Full Judgment Text
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CASE NO.:
Appeal (civil) 2500 of 2001
PETITIONER:
State of Rajasthan
RESPONDENT:
M/s Nav Bharat Construction Company
DATE OF JUDGMENT: 04/10/2005
BENCH:
S. N. Variava & Tarun Chatterjee
JUDGMENT:
J U D G M E N T
[With Civil Appeal No.2501 of 2001]
S. N. VARIAVA, J.
These Appeals are against the Judgment dated 10th December
1999 of the Rajasthan High Court.
Briefly stated the facts are as follows.
The Appellants invited tenders for construction of Bhimsagar
Dam. Pursuant thereto, various tenders were received. Ultimately the
tender of the Respondent was accepted. A contract was awarded to
the Respondent on 18th January 1979. Under the contract, the work
was to be started on 16th November 1978 and to be completed by 15th
May 1981. The work was not completed within this time and time was
extended. It appears that the work was not completed within the
extended time also. The Appellants terminated the contract and got
the balance work completed from some other contractor.
The Respondent raised various claims which were rejected by
the Appellants. The Respondent, therefore, moved an application
under Section 20 of the Arbitration Act, 1940 for referring the claims
mentioned therein to arbitration. By an Order dated 11th November
1982, the District Judge held that only one claim was referable to
arbitration and refused to refer the other three claims to arbitration.
The Respondent filed an Appeal before the High Court. The High
Court by its Order dated 7th June 1984 held that it was for the
Arbitrator to decide whether the claims were to be awarded or not.
The High Court held that reference could not be refused and,
therefore, directed that all the four claims be referred to arbitration.
Even before the High Court passed the Order dt. 7th June 1984,
the Respondent had, on 31st March 1983, filed another application
under Section 20 of the Arbitration Act, 1940. By this application the
Respondent sought reference of 24 more claims. The District Judge
by an Order dated 1st March 1985 allowed the application.
The disputes were referred to two Arbitrators. One Shri M.K.
Gambhir was appointed by the Appellants and Shri Leeladhar Aggarwal
was appointed by the Respondent. The Respondent, however, filed 39
claims amounting to Rs. 42,59,155.56 before the Arbitrators.
Parties led oral and documentary evidence. There was a
difference of opinions between the two Arbitrators. Therefore, the
Arbitrators referred the disputes to an Umpire viz. one Shri V. K.
Gupta.
The Appellants filed an application under Section 11 of the
Arbitration Act, 1940 for removal of Shri V. K. Gupta as an Umpire on
the ground of bias. This application was dismissed on 16th November
1993 inter alia on the ground that there was no evidence to show that
there was any bias. The Appellants filed a Revision which also came to
be dismissed by the High Court in January 1995.
The Umpire entered into the reference and gave an Award on
29th May 1995. The operative part of the Award reads as follows:-
"...... And having carefully considered the oral
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evidence, the documents, site topographical
conditions, analysis of rates, technical
specifications, other exhibits filed by the
parties, the operations required for various
items of existing B.S.R. and newly approved
rates for Bhim Sagar Dam, Schedule ‘C’ the
conditions of the contract, P.W.F.A.R. and
various case laws cited by the parties, I make
the award as under:-
I award an amount of Rs. 29,96,060/-
(Rupees Twenty nine lacs Ninety-six thousand
and sixty only) payable by the Respondents to
the Claimants against claim Nos. 1 to 39
except Claim No. 30 (as awarded below
separately) and enumerated under paras 15
and 16 of the statement of claims of the
Claimants.
I further award refund/release of the
Bank F.D.R.S. amounting to Rs. 2,84,000/-
(Rupees two lacs eighty-four thousand only)
being security deposit by the Respondents in
favour of Claimants as claimed under para 17
of the Claim statement.
I award an interest difference of (18% -
F.D.R. interest rate on F.D.R. amount w.e.f.
15.12.82 till released to the Claimants or
decreed whichever is earlier however the
interest already accrued from 17.11.78 upto
14.12.82 is to be reduced from the final
calculated sum.
I also award an interest @ 18% per
annum from 15.12.82 to 14.7.83 on total
amount of claims except F.D.R. amount
payable to Claimants as prior to reference.
I further award an interest @ 18% p.a.
from 15.7.83 to 29.5.95 on total amount of
Claims except F.D.R. amount payable to
Claimants as pendente lite interest.
I further award an interest @ 18% p.a.
on total amount of Claims except F.D.R.
amounts beyond 29.5.95 upto the date of
payment or decree of the Court whichever is
earlier.
I further award that the Respondents
shall pay a part of the cost of arbitration and
part of fees of arbitrator and Umpire to the
extent of Rs.20,000/- to the Claimants."
