C.M. Lodha and
the nominee of the respondent Shri A.B. Rohtagi as the arbitrators. Both
were retired High Court judges. A retired judge of this Court was appointed as the Umpire.
On 21.11.1992, the arbitrators made a joint award of Rupees one
H crore in favour of the respondent and filed it before this Court as per the
/
(\
616
-
STAIB v. PURI CONSTN. CO. LID.
617
direction of this Court. The applicant filed an objection petition to the said A
award alleging misconduct by the arbitrators. The applicant further alleged that the arbitrators misconstrued the clause of the contract, misappreciated evidence of the witnesses and that they have recorded incorrect
findings which are contrary to the record.
The respondents filed its written statement to the objection petition
filed by the applicant stating that the objections raised in the objection
petition were not admissible and the award could not be set aside or
modified or remitted to the arbitrators for reconsideration within the
ambit of Sections 15, 16 and 30 of the Arbitration Act, 1940. The respondent also filed an application under Sections 15, 17, 18, 28 and 29 of the
Arbitration Act, 1940 for making the award the rule of the Court, for award
of interest from 24.2.1979 of in lieu thereof from 30.5.1979 i.e., the date of
breach of contract by the appellant, and for enhancement of the rate of
interest to 18%.
B
c
The applicant filed an additional objection by way of affidavit of one D
of its employees in which it was alleged that the nominee of the respondent
Shri A.B. Rohatgi had accepted a brief for the respondent during the
pendency or the arbitration proceedings and had argued the appeal before
this Court. This, according to the applicant, amounted to grave and
serious misconduct on the part of the arbitrator. The respondent, in reply,
contended that the applicant had participated in the arbitration proceedings having full knowledge that Shri Rohatgi had appeared for the respondent in the appeal, but never raised any objection to his continuance as
an arbitrator. The respondent had also agreed to extend the time for
making of the award despite knowledge of the abov~ fact. The respondent
further contended that the additional objection filed by the applicant was
barred having been filed ~70 days after the notice of filing of the award.
Rejecting the objections raised by the applicant while disposing of
application, this Court:
E
F
HELD : 1.1. The a}>plicant was aware of Shri Rohatgi's appearance as G
a counsel of the respondent in an appeal before this Court but despite such
knowledge, it did not raise any objectio'l either before the arbitrators or
before this Court during the pendency of the arbitration proceedings but
chose to make various submissions from time to time before the arbitrators
and invited adjudication on the reference to arbitration. Both the parties H
618
SUPREME COURT REPORTS [1994) SUPP. 3 S.C.R.
A
agreed to extend the time for finally making the award by the joint arbitrators despite the knowledge that Shri Rohatgi had represented one of
the parties in a case before this Court. It is, therefore, quite evident that
even if there was any disability of one of the arbitrators, in spite o( the
knowledge of such disability, the appellant had participated in the arbitraB tion proceedings, agreed to the extension of time for making the award and
invited adjudication on the reference. Accordingly, the appellant cannot be
permitted to raise any objection about the validity of the award on the score
of disqualification of one of the arbitrators. (629-B, C, 630-D to F]
1.2. Such objection has not been filed within the period of limitation
C but the same has been sought to be raised after 270 days of the notice of
filing the award before this Court. Therefore, the aforesaid objection as to
the validity of the award on account of the alleged disqualification of one of
the arbitrators is devoid of any substance and must be rejected. [630-F, G]
M/s. Neelkantan & Bros. construction v. Superintending Engineer, NaD tional Highways, Salem and others, (1988] 4 SCC 462; Prasun Roy v. Calcutta
MtJtropolitan Development Authority and another, (1987] 4 SCC 217; Reserve
Bank of India v. S.S. Investments and others, (1992] 4 SCC 671; Chowdhri
Murtaza Hossein v. Mussamat Bibi Bechunnissa, 3 I.A. 209 and N. Chellappan v. Secretary, Kerala Electricity Board, (1975] 1 SCC 289, relied on.
E
Jupitor Calcutta Insurance Co. Ltd. v. Corporation of Calcutta, AIR
(1956) Cal 1472, approved.
State of Rajasthan v. R.S. Shanna, (1988] 4 SCC 353; Puri Construction Pvt. Ltd. v. Union of India, (1989] 1 SCC 411; Bansidhar v. State of
F
Rajasthan, (1989] 2 SCC 557 and Mehmood Alam Tariq v. State of Rajasthan, (1988] 3 sec 241, referred to.
