Patna High Court
Narayan PrasadversusThe State of Bihar
- Decided
- Disposal
- ALLOWED
Holding
The Patna High Court set aside the arbitral award and the order of the Additional District Judge, allowing the appeal.
Summary
The appellant, a contractor, entered into a contract with the State of Bihar for earth‑work on the Zamania Pump Canal. After delays and alleged non‑performance, the Executive Engineer rescinded the contract and issued a final bill, which the contractor disputed. The dispute was referred to arbitration under Clause 23 of the contract, and the sole arbitrator issued an award on 26‑09‑2006 granting the State a sum with interest. The contractor challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, alleging procedural irregularities, denial of natural justice, and improper handling of evidence. The Additional District Judge dismissed the challenge, but on appeal the Patna High Court held that the arbitrator had not complied with the statutory requirements of Sections 23 and 24 of the Act and had violated principles of natural justice, and therefore set aside both the award and the lower court’s order. The appeal was allowed without any order as to costs.
Issues considered
- The award can be set aside under Section 34(2) of the Arbitration and Conciliation Act, 1996 on grounds of violation of natural justice and procedural defects.
- Whether the arbitrator complied with the evidentiary and hearing requirements of Sections 23 and 24 of the Act as they stood at the time of the arbitration.
- Whether the counter‑claims raised by the State at the last hearing were admissible.
- Whether interest could be awarded from 13‑09‑2002 despite the award being dated 26‑09‑2006.
- Whether the Executive Engineer had authority to rescind the contract and forfeit the security deposit.
Legislation cited
- Arbitration and Conciliation Act, 1996 — s. 23, 24, 34
- Indian Contract Act, 1872 — s. 55, 56
Subjects
- Arbitration
- Section 34 challenge
- Natural justice
- Evidentiary procedure
- Contract rescission
- Interest award
- Counter‑claim
Judgment
IN THE HIGH COURT OF JUDICATURE AT PATNA
COMMERCIAL APPEAL No.1 of 2024
======================================================
Narayan Prasad, son of Late Lochan Ram, Resident of Daud Nagar, Ward No.
-13, Police Station-Daud Nagar, District-Aurangabad.
... ... Appellant
Versus
The State of Bihar through the Executive Engineer, Zamania Pump Canal
Division, Ramgarh, District-Kaimur.
... ... Respondent
======================================================
Appearance :
For the Appellant : Mr. Manish Prakash, Advocate
For the Respondent : Mr. Anjani Kumar, AAG-4
======================================================
CORAM: HONOURABLE MR. JUSTICE RAJEEV RANJAN PRASAD
and
HONOURABLE JUSTICE SMT. SONI SHRIVASTAVA
ORAL JUDGMENT
(Per: HONOURABLE MR. JUSTICE RAJEEV RANJAN PRASAD)
Date : 30-03-2026
Heard learned counsel for the appellant and learned
AAG-4 for the State.
2. The appellant has preferred this appeal against the
judgment and order dated 05.10.2021 passed in Title Suit No. 10
of 2007 (hereinafter referred to as the ‘impugned judgment’)
passed by learned Additional District Judge-X, Kaimur at Bhabhua
(hereinafter referred to as the ‘learned court’), whereby the
application filed by the appellant under Section 34 of the
Arbitration and Conciliation Act, 1996 (hereinafter called as ‘the
Act of 1996’) was rejected. The appellant has also prayed for
setting aside the award dated 26.09.2006 made and published by
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the sole Arbitrator Sri Rameshwar Choudhary, Superintending
Engineer, Water Ways Circle, Bhabhua, Kaimur.
3. At the outset, it is recorded that the nomenclature of
the proceeding before the learned court gives an impression that it
was perhaps a title suit but in fact the same was registered on an
application under Section 34 of the Act of 1996 for setting aside
the award.
Brief Facts – Case of the Appellant
4. The original applicant before the learned court is the
appellant before this Court. The appellant, namely, Narayan Prasad
initially filed an application under Section 34 of the Act of 1996 in
the court of learned Sub Judge- I, Kaimur at Bhabhua for setting
aside the award dated 26.09.2006 made and published by the sole
Arbitrator Sri Rameshwar Choudhary, Superintending Engineer,
Water Ways Circle, Bhabhua, Kaimur.
5. The appellant is a contractor registered with Water
Resources Department, Government of Bihar and other
Government Works Department. The case arises from award of a
tender in favour of the appellant for execution of Zamania Canal
Pump, he entered into an agreement which was signed by the
Executive Engineer, Zamania Pump Canal Division, Ragarh on
27.05.1998 for excavation of earth work in Zamania (Link) canal
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from 2.24 Km to 4.569 Km vide agreement no. 2F2 of 1998-99.
The amount of agreement was Rs. 89,93,488.90/-. He had
deposited Rs. 2 lakhs as earnest money and Rs. 4,75,000/- as
initial security deposit. The date of the commencement of the work
was 22.05.1998 as recorded in the agreement. The time for
completion of the work was only one year from the
commencement of the work and the rate was negotiated at the rate
of 5% above the estimate rate. The entire length of canal was to be
filled. The opposite party/ Respondent was under contractual
obligation to make available the site i.e. permanent land for
construction of canal as well as temporary land called borrow area
for excavation of earth to fill the canal. It is the case of the
appellant that, though the opposite party acquired the permanent
land for construction of canal but failed to acquire temporary land
till March, 2002. The period of completion of the work under
agreement was extended by the opposite party up to 31.03.2002
due to non-acquisition of temporary land for filling work. After the
expiry of the extended period of completion of work, the
Executive Engineer vide his letter no. 346 dated 15.04.2002
intimated that the acquisition of temporary land has been made and
the Superintending Engineer vide his letter no. 850 dated
13.04.2002 directed the appellant to commence the work on war
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footing. In between, there were multiple communication for proper
arrangement of land via land acquisition for both permanent and
temporary land required for completion of the work and also
demand for sanction and permission for arrangement of various
machines and extension of work order period.