The Appellants filed objections under Sections 30 and 33 of the
Arbitration Act 1940, which were dismissed by the Trial Court on 16th
July 1996. The Appellants filed an Appeal before the High Court and
the Respondent filed a Cross-Appeal claiming compound interest. The
High Court by the impugned Judgment dismissed both the Appeals.
Civil Appeal No.2500 of 2001 is by the Appellants who are aggrieved
by the dismissal of their objections. Civil Appeal No.2501 of 2001 is
by the Respondents against dismissal of their claim for compound
interest.
Mr. Mohta has assailed the Award on five grounds:
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(1) that the Umpire was biased against the Appellants inasmuch
as he was person, who regularly appeared for the
Respondent in arbitration matters and assisted the
Respondent in their arbitration cases;
(2) that the Court had referred only 28 claims yet all the 39
claims have been allowed by the Umpire. It was submitted
that in respect of the claim which had not been referred to
arbitration the Umpire had no jurisdiction to arbitrate and the
Award in respect of those claims had to be set aside;
(3) that as there had been a difference of opinion between the
two Arbitrators and, one of the Arbitrators namely, Mr.
Gambhir, had given a speaking and reasoned Award, the
Umpire was also bound to pass a reasoned Award. It was
submitted that by not giving a reasoned Award the Umpire
had misconducted himself;
(4) that the Umpire had misconducted himself inasmuch as he
had not applied his mind to the terms of the contract and
had awarded contrary to the terms of the contract; and
(5) that the interest awarded is very high and that in an identical
matter between the same parties, reported in (2002) 1 SCC
659, this Court has reduced interest to 6%.
Mr. Mohta first submitted that the Umpire was biased against the
Appellants inasmuch as he was the person, who regularly appeared for
the Respondent in arbitration matters and assisted the Respondent in
their arbitration cases. Mr. Mohta relied on the case of Ranjit Thakur
vs. Union of India & Ors. reported in (1987) 4 SCC 611. In this case
it has been held that the test of real likelihood of bias is whether a
reasonable person in possession of relevant information would have
thought that bias was likely and whether the authority concerned was
likely to be disposed to decide the matter only in a particular manner.
It is held that what is relevant is the reasonableness of the
apprehension in that regard in the mind of the party. Mr. Mohta also
relied on the case of Jiwan Kumar Lohia & Anr. Vs. Durga Dutt
Lohia & Ors. reported in (1992) 1 SCC 56 wherein also the same
principles have been reiterated. We see no substance in this first
ground of challenge. On the ground now urged the Appellant had
earlier filed an application for removal of the Umpire. That application
came to be rejected on 16th November 1993 and an Appeal against
that Order was also dismissed in January 1995. Having failed in their
attempt to remove the Umpire, in our view, this ground is no longer
available to the Appellants. Even otherwise except for making bare
averments no proof has been produced to substantiate the averments.
If, as claimed, this Umpire was appearing for and/or regularly assisting
the Respondents there would be documents showing his name/
appearance. None have been produced.
So far as the second ground is concerned, we have seen the two
applications made by the Respondent. It prima facie appears that the
two applications were for referring, in all, 28 claims to arbitration. The
Respondent then made 39 claims before the Arbitrators. The Umpire
has awarded in respect of all the 39 claims. If claims not referred to
Arbitration have been dealt with and awarded the Umpire would have
exceeded his jurisdiction. However Mr. Moolchand Luhadia, partner of
the Respondent who appeared in person, contended that all the claims
were referred to the Arbitrators by the Order dt. 1st March 1985. He
submitted that this is clear from the directions to the Arbitrators to
decide all disputes arising between the parties. We are unable to
accept this submission. The Order dt. 1st March 1985 allows
"application dt. 9th April 1983 as part of application dt. 5th October
1981". It is in the context of claims raised in these two applications
that the Arbitrators are instructed to decide all disputes between the
parties. Mr. Lohadia then submitted that all claims were included in
the two applications made by them. It was submitted that in the
applications some of the claims were clubbed together but whilst filing
the statement of claims they were segregated and separated. As we
are proposing to refer the matter back to an Umpire, we do not
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propose to go into the question as to whether or not the 39 claims
were part of the two applications filed by the Respondent. In our
view, this is a question which can be decided by the Umpire. All that
we need to clarify is that if any claim did not form part of the two
applications the same cannot be arbitrated upon and the Umpire will
confine the reference to the claims made in the two applications. It
must be mentioned that in the case of Orissa Mining Corporation
Ltd. Vs. Prannath Vishvanath Rawlley reported in (1977) 3 SCC
535 this Court has held that when an agreement is filed in Court and
an order of reference is made, then the claim as a result of the order
of reference is limited to that relief and the arbitrator cannot enlarge
the scope of reference and entertain fresh claims without a further
order of reference. It must also be mentioned that Mr. Lohadia had
relied upon the case of H. L. Batra & Co. vs. State of Haryana &
Anr. Reported in (1999) 9 SCC 188. In this case the award of the
arbitrator was set aside and a new arbitrator was appointed. The order
stated that the new arbitrator was appointed "for settling disputes
between the parties". Before the new arbitrator 7 additional claims,
over and above the 30 claims originally made, were made. It was held
that the award was not vitiated as the terms of reference did not
confine the second reference to only 30 claims. This authority is of no
assistance to the Respondent as it does not lay down that the
arbitrator can entertain claims not referred to him.
