Full Judgment Text
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PETITIONER:
THE NEW INDIA CIVIL ERECTORS(P) LTD.
Vs.
RESPONDENT:
OIL & NATURAL GAS CORPORATION
DATE OF JUDGMENT: 17/02/1997
BENCH:
B.P. JEEVAN REDDY, SUJATA V. MANOHAR
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
B.P. JEEVAN REDDY, J.
Leave granted. Heard Shri F.S. Nariman, learned counsel
for the appellant and the learned Attorney General for the
respondent-corporation.
A contract was entered into between the appellant and
the Oil & Natural Gas Corporation (O.N.G.C), whereunder the
appellant undertook the construct 304 pre-fabricated housing
units at Panvel, Phase-I. The appellant commenced the
construction but did not complete it even within the
extended period. The respondent thereupon terminated the
contract and got the said work done through another agency.
Disputes arose between parties in the above connection, each
party raising claims against the other, which were referred
for decision to two arbitrators (joint Arbitrators). By
their award dated 18th June ,1991. the arbitrators decided
that while the O.N.G.C. shall pay to the appellant a sum of
Rs. 1,09,04,789/-, the appellant shall pay to the O.N.G.C. a
sum of Rs.41,22,178/-. In the other words the appellant was
held entitled to a net amount of Rs.67,82,620/- with the
interest at the rate of 18 per cent per annum from the date
of award till the date of payment or till the date of decree
whichever was earlier. While the appellant applied for
making the said award a Rule of the Court, the respondent-
corporation filed objections seeking to have the award set
aside. The learned Single Judge overruled the objections of
the respondent-corporation and made the award a Rule of the
Court. Corporation appealed against the same, which has been
partly allowed by the Division Bench.
The appellant had claimed various amounts under as many
as 19 heads, while the respondent-corporation claimed
certain amounts under three heads. The arbitrators rejected
the appellant‘s claim under heads 3,5,7,8,10,11,12 and 18.
They awarded various amounts under the other heads, the
total of which came to Rs.1,09,04,789/-. So far as the
respondent‘s claims are concerned, the arbitrators rejected
claim No.2 but accepted claim No.1 (partly) and awarded
various amounts totalling Rs. 41,22,178/-.
In the appeal before the Division Bench the respondent-
corporation confined its attack only to claims 1,4,6,9 and
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13. The Division Bench rejected the respondent‘s contentions
with respect to claims 1 and 13 but upheld the same with
respect to claims 4,6 and 9. Only the appellant has come to
this Court challenging the Judgment of the Division Bench.
We shall deal with these three claims in their proper order.
Claim No.4: Appellant‘s claim No.4 arises on account of the
shortage of cement in the bags supplied by the respondent.
The appellant‘s case was that the corporation had undertaken
to supply cement to it in bags, each bag containing 50 kg.
of cement, but as a matter of fact, the cement actually
found in the bags fabricated housing units at Panvel, Phase-
I. The appellant commenced the construction but did not
complete it even within the extended period. The respondent
thereupon terminated the contract and got the said work done
through other agency. Disputes arose between the parties in
the above connection, each party raising claims against the
other, which was referred for decision to two
arbitrators(joint arbitrators). By their award dated 18th
June, 1991, the arbitrators decided that while the O.N.G.C.
a sum of Rs.41,22,178/-. In other words the appellant was
held entitled to a net amount of Rs.67,82,620/- with the
interest at the rate of 18 per cent per annum from the date
of award till the date of payment or till the date of
decree whichever was earlier. While the appellant applied
for making the said award a Rule of the court, the
respondent-corporation filed objections seeking to have the
award set aside. The learned Single Judge overruled the
objections of the respondent-corporation and made the award
a Rule of the Court. Corporation appealed against the same,
which have been partly allowed by the Division Bench.
The appellant had claimed various amounts under as many
as 19 heads, while the respondent-corporation claimed
certain amounts under three heads. The arbitrators rejected
the appellant‘s claim under heads 3,5,7,8,10,11,12 and 18.
They awarded various amounts under the other heads, the
total of which came to Rs.1,09,04,789/-. So far as the
respondent‘s claims are concerned, the arbitrators rejected
claim No.2 but accepted claim No.1 (partly) and claim No.3
(partly) and awarded various amounts totalling
Rs.41,22,178/-.