2.1. A court of competent jurisdiction has both right and duty to
decide the lis presented before it for adjudication according to the best
understanding of law and facts involved in the lis by the judge presiding
G over the court. Such decision, even if erroneous, either in factual determinati()n or application of law correctly, is a valid one and binding inter
. parties. It does not, therefore, stand to reason that the arbitrator's award
will be per se invalid ~nd inoperative for the simple reason that the
arbitrator has failed to appreciate the facts and has committed error in
H appreciating correct legal principle in basing the award. An erroneous
,·
STAIB v. PURI CONS1N. CO. LID.
619
decision of a Court of law is open to judicial review by way of appeal or A
revision in accord~nce with the provisions of law. Similarly, an award
rendered by an arbitrator is open to challenge within the parameters of
several provisions of the Arbitration Act. Since the arbitrator is a judge
by choice of the parties, and more often than not, a person with little or
no legal background, the adjudication of disputes by an arbitration by way B
of an award can be challenged only within the limited scope of several
provisions of the Arbitration Act and the legislature in its wisdom has
limited the scope and ambit of challenge to an award in the Arbitration
Act; By and large the courts have disfavoured interference with arbitration
award on account of error of law and fact on the score of misappreciation
and misreading of the materials on record and have shown definite inclinaC
tion to preserve the award as far as possible. As reference to arbitration
of disputes in commercial and other transactions involving substantial
amount has increased in recent times, the courts were impelled to have
fresh look on the ambit of challengie to an award by the arbitrator so that
the award does not get undesirable immunity. In recent times, error in law D
and fact in basing an award bas not been given the wide immunity as
enjoyed earlier, by expanding the import and implication of legal
'misconduct' of an arbitrator so that award by the arbitrator does not
perpetrate gross miscarriage of justice and the same is not reduced to
mockery of a fair decision of the lis between the parties to arbitration. E
Precisely for the aforesaid reasons, the erroneous application of law
constituting the very basis of the award and improper and inco~ct
findings of fact, which without closer and intrinsic scrutiny, are
demonstrable on the face of the materials on record, have been held, very
rightly, as legal misconduct rendering the award as invalid. It is necessary,
however, to put a note of caution that in the anxiety to render justice to F
the party to arbitration, the court should not reappraise the evidences
intrinsically with a close scrutiny for finding out that the conclusion drawn
from some facts, by the arbitrator is, according to the understanding of
the court, erroneous. Such exercise of power which can be exercised by an
appellate court with power to reverse the finding of fact, is alien to the G
scope and ambit of challenge of an award under the Arbitration Act. Where
the error of finding of facts having a bearing on the award is patent and
is easily demonstrable without the necessity of carefully weighing the
various possible view points, the interference with award based on erroneous finding of fact is permissible. Similarly, if an award is based by H
620
SUPREME COURT REPORTS [1994] SUPP. 3 S.C.R.
A applying a principle of law which is patently erroneous, and but for such
erroneous application of legal principle, the award could not have been
made, such award is liable to be set aside by holding that there has been
a legal misconduct on the part of the arbitrator.
[639-G, H, 640-A to H, 641-A, BJ
B
Mis. Sudarshan Trading Co. v. Government of Kera/a and another,
[1989) 2 SCC 38; Municipal Corporation of Delhi v. Mis. Tapan Nath Ashok
Kumar and another, (1987) 4 SCC 497; Mis Alopi Prasad v. Union of India,
(1960) 2 SCR 799; Mis Kapoor Nilokhery Cooperative Dairy Fann Society
Ltd. v. Union of India and others, (1973) 1 SCC 78; Indian Oil Corporation
Ltd. v. lndian Carbon Ltd., (1988) 3 SCC 36; State of Rajasthan v. Mis R.S.
C
Sharma and Co., (1988) 4 SCC 353; State of Orissa and other v. Mis Lall
Brothers, (1988] 4 SCC 153 and Firm Madan/al Roshanlal Mahajan v. Humchand Mills Ltd. Indore, [1967) 1 SCR 105, relied on.
