Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8
CASE NO.:
Appeal (civil) 3167-3168 of 2005
PETITIONER:
Ramnath International Construction Pvt. Ltd
RESPONDENT:
Union of India
DATE OF JUDGMENT: 11/12/2006
BENCH:
H. K. SEMA & R. V. RAVEENDRAN
JUDGMENT:
J U D G M E N T
H.K.SEMA,J.
The validity and legality of the judgment dated
31.10.2002 of the Division Bench of the High Court of Madras in
OSA. No. 27/1995 and 25/1996 is assailed in these appeals.
2. The appellant was awarded two contracts - the first for
construction of LRMR Aircraft Hangar and Airtech Hangar and
connected works; and the second for construction of roads and
allied works at NAS Arakonam. In respect of the two contracts,
hereinafter referred to as the Hangar Contract and Road
Contract, the tenders submitted by appellant were accepted on
10.10.1988 and 3/5.1.1989 respectively. The necessary
agreements were executed between the parties. Disputes arose
between the parties in respect of those contracts and the matter
was referred to Arbitration. The Arbitrator after examining the
oral and documentary evidence made his Awards dated
20.7.1993 and 5.3.1994. Applications were filed before the
learned Single Judge by the respondent herein for setting aside
the Awards. The learned Single Judge by orders dated 24.8.1994
and 22.9.1995 rejected the applications and in each case made a
rule of the court in terms of the award. Being aggrieved the
respondent filed OSA Nos. 27/1995 and 25/1996, which were
partly allowed by the Division Bench of the High Court. Hence,
the present appeals by the claimant contractor.
3. It may not be necessary for us to refer to the entire facts
leading to the filing of the present appeals as the substantial
question of law posed requires reference to limited facts. Suffice
it to say that awards of the learned Arbitrator related to claims
under several heads. The controversy in these appeals relate to
award in respect of item no. 24 in the Hangar contract and items
13 to 16 in respect of the road contract. The particulars thereof
are extracted below :
Item No.
Description of work
Amount claimed
Amount awarded
Hanger Contract
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8
24
Amount due on account of
escalation in materials and
labour
Rs.2,77,41,692
Rs.51,36,015/98
Road Contract
13
Loss of profit due to turnover
loss for staying beyond
contract period
Rs.2,34,78,404
Rs.41,51,847/50
14.
Additional compensation for
work done beyond original
contract period
Rs.22,89,200
15
Loss of profit on balance
work due to termination of
contract
Rs.26,00,000
16.
Escalation payable for the
period 5.3.1992 to date of
termination
Rs.3,50,000
4. In regard to Hangar Contract, undisputedly, the contract
work had to be completed in two phases, the first phase by
31.10.1989 and the second phase by 30.4.1990. However, the
contract work could not be completed within the stipulated
time, partly due to the default on the part of respondent. It is
also undisputed that on the request of the contractor, the
employer gave several extensions \026 by a letter dated 28.2.1990
the period of completion of work was extended up to
30.6.1990; by a letter dated 10.5.1991 it was extended up to
31.5.1991; by a letter dated 27.8.1991 it was extended up to
30.9.1991; by a letter dated 23.1.1992 the time was extended
up to 15.4.1992; by a letter dated 15.5.1992 it was extended
up to 28.5.1992 and by a letter dated 4.6.1992, it was further
extended up to 22.6.1992. The contract was subsequently
terminated by the employer on 1.7.1992.
5. In respect of the road contract, the date of
commencement of work was 3.1.1989. The due date of
completion was 2.11.1990 (21 months). The employer granted
extensions from time to time on the request of the contractor
up to 31.5.1992. Subsequently, the contract was terminated
by the employer on 14.7.1992.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8
6. The basis of the disputed claims is that the execution
of work was delayed on account of breaches on the part of the
employer and the employer is liable to compensate the
contractor for all losses and extra cost on account of such
delay and extended execution.
7. These claims were resisted by the employer on the
ground that the contractor himself was liable for delays; that
the employer had granted extension for the delays; and that
the contract prohibits the contractor from making any claim
for compensation or otherwise, howsoever, arising as a result
of extension of time granted in terms of the contract.
8. The Arbitrator held that where the work was
delayed on account of delays attributable to the employer,
grant of extension of time by the employer for completing of
work does not exonerate the employer from the liability to pay
damages for breach on account of the delay caused by the
employer unless the employer establishes that the contractor
has consented to accept the extension of time alone, in
satisfaction of his claims for the delay. The Arbitrator held that
in these two contracts, the employer was not released of his
liability for damages on account of the delays, by granting
extension of time. He, therefore, proceeded to quantify the loss
and awarded the amounts as aforesaid. The awards of the
Arbitrator on these items were affirmed by the learned Single
Judge by making the awards a rule of the court, by judgments
dated 24.8.1994 and 22.9.1995.
9. The Division Bench of the High Court after
considering the threadbare submissions on the question of law
arrived at a conclusion that the Arbitrator has exceeded its
jurisdiction in making an award towards claim no. 24 in the
Hangar Contract and an award towards claim nos. 13 to 16 in
the Road Contract, as they were made in derogation of clause
11(C) of the contract, which prohibited the contractor from
making any claim for compensation or otherwise, howsoever,
arising, as a result of extension of time granted under the
contract.
