THE STATE OF KERALA ETC. ETC.versusM/S. ARYA REFRIGERATION & A/C CO. ETC. ETC.

                    THE STATE OF KERALA ETC. ETC.                               A
                                        V.

           MIS. ARYA REFRIGERATION & AIC CO. ETC. ETC.

                               AUGUST 3, 2004

                [S.N. VARIAVA AND ARIJIT PASAYAT, JJ.]                          B
        Arbitration Act, 1940; Section 91/nterest on Delayed Payments to
    Small Scale and Industrial Undertakings Act, 1993; Ss. 3, 5 and 6 :

            Agreement with State Government for supply and erection of a C
    storage plant-Plant could not be installed due to non-construction of
    building by the State-Dispute referred to Arbitrators-Award-
    Cancellation ofcontract by the State-Challenged by the party by referring
    the matter to arbitration-State neither nominated arbitrator nor participated
    in the proceeding-Award-Trial Court made the award rule of the
     Court-Correctness questioned by the State-Award set aside by the High D
     Court-Supreme Court referred the matter aji-esh to arbitrator appointed
    by it and, as an interim measure, directed the State to deposit the sum as
    awarded by the Arbitrator and permitted the party to withdraw the amount
     with stipulation to return the amount with interest @ 15% if appeal
    allowed-Award filed-Challenged by the party-Held : Award is well- E
    reasoned and detailed one-Terms of the contract not disregarded-
    Findings not perverse/unreasonable-Since payment of interest @ 15% on
     the amount received by the claimant was conditional and condition not
    fi1ljilled, claimant not liable to pay interest @ 15% but could pay @ 9%
    only-Award modified-Code of Civil Procedure, 1908; Section 115.               F
          Respondent had entered into an agreement with appellant-State
    for supply and erection of an ice-cum-cold storage plan. Respondent
    could not install the plant as building to house it was not constructed
    b!' the State Government. Thus dispute arose which was referred for G
    Arbitration. Arbitrator gave award in favour of the respondent. Later,
    State Government cancelled the contract. Respondent referred the



-   matter also to Arbitration by nominating an Arbitrator, The State,
    however, did not nominate any Arbitrator, nor did it participate in the
    arbitration proceedings. The Arbitrator made award in favour of the
    respondent. Award was made rule of the Court. State challenged it H
                                        291
    292               SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A   before the High Court. Division Bench of the High Court set aside the
    award. Hence the appeal and the cross appeal.

         This Court appointed an Arbitrator and referred the matters for
    arbitration. In the meantime, it directed the appellant-State to deposit
B   the amount as awarded by the Arbitrator in earlier arbitration
    proceedings and allowed the respondent to withdraw the amount
    subject to the condition that it should return the same along with
    interest@ 15% if the appeal is allowed. The Arbitrator appointed by
    this Court has filed the award for making it rule of the Court.

c       It was contended by the respondent that the award was liable to
  be vacated on grou11ds that the Arbitrator exceeded his jurisdiction,
  disregarded the terms of the contract in making the award; that the
  liability to interest ought to be in terms of provisions of the Delayed
  Payment of Small Scale Industrial Undertakings Act; and that the
D Arbitrator failed to take notice of certain adjustment of amount
  received by the respondent and payment though ordered but not
  received by it.

          It was submitted for the State that nothing ~as been shown by the
E respondent in support of its submission that the Arbitrator overlooked
    any relevant material or the award suffered from any patent illegality.

          Disposing of the appeals by modifying the award, the Court

          HELD : I.I. The Arbitrator has given a very well reasoned and
F   detailed award. It could not be shown as to in what way the fundamental
    terms of the contract were disregarded. The Arbitrator has referred
    to various clauses of the contract and the effect thereof. The findings
    are in no way perverse or unreasonable. There is no substance in the
    plea of the claimant that the award suffered from any infirmity. So far
G   as applicability of the Interest as per Delayed Payments Act is
    concerned, it appears that before the Arbitrator no claim in that
    regard was made. In order to attract the provisions of the said Act,
    the factual aspect like prevailing bank rate of interest etc. were to be
    brought on record. This has not been done. So the plea in that regard
H   is also without any substance. [297-B-CI
   STATE v. ARYA REFRIGERATION & NC CO. (PASAYAT, J.]293

      1.2. There is nothing on record to show that the respondent had A
withdrawn the amount which was deposited with the Subordinate
Court. Similarly, a sum of Rs. 47,000 has been adjusted more than
once. Necessary adjustment in this regard has to be made. So far as
the plea relating to 15% rate of interest on the amount deposited by
the State is concerned, it has to be noted that this Court had directed B
that in case appeal is allowed, State would be entitled to interest@ 15%
on the amount; such a situation has not come. It would be proper to
apply 9% rate of interest on the said amount. With these modifications
and computation, the award is made rule of the Court. [297-D, E, Fl

     CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2078 of C
1984.