2.2. Error apparent on the face of the rec~rd does not mean tha! on
D closer scrutiny of the import of documents and materials on i'ecord, the
finding made by the arbitrator may be held to be erroneous. [641-F]
E
F
G
2.3. It is not necessary to indicate in the award computation made for
various heads a°:d it is open to the arbitrator to give a lumpsum award.
[639-C]
·State of Rajasthan v. Mis. R.S. Sharma & Co., [1988] 4 SCC 353,
referred to.
2.4. The appellant has failed to demonstrUte that any finding made
by the arbitrator is either fanciful or not referable to th.e materials on
record. The arbitrators have given the award by referring to various documents and statements available on record and indicating the reasons for
basing the findings. Even if it is assumed that on the materials on record,
a different view could have been taken and the arbitrators have failed to
consider the documents and materials on record in their proper perspec·
tive, the award is not liable to be struck down. [637-D, 641-E, 1'.'1
3. Considering the facts and circumstances of the case no interest can
be awarded from February 24, 1979. or from May 30, 1979 and the prayer
for enhancement of the rate of interest at 18% is also not allowed. Since the
total damages suffered by the respondent has been quantified by the arbitrator in the award at Rs. 1 crore without indicating different heads for
H the computation of said sum, it should be presumed that the arbitrators
--
STATE v. PURI CONS1N. CO. LID. [G.N. RAY, J.]
621
had taken into consideration all relevant facts in assessing the actual loss A
suffered up to the date of award. [644-F, G]
Secretary, Irrigation Department v. G.C. Roy, (1992) 1 SCC 508; Executive Engineer (Irrigation), Balimela and others v. Abhudata Jena, [1988)
1 SCC 418 and Santosh Singh Arora v: Union of India, (1992) 1 SCC 492,
referred to.
B
CIVIL APPELLATE JURISDICTION : Interlocutory Application
No. 3.
IN
Special Leave Petition (C) No. 9089 of 1984.
From the Judgment and Order dated 10.10.83 of the Delhi High
Court in C.M. No. 3087/83 in F.A.O. (OS) No. 5 of 1983.
c
K.T.S. Tulsi, Additional Solicitor General, G. Parkash and Rajeev D
Sharma for the Petitioner.
Kapil Sibal, Arun J aitely, Maninder Singh, Ms. Monika Mohil and
Ms. Bina Gupta for the Respondents.
The Judgment of the Court was delivered by
G.N. RAY, J. Both the parties have appeared through their respective
counsel and oral and written submissions besides filing objections and
counter objections to the validity of the impugned award of the joint
arbitrators have been made.
The short facts concerning the arbitration award in question may be
stated as follows :
.
E
F
A contract for the construction of second portion of Mahi Bajaj
Sagar Dam, Banswara was given to the respondent company, Puri Construction (P) Ltd. by the appellant State of Rajasthan in April 1975. G
Differences and disputes arose between the parties. The respondent contractor invoked the provisions of the arbitration agreement and nominated
a retired Chief Justice of Delhi High Court, Mr. Justice S.N. Andley as an
Arbitrator. The appellant State of Rajasthan appointed as its nominee Sri
S. Adiappa, a retired Chief Engineer, P.W.D. (B & R) Rajasthan as an H
622
SUPREME COURT REPORTS [1994) SUPP. 3 S.C.R. ..
A
arbitrator. However, the proceedings before the said arbitrator~ did not
continue. The respondent contractor filed a petition under section 20 of
the Arbitration Act before the Delhi High Court. Such application was
registered as Suit No. 758 A of 1982. By an order passed on 9.11.82 by the
Delhi High Court, the arbitration agreement between the parties was filed
and reference to arbitration was made. The parties thereafter sought for
B variation of the reference order dated 9.11.82. Instead of reference to a
sole arbitrator, reference was made to arbitrators namely Sri Manohar Lal
being, the nominee of appellant State of Rajasthan and Sri Guru Charan
Singh being the nominee of the State of respondent contractor. The State
of Rajasthan moved the Division Bench of Delhi High Court for stay of
C arbitration procee~gs. The said arbitrator Sri Lal and Sri Singh thereafter
resigned. Against the order of the Delhi High Court, the appellant, State
of Rajasthan filed a special leave petition before this Court being S.L.P.
(Civil) No. 9089 of 1984.