10. The core questions which arise for our consideration
are these :
(a) Whether claim no. 24 of Hangar Contract
and claim nos. 13 to 16 of road contract are
unsustainable being in derogation of clause
11(C) of the contract, which prohibits any
compensation as a result of extension of time
granted by the department?
(b) Whether the Arbitrator committed a legal
misconduct for not acting in terms of clause
11(C) of the contract though pleaded and
submitted before him?
Re : Question (i)
11. Section 11 of the General Conditions of Contract relates
to time, delay and extension. We extract below the portions of
section 11 relevant for our purpose:
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8
"Section 11 : Time, Delay and Extension
(A) Time is of the essence of the contract and
is specified in the contract documents or in
each individual works order.
As soon as possible after contract is let or any
substantial work order is placed and before
work under it is begun, the G.E. and the
contractor shall agree upon the time and
progress chart. The chart shall be prepared in
direct relation to the time stated in the
contract documents or the works order for
completion of the individual items thereof
and/or the contract or works order as a whole.
It shall include the forecast of the dates for
commencement and completion of the various
trades processes or sections of the work, and
shall be amended as may be required by
agreement between the G.E. and the
contractor within the limitation of time
imposed in the contract documents or works
order. If the work be delayed :
(i) by force majeure, or
(ii) by reason of abnormally bad weather, or
(iii) by reason of serious loss or damage by
fire, or
(iv) by reason of civil commotion, local
combination of workmen, strike or lockout,
affecting any of the trades employed on the
work, or
(v) by reason of delay on part of nominated
subcontractors, or nominated suppliers which
the contractor has, in the opinion of G.E.,
taken all practicable steps to avoid, or reduce,
or
(vi) by reason of delay on the part of
contractors or tradesmen engaged by
government in executing work not forming part
of the contract, or
(viii) by reason of any other cause, which in
the absolute discretion of the accepting officer
is beyond the contractors control;
then in any such case the officer herein after
mentioned may make fair and reasonable
extension in the completion dates of individual
items or groups of items of works for which
separate periods of completion are mentioned
in the contract documents or works order, as
applicable.
x x x x x
(B) If the works be delayed :
(a) by reason of non-availability of
government stores in schedule B or
(b) by reason of non-availability or
breakdown of government tools and plant
listed in schedule C;
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8
then, in any such event, notwithstanding the
provisions hereinbefore contained, the
accepting officer may in his discretion, grant
such extension of time as may appear
reasonable to him and the same shall be
communicated to the contractor by the G.E. in
writing. The decision so communicated shall
be final and binding and the contractor shall
be bound to complete the works within such
extended time.
(C) No claim in respect of compensation or
otherwise, howsoever arising, as a result of
extensions granted under condition (A) and (B)
above shall be admitted."
Clause (C) provides that where extensions have been granted
by reason of the delays enumerated in Clause (A) which were
beyond the control of the contractor, or on account of the
delays on the part of the employer specified in Clause (B), the
contractor is not entitled to make any claim either for
compensation or otherwise, arising in whatsoever manner, as
a result of such extensions. After enumerating certain delays,
sub-clause (viii) of Clause (A) specifically mentions delay on
account of any other cause beyond the control of the
contractor. The causes for delays specified in clause A, thus,
encompass all delays over which the contractor has no
control. This will necessarily include any delays attributable to
the employer or any delay for which both the employer and the
contractor are responsible. The contract thus provides that if
there is any delay, attributable either to the contractor or the
employer or to both, and the contractor seeks and obtains
extension of time for execution on that account, he will not be
entitled to claim compensation of any nature, on the ground of
such delay, in addition to the extension of time obtained by
him. Therefore, the claims for compensation as a consequence
of delays, that is claim 24 of Hangar Contract and claims 13 to
16 of Road Contract are barred by clause 11(C).
12. We are fortified in this view by several decision of this
Court. We may refer to two of them. In Associated Engineering
Co. vs. Government of Andhra Pradesh [1991 (4) SCC 93], this
Court was concerned with an appeal which related to similar
claims based on delays in execution. The High Court had held
(reported in AIR 1990 AP 294) thus :
Applying the principle of the above decision to
the facts of the case before us, it must be held
that clause 59 bars a claim for compensation
on account of any delays or hindrances caused
by the department. In such a case, the
contractor is entitled only to extension of the
period of contract. Indeed, such an extension
was asked for, and granted on more than one
occasion. (The penalty levied for completing
the work beyond the extended period of
contract has been waived in this case). The
contract was not avoided by the contractor,
but he chose to complete the work within the
extended time. In such a case, the claim for
compensation is clearly barred by clause 59 -of
the APDSS which is admittedly, a term of the
agreement between the parties.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8
This Court noticed that the claims were set aside by the High
Court on the ground that those claims were not supported by
any agreement between the parties, and that the arbitrator
had travelled outside the contract in awarding those claims.
This Court held that the said claims were not payable under
the contract and that the contract does not postulate, in fact
prohibits, payment of any escalation under those heads. It
affirmed the decision of the High Court setting aside the award
of those claims.
