Full Judgment Text
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PETITIONER:
THE STATE OF J & K & ANR.
Vs.
RESPONDENT:
DEV DUTT PANDIT
DATE OF JUDGMENT: 27/08/1999
BENCH:
D.P.Wadhwa, M.B.Shah
JUDGMENT:
D.P. Wadhwa, J.
Both the parties are aggrieved by judgment dated
February 6, 1989 of the Division Bench of the High Court of
Jammu and Kashmir passed in an appeal against judgment dated
May 10, 1986 by the learned single Judge of that High Court.
While the learned single Judge made the award given under
the Arbitration Act, 1940 a rule of the court and also
granted interest, the Division Bench in appeal deleted two
claims from the award and also reduced the rate of interest.
The award was in favour of Dev Dutt Pandit, the Contractor.
He is aggrieved by deletion of two claims and also lowering
the rate of interest and the State is aggrieved against the
award itself. Thus two separate appeals.
Tender of the contractor for earth work, excavation,
minor drainage crossing, overhead crossing, road bridges and
cement concrete lining of Ravi Canal Project was accepted by
the State Government and by order dated May 6, 1976 work was
allotted to him. The work was to be completed within 18
months, time being the essence of the contract. On May 22,
1976 contractor commenced work. He could not complete the
work within the stipulated time. The contract was partially
terminated in the structural portion of the work on January
12, 1980. On June 6, 1980 the whole of the contract was
terminated because of default committed by the contractor.
The contractor filed a petition under Section 20 of the
Arbitration Act as the contract stipulated arbitration
agreement between the parties. Some of the terms of the
contract containing the arbitration agreement, we may
reproduce as under :
"5. CONTRACT RATES :
The contractor shall be paid for the works executed by
him under this agreement at the rates specified in Annexure
I annexed hereto subject to other terms and conditions
embodied in this agreement.
8. VARIATION IN QUANTITIES AND EXTRA ITEMS
The quantities shown in the Annexure III to this
agreement shall not be taken as final. The Engineer
in-charge shall be authorised to direct the contractor to
execute extra items not shown in the aforesaid annexure III
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or increase/ decrease the quantities beyond these described
in the said annexures as may be required to be executed and
for such increase/decrease quantities the contractor shall
be paid at the rates specified in the annexure I.
The quantities shown in the Annexure III may be
decreased in detailed drawings to be furnished to the
contractor during execution and the contractor shall be paid
only for the work done or executed and shall have no claim
for any compensation on account of any profit or advantage
that might have accrued or that may accrue to him otherwise.
14. FORCE MAJOURE
A. The completion schedule is subject to the
operation of the force Majour Clause which for the purpose
of this contract is defined as acts of God, Civil,
commotion, sabotage, fires, floods, earthquakes explosions
or other catastrophes, epidemics, quarantines, restrictions,
strikes, and other labour troubles, embargoes, or other
transportation delays beyond the control of the contractor
for which only extension in time considered reasonable by
the department shall be granted and the contractor shall
have no claim for compensation or increase in rates etc. or
charges for restoring damages to the works plant or
material.
17. DAMAGE TO WORKS
From the commencement to the taking over of the works
by the Department the contractor shall be responsible for
any damage or loss to the works or part thereof caused due
to any reason whatsoever. The contractor shall at his own
cost repair and make good the loss or damage in every
respect to the satisfaction of the Engineer whose
certificate in this behalf shall be conclusive proof of the
defects etc. having been removed.
19. SETTING OUT.
The contractor shall be responsible for the true and
proper setting out of the works and for the correctness of
the positions, levels, bench marks alignments and dimensions
in works and for the provisions and maintenance of all
necessary instruments, appliances, bench marks and reference
marks and labour etc. in connection therewith including
charges therefor shall be borne by him.
Reference line and bench marks will be set upon at the
site of works by the site of works by the department at
contractor’s cost. The contractor shall at his own cost and
responsibility locate and establish temporary bench marks
and reference lines for all the structures as may be
required for the execution of the works according to the
detailed drawings and specifications and as required by the
Engineer. The contractor shall provide at his own cost all
labour and materials that may be required for checking the
works during execution by the staff of Engineer in-charge.
Such checks shall not absolve the contractor of his
responsibility from carrying out the works strictly
according to the detailed drawings and specifications and as
per instructions issued to him by the Engineer during the
execution of the works.