D
In the said S.L.P. (C) No. 9089of1984 it was agreed to refer all the
subsisting disputes and differences between the parties to the arbitration
of Mr. Justice C.M. Lodha, retired Chief Justice of Rajasthan and Mr.
Justice A.B. Rohtagi, a retired Judge of the Delhi High Court. The parties
agreed to refer all the disputes and differences including subject matter of
Civil Suit No. 4 of 1979 pending in the Court of the District Judge,
E Banswara, Civil Suit No. 4 of 1980 pending before the District Judge,
Jaipur, and the said Suit No. 758Aof1982 pending before the High Court
at Delhi, FA.O. (OS) No. 5of1983 and suit pending under Order 37 C.P.
Code before the District Judge Banswara filed by the State of Rajasthan
for recovery of Bank Guarantee amounts.
F
By an order dated 25.2.1985 passed in S.L.P. (C) No. 9089 of 1984
this Court noted that the parties for the said S.L.P. having agreed to refer
all the disputes arising out of the agreement dated 2.6.1975 between the
Government of Rajasthan and the respondent contractor the appellant
G State of Rajasthan has appointed as its nominee Sri C.M. Lodha, a senior
Advocate and retired Chief Justice of Rajasthan High Court and the
respondent No. 1 contractor M/s Puri Construction (P) Ltd. has appointed
as its nominee a retired Judge of the Delhi High Court Sri A.B. Rohtagi
as an arbitrator. On the prayer of the learned counsel of both the parties
this Court appointed Mr. Justice A.C. Gupta, a retired Judge of this Court
H . as the umpire. This Court on the basis of the said agreement since filed
STATEv.PURICONS1N.CO.LID.(G.N.RAY,J.]
623
before this Court eVidencing the desire of the parties to refer the matter A
to arbitration, referred the disputes to the arbitration of Mr. Justice C.M.
Lodha and Mr. Justice AB. Rohtagi.
The arbitration proceedings before the said arbitrators continued for
about seven years and about seventy hearing had taken place before the B
said arbitrators. On 21.10.1992, the said arbitrators made a joint award in
the said arbitration proceedings. As per direction of this Court the arbitrators filed the award before this Court on 18.1.1993. The respondent
contractor made an application for making the award decree of the court
and for certain reliefs by way of interest and damages and costs. The State
of Rajasthan, the appellant herein, filed on 6.3.1993 the petition of objecC
tion to the award and the respondent contractor also filed written statement to the said petition of objection.
The respondent contractor made an application under Sections 15,
17, 18, 28 and 29 of the Arbitration Act, 1940 for the prayers that (a) award D
of Rs. 1 crore in favour of the said applicant be made rule of court (b) the
interest be awarded from 24.2.1979 or in lieu thereof from 30.5.1979 i.e.
date of breach (c) modify the award and decree the award of interest at
10% per annum calculated with quarterly interest on the entire sum of Rs.
1 crore from 24.2.1979 and 30.5.1979. and to allow further interest on the E
sum decreed at 15% per annum from the date of dt!cree till date of
payment (d) that the bank guarantees of Rs. 19.25 lakhs be returned and
cancelled (e) the State of Rajasthan be allowed to withdraw approximate
sum of Rs. 25 lakhs or Rs. 26 lakhs that have been realised from the sale
of the applicant contractor's assets under the orders 'Of this Court and as
set out in the award, after the State of Rajasthan has satisfied the decree F
that would be passed by this Court in the facts of the case and in the
interest of justice (f) the time for making the award be extended in terms
of the agreement between the parties (g) the State of Rajasthan be directed
to pay the applicant costs of Rs. 10 lakhs in addition to the amounts that
this Court would decree towards principal and interest (h) the State of ,..,
Rajasthan be directed io pay the balance fee of the arbitrator Sri Lodha. u
The said application was made by the respondent contractor on February
17, 1993.
In the petition of objection the State of Rajasthan, the appellant
herein has contended that the Arbitrators misconducted in misinterpreting H
624
SUPREME COURT REPORTS [1994) SUPP. 3 S,C.R.
