KURIAKOSE CHENNAKKADAN v. IMPLEADEDADDL.P2 : PRADEEP. K

S. Siri Jagan, J.=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=W.P(C) No. 6849 of 2007=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=Dated this, the 23rd day of May, 2012.J U D G M E N TThe petitioner is a PWD contractor. A work was entrustedwith the petitioner for the construction of Kolenchery BranchCanal. He did not complete the work. The contract wasterminated and re-arranged at the risk and cost of the petitioner.The petitioner raised a dispute in respect of the same. Thedispute was referred for arbitration. A sole arbitrator wasnominated by the Subordinate Judge's Court in O.S (Arb.) No.458 of 1982. The arbitrator passed Ext.P1 award, wherein thetermination of the contract with the forfeiture of securitydeposited was upheld. But it was held that the re-arrangementof the work shall not be at the risk and cost of the claimant.That award was under the erstwhile Arbitration Act, 1940.Ext.P1 award was not made into a decree by filing the same incourt as prescribed in the Arbitration Act, 1940. Thereafter, byExt.P2, the 2nd respondent informed the petitioner that onaccount of breach of contract by the petitioner, the respondentssuffered damages to the tune of Rs. 5,37,099/- and the petitionerwas called upon to pay the same. Exts. P4 and P5 Revenuerecovery proceedings were also initiated for recovery of thesame. The petitioner is challenging the said proceedings.2. The petitioner raises two contentions. The first is thatafter suffering Ext.P1 arbitration award, the respondentscannot, without challenging the same appropriately, demanddamages from the petitioner contrary to the specific terms of W.P(C) No. 6849 of 2007-: 2 :-the award. According to the petitioner, once the arbitratormakes the award by signing the same, that becomes finaland binding on both parties to the arbitration proceedingsand the fact that that the arbitration award has not beenfiled in court and made into a decree, does not in any wayaffect the binding nature of the award. Therefore, therespondents cannot, after suffering Ext.P1 arbitrationaward, take the stand that notwithstanding the finding inthe award, insofar as the award has not been made into adecree by filing in court, still they are entitled to recoverdamages for alleged breach of contract. The secondcontention of the petitioner is that the Government being aparty to the contract, cannot, by themselves, decide thequestion of breach of contract and assess damages thereofwithout having the matter adjudicated upon by anindependent authority like a court of law. The petitionerseeks the following relief:“Call for the records and files leading to Ext.P2 issued by2nd respondent as also Exts. P4 and P5 notices issued by4th respondent and quash Exts. P2, P4 and P5 byissuance of a writ in the nature of certiorari or any otherappropriate writ, order or direction.”3. A counter affidavit has been filed by the 2ndrespondent, wherein the stand taken is that on account ofbreach of contract by the petitioner, the respondentsincurred expenses for rearranging the work throughanother contractor and the excess amount incurred by therespondents for completing the work is sought to berecovered as damages from the petitioner. According to W.P(C) No. 6849 of 2007-: 3 :-them, Ext.P1 award would become binding on them onlywhen it has been filed in court as contemplated by theArbitration Act, 1940 and the court in which it is filed makesthat award into a decree. Therefore, the petitioner cannotnow rely upon Ext.P1 award to escape from the liability topay damages, is the contention raised.4. I have considered the rival contentions in detail. 5. The question as to whether an arbitration awardbinds the parties to the award notwithstanding the fact thatit has not been filed in court and made into a decree is nomore res integra, insofar as the Supreme Court has finallyspoken on that issue as early as in 1970, in the decision ofSathish Kumar and others v. Surinder Kumar andothers, reported in AIR 1970 SC 833. In that case, afterconsidering the effect of Section 14 of the Arbitration Act,1940 read with Section 3 and Rule 7 of the First Schedule tothe Act, the Supreme Court held that the award is final andbinding on the parties as soon as the same is signed by thearbitrator, notwithstanding the fact that it has not beenmade a rule of the court. The same is a three benchdecision. Two of the Hon'ble Judges wrote one judgmentand the third Judge wrote a separate judgment, agreeingwith the other two Judges, but adding a few words by hisown in support of the judgment of the other two Judgeswhich makes a legal position explicitly clear. It is held thustherein:“19. HEDGE, J. I agree. But I would like to add fewwords. Arbitration proceedings, broadly speaking may bedivided into two stages. The first stage commences witharbitration agreement and ends with the making of theaward. And the second stage relates to the enforcement of W.P(C) No. 6849 of 2007-: 4 :-the award. Paragraph 7 of the First Schedule to theArbitration Act lays down that “the award shall be final andbinding on the parties and persons claiming under themrespectively.” Therefore, it is not possible to agree withthe Full Bench decisions of the Patna High Court and thatof the Pujab and Haryana High Court that an award whichis not made a decree of the Court has no existence in law.The learned Judges who decided those cases appear to haveproceeded on the basis that an award which cannot beenforced is not a valid award and the same does not createany rights in the property which is the subject matter of theaward. This in my opinion is not a correct approach. Theaward does create rights in that property but those rightscannot be enforced until the award is made a degree of theCourt. It is one thing to say that a right is not created, it isan entirely different thing to say that the right createdcannot be enforced without further steps. . . . . .”6. The same position of law was reiterated by theSupreme Court in Satwant Singh Sodhi v. State ofPunjab and others, (1999) 3 SCC 487, wherein also it hasbeen categorically held that delivery, pronouncement orfiling in court are not necessary for making an arbitrationaward complete and that once the arbitrator signs the same,it becomes binding on the parties to the award. That beingso, I do not find any merit in the contention of therespondents that Ext.P1 award would become binding onthe respondents only when it is made into a decree by filingthe same in court. In Ext.P1 award, it has been specificallyheld that the re-arrangement of the work shall not be at therisk and cost of the petitioner. The respondents have notchosen to challenge that award and therefore it has becomefinal and binding on the respondents. If that be so, therespondents cannot now recover the alleged damages onthe ground that the petitioner has committed breach ofcontract consequent to which the respondents have W.P(C) No. 6849 of 2007-: 5 :-suffered loss in the matter of re-arrangement of the work.7. I find merit in the second contention of thepetitioner as well. The Supreme Court and this Court havefinally settled the law on the subject in various decisions. Ithas been categorically held that a party to a contract, eventhat party is the Government, cannot unilaterally decidethat there is breach of contract by the other party andunilaterally assess damages for such breach of contract.Here, Government is a party to the contract with thepetitioner. Therefore, going by the law laid down bycourts, the Government cannot unilaterally decide thequestion as to whether the petitioner has committed breachof contract and quantify the alleged damages arisingtherefrom, especially when the petitioner categoricallydisputes that there is any fault on his part in not completingthe work. Therefore, on both counts, the petitioner isentitled to succeed.Accordingly, the writ petition is allowed. Exts. P2,P4 and P5 are quashed. It is declared that the respondentsare not entitled to recover any amount as damages for thealleged breach of contract from the petitioner in view ofExt.P1 award. Sd/- S. Siri Jagan, Judge.Tds/