Holding

The arbitrator had legally misconducted himself under s.30(a) of the Arbitration Act, 1940, and the award was set aside.

Summary

The Tamil Nadu Water Supply & Drainage Board entered into a contract with M/s. Satyanarayana Brothers Pvt. Ltd. for the Veeranam drinking‑water project. The contractor failed to complete the work within the extended time, leading to arbitration. After several awards and appeals, the Supreme Court found that the sole arbitrator, Justice S. Mohan, had failed to apply his mind to the material before him, constituting legal misconduct under section 30(a) of the Arbitration Act, 1940. Consequently, the Court set aside the award and remitted the dispute to a newly appointed arbitrator, Justice Shivraj Patil, to render a fresh award. The appeal was disposed of with the matter referred back to arbitration.

Issues considered

What constitutes legal misconduct by an arbitrator under s.30(a) of the Arbitration Act, 1940?
Whether the award dated 26 October 2007 should be set aside on the ground of non‑application of mind by the arbitrator.

Legislation cited

Arbitration Act, 1940s. 30(a)

Subjects

ArbitrationAward setting asideLegal misconductSection 30(a)Contract breachWater supply projectSupreme Court

Judgment

[2009] 15 (ADDL.) S.C.R. 598

A TAMIL NADU WATER SUPPLY & DRAINAGE BOARD
v. h,..
M/S. SATYANARAYANA BROTHERS PVT. LTD.
(Civil Appeal No. 2880-2881 of 2005)

NOVEMBER 5, 2009
B
[ALTAMAS KABIR AND CYRIAC JOSEPH, JJ.]

Arbitration Act, 1940:
lr "
c s. 30(a) - Legal misconduct by arbitrator - Contract
between parties to supply drinking water to the city - As work
could not be completed within the extended time, matter
referred to arbitration - Award filed in High Court-Application
for setting aside the award filed - Ultimately, in the appeals
before Supreme Court, with the consent of parties, matter
D
referred to arbitrator appointed by Supreme Court - Arbitrator
submitting the award to Supreme Court - Both the parties ~
aggrieved by the award on the ground of non-application of
mind by arbitrator to materials before him - Common ground
of parties that arbitrator misconducted himself in appreciating
E the case made out by the respective parties vis-a-vis the
materials on record - HELD: Arbitrator legally misconducted
himself thereby attracting the provisions of s.30(a) - Award
set aside and matter remitted to arbitrator for decision afresh ,.__

- However, in place of the earlier arbitrator, another arbitrator ~
F appointed who would decide the matter expeditiously in the
light of the judgment of Supreme Court passed in the appeals
on 7.2.2007.

CIVIL AP PELLATE JURISDICTION : Civil Appeal Nos.
G 2880-2881 of 2005.

From the Judgment & Order dated 24.3.2004 of the High
Court of Judicature at Madras in O.S.A. Nos. 248 of 1989 and - >- ---

59 of 1993.

H 598
TAMIL NADU WATER SUPPLY & DRAINAGE BOARD 599
v. M/S. SATYANARAYANA BROTHERS PVT. LTD.

L.N. Rao, Rakesh K. Sharma for the Appellant. A
-~J
Dipankar P. Gupta, T.G. Narayanan Nair, C.N. Sree Kumar,
M.T. George, K.N. Madhusoodanan Nair for the Respondent.

The following Order of the Court was delivered
B
ORDER

1. In order to overcome the shortage of drinking water in
... ~ the City of Chennai, the Government of Tamil Nadu formulated
a scheme known as "Veeranam Project" to provide drinking
water to the city. Tenders were invited for the said scheme and
c
ultimately, the tender submitted by the respondent M/s.
Satyanarayana Brothers Pvt. Ltd. was accepted. The work
undertaken could not be completed within the stipulated time
and the respondent sought extension to complete the work.
Though the time was extended, the respondent could not D
complete the same on account of disputes which were
-... ultimately referred to the arbitration of two arbitrators appointed '<
,/··~

by the parties. The arbitrators appointed Hon'ble Mr. Justice
K.S. Palaniswamy, a retired Judge of the Madras High Court,
as their umpire. On account of disagreement between the E
arbitrators the matter was referred to the umpire who held that
the respondent was entitled to Rs.40,02,591/- from ii '
the appellant
and after allowing the deduction for the sam~the respondent

•
....