6. The appellant vide his letter dated 07.05.2002
addressed to the Executive Engineer informed that he would
recommence the work under the agreement only if the rates in the
contract is revised, balance payment is made and extension of time
is granted for balance work under the agreement. The contention
of the appellant was strictly in accordance with Sections 55 and 56
of the Contract Act but the Executive Engineer failed or neglected
to consider the above noted letter of the appellant and issued
notice for final measurement vide his letter no. 510 dated
03.06.2002 fixing the date of measurement from 19th to 22nd of
June, 2002.
7. The appellant vide his letter dated 19.06.2002
intimated the Executive Engineer about his willingness to
recommence the work on the terms and conditions noted in his
earlier letter dated 07.05.2002, or if it is not acceptable, final
measurement be taken and agreement be closed. In spite of the
letter for requesting to recommence the work on the above terms
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and conditions, appellant was present on the worksite for final
measurement on the said date, but no measurement was taken by
the subordinate officers of the respondents i.e. Assistant Engineer
(S.D.O.) or Junior Engineer between 19.06.2002 to 22.06.2002,
which is also established from the letter no. 601 dated 24.06.2002
of the Executive Engineer, in which letter dated 19.06.2002 of the
appellant finds place, but there is no whisper of taking final
measurement.
8. It is the case of the appellant that the agreement with
the appellant was rescinded by the Executive Engineer in utter
disregard of agreed terms of the contract in an arbitrary manner
exceeding his authority, in which it was mentioned that appellant
has completed the carriage of earth work as per sanction but
comparatively less profitable work by head load and the head load
has been executed in negligible quantity, which was totally illegal
and without considering or replying the request of the appellant for
recommencement of work. It is submitted that the Executive
Engineer, Zamania Pump Canal Division, Ramgarh in collusion
with his subordinates manufactured a purported final bill after a
gap of two months without taking final measurement in presence
of the appellant and communicated it to the appellant vide his
letter no. 892 dated 29.08.2002 in which the value of bill was
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shown in minus (-) Rs. 7,41,348.00/-. The total recoverable
amount from the appellant shown in the bill was Rs.
14,09,922.00/- without giving any opportunity to the appellant or
supplying the final measurement after so-called final measurement
which shows arbitrary manner and predetermined intent to incur
loss to the appellant. The appellant wrote to Section Engineer and
other superior officers of the respondents that he had worked in
accordance with the instructions of Executive Engineer and his
subordinates for filling earth work from the land as shown by
them. He further contended that the said final measurement of the
executed works and pits were made in his absence thereby not
acceptable to him and he also shows his inability to fill up the pits
as it was done on the instruction of the Executive Engineer. The
purported final bill was disputed and challenged by the appellant
before Executive Engineer and superior officials of the
respondent-department vide his letter dated 21.10.2002.
9. For redressal of his grievances, the appellant
approached this Court in C.W.J.C. No. 13898 of 2004 assailing the
action of the respondent-department. At this stage, the writ court
vide order dated 07.09.2005 referred the dispute between the
parties to the Superintending Engineer, Water Ways Circle,
Bhabhua as arbitrator under clause 23 of the Conditions of contract
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in Agreement no. 2 F2 of 1998-99 with a direction to adjudicate
the said claim within a period of six months.
10. In pursuance to the above noted order, Sri
Rameshwar Choudhary, Superintending Engineer Water Ways
Circle, Bhabhua acting as sole arbitrator issued notice to the
appellant and the respondent-department. The appellant appeared
before the sole arbitrator in the arbitral proceeding. Prayers were
made on behalf of the appellant before the sole arbitrator for
direction to the opposite party to make available the relevant
documents relating to the dispute which were said to be in
exclusive custody of the opposite party but in spite of direction by
the sole arbitrator, some vital document such as level books and
graph sheets prepared during the measurement of Running
Account Bills were withheld by the opposite party which was
brought to the notice of the sole arbitrator by application of the
appellant dated 17.08.2006.
11. The appellant contended that the said documents
were withheld with malafide motive because those documents
would have established the incorrectness of so called final bill. The
arbitral proceeding concluded on 04.09.2006.
12. During the arbitral proceeding, claims and
documents available with the appellant were filed from time to
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time and consolidated claims of the appellant along with the
available relevant documents were filed on 17.08.2006. In the last
meeting of arbitral proceeding held on 04.09.2006, for the first
time, a counter claim of Rs.14,09,922.00/- was made by the
opposite party against the appellant. The sole arbitrator concluded
the arbitral proceeding on the same day and directed the parties to
submit stamp paper for award.
13. On 27.09.2006, the appellant received the true
attested copy of the award made, signed and published by the
learned sole arbitrator on 26.09.2006 along with notice vide Memo
No. 1763 dated 26.09.2006. The award dated 26.09.2006 made,
and published by the sole arbitrator Sri Rameshwar Choudhary,
Superintending Engineer, Water Ways Circle, Bhabhua, Kaimur
under Agreement No. 2 F2 of 1998-99 was challenged under
Section 34 of the Act of 1996 before the court learned Sub-Judge-
I, Kaimur at Bhabhua and the same was registered as
Miscellaneous (Arbitration) Case No. 61 of 2006 which was
transferred in the court of learned Additional District and Sessions
Judge-X, Kaimur at Bhabhua, after hearing both the parties at
length, the above petition was dismissed vide judgment dated
05.10.2021. Being aggrieved of the said order, this commercial
appeal has been preferred.
