DANDASI SAHUversusSTATE OF ORISSA

                             DANDASI SAHU
A                                  v.
                            STATE OF ORISSA

                           NOVEMBER 30, 1989

B     [SABYASACHI MUKHARJJ AND V. RAMASWAMI, JJ.]

          Arbitration Act, 1940: Sections 30 and 16-Award not disclosing
    the documentary evidence considered-Original and supplemental
    claims not making total claim-Inclusion of interest amount-Award
    amount disproportionately excessive-Validity of-Whether amounts to
    legal m1Sconduct-Non-application of mind.
c
         The appellant-contractor claimed a sum ofRs.3,87,796 before the
  sole arbitrator on April 5, 1977 for the value of 15 items of works not
  paid. To this he added interest to the tune of Rs.2, 95, 894 at 18 per cent
  from the date which according to him each of the claims should have
D been settled, making a total of Rs.6,83,690. He also prayed for further
  interest~! 18 per cent from April 6, 1977 till date of award and there-
  after until payment. The respondent State filed its written statement
  and the. arbitration proceedings continued for some time. But before the
  arbitrator could make an award, an application under ss. 8(2) and 12 of
  the Arbitration Act was filed bel'ore Subordinate Judge who by his
E order removed the arbitrator and appointed another person as the sole
  arbitrator. The new arbitrator entered on the reference, got all the
  records from the previous arbitrator and continued the hearing. The
  appellant made a supplemental claim for a sum of Rs.8,27 ,857 and also
  prayed for interest on that amount at 18 per cent from October 14, 1973
  till date of payment. The respondent State objected to the entertain-
F ment of additional claim. The arbitrator, howeveruiroceeded with the
   hearing~ On November 8, 1981, the day the hearing was closed, the
  appellant-contractor filed one consolidated 'abstract' of his two claim
  statements showing a total claim of Rs.31.44.437 and also prayed for
  interest at 18 per cent per annum from November 9, 1981 till the date of
  payment.
G
        The arbitrator made an award on December 7, 1981 allowing a
  lump-sum of Rs;25,00,156 together with interest at 9 per cent after the
  expiry of 30 days from the date of making the award, till the date of
  payment or decree whichever was earlier. The award was made a
  decree of the court. The court, however, disallowed interest from the
H date of decree till realisation.

                                      348
                     D. SAHU v. STATE OF ORISSA                        349

      On appeal by the respondent-State the High Court came to the
conclusion that the award was vitiated by non-application of mind              A
amounting to legal misconduct. In that view, it set aside the award and
remitted the matter back to the Arbitration Tribunal constituted under
s. 41A of the Arbitration Act, as amended by Orissa Act 3of1983.

      Dismissing the appeal, the Court,                                        B

       rtJ<;LJJ: 1.1 Though the. arbitrator is not bound to disclose as to
what interpretation he has made and what inference he has derived
from the documentary evidence, he is bound to refer in the award that
he had considered all the documents placed before him, no matter
whether he relies on them or discards thell) from consideratiun.T353A]
                                                                               c
      1.2 In the instant case, the arbitrator in his award ex-facie did
not mention that he had referred to or considered the documents placed
before him in respect of the original claim. The order-sheet mentions
about the nearing on different dates relating to the supplemental claim
statement which was filed before him. It was this argument in respect of       D
the supplemental claim that.has been mentioned in the award. [353BJ

      2.1 The arbitrator in case of a reference to him in pursuance of
an arbitration agreement between the parties, being a person chosen by
parties is· constituted as the sole and final judge of all the questions and
the parties bind themselves as a rule to accept the award as final and         E
conclusive. Even in a case where the arbitrator does not give any reason
or he commits a mistake either in law or in fact in determining t.he
matter referred to him and such a mistake does not appear on the face ,of
the award, the same cannot be assailed. It could be interfered with only
in limited circumstances as provided under ss. 16 and 30 of the Act. The
court bas, therefore, to test the award with circumspection. [354F, E, G]

      2.2 All the same, if the amount awarded is disproportionately
high having regard to the original .claim made and the totality of
the circumstances, it would certainly be a case where the arbitrator
could be said to have not applied his mind amounting to legal mis-
conduct. [354G-H]                                                              G
      State ofOrissa v. Dandasi Sahu, [1988] 4 SCC 12, referred to.

