Full Judgment Text
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CASE NO.:
Appeal (civil) 1874 of 2007
PETITIONER:
FOOD CORPORATION OF INDIA
RESPONDENT:
M/S.CHANDU CONSTRUCTION & ANR
DATE OF JUDGMENT: 10/04/2007
BENCH:
TARUN CHATTERJEE & D.K. JAIN
JUDGMENT:
J U D G M E N T
CIVIL APPEAL NO. 1874 OF 2007
[Arising out of S.L.P. (Civil) No. 3335 of 2006)
D.K. JAIN, J.:
Leave granted.
2. Challenge in this appeal, by the Food Corporation of
India (for short "FCI"), is to the final judgment and order
dated 14th October, 2005 passed by the Division Bench of
the High Court of Judicature at Bombay, affirming the
judgment of the learned Single Judge in Arbitration
Petition No.334 of 2004. By the impugned order, the
award of an amount of Rs.8,23,101/- by the sole
arbitrator against claim No.9 has been upheld.
3. A brief factual background giving rise to the appeal
is as follows:
The FCI undertook construction of godowns at
Panvel, District Raigad and issued notice inviting tenders
for construction of 50000 MT capacity conventional
godowns in 10 units alongwith ancillary work and
services. Pursuant thereto, the respondents (hereinafter
referred to as the claimants) submitted tender, which was
accepted by the FCI. A formal contract was executed
between the FCI and the claimants on 19th September,
1984. As per the terms of the contract, the work was to
be completed within 10 months from 30th day of issue of
the orders and the time was deemed to be of the essence
of the contract.
4. As the claimants could not complete the work
within the stipulated time, which was once extended, the
FCI issued a show cause notice to them seeking to
terminate the contract. Ultimately the contract was
terminated vide order dated 15th November, 1987. The
claimants invoked the arbitration agreement and
requested the FCI to appoint an arbitrator. Since there
was no response from the FCI, the claimants filed a suit
in the High Court for appointment of an arbitrator. An
arbitrator was appointed, who gave his award on 27th
August, 1998. As payment in terms of the award was not
made, the claimants again moved the High Court. The
FCI, in turn, filed a petition in the High Court for setting
aside of the award. With the consent of parties, the
award was set aside and the matter was remitted to the
Arbitrator for fresh adjudication.
5. In fresh proceedings before the Arbitrator, the stand
of the claimants, qua Claim No.9 was that the rate quoted
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by them for filling the plinth under floors including
watering, ramming, consolidation and dressing in terms
of item No.1.7 of the Schedule of rates was only for
labour and did not cover "providing or supplying" sand
for the said purpose and yet they were required to supply
sand for filling. As such the claimants were entitled to be
paid extra for supply of sand. Accordingly, they made a
claim of Rs.8,23,101/- for providing and supplying
5487.34 cubic meters of sand.
6. The claim was resisted by the FCI on the ground
that the scope of work, specifications and the item rates
was governed by the terms of the contract and as per
clause (2) of the agreement dated 19th September, 1984,
the claimants were to be paid the "respective amount for
the work actually done by him at the ’Schedule of rates’
as contained in the appended Schedule and such other
sums as may become payable to the contractor under the
provisions of this contract". The contract clearly
stipulated that the work was to be carried out as per
specifications contained in Volume I and II of C.P.W.D.
manual, para 2.9.4 whereof provided that the "Rate"
includes the cost of materials and labour. Therefore, the
claimants were not entitled to any extra amount for
supply of sand. The arbitrator gave his award on 31st
December, 2003 accepting the said claim. For reference,
the relevant portion of the award is extracted below:
"According to defence under the provision
of 1967 CPWD specification Vol.I & II, the
nature of the item includes sand also and
not merely the labour charges, similarly
the rate of sand filling is for consolidated
thickness or loose thickness or voids to
any extent and this claim is denied into
to. Now here the dispute between the two
parties is over the words supplying and
providing and in respect of this item the
particular words are missing whereas as
observed earlier they were being found in
respect of certain other items. According
to the Claimants since these words were
missing in respect of this item of work,
they took it that the material i.e. sand
would be supplied and, therefore, they
quoted only the labour rate. The tender
of M/s Gupta and Co. as pointed out to
me, shows that in respect of this item of
work, these words providing and
supplying were used. It is submitted that
there can’t be two different phrapavlogies
in respect of the same item and as
observed earlier, nothing prevented the
FCI from using those words and not
giving rise of any confusion. Comparative
statement showing contents and details
of schedule items based on tender
working with PWD Bombay which clearly
provides for rates for quantity of work for
schedule items. The Claimants here are
trying to establish that their quotations
were based without including the cost of
materials supplied. If we see the figures
in respect of the items, we find
substantial force in the say of Claimants
that the rate quoted by them is so low
that it could not be in respect of price
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inclusive of cost of sand. If we see the
wording of specification with Contractor
M/s. Gupta & Co., we find additional
words supplying and providing have been
added under similar items of the
schedule. Why these words were missing
in case of Claimants is difficult to follow.