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Case of Respondent-State
14. It is admitted fact that the parties entered into a
contract vide agreement dated 27.05.1998 and in terms whereof
the agency (Appellant) undertook to construct the main canal from
2.24 to 4.569 K.M of Zamania Pump Canal. The estimated value
of the work was Rs. 89,93,488/- and the agreement value was Rs.
94,43,163/-. The work was to be completed by the agency
(Appellant) in one year and the work was to commence on
20.05.1998. The agency (Appellant) was allowed to bring earth
from the plots of farmer nearby on mutual understanding and the
work started accordingly by the appellant. As per agreement in F2
form, the earth work by mechanical means was to be done upto 1
K.M lead and the quantity of earth was 64413 M³. Thereafter,
arrangement of temporary land was also made available to the
agency (appellant) in which the work was in progress.
15. It is stated that the agency (appellant) excavated
earth from both toe of the proposed canal bank at his own will
causing danger to the canal to fall in H.G. line. As such, the
agency (appellant) was to refill the pit by compacted earth at his
own cost. Therefore, the appellant was asked to refill the pit at his
own cost vide Letter No. 441 dated 28.03.1999. However, the
work could not be completed by the appellant within the stipulated
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period and so at the instance of appellant the time was extended till
31.03.2000. But the work was done by the agency till June 2000.
The agency had completed the earth work which was to be done
by mechanical means but left the remaining earth work which was
to be done by head load since then the agency had applied for the
extension of time to complete the work up to 31.03.2002.
Appellant did not complete-the work, since then the agency was
informed and asked several times by Executive Engineer to
complete the work through various letters on several dates and
lastly by superintending Engineer's Letter No. 74 dated 14.01.2002
and Letter No. 850-dated 13.04.2002 but the agency did not turn
up to complete the remaining work and the entire working season
got lapsed. By that time, temporary land was made available to the
agency. In this connection Letter No. 346 dated 15.04.2002 issued
by the Executive Engineer Zamania Pump Canal Division
Ramgarh clearly indicates that temporary land was already
acquired and the agency/contractor was directed to complete the
work.
16. It is further stated that the agency (Appellant) did not
complete the work and, thus, caused heavy financial loss to the
department. Thus, the department suffered a lot due to negligence
of the agency in completing the work assigned to him in spite of
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granting him time extension twice. Hence, decision was taken
against the agency according to F2 agreement clauses to rescind
the agreement. The Appellant (agency) worked till June 2000 and
total amount Rs. 83,79,311/- on a/c bill, which was an advance
payment.
17. On the basis of final bill Rs. 7,41,328/- was found to
have been received by the Appellant/contractor in excess up to
15th on a/c bill. The Appellant is also liable to pay Rs. 6,68,594/-
to the State for rectification of the ditch. In between, the appellant
approached this Court in C.W.J.C. No. 13898 of 2004 and in
regard to the Arbitration clause present in the agreement, this
Court by an order dated 07.09.2005 referred the subject matter of
dispute before the superintending Engineer Water Ways Circle
Bhabua Kaimur, by appointing him as a sole arbitrator and thus, an
arbitration proceeding was initiated and the parties were noticed.
18. The Appellant (agency) appeared and filed his
statement of facts and his documents. The State of Bihar through
the Executive Engineer Zamania Pump Canal Division Ramgarh
also filed statement of facts and supporting documents and denied
the liabilities of the state. On behalf of the state a claim of Rs.
7,41,329/- was made against the contractor on the basis of final
bill as this amount was found to be received by the contractor in
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excess up to 15th on a/c bill. A sum of Rs. 6,68,594/- was also
claimed on behalf of the state for rectification of the ditch caused
by the contractor by excavating earth within the undisturbed strip
of 15 meters from outer toe of the embankment. The learned
Arbitrator provided ample opportunity of hearing to both the
parties and after hearing the parties and considering the entire
materials on record passed the award in question in the arbitration
proceeding in accordance with the law.
Findings of the Sole Arbitrator
19. The learned Arbitrator considered the claims of both
the parties. The total 9 claims raised by the appellant (hereinafter
referred to as ‘contractor’) as under Schedule-1 (Rs.3,21,237.11),
Schedule-2 (Rs. 3,19,677.43), Schedule-3 (Rs. 34,216.56),
Schedule-4 (Rs. 1,79,552.39), and Schedule-5 (Rs. 28,814.94)
related to alleged dues for agreed items of work. The Arbitrator
found that although the contractor relied upon numerous
documents in support of these claims, he failed to submit any bills
for the said items, even before the Executive Engineer, for
claiming payment. It was admitted that notice had been issued by
the Executive Engineer for final measurement, and according to
the State, such measurement was conducted after due notice. The
contractor contended that the measurement was not carried out in
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his presence, however, he failed to produce any reliable evidence
in support of this claim and did not file any affidavit to establish
that the measurement was not conducted on the notified date. The
Arbitrator further observed that the contractor did not submit any
bill showing execution of work in quantities different from those
recorded in the final measurement. In these circumstances, the
correctness of the final bill could not be doubted, and once the
final bill was held to be correct, the claims under Schedule-1 to
Schedule-5 were found to be untenable and were accordingly
rejected.
20. In Schedule No. 6, the contractor claimed a sum of
Rs.40,000/- on account of crop compensation allegedly paid to
landowner farmers. However, failed to produce any reliable
evidence to establish that the Executive Engineer had ever directed
such payment due to non-availability of temporarily acquired land.
