JAWAD S. KHAWAJA, J.---The appellant impugns the order, dated 27-6-2002 passed by the learned Civil Judge, Lahore, whereby an arbitration award dated 23-3-1997 has been set aside.
2. The appellant, which is a private limited company, was awarded a contract dated 13-2-1991 for the construction of an overhead bridge at Chichawatni, by the Government of Punjab, Communications and Works Department. As per terms of the contract, the work was to be completed within twenty four months. This could not be done and the contract period was, consequently, extended from time to time.
3. During the performance of the contract, differences arose between the parties whereafter the appellant filed an application under section 20 of the Arbitration Act praying that the matter be referred to arbitration under the arbitration clause contained in the contract. The learned trial Court, vide order, dated 12-1-1997, appointed Mr. Mubarak Ahmad, Superintending Engineer, Public Health Engineering Department and Mr. Muhammad Yasin, Director (P&D), Highway Department as arbitrators. The names of the arbitrators were proposed by the parties themselves. The learned Court directed the arbitrators to make their award separately in respect of each item of the appellant's claim of Rs.6,48,01,265.
4. Pursuant to the aforesaid order the arbitrators entered upon the reference and made an award of Rs.3,49,64,861 in favour of the appellant. The award was filed in Court on 26-3-1997 whereupon the learned Court solicited objections from the parties vide order dated 31-3-1997. The Chief Engineer (respondent No.2 herein) filed objections. Vide impugned order, dated 27-6-2002 these objections have been allowed and the award, as a whole, has been set aside.
5. The objections of the respondent Chief Engineer were mainly founded on the ground that the arbitrators had committed misconduct and had also msiconducted the arbitration proceedings. In reply to the objections the appellant pleaded that the same were time-barred. On facts, the allegations of misconduct were denied. In the circumstances, issues Nos. 1 and 1-A were framed in the following terms by the learned trial Court.
"(1) Whether the arbitrators have misconducted themselves and with the proceeding? If so, the award is liable to be set aside? OPP (1-A) Whether the objections filed on 3-5-1997 by the petitioners/ respondents are time-barred, if so, its effect? OPR"
6. Evidence was led on the above issues by the parties. It was argued on behalf of the appellant that no misconduct on the part of the arbitrators has been established through the evidence on record. This submission was not controverted by the learned Law Officer appearing for the respondent-Department. I have, however, noted that the department examined witnesses, who made allegations of misconduct on the part of the arbitrators. Manzoor Ali Chaudhry, Chief Engineer of the C&W Department appeared as O.W.5. In his testimony, he made the allegation that the award is wrong and is based on dishonesty. This assertion by itself is general in nature and has not been substantiated by reference to any facts. The only specific reference, made by him in this context, is to standard Specification No.821. According to him, the misconduct of the arbitrators is established from the fact that they have awarded the claim of the appellant in respect of steel although this could not have been done under Specification No.821.
7. The other witnesses examined by the department were Muhammad Munir Chughtai, Superintending Engineer (O.W.2), Sheikh Muhammad Yousuf, XEN, Highways (O.W.3) and Altaf Hussain, Superintending Engineer (O.W.4). The main thrust of the testimony of these witnesses is also to the effect that the rates to be quoted for the steel fabrication were composite and included the furnishing of steel. Whether or not the contractor was under an obligation to furnish the steel is a simple question of fact which must be decided with reference to the contract itself Specification No.821 has not been mentioned in the contract. On the contrary, the word "furnishing", which is part of specification No.821, has been excluded from most of the components involving steel as set out in the schedule of bid items in the contract. I have, in some detail, examined the relevance of standard Specification No.821 in paragraphs Nos.20 to 22 below and have concluded that the specification was not applicable in the case. I, therefore, find the testimony of the department's witnesses to be based on a misconception as to the contents of the contract.
8. These witnesses have also found fault with the award made by the arbitrators for increase in the cost of labour and materials. This item was covered in Part-B of the appellant's claim against which the arbitrators have awarded Rs.30,49,901. I have considered this aspect of the award in paragraphs 23 and 24 below, and have concluded that the reasoning of the arbitrators was not in accordance with the law and the terms of the contract. In the circumstances, the sum awarded against part-B of the claim has been deleted from the award.
9. The question in issue, which needs to be determined, is as to whether the above circumstances are sufficient to prove that the arbitrators committed personal misconduct or that they misconducted the proceedings. The mere fact that the reasoning, adopted by the arbitrators in support of one or more items of the award, is not legally sustainable, does not by itself, establish misconduct on their part. To prove personal misconduct of the arbitrators there has to be some evidence showing wrongdoing on their part such as dishonesty and established bias. There are in this case, only bald and unsubstantiated allegations of personal misconduct made by the Department's witnesses against the arbitrators. There is no evidence on record to prove such misconduct and none has been cited by the learned trial Court.
