UNION OF INDIA Vs. BHARATH BUILDERS AND CONTRACTORS

JUDGEMENT

(1.) The appellant, Union of India, was the respondent in the arbitration proceedings emanating from the contract agreement, CA No. CECZ/CHN/34 of 1989-90: provision of an AED Hangar at INS Garuda, Naval Base, Kochi, in which a sole arbitrator was appointed as per the directions issued by this court in Writ Petition No. 10520 of 2004. The award passed by the arbitrator was challenged by the appellant under Section 34 of the Arbitration and Conciliation Act, 1996 (for short 'the Act') on various grounds, before the court below, the 1st Additional District Judge, Ernakulam. The learned District Judge, repelling the challenges raised against the award, dismissed that application. Feeling aggrieved, the appellant has preferred this appeal. Short facts necessary for disposal of this appeal can be summed up thus:

(2.) Learned Central Government Standing Counsel Sri. S. Krishnamoorthy assailed the award passed by the arbitrator as wholly unsustainable, incorrect and illegal, contending that not only the arbitrator has embarked upon disputes which were not arbitrable, but, he has also decided the disputed issues flouting even principles of natural justice inasmuch as denying opportunity to the appellant to challenge the materials brought in evidence and relied to enter findings to base the award upholding the claims of the claimant. The appellant had raised a preliminary objection before the arbitrator that the case of 'design fault' canvassed by the claimant as the cause for collapse of the hangar to sustain his claims was not at all arbitrable since he had taken the rehabilitation work unconditionally agreeing to complete the work on the same terms and conditions of the contract previously entered into, at his risk and cost. Changes in the design to facilitate the rehabilitation work was nothing but a deviation to the existing contract permitted by the terms and conditions of I.A.F.W-2249 and, there was no novation of contract as contended by the claimant to base his claims that design fault resulted in the collapsing of the hangar, is the submission of learned Central Government Standing Counsel. The arbitrator by negativing the preliminary objection that design fault is not arbitrable, has exceeded his jurisdiction and, the award passed by him is vitiated and unsustainable, submits the counsel. The next limb of attack to assail the award by the learned Central Government Standing Counsel was that there was denial of opportunity to the appellant to examine the expert who furnished the opinion that design fault resulted in collapsing of the hangar. A specific request was made in writing to provide opportunity to cross-examine that expert, and the defence experts, who were involved in the preparation of the designs, to substantiate the contentions of the appellant. The arbitrator turned them down and even refused to furnish a copy of the report of the expert, which too was applied for, and, thus, there was flagrant violation of the provisions of sub-section (2) of Section 26 of the Act by the arbitrator. Disallowing of the request to examine the expert, and, the arbitration proceedings conducted denying opportunity to the appellant to challenge the report of the expert, tantamounts to flouting of the fundamental rules of procedure to be followed in decision making by any person under law, submits the counsel. The course so followed negating natural justice by the arbitrator is against the public policy of the land and, therefore, the award is vitiated on a ground covered under Section 34(2)(a)(v) of the Act, according to the learned Central Government Standing Counsel. The arbitrator, it is urged, has relied on inadmissible materials, to support his finding on disputed issues, is the further submission of the learned Central Government Standing Counsel. Reference to the report by Board of Inquiry over the collapsing of the hangar and advertence to the recommendation in such report in the award is unethical and improper, and totally uncalled for, submits the counsel. Such report was placed only for perusal, that too on orders passed by the arbitral tribunal, making it clear, and also with the reservation, that it is confidential. The Board of Inquiry constituted under Defence Regulations does not envisage of any finding but only of recommendation, which may or may not be acceptable to the competent authority, is the submission of the Central Government Standing Counsel to assert that the arbitrator has egregiously erred in adverting and referring to such recommendation in his award to enter finding that there was design fault over the roof truss and it led to the collapse of the hangar. The Board of Inquiry and recommendations over any matter covered by Defence Regulations by such Board are only part of an in-house mechanism, strictly applicable to Defence Services, which cannot form the basis nor even scrutiny at the instance of any third party, is the submission of the Central Government Standing Counsel to contend that the arbitrator has acted illegally in relying upon the recommendation of the Board discarding the objections raised thereto by the appellant.

(3.) Challenges raised before the court below to impeach the award as unsustainable on grounds that the claimant had received compensation from the insurance company over the loss arising from the collapsing of the hangar during the execution of the contract work and also that the interest fixed on the claims allowed at the rate of 10% by the arbitrator was excessive and unreasonable and it could have been fixed only at the rate of 6% per annum have also been canvassed by the learned Central Government Standing Counsel. However, those challenges were not pursued as no material from the record could be pointed out to differ from the view taken by the arbitrator and the learned District Judge showing that the claimant has received any compensation from the insurance company, and, that the arbitrator had exercised his discretion improperly in awarding 10% interest per annum on the sum awarded to the claimant.