In the absence of any such direction, the said claim is not fit to be
allowed and the same has been rejected. Further, it has been held
that the contractor claimed a sum of Rs. 22,872/- under Schedule
7(a) towards deduction of compaction test report and Rs. 98,634/-
under Schedule 7(c) on account of deduction for rectification,
however, these amounts had already been released in the final bill
as recorded in Measurement Book No. 184 at page 31.
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Accordingly, these claims were found devoid of merit and have
been rejected. So far as the claim under Schedule 7(b) amounting
to Rs. 1,30,726/- on account of deduction for extension of time is
concerned, the same was required to be adjusted by the Executive
Engineer in the final bill, however, it appeared that such
adjustment has not been carried out.
21. In Schedule No. 8, the contractor had claimed a sum
of Rs. 8,93,966/- on account of refund of earnest money and
security deposit. On behalf of the State, liability to pay the said
amount was denied on the ground that the agreement was
rescinded by the Executive Engineer vide Letter No. 601 dated
24.06.2002, pursuant to which the security deposit was forfeited
under Clause 3(a) of the conditions of contract. Prior to such
rescission, notices were issued to the contractor by the Executive
Engineer vide Letter Nos. 321 dated 08.04.2002, 384 dated
07.05.2002, and 456 dated 20.05.2002. It is pertinent that under
Clause 3(a) of the agreed conditions of contract, the authority to
rescind the contract is exclusively vested in the Executive
Engineer, and the said authority was exercised accordingly. Once
the contractor had, under the terms of the contract, vested such
authority in the Executive Engineer, he cannot subsequently
challenge or question the exercise of that authority. Accordingly,
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the arbitral tribunal found no merit in the claim, and the same has
been rejected.
22. In Schedule 9(a), the contractor has claimed a sum
of Rs. 25,53,000/- on account of idle machinery, labour, and
maintenance of staff and camp at the site and at Ramgarh, and a
further sum of Rs. 4,69,200/- under Schedule 9(b) towards
expenses for maintaining camp, staff, and labour at the said
locations. The State denied liability for the aforesaid claims. The
contractor failed to produce any reliable evidence to establish that
such losses were actually incurred on account of any failure on the
part of the State to fulfill its contractual obligations. It has been
held that while seeking extension of time for completion of the
work, the contractor did not notify the Executive Engineer of any
intention to claim compensation for delay during the extended
period, as required under Sections 55 and 56 of the Indian Contract
Act, 1872. In the absence of such notice, the contractor has not
been found entitled to the said claims. Accordingly, in view of the
above discussion, the claims under Schedule 9(a) and 9(b) have
been rejected. Since all claims of the contractor have been
rejected, therefore, there was no occasion to award any interest for
any period.
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Findings Regarding States’ Claim
23. On behalf of the State, a claim of Rs. 7,41,328/- was
made against the contractor on the basis of the final bill, being the
excess amount received by the contractor up to the 15th running
account bill. It is noted that payments made under running account
bills are in the nature of advance payments, and the final bill was
prepared on the basis of final measurements recorded after due
notice to the contractor. Therefore, the contractor cannot evade
liability to refund the said excess amount. However, the learned
Arbitrator held that a sum of Rs. 1,30,726/- deducted on account of
extension of time vide the 10th running account bill (MB No. 108,
pages 61 and 91) is liable to be adjusted against the aforesaid
amount, as the extension of time was duly granted by the Chief
Engineer, WRD, Dehri vide Letter No. 249 dated 21.01.2000 up to
31.03.2000, and further extensions were recommended by the
Executive Engineer, Superintending Engineer, and Chief Engineer
up to 31.03.2002 vide Letter Nos. 1081 dated 12.09.2001, 2467
dated 28.09.2001, and 5620 dated 16.10.2001, respectively. The
Executive Engineer had also directed the contractor to complete
the work vide Letter Nos. 381 dated 08.04.2002, 384 dated
07.05.2002, and 456 dated 20.05.2002. In such circumstances, the
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deduction of Rs. 1,30,726/- on account of extension of time found
not justified the same was liable to be adjusted.
24. Next, a sum of Rs. 6,68,594/- was claimed by the
State for rectification of the ditch. The contractor denied liability
on the ground that there was no provision in the contract making
him responsible for such rectification. The Arbitrator held that the
earth was excavated from the toe of the canal under the
supervision of the State authorities and payment was made after
measurement. The contractor failed to produce any written
instruction from the Executive Engineer authorizing excavation
from the toe of the canal; rather, the Sub-Divisional Officer, vide
Letter No. 149 dated 11.09.1998, had directed the contractor to
excavate earth beyond the prescribed distance from the toe of the
canal. Further, Clause 4.01 of the technical specifications clearly
provides that an undisturbed strip of 15 meters from the outer toe
of the embankment must be maintained. The Executive Engineer,
vide Letter No. 441 dated 28.03.1999, directed the contractor to
restore the toe of the canal, which the contractor failed to comply
with. Under Clause 16 of the conditions of contract, the contractor
was obligated to make good such defects. Accordingly, the State
was found entitled to recover Rs. 6,68,594/- from the contractor
towards rectification of the ditch, as claimed.
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25. Finally, it was held that the contractor shall pay
interest at the rate of 12% per annum on the aforesaid amount with
effect from 13.09.2002, i.e., after fifteen days from Letter No. 892
dated 29.08.2002 issued by the Executive Engineer, until the date
of actual payment.
Opinion of the learned Commercial Court
26. It appears from the records that the learned
Additional District and Sessions Judge-X, Kaimur has decided the
application under Section 34 of the Act of 1996. The learned court
reproduced the pleadings of the parties and the opinion of the
learned Arbitrator. Thereafter, the learned court took note of
Section 34(2) of the Act of 1996 and the judgment of the Hon’ble
Supreme Court in the case of Oil and Natural Gas Corporation
Limited vs. Saw Pipes Limited reported in AIR 2003 SC 2629.