      In the instant case, in the original claim made before the
arbitrator the value of the work not paid was stated as Rs.3,87, 796. The
supplemental claim made before the arbitrator amounted to                      H
     350         SUPREME COURT REPORTS                 [1989] Supp. 2 S.C.R.

A    Rs.!1,27 ,857. Thus, the total value of work not paid, according to the
     appellant, was Rs.12,15,653. As against this claim, the arbitrator had
     awarded a lump sum of Rs.25,00, 156. No doubt, the appellant had
     asked for payment of interest and including interest his claim was
     Rs.31,44,437. [354H; 355A]

B           2.3 Where a reference to arbitration was made prior to the com-
     mencement of the Interest Act, 1978 which came into force on August
     19, 1981 the arbitrator is not empowered to grant interest for the period
     upto the date of submission of tbe claim or the period during which the
     dispute was pending before the arbitrator, and where the award
     granted a lump sum amount it shall deem to have included the interest
     also if interest had been claimed before the arbitrator and the inclusion
c    of such interest would render that part of award invalid. [355B-C I

           In the instant case, if the interest portion is excluded, then it
     becomes evident that award of Rs.25.00,156 suffers from the vice of
     giving disproportionately high amount. [355C-D I
I}
           2.4 Since the award suffers not merely on the ground that it
     included interest but also on the ground of non-application of the mind
     the question of setting aside only the invalid part relating to the grant of
     interest does not arise. [355F -GI

E         State of Orzssa v. Niranjan Swain, [1989] 4 SCC 269, distin-
     guished.

          CIVIL APPELLATE WRISDICTION: Civil Appeal No. 4800
     of 1989.

p         From the Judgment and Order dated 20.3. 1987 of the Orissa
     High Court in Misc. Appeal No. 453 of 1982.

           Anil B. Divan and Vinoo Bhagat for the Appellant.

           G.L. Sanghi and A.K. Panda for the Respondent.
G
           The Judgment of the Court was delivered by

           · V. RAMASWAMI, J. Spectal ieave granted.

        In re.3pect of a dispute relating to the work Lankagada Minor
H Irrigation Project (Balance_ Work) in Jagannathaprasad Block which
-             D. SAHU v. STATE OF ORISSA [V. RAMASWAMI, J.]

    was entrusted to him, the appellant-contractor, invoking clause 23 of
                                                                         351


    the agreement and section 8 of the Arbitration Act requested the Chief
    Engineer, Rural Engineering Organisation, Bhubaneswar, Orissa, to
                                                                                A