A and misconstruing various clauses of the said agreement pertaining to the
work of the construction of the dam since allotted to the respondent
contract and also failed to appreciate evidence of Sri Adi Anklesaria and
on misconception of facts and misinterpretation of documents on record
and by failing to consider some of the relevant facts and circumstances, the
B
erroneous and illegal award was made. Some of the findings on the basis
of which the impugned award was made, consequent upon misreading and
misinterpreting relevant documents and evidences adduced are erroneous
on the face of the record and have resulted in misconduct on the part of
the arbitrators, thereby rendering the award illegal and invalid. In support
of such contention reference to various findings of the arbitrators and the
C
alleged impropriety of such findings with reference to certain facts and
materials on record have been indicated. A written submissions have also
been filed challenging the validity and legality of the award pointing out
legal an factual errors. As such contentions raised in the written submissions will be. scrutinised hereafter, it is not necessary to refer to all the
D contentions made in the said petition of objection in greater detail at this
stage.
On March 18, 1993, the respondent contractor filed a written statement by way of counter to the objections made by the appellant State of
Rajasthan contending inter alia that the objections raised against reasoned
E
award are not admissible within the limited ambit of challenge admissible
within the scheme of the Arbitration Act. It has been contended that if a
question is submitted to the arbitrator, and the arbitrator answers it, the
fact that the answer invokes erroneous decision on a question of law does
not make the award bad on its face so as to permit of its being set aside.
F
The respondent contractor has further contended that the arbitrators were
nominees of the respective party to the arbitration and the arbitrators being
men of Unimpeachable integrity and the award running 39 pages and
containing detailed findings on all the issues that were framed is quite legal
and valid. Some of the important conclusions reached by the arbitrators by
giving reasons therefor have been indicated in the counter. It has been
G contended that an award can be either set aside or modified or remitted
to the arbitrators for reconsideration strictly within the ambit of Sections
15, 16 and 30 of the Arbitration Act. It has been averred in the said counter
that vague allegation of error apparent on the face of the record and vague
allegations that the clauses of agreement have been erroneously interpreted
H by the arbitrators are of no consequence and the objections raised by the
STATEv. PURICONS1N. CO. LTD. [G.N.RAY,J.]
625
appellant are liable to be rejected in limine. The court should not substitute A
its own evaluation of the conclusion of law or fact made by the arbitrator
for the purpose of holding that such conclusion· being contrary to the
contract the arbitrator has acted beyond jurisdiction. It has been further
contended that unless reference to arbitration specifically so requires the
arbitrator is not bound to deal with each claim separately but can deliver B
a consolidated award. It has also been alleged that the first part of the work
of Mahi Bajaj Sagar Dam, Banswara was given to M/s R.S .. Sharma and
the respondent contractor was given part II of the work. In the case of M/s
R.S. Sharma arbitrators were named on 13.6.1982 and the arbitrators gave
their award for lumpsum amount Rs. 75,41,7.55 in favour of Mis R.S. C
Sharma. Although M/s R.S. Sharma was permitted to remove the
machinery the respondent contractor was prohibited by an injunction from
the court of District Judge, Banswara to remove its assets. The respondent
contractor has alleged that machinery of the respondent contractor was
twice in value to the machinery of M/s R.S. Sharma and the replacement
costs of the machinery would not be less than Rs. 250 takhs. The arbitrators D
gave no reasons for the lump sum award in favour of Mis R.S. Sharma.
This court upheld the award vide judgment in State of Rajasthan v. RS.
Sharma, [1988] 4 SCC 353. In the counter, statements and submissions
made in various paragraphs of the objection petition were referred to and
the contentions and submissions made therein have been denied and E
disputed and in support of submissions as to true legal position concerning
an arbitration award various decisions of this Court and English Law Court
have been referred to. It has also been contended' that the respondent
contractor had borrowed money for undertaking the construction works of
the said Mahi Bajaj Sagar Dam. In 1979 the appellant State of Rajasthan F
rescinded the contract of the respondent contractor and refused to make
payment for the work executed at contract rates and also refused to make
payments for extra items of work. The appellant seized all the machinery
and assets of the respondent contractor and even on the depreciated value
of the said assets, a sum of 32 lakhs was realised. The respondent contractor could not take them for oth~r contract work of similar nature and the G
respondent contractor was reduced to a· State of bankruptcy. In 1987
Punjab and Sind Bank filed a suit No. 1337 of 1987 in the High Court of
Delhi and the Bank is seeking a decree for a sum of Rs .. 1,00,48,978 and
interest at 17.5% per annum from the date of institution of the suit till date
of realisation. The Bank is also seeking no sale of the mortgaged property H
626
SUPREME COURT REPORTS [1994] SUPP. 3 S.C.R.