In the concluding paragraph, the learned court recorded its views
as under:-
“Considering facts, circumstances and evidence
available on the record, the court is of the opinion that the
petitioner has not succeeded to furnish any kind of proof as
indicated by Hon’ble Supreme Court for setting aside the Arbitral
Award in this case.
In view of the aforesaid discussions the petitioner is not
entitled to get relief as sought for so this is hereby ORDERED that
the instant suit is and the same be hereby dismissed on contest
without cost.”
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Submissions on behalf of the Appellant
27. Before this Court, learned counsel for the appellant
has submitted that the impugned award suffers from the vice of
non-observance of the fundamental principles of law. The opposite
party submitted its counterclaims for the first time in the last
meeting of the arbitral proceeding held on 04.09.2006 when the
arbitral proceeding stood concluded. In this regard, learned counsel
has placed the order dated 04.09.2006 recorded by the sole
arbitrator.
28. Learned counsel further submits that the sole
arbitrator has suo-motu admitted the counterclaims on behalf of the
opposite party/Department and passed the impugned award. This
has been done despite the fact that the learned arbitrator has
himself recorded that the counterclaims were denied in the
proceeding dated 20.10.2005, 20.06.2006 and 17.08.2006,
however, it is submitted that these are contradictory statements in
the impugned award as it is not even possible to deny a
counterclaim which was submitted on 04.09.2006 only much
before its submission, therefore, the proceeding recorded on
20.10.2005, 20.06.2006 and 17.08.2006 are having no sanctity.
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29. Learned counsel submits that the learned sole
arbitrator has awarded a sum of Rs. 7,41,328/- and Rs. 6,68,594/-
with interest at the rate of 12% per annum from 13.09.2002 even as
the impugned award has been passed on 29.09.2006 and the
proceeding was started on 12.02.2005. The agreement was
rescinded on 24.06.2002, therefore, there is no basis to award
interest with effect from 13.09.2002. Learned counsel for the
appellant submits that in this case the arbitrator did not lay down
the procedures as required in terms of Section 24 of the Act of
1996. On perusal of the impugned award itself it would appear that
the learned arbitrator has decided the whole case on the basis of
pleadings and the annexures attached to the pleadings. No
procedure for proof of documents have been either laid down or
followed in course of the entire proceeding. The documents were
not exchanged for admission or denial by the respective parties.
The author of the document did not prove the same, still the learned
arbitrator has treated the annexures to the pleadings as evidences.
Submissions on behalf of the State
30. Mr. Anjani Kumar, learned AAG-4 has opposed the
appeal. It is submitted that the learned arbitrator has not committed
any error in the nature of violation of the principles of fundamental
policy and principles of law. The parties exchanged their pleadings
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with annexures attached thereto and the arbitral proceeding has
concluded on 04.09.2006.
31. Learned AAG-4 further submits that the learned court
while considering the application of the present appellant under
Section 34 of the Act of 1996 has refused to interfere with the
award because none of the grounds stated under subsection (2) of
Section 34 of the Act of 1996 was available to interfere with the
impugned award.
Consideration
32. We have heard learned counsel for the appellant and
learned AAG-4 for the State as also perused the records of the
arbitration proceeding. It appears on perusal of the records that the
claimant-appellant appeared before the sole arbitrator on
20.10.2005 and submitted his written claims. The departmental
representative received a copy of the claim of the appellant. The
records were kept for 12.11.2005 for submission of response on
behalf of the Executive Engineer, Jamania Pump, Canal Division,
Ramgarh. On 12.11.2005, the Executive Engineer prayed for time
and he was allowed time till 15.12.2005 to submit his written
response. On 15.12.2005, again the Executive Engineer submitted a
letter before the sole arbitrator whereby he informed the arbitrator
that he had not received any written statement of fact from the
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department. Therefore, again prayer was made for time. Thereafter,
records were fixed for 28.12.2005. From the order dated
28.12.2005 it appears that on the claim of the appellant, the
Executive Engineer submitted his written response and copy
thereof was made available to the appellant whereafter the records
were fixed for next sitting on 16.01.2006.
33. Thereafter, the claimant-petitioner filed a petition for
some documents and information, the copy of this letter of the
claimant was handed over to the Executive Engineer and the
Executive Engineer was directed to make available the records of
the claimant. Later on the claimant was made available some
documents and he was asked to visit the office of the Executive
Engineer to peruse the rest of the documents.
34. Thereafter the records remained pending seeking
extension of time from the High Court because the arbitral
proceeding could not be concluded within the period prescribed by
the High Court in it’s order passed in the writ application
whereunder the arbitration proceeding was required to be
concluded by 26.03.2006. The extension of time was granted by the
High Court which is recorded in the order dated 18.05.2006. The
next sitting of the arbitral tribunal was fixed on 05.06.2006.
Thereafter the records were further fixed for making available
Patna High Court COMMERCIAL APP No.1 of 2024 dt.30-03-2026
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certain documents to the claimant. The records of the arbitral
tribunal would show that both the parties were asked to submit
their stand before the learned arbitrator. On 17.08.2006, both the
parties were present and they placed their stand before the learned
arbitrator. The records were fixed for 04.09.2006, on the said date
the then Executive Engineer appeared and submitted his written
stand before the learned arbitrator, copies whereof were served
upon the claimant. On that very day, the parties were directed to
make available the required amount for purchase of non-judicial
stamp papers. The proceeding, therefore, concluded on 04.09.2006.