23. RESPONSIBILITY OF CONTRACTOR.
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Time being the essence of the contract, the
responsibility for execution of works within eighteen (18)
months in an efficient and workmen like manner and in
conformity with the department’s drawings and specifications
shall be of the contractor.
27. DEVIATIONS ALTERATIONS ETC. IN THE WORKS
The contractor shall not in any way alter the works or
any part thereof in respect of designs, quality, materials
or specifications without the previous permission in writing
of the Engineer. The contractor shall not take advantage of
any error or discrepancies occurring in the drawings,
designs or specifications but shall report the same to the
Engineer who shall make or approve the corrections if
necessary.
69. CLAIMS NOT ENTERTAINABLE
From the date of allotment of works and taking over on
completion by the department no claim shall be entertained
in respect of the works under this agreement against the
department for,
a) Increase in the cost of POL Railway or road freight
b) Taxes duties and octroi, etc. c) Increased wages of
labour skilled or unskilled and cost of materials d) Rise in
cost of living index e) Business or any other losses, and f)
Idle employees on any account whatsoever.
74. ARBITRATION
If at any time any doubt, question dispute or
difference whatsoever, shall arise between the contractor
and the Government upon or in relation to or in connection
with this contract, either of the parties may give to the
other notice in writing of the existence of such doubt,
question, dispute or difference and the same shall be
referred to a person mutually agreed upon by the parties
failing such agreement by any officer of the Government as
the minister In-charge, P.W. Department Jammu and Kashmir
Government may nominate for arbitration under the Jammu and
Kashmir Arbitration Act and rules framed thereunder. The
decision of the Arbitrator shall be final, conclusive and
binding upon the parties.
b) The contractor shall not delay the carrying out of
works by reason of any reference to Arbitration and shall
proceed with the works with all one due diligence and shall
until the decision of the Arbitrator, abide by the decision
of the engineer or his representative in-charge of the works
duly conveyed by him."
Petition under Section 20 of the Arbitration Act by
the contractor was filed on June 12, 1980. On the following
day when the petition was taken up without any notice to the
State the Court appointed Local Commissioner to take
measurements of the work done at the site by the contractor.
In the application for seeking interim relief the contractor
prayed that "a commissioner may be appointed to go on spot
and record the measurements of the work done by the
petitioner in presence of the parties" and till then "the
respondents may be restrained from changing the status quo
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at site or disturbing the position of the work already
done". Court passed the following order:-
"An application has also been moved on behalf of the
petitioner which is O.M.P. No. 136 of 1980 with the prayer
that measurements of the work done at site may be got
recorded by appointing a Commissioner as the work done by
him is(?) obliterated. The application is supported by an
affidavit. Shri Bashir Ahmed Shah, Ex. Engineer, R&B C/o
Chief Engineer, P.W.D. Jammu, is appointed as Commissioner
to visit the spot and record the measurements and submit his
report within a week. Till the measurements are recorded
the respondent will not execute any fresh work. The
Commissioner’s fee is fixed at Rs.300/- to be borne by the
petitioner."
Subsequently Local Commissioner was changed. Local
Commissioner submitted his report on December 9, 1980 which
formed part of the record. In his petition under Section 20
of the Arbitration Act the contractor claimed a sum of
Rs.39,47,000/- under various heads. This petition was
allowed by order dated April 9, 1982. We quote the
operative portion of the order as under:-
"The disputes mentioned in the application u/s 20 of
the Arbitration Act as well as the objections filed thereto
by the other side are, therefore, referred to the aforesaid
Arbitrator with a direction that he shall enter upon the
reference and make his award within four months thereafter
in accordance with law. The parties shall be at liberty to
raise any further disputes before him provided it is not
against the term of the agreement. The parties, however,
shall be in possession of the original agreement, shall
produce the same before the Arbitrator. Copy of the
application, the objections filed thereto and a copy of this
order shall be provided to the arbitrator. Arbitration
petition No. 72 of 1980 stands finally disposed of."
Before arbitrator the contractor now claimed a sum of
Rs.63,61,000/-. On the basis of the report of the Local
Commissioner giving details of the measurements of the work
done by the contractor a final bill was prepared by the
contractor which amounted to Rs.14,32,436.62. He claimed
this bill to be based on the terms of the contract.
The arbitrator gave his Award on February 2, 1983. It
is a non-speaking Award. He awarded a sum of Rs.20,08,000/-
to the contractor with interest at the rate of 10% per annum
from the date of application for appointment of the
arbitrator upto the date of payment. It was also provided
that the "interest on the amount awarded against claim Nos.