A being the residential house of the Managing Director of the respondent
contractor. In support of such statement a. copy of the plaint in the said in
suit filed by the Bank has been annexed to the counter. Various factual and
legal contentions raised in the counter disputing the contentions made in
the petition of objection need not be elaborated and indicated in detail at
B
this stage.
It may be stated here that by an order dated 26.3.1993 passed in I.A.
No. 3 in S.L.P. (C) No. 9089 of 1984, this court directed that the claim
made by the arbitrator Sri Lodha towards his fee of Rs. 46,904 be paid
and it was further directed that one half of the award including interest
C accrued thereon would be paid to the respondent contractor against bank
guarantee to the satisfaction of the Registrar of this Court.
It may also be .. indicated here that the appellant State of Rajasthan
has filed additional objections. In the additional objections raised in the
D affidavit of Sri Zakir Hussain Executive Engineer, Mahi Menudam Division
I,. it has been alleged that one of the arbitrators, Sri AB. Rohatgi was
nominated by the respondent company but subsequent to his appointment
as an arbitrator in the case in question and during the pendency of the
arbitration proceedings the said Sri Rohatgi chose to accept the brief for
the claimant before this court in Civil Appeal No. 4649of1984 which was
E heard by this Court on January 20, 1989. Alleging that Sri Rohatgi did ndt
disclose the fact of his· accepting the brief for one of the parties it has been
urged that in view of his identifying with the interest of one of the parties
although in a different cause of action, the arbitrator lost the neutrality
required to be maintained by an arbitrator and in the aforesaid facts, there
F
has been serious misconduct on the part of the arbitrator thereby rendering
his award invalid. In the counter to such additional affidavit, the respondent had contended that the respective nominee of the parties was quite
close to each of the parties and the nominee of the appellant Sri Lodha
was appearing as a counsel for the appellant in various matters but as the
arbitrators were men of unimpeachable character, both the parties did not
G object to their nominations. Moreover, despite full knowledge of the fact
that Sri Rohtagi had appeared for the respondent in a case, the appellant
wilfully participated in the arbitration proceedings and invited adjudication. Hence allegations· of misconduct on that score cannot be permitted.
It has also been contended that such additional objection by way of an
H affidavit hftving been filed after 270 days, of the notice of filing the award
-,
STATEv. PURI CONS1N. CO. LID. [G.N.RAY,J.]
627
in this court such objection need not be considered at all being time barred A
under Article 119 of the Limitation Act.
On the scope and ambit of the power of interference by the Court
with an award made by an arbitrator in a valid reference to arbitration,
various decisions have been made from time to time by Law Courts of India
including this Court and also by the Privy Council and the English Courts.
Both the parties have referred to such decisions in support of their respective contentions. The factual contentions of the respective parties are
proposed to be scrutinised and then the facts are proposed to be tested
within the conspectus of judicial decisions governing the issues involved.
Before we deal with the various facts referred to by the respective
parties, we may refer to the objection that has been raised by way of an
additional affidavit affirmed by an executive engineer of the Government
of Rajasthan, Shri Zakir Hussain, raising the question of misconduct of one
B
c
of
0
the arbitrators and in the written submissions filed by Shri Tulsi the D
learned Additional Solicitor General appearing for the State of Rajasthan,
such misconduct and consequential disqualification of arbitrator has been
specifically contended. It has been alleged that one of the arbitrators,
namely, Shri AB. Rohtagi, disqualified himself from acting as an arbitrator
in the arbitration proceedings in question by accepting a brief from the
claimant-respondent in respect of a case though concerning a different E
cause of action, and representing the respondent- claimant in this Court in
Civil Appeal No. 4649 of 1984 (Puri Construction Pvt. Ltd. v. Union of
India). The decision rendered in the said appeal is reported in AIR 1989
SC 777 and in 1989 (1) JT 132. It has been alleged that the said Shri
Rohatgi did not disclose the said fact before acceptance of the brief and F
also thereafter. Such act is therefore, not only inconsistent with his duty as
an arbitrator but the same tantamounts to misconduct thereby rendering
the award invalid. Disputing the allegation that the factum of Sri Rohtagi's
appearing in a case before this court for the appellant was not known to
the appellant it has been contended that the State of Rajasthan being G
represented by eminent lawyers were fully aware that Shri Rohtagi had
appeared before this Court in an appeal on behalf of the respondent-Contractor. It has been further contended that the said decision was mentioned
by Sri Sarupriya and Shri Arun Jaitley, Senior Advocate, appearing for the
State of Rajasthan before the Arbitrators and despite the knowledge of the
appellant that Shri Rohatgi had represented the respondent in an appeal H
628
SUPREME COURT REPORTS (1994] SUPP. 3 S.C.R.