35. At this stage, this Court would briefly take note of the
statutory provision under the Act of 1996 provided under Chapter
V which deals with the conduct of arbitral proceedings. Section 23
and 24 of the Act of 1996 are being reproduced hereunder:-
“23. Statements of claim and defence.—(1) Within the period of
time agreed upon by the parties or determined by the arbitral
tribunal, the claimant shall state the facts supporting his claim, the
points at issue and the relief or remedy sought, and the respondent
shall state his defence in respect of these particulars, unless the
parties have otherwise agreed as to the required elements of those
statements.
(2) The parties may submit with their statements all documents
they consider to be relevant or may add a reference to the
documents or other evidence they will submit.
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1
[(2A) The respondent, in support of his case, may also submit a
counterclaim or plead a set-off, which shall be adjudicated upon by
the arbitral tribunal, if such counterclaim or set-off falls within the
scope of the arbitration agreement.]
(3) Unless otherwise agreed by the parties, either party may amend
or supplement his claim or defence during the course of the arbitral
proceedings, unless the arbitral tribunal considers it inappropriate
to allow the amendment or supplement having regard to the delay
in making it.
2
[(4) The statement of claim and defence under this section shall be
completed within a period of six months from the date the
arbitrator or all the arbitrators, as the case may be, received notice,
in writing of their appointment.]
24. Hearings and written proceedings.—(1) Unless otherwise
agreed by the parties, the arbitral tribunal shall decide whether to
hold oral hearings for the presentation of evidence or for oral
argument, or whether the proceedings shall be conducted on the
basis of documents and other materials:
Provided that the arbitral tribunal shall hold oral hearings, at an
appropriate stage of the proceedings, on a request by a party, unless
the parties have agreed that no oral hearing shall be held:
1
[Provided further that the arbitral tribunal shall, as far as possible,
hold oral hearings for the presentation of evidence or for oral
argument on day-to-day basis, and not grant any adjournments
unless sufficient cause is made out, and may impose costs including
exemplary costs on the party seeking adjournment without any
sufficient cause.]
(2) The parties shall be given sufficient advance notice of any
hearing and of any meeting of the arbitral tribunal for the purposes
of inspection of documents, goods or other property.
(3) All statements, documents or other information supplied to, or
applications made to the arbitral tribunal by one party shall be
communicated to the other party, and any expert report or
evidentiary document on which the arbitral tribunal may rely in
making its decision shall be communicated to the parties.”
1. Inserted by Act 3 of 2016, S. 11 (w.r.e.f. 23-10-2015).
2. Inserted by Act 33 of 20019, S. 5 (w.e.f. 30-8-2019).
Patna High Court COMMERCIAL APP No.1 of 2024 dt.30-03-2026
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36. It is evident that subsection (2A) and subsection (4)
have been inserted in Section 23 vide Act No. 3 of 2016 and Act
No. 33 of 2019 respectively, therefore, those provisions were not
available at the time the present arbitration proceeding was being
conducted. Similarly the second proviso to subsection (1) of
Section 24 has been inserted vide Act No. 3 of 2016 with effect
from 23.10.2015, therefore, we would not be guided by the newly
inserted provisions. It is evident on a bare reading of Section 23
and Section 24 as existed at the relevant time that while filing of
the statement of claims and the statement of defence, the parties
may submit with their statements all documents they consider to be
relevant. According to Section 24, unless otherwise agreed by the
parties, the arbitral tribunal has to decide whether to hold oral
hearings for the presentation of the evidence or for oral argument
or whether the proceeding shall be conducted on the basis of
documents and other materials.
37. In the present case, it is evident from the various
orders passed by the learned arbitrator that at no stage of the
proceeding, the learned Arbitrator decided as to whether to hold
oral hearings for the presentation of evidence or for oral argument.
The pleadings in form of statement of claims and statement of
defence cannot take place of the oral or documentary evidence. The
Patna High Court COMMERCIAL APP No.1 of 2024 dt.30-03-2026
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minimum thing which was required to be done was to call upon the
parties to admit or deny the documents submitted by both of them.
If the existence of any document is admitted and the contents of the
same is also admitted then that document would have been taken as
a piece of evidence. There may be a case where existence of a
document is admitted and by virtue of that the document may be
marked an exhibit, still the contents of the document may be denied
and in that case the party who wants to rely upon the contents of
the document would be required to prove the same by bringing the
competent witness to depose on those facts. Such a witness should
be liable to be cross-examined by either side. Unless the documents
are admitted or denied and their contents are proved, the learned
arbitrator could not have considered that as a piece of evidence.
Even as strict rules of evidence would not apply but these are to be
followed as fundamental policy of law. It is also in consonance
with the principles of natural justice.
38. On perusal of the records of the learned arbitral
tribunal it would appear that on 04.09.2006, which was the last date
of the sitting of the learned arbitral tribunal, the Executive Engineer
Jamania Pump Canal Division, Ramgarh (Kaimur) submitted his
written response vide a letter bearing number - KAM Bhabua-01
Patna High Court COMMERCIAL APP No.1 of 2024 dt.30-03-2026
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dated 04.09.2006 which we reproduce hereunder for a ready
reference:-
“OFFICE OF THE EXECUTIVE ENGINEER
ZAMANIA PUMP CANAL DIVISION RAMGARH (KAIMUR)
To,
The Sole Arbitrator-cum-Superintending Engineer
Water Wayes Circle Bhabhua (Kaimur).