In the appeal before the Division Bench the respondent-
corporation confined its attack only to claims 1,4,6,9 and
13. The Division Bench rejected the respondent‘s contentions
with respect to claims 1 and 13 but upheld the same with
respect to claims 4,6 and 9. Only the appellant has come to
this Court challenging the Judgment of the Division Bench.
We shall deal with these three claims in their proper order.
Claim No. 4| Appellant‘s claim NO.4 arises on account
of the shortage of cement in the bags supplied by the
respondent. The appellant‘s case was that the corporation
had undertaken to supply cement to it in bags, each bag
containing 50 kg. of cement, but a matter of fact, the
cement actually found in the bags was less. The appellant
complained of the same to the officers of the corporation
from time to time and a record of the shortages has indeed
been kept by the parties. On this count, the appellant
claimed a sum of Rs.3,96,984.50p., against which the
arbitrators awarded an amount of Rs.3,70,221.50 paise. The
defence of the corporation was that according to the
stipulation contained in Schedule - A to the Tender notice,
the corporation was not to be held responsible for any
variation in the weight of the cement in the bags supplied
by them. The relevant stipulation read as follows |
"Ordinary port-land
construction cement M.T. 830/- Ex
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commission‘s Godown, Greater
Bombay.
NOTE|- 20 (Twenty bags) bags if
cement shall mean one metric tonne
for the purpose of recovery
irrespective of variation in
standard weight of cement filled in
bags."
The appellant‘s case, however, was that though the
Schedule to the Tender notice did contain the above
stipulation, the appellant had, in its letter dated 5th
March, 1984, which was in the nature of a counter-offer,
clearly stipulated that "ordinary portland cement", Rs 8.30
per metric tonne,[each 50 kg. bag]" will be supplied by the
corporation "at site", The appellant had stipulated in the
said letter that the terms set out by it therein "shall take
precedence over..... tender conditions". It is pointed out
by Shri Nariman that the said letter forms part of the
contract between the parties and that indeed it is this
letter which contains the arbitration clause whereunder the
disputes between the parties adjudicated by the arbitrators.
It is further submitted by the learned counsel that in their
acceptance letter dated 10th January, 1985, the respondent-
corporation merely stated that the cement will be supplied
only at Bombay and not at the site, but did not say anything
with respect to the stipulation in the appellant‘s letter
dated 5th March 1984 (counter-offer) that each bag of cement
supplied to it shall contain 50.kg of cement.
The Division Bench has not referred to the letter dated
5th March, 1984 nor the acceptance letter dated 10th
January, 1985, but has rejected the appellant’s claim only
and exclusively with reference to the stipulation in the
schedule to the Tender notice. Mr. F.S. Nariman submits that
the Division Bench was in error in holding that the
arbitrators exceeded their authority in awarding the said
amount. According to him, the arbitrators merely construed
the relevant stipulation as contained in the schedule to the
Tender notice read with the appellant‘s letter dated 5th
March, 1984 (counter offer) and the corporation’s acceptance
letter dated 10th January, 1985 - which they were entitled
to do. It is submitted that since the award is a non-
speaking award [though it has awarded separate amounts under
each head of claim] no interference is permissible on the
ground that the arbitrators have misconstrued the terms of
the agreement. On the other hand, the learned Attorney
General submitted that the modified or qualified in any
manner by the appellant’s letter dated 10th January, 1985,
and, therefore, the Division Bench was right in rejecting
this claim as prohibited by the agreement between the
parties. We are of the opinion that it appears to be border-
line case. It is possible to take either view. It must be
remembered that in this case there is no formal contract and
the terms of the agreement have to be inferred from the
Tender notice and the correspondence between the parties.
Since the attempt of the Court should always be to support
the award within the letter of law, we are inclined to
uphold the award on this count [claim No.4]. Accordingly, we
reverse the judgment of the Division Bench to the above
extent. The amount awarded by the arbitrators under this
claim is affirmed.
Claim No.6: The claim of the appellant under this head
is in a sum of Rs.53,11,735.60p, against which the
Arbitrators have awarded an amount of Rs. 49,91,327/-. The
dispute between the parties is with respect to the
method/mode of measuring the constructed area. The case of
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the respondent is that according to the tender conditions,
as well as clause (10) of the aforesaid letter dated 5th
March, 1984 (written by the appellant to the corporation),
the area covered by balconies is liable to be excluded from
the measurements. We may refer to clause(10) of the
appellant’s own letter dated 5th March, 1984 which reads as
follows:
"Mode of measurement|- We have
based our price on the total build-
up area of one floor [four flats]
including stair-case and common
corridor but excluding balconies
only. Hence work should be measured
on the build-up area, excluding
balcony areas."