A
before this Court, no objection was raised at any point of time that by
accepting such brief from the respondent, Shri Rohtagi had disqualified
himself to act any further as an arbitrator. According to the respondent,
the arbitration proceedings thereafter continued till August, 1992 but the
appellant chose not to make any demurrer against the impartiality of the
B
c
said arbitrator. The plea taken by the deponent Shri Hussain that he was
advised not to raise any objection against the arbitrator but to point out
the aforesaid fact before this Court at a later stage has been criticised by
Shri Sibal learned counsel appearing for the respondent, as void of any
substance. It has been urged that such objection being hopelessly barred
by limitation, cannot be considered. It has been contended by Shri Sibal
that even on merits, such objection is liable to be rejected. The question
of raising objection by the appellant about the validity of the award would
not have arisen if the award was not made against the appellant. Shri Sibal
has contended that even in spite of the knowledge of Shri Rohtagi's acting
as a counsel of the Respondent in an appeal, the appellant did not object
D
to his functioning as an arbitrator but on the contrary the appellant had
participated in the arbitration proceedings in all the sittings and made
submissions before the arbitrators. After taking a chance to succeed in the
arbitration, the appellant cannot be permitted to raise any contention of
misconduct of Shri Roliatgi on account of his acting as a counsel for the
E
F
respondent in a case. Shri Sibal has contended that reference to arbitration
was made by this Court in the Special Leave Petition which is pending.
There was no impediment to mention "the said fact before this Court and
seeking appropriate direction against .Shri Roht&gi if the appellant had any
doubt about the neutrality of the said arbitrator. Shri Sibal has submitted
that the other arbitrator Sri Lodha had also appeared for the appellant
State of Rajasthan as an Advocate during the subsistence of arbitration
proceeding when he was acting as an arbitrator and such fact may be
convincingly demonstrated by referring to the reported decisions of this
Court namely [1989] 2 SCC 557 and [1988] 3 SCC 241. Mr. Sibal has
submitted that senior counsel appearing for a client owe a duty to the
institution and they do not identify with the interests of the client in matters
G in which they are not appearing. Senior Advocates appearing for one
litigant appear against him in other matters. Such appearance is neither
illegal nor improper. Shri Sibal has submitted that the appellant and the
respondent had never doubted about the impartiality and integrity of the
said arbitrators who are men of unimpeachable character and precisely for
H
,_-
-
STAIB v. PURI CONS'IN. CO. LID. (G.N. RAY, J.]
629
the said reasons, there was no oceasion on the apart of the appellant to A
ritise any objection against the functioning of Shri Rohatgi as an arbitrator
and the said plea of Shri Rohatgi's disability in the aforesaid facts as sought
to be raised, is an after thought and made in despair.
Considering the facts and circumstances of the case, it is quite B
evident that the appellant was aware of Shri Rohatgi's appearance as a
counsel for the respondent in an appeal before this Court but despite such
knowledge, appellant did not raise any objection either before the arbitrators or before this Court during the pendency of the arbitration
proceedings but the appellant chose to make various submissions from time
to time before the arbitrators and invited adjudication on the reference to C
arbitration. In this connection, reference may be made to a decision of this
Court in M/s. Neelkantan & Bros. Constroction v. Superintending Engineer
National Highways, Salem and others, reported in AIR (1988) SC 2045. In
that case the arbitrator, a senior engineer entered upon the reference and
proceeded for some time but in view of his transfer he could not complete D
the same and successor of his office had taken up the arbitration case from
the stage wherefrom the said arbitrator entering upon the reference had
left and the said successor in office thereafter gave the award in question.