16 and 18 shall start and will be computed from the date of
the publication of the Award". Claims 16 and 18
respectively were claims of interest at the rate of 24% per
annum by the contractor respectively on recoveries made and
delay in release of illegally deducted amounts for excess
consumption of cement. Awards on claims 16 and 18 were
restricted to Rs.20,400/- and Rs.9,524/-. Lastly, it was
directed that if the amount awarded was not paid within
three months from the date of the Award interest payable
shall be 18% per annum on the amount so awarded upto the
date of realisation.
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As noted above, the contract was for a total sum of
Rs.12,23,500/-. The contractor allegedly committed breach
of the contract. It was partially terminated on January 12,
1980 in respect of structural portion of the work and the
contract was finally terminated on June 6, 1980. By this
time the contractor had executed less than 50% of the work
and had been paid a sum of Rs.5,71,900/-.
The matter now again came to the court. This time for
making the Award rule of the court. State filed objections
to the Award under Sections 30 and 33 of the Arbitration Act
and alleged misconduct by the arbitrator. It was on the
grounds that the Award was against the terms of the contract
and the arbitrator travelled beyond the order of reference.
It was submitted that new claims were introduced before the
arbitrator which were not made in the petition under Section
20 of the Arbitration Act and, therefore, could not be taken
cognizance of by the arbitrator. What the contractor
claimed in Section 20 petition was given in the annexure
thereto and this is how the claims were advanced:-
"Similarly numerous other items in which the
petitioner either was not paid at all or was not paid have
been comprehensively indicated in the Annexure to this
petition which may kindly be treated as a part and parcel of
the present petition. The petitioner has tentatively
assessed the various claims on various accounts which he is
entitled to from the said department which may be referred
to for the purpose of convenience."
Annexure contained summary of claims which included
claims on account of earth work cutting as the original
alignment was later abandoned, idle labour, illegal
recoveries, interest on illegal recoveries, etc.
It was submitted by the State that the order dated
April 9, 1982 referring the disputes to arbitration did not
allow the contractor to advance additional claims not
mentioned in the summary of claims annexed to the petition.
The objection was to the claim made by the contractor of
Rs.14,32,436/- which was based on the measurements recorded
by the Local Commissioner of the work done by the contractor
under the contract. This amount is reflected in claims 13
and 14 before the arbitrator.
Learned single Judge of the High Court by order dated
May 10, 1986 dismissed the objections raised by the State
and made the Award rule of the court. He, however, reduced
the rate of interest and now the interest was payable at the
rate of 6% per annum from the date of the Award till
payment. Award of penal interest at the rate of 18% was
deleted. Matter was then taken to the appellate Bench of
the High Court in appeal. Same objections to the Award were
repeated by the State. Contractor objected to that part of
the order of learned single Judge by which interest awarded
by the arbitrator was reduced. The Division Bench upheld
the order of the learned single Judge except that claims
under items 13 and 14 were deleted which amounted to
Rs.8,08,250/-. The appeal of the State was thus allowed in
part. Plea of the contractor against reducing the interest
by the learned single Judge was rejected. While deleting
the claims under items 13 and 14 the Division Bench observed
as under:-
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"The work done by the contractor was duly measured and
the final bill prepared in accordance with paragraph 40
(measurements and terms of payment) of the Agreement
enclosed by the contractor with his statement of facts and
claim before the arbitrator amounting to Rs.14,32,436.62
paise out of which deducting the amount of Rs.5,71,915.60
paise paid to the contractor leaves the balance of
Rs.8,60,521.02 paise only over and above this amount any
measurement subsequently done by the commissioner cannot
form part of the agreement and could not be allowed to be
multiplied to an unlimited extent beyond the rates and work
prescribed in the agreement. Even the summary of claims
submitted before the court for reference do not include the
amount claimed under this head. The other heads of claim
overlap the claim No. 20 on which item 13 is awarded. In
consideration of the foregoing circumstances we have no
doubt in our mind to hold, that the arbitrator made these
items of the award No. 13 granting Rs.95,400.00 based on
claim No. 20 (due to escalation Rs.2,86,487/- - claim
rejected by arbitrator) of the subsequent statement of facts
and claim, exceeded his jurisdiction which is against the
terms of the agreement and thus invalid in view of the
reference. The items No. 13 and 14 of the Award being
independent of the entire award are separable, there can be
no legal impediment in deleting the two items based on claim
No. 20 from the Award. The appeal to this extent, in our
opinion, deserves to be allowed to disallow the claims of
Rs.7,12,850.00 and Rs.95,500.00 totalling to Rs.8,08,250.00
(Eight lacs, eight thousand two hundred and fifty only) and
the award to that extent is set aside."