                                WITH

     I.A. No. 6 and Civil Appeal No. 362 of 1988.
                                                                        D
     From the Judgment and Order dated 18.8.1983 of the Kerala High
Court in C.R.P. 2660 of 1982-A.

     Ramesh Babu and M.R. for the Appellants.
                                                                        E
     R. Sathish for the Respondent.

     The Judgment of the Court was delivered by

      ARIJIT PASAYAT, J. : These two appeals are interlinked and,
therefore, taken up together for disposal. Civil appeal no. 2078 of 1984 F
is by the State of Kerala questioning correctness of the decision rendered
by learned Single Judge of the Kerala High Court directing deposit for Rs.
5,75,500 in Court, upholding the directions of deposit given by Sub Court,
Trivandrum in E.P. No. 109 of 1981 in O.P. (Arbitration) No. 4 of 1979.
Learned Single Judge held that there was nothing wrong with the direction G
to warrant interference under Section 115 of the Code of Civil Procedure
1908 (in short the 'Code'). Civil appeal no. 362 of 1988 has been filed
by Mis Arya Refrigeration and Air Conditioning Co. Ltd. (hereinafter
referred to as the 'claimant') questioning correctness of the judgment
rendered by the Division Bench of the Kerala High Court setting aside the H
    294                SUPREME COURT REPORTS [2004) SUPP. 3 S.C.R.

A decree in terms of the award given by the two arbitrators appointed by the
    Court.

        Though the case has a chequered history, it is not necessary to deal
  with the factual position in detail, as the same is almost undisputed.
B Claimant entered into an agreement with the State ofKerala on 18.1.1965
  for supply and erection of a 100 tonne ice-cum-cold storage plant at
  Willington Island Cochin. The agreed amount was Rs. 9,40,000. Though
  some plants and machines were supplied, they could not be installed
  because ofnon-construction of the building to house them. As time passed,
  dispute arose between the parties and the matter was referred to arbitrators
C in terms of clause 15 of the agreement. There were two arbitrators who
  passed an award on 2.11.1978. The amount awarded by the arbitrators was
  Rs. 5,05,500. Soonafter the award was passed, the State Government
  cancelled the contract and the same was terminated w.e.f. 17.11.1978.
  Claimant questioned the cancellation and raised the claims. In view of the
D cancellation of the contract the claimant referred the matters to arbitration
  and nominated the arbitrator under Section 9 of the Arbitration Act 1940
  (in short the 'Act'). Notice was served on the Sta•c but it did not nominate
  any arbitrator. Arbitration proceedings continued, State did not participate
  before the sole arbitrator and finally the award was passed on 17.5.1982
E awarding Rs. 22, 72,500 to the claimant. The State questioned correctness
  of the award. But the trial Court overruled objections of the State and made
  the award given by the Arbitrator rule of the Court. The State questioned
  the correctness of the decree passed by the Subordinate Court in tenns of
  the award. By the impugned judgment dated 10.11.1986, a Division Bench
  of the High Court, as noted above, set aside the award. Before this Court
F also the matter was taken up. Parties finally agreed to settle the dispute
  out of the Court, but later on requested for appointment of an arbitrator
  by this Court to adjudicate the dispute. By order dated 13.12.1999 Mr.
  Justice B.M. Thulsidas, a retired Judge of the Kerala High Court was
  appointed as an Arbitrator, though initially another Arbitrator was appointed.
G As an interim measure, by order dated 16.4.1984 in civil appeal no. 2078
  of 1984, it was directed that the appellant-State should deposit Rs. 5, 75,500
  as awarded by the Arbitrator with the registry of this Court. The claimant
  was permitted to withdraw the amount with the stipulation that the claimant
  shall return the amount together with interest@ 15% p.a. in case the appeal
H is allowed. Mr. Justice Thulsidas has filed the award before this Court.
   STATE v. ARYA REFRIGERATION & A/C CO. [PASAYAT, J.]295

In the award the Arbitrator has held, after consideration of the claimant's A
claim and counter-claim of the State, that claimant is liable to pay to the
State a sum of Rs. 28, I 2,554 with interest @ I 5% from the date of award
i.e. 11.12.2002 till payment or deposit. The claimant was also directed to
pay Rs.25,666 by way of Arbitrators' remuneration. The Arbitrator has
held that out of the agreed amount of consideration stipulated in the B
contract i.e. Rs. 9,40,000, claimant had received for the material supplied
Rs. 6,75,780 as 80% of the value and sales tax. The cost of material that
was actually supplied was Rs. 8,40,730 leaving balance of Rs. 99,270
which form cost of labour, service and profit element. It was held that
claimant was entitled to receive Rs. 2,83,000 being the balance amount C
with interest for 8 years i.e. 1966 to 1974. After adjustment of the sum
of Rs. 47,000 which was deposited as security deposit and has been
refunded in 1974, the claimant was finally held to be entitled Rs. 2,36,714
with interest on the said amount@ 9%. It was further held that the claimant
was entitled to Rs. 25,000 as expenses with interest @ 9% from January
 1978 when the first award was given.                                       D
      Arbitrator was of the view that it was no fault of the claimant and,
therefore, it was entitled to balance amount of Rs. 99,270 together with
interest @ 9% in 1966 till 10.1.1973 when the claimant gave notice to the
State that departmental works of erection would not be taken up. The E
Arbitrator worked out the entitlement at Rs. 1,66,0 I 0. On the above basis
total claim of the claimant came to Rs. 5,25,774.