The Respondents content that 1967
CPWD’s specification in Vol.I & II covers
the specifications not only for labour
charges but also for providing and
supplying of the materials required. It is
very difficult to understand this defence,
for if we look at the figures quoted in the
tenders it would make it absolutely clear
that the inclusion of cost of sand could
not have to be in the mind of the
Contractor Claimants. The figures are
very low and I may be permitted to say
that these figures do not cover the cost of
sand. There is force in the say of the
Claimant that he did not vouch that he
himself was to supply sand. Of course, I
must say that there is no very satisfactory
evidence about the quantity of sand used,
its price and amount paid by the claimant
to his suppliers but when the work was
done the FCI was bound to take upon it
to make the payment though it may
appear to be somewhat arbitrary. I allow
this claim of 8,23,101/- (Rupees Eight
lacs twenty three thousand and one
hundred and one only)."
7. Being aggrieved, the FCI filed objections against the
award under Section 30 of the Indian Arbitration Act,
1940 praying for setting aside of the award on claim no.9,
but without any success. The learned Single Judge
affirmed the view taken by the Arbitrator that the rate
quoted by the claimant did not include the cost of the
material. The FCI carried the matter in appeal before the
Division Bench. Before the Division Bench, the FCI also
attempted to raise the issue of award of interest by the
Arbitrator, which was not permitted on the ground that
the issue was neither taken up before the Arbitrator nor
was raised before the learned Single Judge. As noted
above, the Division Bench has dismissed the appeal.
Hence, the present appeal.
8. Learned counsel for the petitioner has submitted
that the claim for supply of sand against Claim No.9 was
patently opposed to the terms of the contract between the
parties. It is urged that the relevant clause of the
contract is clear, unambiguous and admits of no such
interpretation as has been given by the arbitrator. It is,
thus, pleaded that the arbitrator has misconducted
himself in awarding additional amount of Rs.8,23,101/-
in favour of the claimants, which part of the award
deserves to be set aside.
9. On the other hand, learned counsel for the
claimants submitted that it was within the domain of the
arbitrator to construe the terms of contract in the light of
the evidence placed on record by the claimants,
particularly the terms of similar contracts entered into by
the FCI with the other contractors. It is asserted that the
view taken by the arbitrator being plausible the High
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Court was justified in declining to interfere with the
award.
10. While considering objections under Section 30 of
the Arbitration Act, 1940 (for short ’the Act"), the
jurisdiction of the Court to set aside an award is limited.
One of the grounds, stipulated in the Section, on which
the Court can interfere with the award is when the
arbitrator has ’misconducted’ himself or the proceedings.
The word "misconduct" has neither been defined in the
Act nor is it possible for the Court to exhaustively define
it or to enumerate the line of cases in which alone
interference either could or could not be made.
Nevertheless, the word "misconduct" in Section 30 (a) of
the Act does not necessarily comprehend or include
misconduct or fraudulent or improper conduct or moral
lapse but does comprehend and include actions on the
part of the arbitrator, which on the face of the award, are
opposed to all rational and reasonable principles
resulting in excessive award or unjust result. (Union of
India Vs. Jain Associates and Anr. .
11. It is trite to say that the arbitrator being a creature
of the agreement between the parties, he has to operate
within the four corners of the agreement and if he ignores
the specific terms of the contract, it would be a question
of jurisdictional error on the face of the award, falling
within the ambit of legal misconduct which could be
corrected by the Court. We may, however, hasten to add
that if the arbitrator commits an error in the construction
of contract, that is an error within his jurisdiction. But,
if he wanders outside the contract and deals with matters
not allotted to him, he commits a jurisdictional error (see:
Associated Engineering Co. Vs. Government of
Andhra Pradesh and Anr. and Rajasthan State
Mines & Minerals Ltd. Vs. Eastern Engineering
Enterprises & Anr. ).
12. In this context, a reference can usefully be made to
the observations of this Court in M/s. Alopi Parshad
and Sons, Ltd. Vs. Union of India , wherein it was
observed that the Indian Contract Act does not enable a
party to a contract to ignore the express covenants
thereof, and to claim payment of consideration for
performance of the contract at rates different from the
stipulated rates, on some vague plea of equity. The Court
went on to say that in India, in the codified law of
contracts, there is nothing which justifies the view that a
change of circumstances, "completely outside the
contemplation of parties" at the time when the contract
was entered into will justify a Court, while holding the
parties bound by the contract, in departing from the
express terms thereof. Similarly, in The Naihati Jute
Mills Ltd. Vs. Khyaliram Jagannath , this Court had
observed that where there is an express term, the Court
cannot find, on construction of the contract, an implied
term inconsistent with such express term.