State still felt aggrieved. Contractor became more
aggrieved because of deletion of his two claims and
rejection of his plea for enhancement of the interest as
awarded by the Arbitrator.
We have noted the relevant terms of the contract. It
is not necessary for us to set out the claims made by the
contractor in detail except to note that out of 23 claims
under different heads claims 2, 6, 19, 20, 21 and 22 were
rejected by the arbitrator; claims 1 and 3 relate to the
alteration of the work being excavation done at original
site abandoned, refilling of the original excavation, fresh
excavation on new alignment and shifting of centre line and
consequent refilling compacting and lean concrete lining;
claims 4, 5, 10 (in part) and 11 are for damage due to
monsoon; claims 8, 9, 10 (in part) and 12 are on account of
idle labour; claims 7, 13, 14 and 17 are by and large under
the terms of the contract; claims 15, 16 and 18 are for
interest which were not mentioned in the summary of claims
annexed with Section 20 petition and claim 23 is for the
cost of arbitration.
Before the learned single Judge four issues were
framed arising out of the pleadings of the parties. These
are:
"1) Whether any fresh claims were entertained by the
Arbitrator during the course of arbitration proceedings?
2) In case issue No. 1 is proved in affirmative
whether any such claim was beyond the scope of reference
made to the arbitrator by the court, if so how?
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3) Whether the award made by the Arbitrator was
against the terms of the agreement? If so, whether the same
amounts to misconduct?
4) Whether the arbitrator committed misconduct legal
or otherwise in making of the Award? If so, how?"
The court allowed the parties to lead evidence on the
issues so framed.
The contract has been entered into on the basis of
measurable item rate contract and the rates of each items
were quoted accordingly. According to the measurements, as
quoted, the contract was for a total value of
Rs.12,23,500/-.
Mr. Mahanti, senior advocate for the State of Jammu
and Kashmir reaffirmed the arguments advanced in the High
Court that the Award travelled beyond the terms of reference
and was also against the terms of the contract. He said
claims 13 and 14 could not have been advanced before the
arbitrator as these claims were not mentioned in the summary
of claims filed with the Section 20 petition. He said High
Court was right in deleting these two claims. The order
referring the disputes to arbitration allows those claims to
be raised before the arbitrator which fell within the terms
of the contract.
The contractor has to be paid on the basis of
measurement of the work done by him. Local Commissioner
measured the work done by the contractor in presence of both
the parties and thereafter he submitted his report. On the
basis of measurement so recorded by the Local Commissioner
the contractor prepared the final bill of claim for
Rs.14,32,436/- and after taking out the amount already paid
to him, made claim for the balance. It is difficult to see
how claims made under items 13 and 14 could be said to be
either new claims or outside the terms of the contract.
Under clause 5 of the contract, contractor is to be paid for
the work executed by him under the contract at the rates
specified therein.
Under clause 17 of the contract it is the contractor,
who is responsible for any damage or loss to the works or
part thereof caused due to any reason whatsoever and he at
his own cost is required to repair and to make good of loss
or damage. Contractor, therefore, could not claim any loss
done to him on account of early onset of monsoon or
otherwise. Similarly under the terms of the contract he
cannot claim any amounts towards idle labour. As a matter
of fact under clause 69 these claims are not entertainable
at all. Mr. Thakur for the contractor said that "idle
employees" as mentioned in clause 69 of the contract is not
the same thing as "idle labour". According to him, the term
"idle employees" would mean regular employees on the roll of
the contractor like engineers etc. We do not think such a
restricted construction can be put on the term "idle
employees" as not include idle labour as well. Read as a
whole skilled and unskilled labour are all employees of the
contractor under the contract.
Any work done on account of deviation or alteration
could not be undertaken without the previous permission in
writing of the engineer. It is admitted case of the
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contractor himself that there is no writing though it was
promised to him orally. In view of clause 27 of the
contract claims 1 and 3 could not have been accepted. When
the principal claims were wrongly awarded there is no
question of any award of interest on the amounts claimed
under those heads.
It was submitted before us that it is a non-speaking
Award and this Court cannot go into the mental process of
the arbitrator in making the award on various claims. Court
has certain limitations while examining a non-speaking award
but there is no complete bar in examining if the award is in
terms of the reference or the terms of the contract.