The tender condition is to the same
effect.
The above stipulation clearly says that total build up
area of a floor shall include stair case and common corridor
but shall exclude balconies. It expressly provides that
"work should be measured on the build-up area excluding
balcony area". It is undisputed that in the plan of the
flats attached to the Tender notice, balconies were
provided. Shri Nariman contended that the said plans were
modified later and that the flats as finally constructed,
did not have any balconies and, hence, no question of
excluding the balconies area can arise. Shri Nariman could
not, however, bring to our notice any agreed or sanctioned
plan modifying the plan attached to the Tender notice. The
appellant could not have constructed flats except in
accordance with the plans attached to the Tender notice,
unless of course there was a later mutually agreed modified
plan - and there is none in this case. We cannot, therefore,
entertain the contention at this stage that there are no
balconies at all in the flats constructed and that,
therefore, the aforesaid stipulation has no relevance. We
must proceed on the assumption that the plans attached to
the Tender notice are the agreed plans and that construction
has been made according to them and that in the light of the
agreed stipulation referred to above, the areas covered by
balconies should be excluded. In this view of the matter we
agree with the Division Bench that the arbitrators over-
stepped their authority by including in area of the
balconies in the measurement of the build-up area. It is
axiomatic that the arbitrator being a creature of the
agreement, must operate within the four corners of the
agreement and cannot travel beyond it. More particularly, he
cannot award any amount which is ruled out or prohibited by
the terms of the agreement. In this case, the agreement
between the parties clearly says that in measuring the
build-up area, the balcony area should be excluded. The
arbitrators could not have acted contrary to the said
stipulation and awarded any awarded any amount to the
appellant on the account. We, therefore, affirm the decision
of the Division Bench on this score [Claim No.6]
Claim No.9: The appellant claimed an amount of
Rs.32,21,099.89p. Under this head, against which the
arbitrators have awarded a sum of Rs.16,31,425/-. The above
claim was made on account of escalation in the cost of
construction during the period subsequent to the expiry of
the original contract period. The appellant’s claim on this
account was resisted by the respondent-corporation with
reference to and on the basis of the stipulation in the
corporations’ acceptance letters dated 10th January, 1985
which stated clearly that "the above price is firm and is
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not subject to any escalation under whatsoever ground till
the completion of the work". The Division Bench held, and in
our opinion rightly, that in the face of the said express
stipulation between the parties, the appellant could not
have claimed any amount on account of escalation in the cost
of construction carried on by him the expiry of the original
contract period. The aforesaid stipulation provides clearly
that there shall be no escalation on any ground whatsoever
and the said prohibition is effective till the completion of
the work. The learned arbitrators, could not therefore have
awarded any amount on the ground that the appellant must
have incurred extra expense in carrying out the construction
after the expiry of the original contract period. The
aforesaid stipulation between the parties is binding upon
them both and the arbitrators. We are of the opinion that
the learned single Judge was not right in holding that the
said prohibition is confirmed to the original contract
period and does not operate thereafter. Merely, because the
time was made the essence of the contract and the work was
completed within 15 months, it does not follow that the
aforesaid stipulation was confirmed to the original contract
period this is not a case of the arbitrators construing the
agreement. It is a clear case of the arbitrators acting
contrary to the stipulation/condition contained in the
agreement between the parties. We therefore, affirm the
decision of the Division Bench on this Count as well [claim
No.9].
So far as the position of the law on the subject is
concerned, there is hardly any dispute between the parties.
It is sufficient to refer to the well considered decision of
this Court in Sudarshan Trading Company V. Government of
Kerala [A.I.R.[1989] S.C. 890], within it has been held |
"..... if the parties set limits to action by the
arbitrator, then the arbitrator had to follow the limits set
for him and the court can find that he exceeded his
jurisdiction on proof of such excess..... Therefore it
appears to us that there are two different and distinct
grounds involved in many of the cases. One is the error
apparent on the face of the award, and the other is that
arbitrator exceeded his jurisdiction. In the latter case,
the courts can look into the arbitration agreement but in
the former, it cannot, unless the agreement was incorporated
or recited in the award".
For the above reasons, the appeal is allowed in part,
i.e., to the extent of claim No. 4 (in a sum of
Rs.3,70,221.50p.). In other respects, the appeal is
dismissed. There shall be no order as to costs.