10. As to misconduct of the proceedings, only deliberate disregard of the law can constitute misconduct of proceedings. There is an important distinction between intentional and deliberate disregard of the law and faulty reasoning contrary to law. Learned counsel for the appellant rightly argued that under section 26-A of the Arbitration Act, the reasoning of the arbitrators given in the award is subject to the scrutiny of the Court, but the legal defect, if any, in such reasoning, cannot, by itself, vitiate the award on the ground of misconduct of the proceedings.
11. In the present case, the appellant's claim was itemized and the arbitrators also dealt with each item of the claim separately as directed by the learned Court below in its order dated 12-1-1997. The arbitrators have given their findings based on the reasoning set out in respect of each item of the award. Each component of the award is thus, distinct and severable. The appellant and the respondent-department have by and large, accepted the award. Before me, the respondent- department has disputed three items of the award which have been discussed below. Of these three items, the departmental objection in respect of only one item viz., Part-B of the claim, has been found by me to be sustainable on the ground that the same is contrary to law.
12. The above circumstances do not show any personal misconduct on the part of the arbitrators or misconduct in the proceedings. I have, therefore, gone through the impugned order, dated 23-3- 1997, to ascertain the reasons which have prevailed with the learned trial Court for setting aside the award in its entirety. It is apparent that the Court has proceeded on the erroneous premise that it is an appellant forum and is required to render its decision, de novo, on the respective pleas of the parties based on the evidence led by them before the arbitrators. The learned trial Court has concluded that the arbitrators have committed misconduct and have misconducted the arbitration proceedings solely for the reason that it has arrived at a finding different from the arbitrators. It has fallen in error on this count because it was not the Court's function to proceed in the matter as if it was hearing a first appeal against the decision rendered by the arbitrators. There had to be affirmative evidence of misconduct in order to justify the setting aside of the award.
13. The learned Court below has not adverted to any instance brought on record through the testimony of the department's witnesses which would prove misconduct of either type by the arbitrators. On the contrary, paragraph 10 of the impugned order adverts only to the controversy based on the interpretation of the contract. Furthermore, the observation of the learned Court below that the award lacks reasoning and does not advert to the terms of the contract, quite clearly, is contrary to the record because the award itself contains the reasoning behind the acceptance or rejection of each item of the claim. The arbitrators have also, wherever necessary, adverted to specific provisions of the contract.
14. In the circumstances discussed above, I find no evidence in support of issue No.1. The finding of the learned Court below on this issue is, therefore, reversed.
15. Having held that the award was not vitiated on account of misconduct of the proceedings or personal misconduct of the arbitrators, I have examined the award in the context of section 26-A of the Arbitration Act. This has been done with the assistance of learned counsel and the representatives of the parties, namely, Syed Muhammad Akbar Shirazi, M.D. Of the appellant and Mr. Akbar Ali, XEN of the respondent-Department. For reasons appearing below I find that barring two items, the award is proper and has to be upheld.
16. At this point, it is to be noted that the award was made separately in respect of each item of the claim. It was, therefore, severable. The learned trial Court was, therefore, required to consider the reasoning of the arbitrators in respect of each item of the claim and to affirm those parts of the award which did not suffer from any defect in reasoning. The learned trial Court instead of doing this, proceeded to set aside the award as a whole. On this score also the impugned order is liable to be set aside.
17. As noted above, the total claim of the appellant was for a sum of Rs.6,48,01,065. The claim was broken down into different heads and was adjudicated separately in respect of each head and subhead of claim. There were, in all, sixteen items decided by the arbitrators. The claim of the appellant in respect of some of the items was rejected by the arbitrators. Since the appellant did not file any objections to the award, such rejection has attained finality. It is only in respect of the items of the appellant's claim which have been allowed and are disputed by the respondent- Department that I have confined my examination of the case.
18. Part-A of the appellant's claim was based on work done but not paid for. Item No.2 under this head was in respect of the casting additional length in a test pile along with idle time from 26-11- 1991 to 15-2-1992. The aggregate amount claimed for this item was Rs.5,03,184 the arbitrators have awarded Rs.25,000 for the additional casting and Rs.3,54,099 for idle time.
19. The award for idle time has been objected to by the learned Law Officer on the ground that it is beyond the terms of Reference. This contention is well-founded because in the Reference set out in the order of the learned trial Court dated 12-1-1997 the arbitrators were only to look at the claim on account of work done and not for idle time. Learned counsel for the appellant, however, contended that because of the inadequacy of the original design for piling, the department had to redesign the same. As a result, the length of the piling was increased from 18 meters to 21 meters. According to the appellant, during the period it took the department to redesign the piling, the appellant was entitled to idle time. It may well be that the appellant could have had a valid claim for idle time.
This matter, however, was not referred to m arbitration and, therefore, could not have been decided by the arbitrators. In the circumstances, the award of Rs.3,54,099 for idle time could not have been allowed by the arbitrators.