Questioning the validity of the award it was contended that as the former
arbitrator had entered upon the reference and statements of the parties
were filed before him and witnesses were also examined before him, the E
successor engineer has no jurisdiction to proceed with the arbitration
matter from the stage left by the arbitrator. Such challenge to the invalidify
of the award was, however, not accepted by this Court by holding that as
the fact of taking over the arbitration proceedings by the suceessor engineer was known to the parties and no objection was raised about his F
continuing with the arbitration proceedings, the parties had acquiesced to
the functioning of the said successor engineer. Accordingly, a party who
had acquiesced to the arbitration by the successor engineer was precluded
from objecting to such arbitration and giving award or the reference.
Referring to the Comments on Russel on Arbitration 18 Edition 105, it has
been pointed out in the said decision that attending and taking part in G
proceedings with full knowledge of the relevant fact will amount to acquiescence. This Court has also referred to an old decision of the Judicial
Committee in Chowdhri Murtaza Hossein v. Mussunat Bibi Bechunnissa,
(reported in 3 I.A. 209). Reliance was also made to the observations in the
decision of the Calcutta High Court in the case of Jupitor Cakutta InH
630
. SUPREME COURT REPORTS (1994] SUPP. 3 S.C.R.
A surance Co. Ltd. (reported in AIR 1956 Calcutta 1472). Reference was also
made to another decision of this Court in N. Chellappan v. Secretary Kera/a
Electricity Board (reported in (1975] 1 SCC 289) holding that acquiescence
defeat the right of the appellant at a later stage. Similar view was also
expressed in another decision of t.his Court in Prasun Roy v. Calcutta
B Metropolitan Development Authority and another, reported in AIR (1988)
SC 205. Similar view has also been expressed in a recent judgment of this
Court in Reserve Bank of India v. S.S. Investments and others, reported· in
[1992] 4 SCC 671. In the said decision, this Court has negatived the
contention that Umpire's entering upon the reference was invalid by holding that a party objecting to the Umpire's entering upon the reference, had
C agreed to extend the time to enable the Umpire to make the award. Having
agreed to extend such time,.it must be held that such party had waived its
objection to-the umpire's entering upon the reference.
In the instant case, admittedly both the parties agreed to extend the
D time for finally making the award by the joint arbitrators despite the
knowledge that Shri Rohtagi had represented one of the parties in a case
before this Court. No objection to his functioning was either raised before
the arbitrators or before this Court in the pending special leave petition
but the appellant had taken part in all the sittings before the arbitrators
and made oral and written submissions and invited the adjudication on the
E reference. It is, therefore, quite evident that even if there was any disability
of one of the arbitrators, inspite of the knowledge of such disability, the
appellant had participated in the arbitration proceedings, agreed to the
extension of time for making the award and invited adjudication on the
reference. Accordingly, the appellant cannot be permitted to raise any
p
objection about the validity of the award on the score of disqualification
of one of the arbitrators. That apart, such objection has not been filed
within the period of limitation but the same has been sought to be raised
after 270 days of the notice of filing the award before this Court. Therefore,
the aforesaid objection as to the validity of the award on account of the
alleged disqualification of one of the arbitrators is devoid of any substance
G and must be rejected.
The challenge to the invalidity of the award on account of various
errors and omissions apparent on the face of the record as alleged by the
appefufut in the written argument for the appellant may be summarised as
H follows:
STATE v. PURI CONS1N. CO. LID~ [G.N. RAY, J.)
631
(a) the arbitrators clearly misconstrued clause 8 of the special conA
ditions in the contract and the arbitrator failed to take into account that
clause 2 to the special conditions only dealth with the "handing over of the
site" and that clalise 8 only dealt with the measurements prior to start of
the work which was to be done on the request of the contractor to enable
him to prepare the bill.
(b) the arbitrators misread the statement at page 148 Vol. II relating
to the dates of handing over site and the dates of taking of measurements.
Several dates mentioned in the award in the respect are contrary to the
statements at page 148 Vol. II.
B
c
(c) the arbitrators have taken the date of handing over of the flank
block 23 prior to monsoon of 1976. Such finding is contrary to the record
placed before the arbitrators.
( d) the arbitrators misread the statement of Sri Adi Anklesaria,
because the arbitrators have only referred to answer to question No.27. D
They have failed to consider the notes to question No.