    nominate an arbitrator. It may be mentioned that before making this
    request for nomination of an arbitrator the appellant made a claim on
     16.6. 1975 before the Executive Engineer, M.I. Division, Berhampur,
    Ganjam, claiming to be paid a sum of Rs.2,81,745. He had also               B
    claimed interest on this at the rate of 18 per cent from the date of
    receiving of the claim book till payment. The work entrusted to the
    appellant was to commence on 6. 12. 197 1 and to be completed within
     18 months i.e. on or before 5.6. 1973 and the total cost of the work was
    Rs.9.98,970. One Shri D.C. Panda, Superintending Engineer, Central
    Range, was nominated as the sole arbitrator to decide the dispute and
    give the award. This arbitrator having accepted the appointment             c
•   entered on the reference and issued notices to both the parties direct-
    ing them to file their claims. The appellant filed a claim statement on
    5 .4. 1977 before the arbitrator. In this claim statement he had made a
;   detailed description of each of the items of the claim and the total of
    the 15 items claimed came to Rs. 3,87.796. To this he added interest at     D
     18 per cent from the date which according to him each of the claims
    should have been settled making a total claim of interest to the tune of
    Rs.2,95,894. He thus prayed for an award of Rs.6,83,690 and also
    prayed for further interest on Rs.3,87,796 from 6.4. 1977 till date of
    award and thereafter until ·payment at 18 per cent. It may be
    mentioned that in this statement of claim made before the arbitrator        E
    some of the claims made before the Executive Engineer were omitted,
    some were reduced whereas some new claims were introduced and
    some other items of claim were enhanced. The State of Orissa filed a
    written statement and the arbitration proceedings continued for some
    time but before the arbitrator could make the award an application
    before the Subordinate Judge, Bhubaneswar was filed under sections          F
    8(2) and 12 of the Arbitration Act. By an order dated 17.12.1979 the
    learned Subordinate Judge removed the arbitrator and appointed one
    Shri J. Pati, Chief Construction Engineer, Paradip Port as the sole
    arbitrator to decide the dispute between the parties. However, since
    Shri J. Pati expressed his inability to arbitrate, by another order dated
     16.4. 1980 the court appointed Shri Banabasi Patnaik, Superintending       G
    Engineer, Sambalpur as the sole arbitrator in place of Shri J. Pati. This
    arbitrator entered on the reference, got all the relevant records from
    the previous arbitrator continued the hearing on the 9th June and 9th
    July, 1980. On the ground that the appellant has not included some of
    his claims "relating to this work" in the claim statement submitted to
    the previous arbitrator, he made a supplemental claim for a sum of          H
    352         SUPREME COURT REPORTS              [1989] Supp. 2 S.C.R.

  Rs.8,27,857 and prayed that in addition to the claim stated in the
A original claim statement a sum of Rs.8,27 ,857 be awarded in his favour
  with interest at 18 per cent per annum on Rs.8.27,857 from 14. 10.1973
  till date of payment. The State of Orissa not only disputed the claim
  made but also objected to the entertainment of an additional claim in
  their written statement dated August 13, 1981. The arbitrator, how-
B ever, decided to entertain the supplemental claim and proceeded with
  the hearing of the dispute. The supplement claim consisted of 11
  items. As seen from the note papers, the arguments on supplemental
  claims 1 to 6 were heard on two different dates and the hearing was
  adjourned to 8.11.1981. On that day arguments in respect of rest of the
  supplemental claim items were heard and the hearing was closed. On
  the same day the appellant-contractor filed what he termed as one
c consolidated 'abstract' of his two claim statements and the abstract
  showed a total claim of Rs.31,44,437 and he had further prayed in this
  that the total amount of Rs.31,44,437 may be allowed along with an
  interest at 18 per cent per annum on the said amount from 9. 11.1981
  till date of payment. The arbitrator made an award on 7. 12. 1981 allow-
D ing a lump sum of Rs.25,00, 156 together with interest at 9 per cent
  after the expiry of 30 days from the date of making the award, till the
  date of payment or decree whichever is earlier. The award was filed in
  court for making a decree and the Government filed an application to
  set aside the award on various grounds. The trial court overruled the
  objections of the State and the award was made a decree of the court.
E However, learned Judge disallowed the interest from the date of
  decree till realisation. On appeal by the State Government, the High
  Court came to the conclusion that award suffers from non-application
  of the mind amounting to legal misconduct. In that view the award was
  set aside and the matter was remitted back to the Arbitration Tribunal
  constituted under section 41-A of the Arbitration Act as amended by
F Orissa Act 3 of 1983. The contractor-claimant has filed this appeal
  against this judgment of the High Court.