In Ch. Ramalinga Reddy vs. Superintending Engineer [1999 (9)
SCC 610], while considering the similar claim, this Court
observed thus :
"Claim 8 was for ’payment of extra rates for
work done beyond agreement time at schedule
of rate prevailing at the time of execution’. The
arbitrator awarded the sum of Rs.39,540.
Clause 59 of the A.P. Standard Specifications,
which applied to the contract between the
parties, stated that no claim for compensation
on account of delays or hindrances to the work
from any cause would lie except as therein
defined. The claim falls outside the defined
exceptions. When extensions of time, were
granted to the appellant to complete the work,
the respondents made it clear that no claim for
compensation would lie. On both counts,
therefore, claim 8 was impermissible and the
High Court was right in so holding."
We, therefore, answer the first question in the affirmative.
Re : Question (ii) :
13. The arbitrator in his two speaking Awards recorded the
following finding regarding delay :
"From the facts and evidence placed before me,
I find that the department cannot absolve itself
of partial breaches committed which are of
fundamental nature and had snow-ball effect.
The department alone is not fully responsible,
the contractor also has contributed to certain
delays." (in the Hangar Contract).
"The documents, the evidence and the
arguments clearly indicate that the delay for
completing has been a joint responsibility of
both the Department and Contractor" (in Road
Contract).
Inspite of having held that both were responsible for the delay
and having noticed the arguments based on clause 11(C) of
the General Conditions of contract, the Arbitrator proceeded to
award damages on the ground of delay on the reasoning that
the contractor is entitled to compensation, unless the
employer establishes that the contractor has consented to
accept the extension of time alone in satisfaction of his claim
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8
for delay. As rightly held by the High Court, which decision we
have affirmed while considering questions no. (i), clause 11 (C)
of the General Conditions of Contract is a clear bar to any
claim for compensation for delays, in respect of which
extensions have been sought and obtained. Clause 11(C)
amounts to a specific consent by the contractor to accept
extension of time alone in satisfaction of his claims for delay
and not claim any compensation. In view of the clear bar
against award of damages on account of delay, the arbitrator
clearly exceeded his jurisdiction, in awarding damages,
ignoring clause 11(C). In Associated Engineering Co. (supra)
this Court held :
"The arbitrator cannot act arbitrarily,
irrationally, capriciously or independently of
the contract. His sole function is to arbitrate in
terms of the contract. He has no power apart
from what the parties have given him under
the contract. If he has travelled outside the
bounds of the contract, he has acted without
jurisdiction\005\005\005..."
x x x x
A dispute as to the jurisdiction of the
arbitrator is not a dispute within the award,
but one which has to be decided outside the
award. An umpire or arbitrator cannot widen
his jurisdiction by deciding a question not
referred to him by the parties or by deciding a
question otherwise than in accordance with
the contract. He cannot say that he does not
care what the contract says. He is bound by it.
It must bear his decision. He cannot travel
outside its bounds. If he exceeded his
jurisdiction by so doing, his award would be
liable to be set aside\005\005 In the instant case,
the umpire decided matters strikingly outside
his jurisdiction. He outstepped the confines of
the contract. He wandered far outside the
designated area. He digressed far away from
the allotted task. His error arose not by
misreading or misconstruing or
misunderstanding the contract, but by acting
in excess of what was agreed. It was an error
going to the root of his jurisdiction because he
asked himself the wrong question, disregarded
the contract and awarded in excess of his
authority. In many respects, the award flew in
the face of the provisions of the contract to the
contrary."
In Rajasthan State Mines & Minerals Ltd. v. Eastern
Engineering Enterprises & Anr. [1999 (9) SCC 283], this Court
held thus :
"The rates agreed were firm, fixed and binding
irrespective of any fall or rise in the cost of the
work covered by the contract or for any other
reason or any ground whatsoever. It is
specifically agreed that the contractor will not
be entitled or justified in raising any claim or
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8
dispute because of increase in cost of expenses
on any ground whatsoever. By ignoring the
said terms, the arbitrator has travelled beyond
his jurisdiction as his existence depends upon
the agreement and his function is to act within
the limits of the said agreement. This
deliberate departure from the contract
amounts not only to manifest disregard of the
authority or misconduct on his part but it may
be tantamount to mala fide action\005\005\005\005\005.It
is settled law that the arbitrator is the creature
of the contract between the parties and hence
if he ignores the specific terms of the contract,
it would be a question of jurisdictional error
which would be corrected by the court and for
that limited purpose the agreement is required
to be considered\005\005\005. He cannot award an
amount which is ruled out or prohibited by the
terms of the agreement."
14. In the view that we have taken the Arbitrator clearly
misconducted himself in awarding compensation under claim
no. 24 under Hangar Contract and claim nos. 13 to 16 under
the Road Contract which was rightly set aside by the High
Court in the order impugned herein, on the ground that the
Arbitrator had acted in excess of his jurisdiction.
15. There is no infirmity in the impugned order of the High
Court. These appeals being devoid of merits are, accordingly,
dismissed. Parties are asked to bear their own costs.