Sub:- Arbitration proceeding under Agreement No. 2 F2/98-99 for Earth work in
Zamania Pump Main Canal from 2.24 K.M. to 4.569 K.M. between Narayan
Prasad and the State of Bihar
Sir,
In obedience of your order I humbly put up the reply clause wise of
letter No. Nil dated 17.8.06 submitted by Sri Narayan Prasad, Contractor on the
basis of records available in the office of the Executive Engineer, Zamania
Pump Canal Division, Ramgarh as follows for your kind perusal and
consideration. Moreover the claims submitted by the agency one more or less
same as submitted by him vide his letter No. Nil dated 20.6.06 which was
replied by this office letter No. 523 dated 13.7.06. The agency is repeating the
same arguments repeatedly in each arbitration proceeding in different languages
just to make screw and so stretching the arbitration proceeding, which were
already replied earlier on the basis of the records available in this office. The
agency has been paid altogether Rs. 83,79,311/- (Rupees Eighty three lacs
seventy nine thousand three hundred eleven) but at the time of payment he had
not whispered a word or objected any matter, rather after six years he is
searching mistakes and lacuna in graph sheet and M.B’s whose photocopies
have been given to him by your order. This is for your kind information and so
the replies are as follows:-
Cl. 1 :- No comments
Cl. 2 to 10 :- It is matter of records which needs no comment.
Cl. 11 :- No comment.
Cl. 12 :- Nothing is mentioned in the concerned agreement
regarding acquirement of temporary land for execution of
the work.
Cl. 13 :- Same as replied in Cl. 5 (letter No. 523 dt. 13.7.06)
Cl. 14 :- Same as replied in Cl. 10 & 11 (letter No. 523 dt.
13.7.06)
Cl. 15 :- Payment of crop compensation is being done
departmently through sanctioned estimate by the competent
authority if so cases occur in the field as per necessity.
Patna High Court COMMERCIAL APP No.1 of 2024 dt.30-03-2026
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Nothing is found in the record available in the office of
the Executive Engineer, Zamania Pump Canal Division
Ramgarh stating the necessity for payment of crop
compensation related to this work either in shape of letter of
concerned J.E., A.E., E.E or in shape of estimate proving
the falseness of the statement of the agency.
Also nothing is mentioned regarding crop
compensation in the concerned agreement.
Cl. 16 to 19 Same as replied in Cl. 15 (Letter No. 523 dt. 13.7.06)
Cl. 20 to 22 Same as replied in Cl. 15 & 16 (Letter No. 523 dt. 13.7.06)
Cl. 23 Same as replied in Cl. 21 (Letter No. 523 dt. 13.7.06) and the
matter of payment for machinery and establishment sitting
idle is out of agreement executed.
Cl. 24 to 25 Same as replied in Cl. 20, 22 & 23 (Letter No. 523 dt.
13.7.06)
Cl. 26 to 27 It is matter of records which needs no comment.
Cl. 28 As explained in cl. 24 & 25 the statement of the agency about
his presence is contradictory as per his letter no. Nil dated.
21.10.02 as annexed (7) previously.
Cl. 29 As explained in earlier clauses No. 24 & 25. The records
available shows that final measurement have been taken on
scheduled dates fixed giving the three notices to the agency to
start the work or to be present at the time of taking of final
measurement at site as per statement submitted by then
Executive Engineer, Zamania Pump Canal Division Ramgarh
vide his letter No. 1 Camp Bhabhua dated 17.8.06
Cl. 30 Same as Cl. No. 13
Cl. 31 It is matter of records which needs no comment.
Cl. 32 No comment
Cl. 33(i) In obedience of the direction of learned Sole Arbitrator all
available graph sheets, Level Books, Photostate copies of
M.B. of all bills numbering 1 to 15 related to this work have
already been given to the agency earlier the related
information have been submitted to your honour vide letter
No. 423 dated 31.5.06 of this office.
No rough prepared Level Book A/c bill wise is
presently available in this office but the Level Book of final
Patna High Court COMMERCIAL APP No.1 of 2024 dt.30-03-2026
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measurement and pre level are available whose photostate
copy have already been given to the agency. Levels taken at
the time of preparing running A/c bills (1 to 15) have already
been entered in M.B. which in more authenticated record than
preparation of rough Level Book of respective A/c bill.
As per usual practice, designed cross-section is plotted
at the interval of 30 M of the alignment, and for the running
A/c bill the cross-sectional area of the executed earth work is
calculated either geometrically or scaled on the graph sheet
corresponding to the each level achieved in the working
period. So it is not necessary to plot graph for the payment of
each account bill separately. In this case at the interval of 30
M altogether 78 No. of cross sections have been drawn in 2.24
K.M. to 4.569 K.M. reach.
Cl. 33(ii) Not available till date.
Cl. 34(i) same as replied in Cl. 17(Letter No. 523 dat. 13.7.06) and
hence the claim is denied.
Cl. 34(ii),
(iii) & (iv) Matter of records and replied in Cl. 17(Letter No. 523 dated
13.7.06) and the agency was asked to be present at the time of
taking measurement failing which the measurements taken by
the department will be presumed to be accepted as explained
in Cl. 2 ([k) of Letter No. 1 dated 17.8.06 submitted by then
Executive Engineer, Zamania Pump Canal Division Ramgarh
and hence claim is technically denied.
Cl. 36 to 46 As already explained earlier in Letter No. 523 dt. 13.7.06 and
its claims 1 to 39 (vii).
And so, the agency is not entitled and hence all
the claims are fully denied to get any amount rather the State
of Bihar is entitled to recover according to final bill of the
concerned work and for the rectification, a sum of
Rs.14,09,922.00 with interest thereon in accordance with law
from the contractor Sri Narayan Prasad for which a Award
Patna High Court COMMERCIAL APP No.1 of 2024 dt.30-03-2026
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may be passed by learned Sole Arbitrator in favour of the
State of Bihar.