        As is seen from the award though it refers to getting all the
  relevant record from the ex-arbitrator there is no reference to the
  hearing of the parties or consideration of the documents relating to the
G original claim made on 6.4. 1977. In the order-sheet it has been
  mentioned that both parties had agreed that they had nothing more to
  add except what had been already given in their respective claim and
  counter statement and what had been recorded in the depositions
  already made before the previous arbitrator. The reference to deposi-
  tions already made is incorrect as it is admitted by both the parties th.at
H no deposition was at all recorded before the previous arbitrator nor •
                 D. SAHU v. STATE OF ORISSA [V. RAMASWAMI, J.I              353

       there is any record of the previous arbitrator showing such oral evi-
       dence was recorded by him. Neither of the parties adduced any oral          A
       evidence before the new arbitrator. Though the arbitrator is not bound
       to disclose as to what interpretation he has made and what inference
       he has derived from the documentary evidence, he is bound to refer in
1
:•     the award that he had considered all the documents placed before him
       no matter whether he relies on them or discards them from considera-        B
·.~
;,.    tion. The arbitrator in his award ex facie does not mention that he has
.~     referred to or considered the documents placed before him in respect
.,
 \
       cif the original claim. The order-sheet mentions about the hearing on
       different dates relating to the supplemental claim statement which was
       filed before him. It is this argument in respect of the supplemental
       claim that has been mentioned in the award.
                                                                                   c
               The other point to be noted is that the original claim together
        with the supplemental claim do not make total claim of Rs.3 1,44,437.
        It is seen from the records that the arbitrator directed the claimant to
        submit a consolidated claim abstract which was submitted by him on
        8.11.1981 the date on which the hearing by the arbitrator was con-         o
        eluded. There is clearly some discrepancy while consolidating both the
         claims. In addition to the total of both the claims some other amom\ts,
        may be by way of extra interest or otherwise, have been included but
        the arbitrator seem to have not applied his mind. Then again in the
        award it is stated that the total amount claimed by the claimant·
        appellant inclusive of "damages, compensation and interest" is             E
         Rs.31,44,437. Even the 'abstract' filed before the arbiirator does not
        show any claim of "damages" or "compensation". As may be seen
         from the facts set out above, before the •ppellant demanded the
         appointment of an arbitrator he had made a claim before the Execu-
        tive Engineer for a sum of Rs.2,81.745. This is an itemised claim. This
        claim was made in the claim book kept by the Executive Engineer. It        F
        may be that this claim did not cover the entire amount due. We may
        point out that in the letter demanding the appointment of an arbitrator
        he had stated that during the execution of the work he had executed
        many extra items of work as per directions of the Department and also
        incurred heavy expenditure which were not covered in the agreement
        and that he had submitted "most of my claims in the claim book on          G
        16.6.1965 but these have not yet been decided". It may also be
      · mentioned that in this letter itself he has stated that he has completed
        the work in all respects on 14.9.1973 and that though the final bill
        which shomo have been prepared within one month of the completion
        of the work has not yet been paid to him. The claim made before the
        arbitrator originally as already stated was Rs.6,83,690 of which a sum     H
    354         SUPREME COURT REPORTS                [1989] Supp. 2 S.C.R.