     Taking note of the amounts of claimed to have been paid to tht
claimant, the Arbitrator noted as follows:
                                                                             F
     (!) A sum of Rs. 2,68,550 was paid on 17.7.1979.

     (2)   As per order dated 26.2.1982 a sum of Rs. 2,00,000 was
           deposited on 23.11.1982.

     (3)   A sum of Rs. 5,00,000 was paid as per order dated 1.12.1983 G
           in MFA No. 515/83.

     (4)   In tenns of order dated 12.3.85 of this Court, an amount of Rs.
           5,75,000 was paid.

     Thus altogether Rs. 15,43,550 was received by the claimant in course H
    296                 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A of the proceedings. On this the interest payable was fixed at 9%. Together
    with interest, the amount was fixed at Rs. 21,29,350 and with interest @
    15%, it was held that the State was entitled to receive Rs. 28, 12,554 from
    the claimant. 15% interest was also stipulated keeping in view the order
    passed by this Court.
B         Learned counsel appearing for the claimant submitted that the award
    of the arbitrator is liable to be vacated on the following grounds:

          (I) Arbitrator disregarded fundamental terms of contract and
              exceeded his jurisdiction.
c
          (2) Arbitrator misdirected himself in law in the sense that he
              neglected to look into the terms of contract.

          (3) Interest which was to be paid to the claimant was to be fixed
              on the basis of "The Interest On Delayed Payments to Small
D             Scale and Ancillary Industrial Undertakings Act, 1993". The
              liability for interest was to be fixed in terms of Sections 3, 5 and
              6 of the said Act which has not been taken note of.

    It was further pointed out that the arbitrator has failed to notice that there
E   was no payment of Rs. 2,00,000 as held. Only material which was adduced
    before the arbitrator was to show that there was a deposit but there was
    no withdrawal of the amount. The sum of Rs. 47,000 has been adjusted
    more than once. The arbitrator did not notice that there were certain special
    conditions which govern the agreement, which were not taken note of. 15%
F   interest on Rs. 5,75,000 is included wrongly because it is nowhere directed
    that 15% was to be paid by the claimant. It was only observed that in case
    appeal is allowed, the State would be entitled to 15%. In essence, the award
    was characterized to be outcome of misconduct.

            Jn response, learned counsel for the State submitted that award
G given by the arbitrator is a reasoned award and the scope for interference
    with the reasoned award is extremely limited. Nothing has been shown
    to show that the arbitrator overlooked any relevant piece of material or that
    the award suffered from any patent illegality.

H            Though there was some dispute about the applicability of the Act
   STATE v. ARYA REFRIGERATION & A!C CO. [PASAYAT, J.]297

in view of the accepted position at all stages that the Act applied to the A
proceedings, such challenge is without any foundation.

        It has to be noticed that the arbitrator has given a very well reasoned
and detailed award. It could not be shown as to in what way the
fundamental terms of the contract were disregarded. The arbitrator has B
referred to various clauses of the contract and the effect thereof. The
findings are in no way perverse or unreasonable. We do not find substance
in the plea of learned counsel for the claimant that the award suffered from
any infirmity. So far as applicability of the Interest On Delayed Payments
Act is concerned, it appears that before the arbitrator no claim in that regard
was made. In order to attract the provisions of the said Act, the factual C
aspect like the prevailing bank rate of interest were to be brought on record.
This has not been done. So the plea in that regard is also without any
substance. We, however, find substance in the plea relating to computation
of the amounts receivable by the claimant. As rightly submitted, there was
nothing on record to show that the claimant had withdraWI! the amount D
which was deposited with the Subordinate Court, Trivandrum. Similarly,
a sum of Rs. 47,000 has been adjusted more than once. Necessary
adjustment in this regard has to be made. So far as the plea relating to
15% rate of interest is concerned, it has to be noted that this Court directed
that in case appeal is allowed, State would be entitled to interest @ 15%. E
That situation has not come. It would, therefore, be proper to apply 9%
rate of interest on the sum of Rs. 5, 75,000.

        With the above modifications and computation award of the
arbitrator is made rule of the Court and entire respective amounts be
worked out and decree drawn up accordingly.                                 F
       The appeals are disposed of on the above terms leaving the parties
to bear their respective costs.

S.K.S.                                               Appeals disposed of.