13. In Continental Construction Co. Ltd. Vs. State of
Madhya Pradesh , it was emphasised that not being a
conciliator, an arbitrator cannot ignore the law or
misapply it in order to do what he thinks is just and
reasonable. He is a tribunal selected by the parties to
decide their disputes according to law and so is bound to
follow and apply the law, and if he does not, he can be set
right by the court provided his error appears on the face
of the award.
14. In Bharat Coking Coal Ltd. Vs. Annapurna
Construction while inter alia, observing that the
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arbitrator cannot act arbitrarily, irrationally, capriciously
or independent of the contract, it was observed, thus:
"There lies a clear distinction between an
error within the jurisdiction and error in
excess of jurisdiction. Thus, the role of
the arbitrator is to arbitrate within the
terms of the contract. He has no power
apart from what the parties have given
him under the contract. If he has
travelled beyond the contract, he would
be acting without jurisdiction, whereas if
he has remained inside the parameters of
the contract, his award cannot be
questioned on the ground that it contains
an error apparent on the face of the
record."
15. Therefore, it needs little emphasis that an arbitrator
derives his authority from the contract and if he acts in
disregard of the contract, he acts without jurisdiction. A
deliberate departure from contract amounts to not only
manifest disregard of his authority or a misconduct on
his part, but it may tantamount to a mala fide action
[Also see: Associated Engineering Co. Vs. Government
of Andhra Pradesh & Anr. (supra)].
16. Thus, the issue, which arises for determination, is
whether in awarding Claim No.9, the arbitrator has
disregarded the agreement between the parties and in the
process exceeded his jurisdiction and has, thus,
committed legal misconduct?
17. For deciding the controversy, it would be necessary
to refer to the relevant clauses of the contract, which read
thus:
"1. GENERAL SPECIFICATIONS:
1.1 The civil sanitary, water supply and road
works shall be carried out as per Central
Public Works Department specification of
works at Delhi 1967 Volume I & II with
correction slips upto date\005\005In the case
of civil, sanitary, water supply and road
works and electrical works should there
be any difference between the Central
Public Works Department specifications
mentioned above and the specifications of
schedule of quantities, the latter i.e. the
specification of schedule of quantities,
shall prevail. For items of work not
covered in the C.P.W.D. specifications or
where the C.P.W.D. specifications are
silent on any particular point, the
relevant specifications or code of practice
of the Indian Standard Institution shall
be followed.
1.2 Should any clarification be needed
regarding the specifications for any work
the written instructions from the
Engineer-in-Charge shall be obtained."
18. Paragraph 2.9.4 of the C.P.W.D. specifications
insofar as it is relevant for the present appeal, reads as
follows:
"Rate:- It includes the cost of materials
and labour involved in all the operations
described above’."
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19. From the above extracted terms of the agreement
between the FCI and the claimants, it is manifest that the
contract was to be executed in accordance with the
C.P.W.D. specifications. As per para 2.9.4 of the said
specifications, the rate quoted by the bidder had to be for
both the items required for construction of the godowns,
namely, the labour as well as the materials, particularly
when it was a turn key project. It is to be borne in mind
that filling up of the plinth with sand under the floors for
completion of the project was contemplated under the
agreement but there was neither any stipulation in the
tender document for splitting of the quotation for labour
and material nor was it done by the claimants in their
bid. The claimants had submitted their tender with eyes
wide open and if according to them the cost of sand was
not included in the quoted rates, they would have
protested at some stage of execution of the contract,
which is not the case here. Having accepted the terms of
the agreement dated 19th September, 1989, they were
bound by its terms and so was the arbitrator. It is, thus,
clear that the claim awarded by the arbitrator is contrary
to the unambiguous terms of the contract. We are of the
view that the arbitrator was not justified in ignoring the
express terms of the contract merely on the ground that
in another contract for a similar work, extra payment for
material was provided for. It was not open to the
arbitrator to travel beyond the terms of the contract even
if he was convinced that the rate quoted by the claimants
was low and another contractor, namely, M/s Gupta and
Company had been separately paid for the material.
Claimants’ claim had to be adjudicated by the specific
terms of their agreement with the FCI and no other.
20. Therefore, in our view, by awarding extra payment
for supply of sand the arbitrator has out-stepped confines
of the contract. This error on his part cannot be said to
be on account of misconstruing of the terms of the
contract but it was by way of disregarding the contract,
manifestly ignoring the clear stipulation in the contract.
In our opinion, by doing so, the arbitrator misdirected
and misconducted himself. Hence, the award made by
the arbitration in respect of claim No.9, on the face of it,
is beyond his jurisdiction; is illegal and needs being set
aside.
21. Consequently, the appeal is allowed and the
impugned judgment of the High Court, to the extent it
pertains to claim No.9 is set aside. However, on the facts
and circumstances of the case, there shall be no order as
to costs.