20. The next disputed item under part-A of the appellant's claim is item No.5 thereof. This is the most contentious element of this case. The appellant had claimed a total sum of Rs.74,68,000 as cost of steel (Messrs H.T. And Deformed Bars) used in the project which was furnished by the appellant. This claim was resisted by the respondent-Department on the ground that the steel had to be furnished by the appellant itself. According to the department, the execution of this item was to be undertaken in conformity with standard Specification No.821. The department's witnesses before the learned trial Court and its XEN before me vigorously asserted this fact. In their award, the arbitrators have reproduced the wording of Specification No.821 which envisages the furnishing of steel by the contractor. It has, however, been noted by the arbitrators that the Bid Schedule in the contract did not make any reference to Specification No.821. On the contrary, the appellant as contractor was only required to fabricate the steel. The contract documents have been seen by me. From the same it is clear that there is no mention of Specification No.821 therein. Furthermore, the contractor has only been required to quote prices for "fabrication" and not for "furnishing and fabrication" as asserted by the department. Mr. Akbar Ali, XEN of the department was also not able, to show from the contract documents that the contractor was obliged to quote rates of steel on the basis of Specification No.821.
21. The arbitrators have given detailed reasons based on the contract documents for concluding that the steel required in the project, was to be furnished by the department except for bid items Nos.1.2.01 and 3.05. As for the remaining 15 BOQ items, referred to in the award, the steel had to be furnished by the department. It has been noted in the arbitration award that bid items Nos.1.2.01 and 3.05 had to be executed by the contractor inclusive of all materials required for this purpose.
On the other hand, this stipulation was not mentioned in the 15 other BOQ items in which steel was to be used.
22.Considering the above circumstances and reasoning of the arbitrators, I find that they were fully justified in awarding the sum of Rs.68,44,970 to the appellant against item No.5 of Part-A of the claim.
23.The next point of contention between the parties is Part-B of the claim, based on the escalation in cost of fuel and labour during the contract period. The appellant had raised a claim of Rs.30,49,901 in respect of this item. The claim was resisted by the department on the ground that it was not permissible under the contract. The arbitrators, have, however, allowed the entire claim.
They have based their finding on clause 25 of the conditions of contract. In order to understand the reasoning of the arbitrators clause 25 is reproduced as under:-- "Clause 25. No claims for payment of an extraordinary nature, such as claims for a bonus, for extra labour, employed in completing the work before the expiry of the contractual period at the request of the Engineer-in-Charge or claims for compensation where work has been temporarily brought to a stand still through no fault of the contractor, shall be allowed unless and to the extent that the same shall have been expressly sanctioned by the Punjab Government under the signature of one of its Secretaries.
24.The arbitrators have relied on certain notifications of the Punjab Government and of the National Assembly which were accepted by the Government for projects for construction of farm-to-market roads. The learned Law Officer, with justification, pointed out that such notifications and any decision made by the Government relating to other projects could not override the express stipulation in clause 25 reproduced above. It is not disputed by learned counsel for the appellant that there is no sanction in the present case by any Secretary of the Punjab Government permitting the escalation envisaged under Clause 25. In these circumstances, the reason given by the arbitrators for awarding the claim is contrary to law. The award in respect of Part-B of the claim, therefore, cannot be upheld.
25.I next take up Part-E of the claim which was awarded by the arbitrators but is disputed by the department. A sum of Rs.3,14,99,539 was claimed by the appellant for the following items:-- (a)Mark-up for a period of 3 years @ 20% average per annum.
(b)Turn over for a period of 3 years @ 20% average per annum.
(c)Devaluation of Pak Rupees, since the maturing of claim to date (i.e. 21-3-1997) @ 30%.
26.The arbitrators have rejected the claim based on (a) and (c) above. They have however, awarded a sum of Rs.81,16,807 in respect of (b) above. The learned Law Officer referred to the case titled Ghulam Abbas v. Trustees of the Port of Karachi PLD 1987 SC 393 to argue that interest could not have been awarded to the appellant. I have gone through the cited precedent and find that the ratio' therein does not in any manner, prohibit the amount awarded by the arbitrators for item
(b) noted above. At this juncture, it is necessary to draw a distinction between interest payment and payment by way. Of damages. The reasons given by the arbitrators for awarding Rs.81,16,807 are on account of damages. They have disallowed the claim for interest (mark-up). The figures and the calculations noted in the award, are not disputed by the department. It is only the legality of the award in respect of (b) above which has been questioned by the learned Law Officer on the basis of the precedent cited by him. In view of the fact that this item of the award is not for interest, the cited precedent has no relevance in the present case.
27.I have not considered it necessary to decide issue No.1-A because of the exercise undertaken above which is permissible to the Court under section 17 of the Arbitration Act. In the circumstances, it is of no consequence that the objections filed by the respondent-Department were submitted in Court after the prescribed period of limitation.
28.In view of the foregoing discussion, the award of Rs.3,49,64,861 is reduced by the two sums of Rs.3,54,099 and the sum of Rs..30,49,901 which have respectively been awarded beyond the terms of Reference and contrary to the provisions of Clause 25 of the contract. As a consequence, the appellant is held entitled to the recovery of Rs.3,15,60,861. A decree for the amount is accordingly passed in favour of the appellant and against the respondents. The appellant shall also be entitled to its costs throughout.