    of Rs.3,87, 796 represented the value of the work not paid and the
A
    remaining represented interest claimed. The total agreed value of the
    work entrusted to the appellant was Rs.9,98,970. In the counter
    affidavit filed by the State of Orissa in the special leave petition it is
    stated that a total of Rs.23, 11,887 had been paid to the appellant-
    contractor by 20.11.1976 which was with reference to the original work
B   entrusted and the extra work done by the appellant. A.rejoinder was
    filed by the appellant to this counter affidavit ·but' the fact of payment
    of Rs.23, 11,887 is admitted. The supplemental claim itself was filed on
     10.7.1980 and that amounted to Rs.8,27,857 over and ·above
    Rs.6,83,690 which he had claimed originally before the arbitrator.
    Then again the 'abstract' filed by him on 8.11.1981 showed a figure of
    Rs.31,44,437 as the claim. We have already pointed out that the total of
                                                                                 ,
c   the claim inade on 5 .4.1976 and the supplemental claim made on
     IO. 7 .1980 itself will not make anyway that figure of Rs.31,44,437 and,    •
    therefore. some more claims have been included. The foregoing facts
    do show that the award suffers from non-application of the mind by the
    arbitrator.
D
        This Court in State of Orissa v. Dandasi Sahu, [ 1988] 4 SCC 12 to
  which one of us(Sabyasachi Mukharji, J.) was a party while noting
  that the amount award is quite high or that a large amount has been
  awarded does not by itself vitiate the award as such, observed that one
  has to judge whether the amount of the award was so disproportiona-
E tely high to make it per se bad on the facts and circumstances of a
  particular case. In this connection we have to keep in mind that we are
  concerned with a situation where the arbitrator need not give any
  reason and that even if he commits a mistake either in law or in fact in
  determining the matter referred to him, where such mistake does not
  appear on the face of the award, the same could not be assailed. The
F arbitrator, in the case of a reference to him in pursuance of an arbitra-      "'·
  tion agreement between the parties, being a person chosen by parties
  is constituted as the sole and final judge of all the questions and the
  parties bind themselves as a rule to accept the award as final and
  conclusive. The award could be interfered with only in limited
  circumstances as provided under sections 16 and 30 of the Arbitration
G Act. In this situation we have to test the award with circumspection.
  Even with all this limitations on the power of Court and probably
  because of these limitations, we have to hold that if the amount
  awarded was disproportionately high having regard to the original
  claim made and the totality of the circumstances it would certainly be a
  case where the arbitrator could be said to have not applied his mind
H amounting to legal misconduct. It may be seen that in this case in the
               D. SAHU v. STATE OF ORISSA IV. RAMASWAM!, J.]              355

     original claim made before the arbitrator the .value of the work not
                                                                                 A
     paid was stated as Rs.3,87,796. The supplemental claim made before
     the arbitrator amounted to Rs.8,27,857. Thus the total value of the
     work not paid, according to the appellant, was Rs. 12, 15,653. As
     against this claim the arbitrator has awarded a lump sum of
     Rs.25,00, 156. It is true that the appellant has asked for payment of
     interest and including interest his claim was Rs.31,44,437. In a recent     B
     judgment of this Court in State of Orissa v. Niranjan Swain, [ 1989] 4
     sec 269 it has. been held that where a reference to arbitration was
     made prior to the commenc~ment of the Interest Act, 1978 (which Act
     came into force on August 19, 1981) the arbitrator is not empowered
     to grant interest for the period upto the date of submission 9f the claim
     or the period during which the dispute was pending before the
     arbitrator. It was further held that where the. award granted. a lump       c
     sum amount it shall deem to have included the interest also if interest
     had been claimed before the arbitrator and the inclusion of such
     interest rendered that part of award invalid. If we exclude the interest
     portion then there could be no doubt that award of Rs.25 ,00, 156
     suffers from the vice of giving disproportionately high amount.             D

           The learned counsel for the appellant, however, contended that
     the invalid part relating to the grant of interest may be set aside and
     the award may be accepted so far as the claim for the value of the work
     done applying the formula adopted in State of Orissa v. Niranjan
'·   Swain, (supra). The learned Judges who decided the case after holding       E
     that inclusion of the interest rendered the award invalid, proceeded to
     separate the invalid part from the rest stating that the total amount
     awarded is principal plus interest, the rate of interest and the period
     for which the interest was claimed before known, the principal could
     be determined easily, and on that basis the p. ncipal amount and the
     interest out of the total amount awarded was divided and the award          F
     was sustained relating to the principal. We are unable to apply this
     principle in this case as the State had disputed major part of the claim
     in their counter statements before the arbitrator and we have held that
     the award suffers not merely on the ground that it included interest but
     also on the ground of non-application of the mind.
                                                                                 G
           We are also of the view that there was nothing wrong in the
     approach of the High Court and that this is not a fit case for inter-
     ference under Article 136 of the Constitution. We accordingly dismiss
     the appeal with costs.

     P.S.S                                                 Appeal dismissed.     H