I:
. 1; '.~·,..

was liable to pay to the appellant a sum o(~~.a,69,93,674/-
with inte'rest @9% per annumJrom the date Award. Out F
of the said Award, ohly ~.·s:u:m.of R.s,9,000l"J,;; ',·.awarded as
damages for breach of contract. ,, ·

2. The Award was filed by the umpire in the Madras High
Court and was numbered as O.P.No.428/79. While the
G
appellant filed Application No.560/80 in the said O.P.No.428/
... ,.. 79 praying for a decree to be passed in terms of the Award,
the respondent being aggrieved by the Award, filed
0.P.No.122/80 for setting aside the Award. The learned single
Judge allowed the prayer for setting aside the Award anq
H
600 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A consequently, the other application filed by the appeilant for a
decree to be passed in.: terms of the Award was dismissed.
C.S.No.176/78, which had been filed by the appellant, was also
~~
dismissed.

3. Thereafter, the appellants preferred appeals, being
B
O.S.A.Nos.248 of 1989 and 59 of 1993, against the order of
the Single Judge. The said appeals were allowed by the

.
Division Bench of the High Court by its order dated 18/10/2001
and a decree was passed in terms of the Award dated 10th
~
September, 1979, passed by the umpire. Aggrieved by the
c order dated 18/10/2001, by which OSA 248/89 and 59/93 had
been initially allowed by the Division Bench, the respondent filed
SLP(C)Nos.2096-2097 of 2002. The said special leave
petitions were re-numbered as C.A.Nos.9136-9137 of 2003,
and were disposed of by this Court on 18/11/2003. The matter
D was remitted to the Division Bench of the High Court and Qn
remand, the Division Bench dismissed the said appeals,
holding that foreign exchange was to be obtained by the joint ,,..
efforts of the appellant and the respondent and that the ..-·
Government was not extending time reasonably but in a piece
E meal manner. Accordingly, the High Court held that the
respondent had not committed any breach of the contract.
Aggrieved by the said order dated 24th March, 2004, the
appellant preferred these appeals (C.A.Nos.2880-2881/05),
which were dismissed by this Court on 7th February, 2007. By ...
cqnsent of parties, the Hon'ble Mr. Justice S. Mohan, a retired
t
F
Judge of this Court was appointed as Sole Arbitrator to decide
the disputes between the parties. The learned Arbitrator
submitted his Award on 26th October, 2007, holding that the
respondent/claimant would be entitled to a sum of
G Rs.15,84,933. 76p. Thereafter, the parties were given the
opportunity of filing their respective objections to the said
Award and ultimately the matter has come up for the -.. •·
acceptance of the Award.
4. At the very outset, it was sought to be urged on behalf
H of both the parties that the said Award dated .26th 09tober,
TAMIL NADU WATER SUPPLY & DRAINAGE BOARD 601 '
v. MIS. SATYANARAYANA BROTHERS PVT. LTD.
·-
2007 was not acceptable to either party on account of an A
_ __,__ erroneous understanding of the respective cases made out by
the parties. While the appellant questioned the rejeetion of its
~
case that the respondent had no claim against the appellant
and the innocuous finding that the breach committed by the
contractor was no longer available in view. of the earlier B
decision, the respondent-contractor questioned the Award on
the ground that its just claims had been wrongly rejected in
respect of damages suffered in view of the stoppage of the
r ). work on account of the appellant's failure to provide necessary
assistance for obtaining foreign exchange for completion of the
project. c
5. Both the parties are aggrieved by the Award on the
ground of non-application of mind by the Arbitrator to the
material before him. It is the common ground of the parties that
the learned Arbitrator misconducted himself in appreciating the
D
case made out by of the respective parties vis-a-vis the
..,.. materials on record. We have considered the submissions
made and we have also looked into the Award, which indicates
that the learned Arbitrator had legally misconducted himself
thereby attracting the provisions of Section 30(a) of the
Arbitration Act, 1940. We, accordingly, set aside the Award and E
remit the matter to the learned Arbitrator for a fresh decision.
However, in place of Justice S. Mohan, who had submitted his
,.. Award, we appoint Justice Shivraj Patil, a retired Judge of this
~ Court to be the sole Arbitrator to consider the matter and pass
a fresh Award in the light of the judgment of this Court dated F
0710212007 in C.A.Nos.2880-2881 of 2005 and file the same
in this Court. The learned Arbitrator shall be entitled to settle
his fees and other expenses which are to be equally shared
by the parties and work out the procedure to be followed in
conducting the arbitration proceedings. The learned Arbitrator G
is requested to make his Award expeditiously, but preferably
within a period of six months from the date of entering upon
--- -t
the reference.
RP. Appeal disposed of.
H