Yours faithfully,
Signature/-
Executive Engineer
Zamania Pump Canal Dvn.
Ramgarh (Kaimur)
“i=kad&&dsEi HkHkqvk] 01
çs"kd]
bZå ujs'k çlkn]
dk;Zikyd vfHk;ark]
;kstuk ,oa eksfuVfjax çeaMy & 16]
ty lalk/ku foHkkx] iVuk A
rRdkyhu dk;Zikyd vfHk;ark]
tekfu;k¡ iEi ugj çeaMy] jkex<+ A
lsok esa]
,dy fookpd&lg& v/kh{k.k vfHk;ark]
tyiFk vapy] HkHkqvk A fnukad 4&09&2006
fo"k; %& Jh ukjk;.k çlkn] laosnd ,oa dk;Zikyd vfHk;ark] tekfu;k¡ iai ugj çeaMy]
jkex<+ ds chp fookpu dh dk;Zokgh esa mifLFkr gksus ds laca/k esa A
çlax %& ,dy fookpd&lg v/kh{k.k vfHk;ark] tyiFk vapy] HkHkwvk dk i=kad
1236 fnukad 28-7-2006
egk'k;]
mijksä fo"k; ,oa çlax ds laca/k esa vkt fnukad 4-9-06 dks fookpu dh cSBd esa funs'kkuqlkj mifLFkr gqvk A
fookpu ds Øe esa eq>s fuEu fcUnq ij viuk i{k j[kus gsrq funsZ'k fn;k x;k gS %&
1- fo"k;ka/khu fdåehå esa Vks ls lVs dkVh xbZ feêh ds laca/k esa
mi;qZä lanHkZ esa çeaMyh; dk;kZy; dh lacaf/kr lafpdk ds voyksdu ls fuEukafdr oLrq fLFkfr Li"V gksrh gS %&
¼d½ esjs }kjk tekfu;k¡ iEi ugj çeaMy] jkex<+ dk çHkkj ysrs gh dk;ZLFky dk fujh{k.k fd;k x;k ftlds nkSjku ik;k x;k
fd 2-24 fd0eh0 ls 4-569 fdåehå rd fuekZ.kk/khu ugj ds djhc Vks ls lVs laosndksa }kjk feêh dkVh xbZ gS] tks ,djkjukek
dh fof'kf"V;ksa ds çfrdwy gS A vr% lacaf/kr lgk;d vfHk;Urkvksa dks 0-35 fd0eh0 ls 4-569 fd0eh0 rd fuekZ.kkf/ku ugj ds
nksuks rjQ dkVh xbZ feVVh dks ,uå,lå,yå rd ;Fkk'kh?kz Hkjus dh fn'kk esa Bksl dkjZokbZ djus dk funs'k esjs i=kad 1631
fnukad 31-12-98 }kjk fn;k x;k A
¼[k½ iqu% esjs i=kad 441 fnukad 28-3-99 }kjk Vks ls lVs iwoZ esa dkVh xbZ [kUrk dks feVVh ls Hkjdj dEiSD'ku djus dk
funs'k lacaf/kr lacsnd dks fn;k x;k Fkk ,oa bldh çfr lacaf/kr vcj çeaMy inkf/kdkjh ,oa v/kh{k.k vfHk;Urk dks vko';d
dkjZokbZ gsrq vkxzg fd;k x;k Fkk A
¼x½ bl Øe esa laosnd ds i= la[;k 'kwU; fnukad 5-4-99 ds lanHkZ esa esjs }kjk ¼i=kad 783 fnukad 10-6-99½ Vks ls lVs [kUrk
ds HkjkbZ ds laca/k esa laosnd }kjk ;FkkdfFkr mPpkf/kdkjh ds vkns'k dh çfr dh ek¡x dh xbZ ijUrq laosnd }kjk mPpkf/kdkjh ds
}kjk fn, x, ,sls fdlh funs'k dh çfr miyC/k ugha djkbZ xbZ A
;g vkids lwpukFkZ ,oa vko';d dkjZokbZ gsrq çsf"kr A
fo'oklHkktu
g0@& 4-9-06
¼ujs'k çlkn½
dk;Zikyd vfHk;ark”
Patna High Court COMMERCIAL APP No.1 of 2024 dt.30-03-2026
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39. Prior to the filing of the response dated 04.09.2006,
the Executive Engineer, Jamania Pump, Canal Division, Ramgarh
had submitted a written letter bearing number 523 dated
13.07.2006. We have noticed that these response in form of letters
submitted by the Executive Engineer were not even supported by
any affidavit.
40. In our considered opinion, the learned sole arbitrator
has not followed the principles of natural justice and the findings
recorded by the learned arbitrator are not based on evidences rather
those are based on the pleadings alone. Since the learned arbitrator
has not followed the fundamental principles of law in the matter of
admissibility of evidence and appreciation thereof, we are of the
considered opinion that the impugned order suffers from the vice of
non-observance of the principles of natural justice and the
fundamental policy of the Indian law. The procedure adopted by
the learned arbitral tribunal is in conflict with the most basic
notions of justice.
41. We, therefore, find that the learned court while
considering the application under Section 34 of the Act of 1996 has
completely missed out on these aspects of the matter and dismissed
the title suit.
Patna High Court COMMERCIAL APP No.1 of 2024 dt.30-03-2026
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42. In result, we set aside the impugned order and the
award of the learned arbitrator.
43. This appeal is allowed, however, there will be no
order as to cost.
(Rajeev Ranjan Prasad, J)
( Soni Shrivastava, J)
SUSHMA2/-
AFR/NAFR
CAV DATE
Uploading Date 10.04.2026
Transmission Date
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