Regarding the claims made before the arbitrator in respect
of items 1 and 3 evidence was also recorded by the learned
single Judge. Admittedly when there is no writing for any
alteration or deviation no claim could be allowed by the
arbitrator. To accept the claim of the contractor on claims
1 and 3 without examining the pre-condition of there being
any writing of any alteration or deviation would not be
legal.
Now it does appear to us that the final bill amounting
to Rs.14,32,436.62 encompasses all the works done by the
contractor which were measured by the Local Commissioner in
presence of both the parties and which perhaps also includes
the work for which contractor could not raise any claim
under the contract. In the evidence which has been led
there is no objection to measurements recorded by the Local
Commissioner and the final bill prepared on that basis.
That is all the amount contractor is entitled to. By
raising other claims he is merely trying to create confusion
with the hope that he may be able to get some payment
outside the contract for which he unfortunately succeeded.
Out of the final bill of Rs.14,32,436.62 the contractor has
been paid Rs.5,71,915.60 thus leaving a balance of
Rs.8,60,521.02 to which in all the contractor would be
entitled to under the Award.
Under the Interest Act, 1978, which came into force on
August 19, 1981, court includes arbitrator. Under Section 5
of the Interest Act Section 34 of Code of Civil Procedure
would, therefore, apply to the arbitrator as well.
Arbitrator is thus entitled to award interest pendente lite
and future interest at the rate not exceeding the current
rate of interest which has also been defined in clause (b)
of Section 2 of the Interest Act.
In the present case arbitrator awarded interest at the
rate of 10% per annum which was reduced by the learned
single Judge to 6% per annum and upheld by the Division
Bench. Under Section 34 of Code of Civil Procedure interest
at the higher rate than 6% can be awarded where the
liability in relation to the sum so adjudged had arisen out
of commercial transaction. There is nothing on the record
to show that interest awarded by the arbitrator at the rate
of 10% is in contravention of Section 34 of Code of Civil
Procedure. That being so we do not think either the learned
single Judge or Division Bench were correct in reducing the
rate of interest as granted by the arbitrator. We would,
therefore, restore the award of interest at the rate of 10%
per annum as granted by the arbitrator from the date the
arbitrator entered into reference till realisation of the
amount under the award.
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When the appeal filed by the State of Jammu and
Kashmir came up for admission before this Court it was
ordered on May 1, 1989 that the State Government shall "pay
1/2 of the decretal amount payable under the order of the
High Court against bank guarantee to the respondent. The
bank guarantee shall be given to the satisfaction of the
Deputy Registrar of the High Court. Issue stay of further
execution proceedings". If by the order dated May 1, 1989
excess amount has been paid by the State to the contractor
the same shall be refunded to the State by the contractor
with interest at the rate of 10% per annum from the date the
contractor got the excess amount till it is refunded to the
State Government.
Arbitration is considered to be an important
Alternative Disputes Redressal process which is to be
encouraged because of high pendency of cases in the courts
and cost of litigation. Arbitration has to be looked up to
with all earnest so that litigant public has faith in the
speedy process of resolving their disputes by this process.
What happened in the present case is certainly a paradoxical
situation which should be avoided. Total contract is for
Rs.12,23,500/-. When the contractor has done less than 50%
of the work the contract is terminated. He has been paid
Rs.5,71,900/-. In Section 20 petition he makes a claim of
Rs.39,47,000/- and before the arbitrator the claim is
inflated to Rs.63,61,000/-. He gets away with
Rs.20,08,000/- with interest at the rate of 10% per annum
and penal interest at the rate of 18% per annum. Such type
of arbitration become subject of witticism and do not help
the institution of arbitration. Rather it brings bad name
to the arbitration process as a whole. When claims are
inflated out of all proportions not only that heavy cost
should be awarded to the other party but the party making
such inflated claim should be deprived of the cost. We,
therefore, set aside the award of cost of Rs.7,500/- given
in favour of the contractor and against the State of Jammu
and Kashmir.
Both the appeals are partly allowed. Judgment and
decree passed by the learned single Judge making the Award
dated February 9, 1983 Rule of the court and as modified by
the impugned judgment is further modified. Now Award is
made Rule of the court to the extent of Rs.8,60,521/- with
interest at the rate of 10% per annum from the date of
reference till payment is made. There shall be no order as
to costs in both the appeals. The exact amount payable/due
to any of the parties shall be worked out while drawing up
the decree keeping in view the order dated May 1, 1989 of
this Court.