We, however, see no substance in the third ground i.e. that
reasons should have been given by the Umpire. It is settled position
that under the Arbitration Act 1940, unless the contract so required,
reasons were not required to be given. A Constitution Bench of this
Court in the case Raipur Development Authority & Ors. vs. M/s
Chokhamal Contractors & Ors., reported in (1989) 2 SCC 721, has
held that it is not necessary to give reasons and that an Award cannot
be set aside merely because it is a non-speaking Award. The mere
fact that two Arbitrators had differed and that the matter was required
to be dealt with by an Umpire does not mean that the Umpire should
give reasons for his Award. We further clarify that the Umpire now
being appointed by us need not give reasons.
Mr. Mohta had next contended that the Umpire has
misconducted himself inasmuch as he had ignored the terms of the
contract and awarded contrary to the terms of the contract. To this
objection, the Respondent had submitted that such a point had neither
been urged before the District Judge nor before the High Court. We,
however, find that this point has in fact been urged both before the
District Judge as well as before the High Court. This point, therefore,
requires to be considered.
In order to consider this point, some of the terms and conditions
of the tender documents and the contract are required to be set out.
The Respondent has given a declaration which inter-alia reads as
follows:
"1. I/We have visited the Site and fully acquainted
myself/ourselves the local situation regarding
materials, labour and other factors pertaining to
the work before submitting this order.
2. I/We carefully studied the N.I.T. conditions
of contract, specification, additional instructions,
general rules and directions and other
documents related to this work and I/We agree
to execute the work accordingly.
......................................................................
I/We do hereby tender for the execution for the
Rajasthan Government of the work specified as
above within the time specified in Schedule ‘F’
and at the rates entered in Schedule ‘G’. The
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work will be carried out in accordance in all
respects with the detailed specifications, designs,
drawings and instructions referred to in the
attached Schedule sheet."
The relevant terms of the tender document (which is part of the
contract) and the contract reads as follows;
"7. HOUSES:-
No local housing is likely to be available and the
contract should arrange for suitable housing for
the staff and labour. Land for the same will be
granted free of charge for temporary use during
the period of contract.
......................................................................
12. SUPPLY OF PETROL AND DIESEL:-
The contractor has to make his own arrangements
for the supply of petrol and diesel and lubricants.
The nearest place from where it can be obtained
is Jhalawar.
......................................................................
Clause 12\027The Engineer-in-Charge shall have
power to make any alterations in or additions to
the original specifications, drawings, designs and
instructions, that may appear to him be necessary
or advisable during the progress of the work and
the contractor shall be bound to carry out the
working in accordance with any instruction which
may be given to him in writing signed by the
Engineer-in-Charge and such alteration shall not
invalidate the contract and any additional work
which the Contractor may be directed to do in the
manner above specified as part of the work shall
be carried out by the contractor on the same
conditions in all respects on which he agreed to
do the main work, and at the same rates as are
specified in tender for the main work. The time
for the completion of the work shall be extended
in the proportion that the additional work bears to
the original contract work, and the certificate of
the Engineer-in-Charge shall be conclusive as to
such proportion. And if the additional work
includes any class of work for which rate is
specified in this contract then such class of work
shall be carried out at the rates entered in the
schedule of rates of the district if it exists and
such last mentioned class of work is not entered
in the schedule of rates of the district, then the
contractor shall, within seven days of the date of
this receipt of the order to carry out the work,
inform the Engineer-in-Charge of the rate which it
is his intention to charge for such class of work
and if the Engineer-in-Charge does not agree to
this rate he shall, by notice in writing, be at
liberty to cancel his order to carry out such class
of work and arrange to carry it out in such
manner as he may consider advisable, provided
always if the contractor shall commence work or
incur any expenditure in regard thereto before the
rates shall have been determined as lastly herein
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before mentioned, then and in such case he shall
only be entitled to be paid in respect of the work
carried out or expenditure incurred by him prior
to the date of the determination of the rate as
aforesaid according to such rate or rates as shall
be fixed by the Engineer-in-Charge. In the event
of a dispute, the decision of the Chief Engineer
will be final.
......................................................................
Clause 23\027Except where otherwise specified in
the contract the decision of the Chief Engineer of
the Government of Rajasthan for the time being
shall be final, conclusive, and binding on all
parties to the contract upon all questions relating
to the meaning of the specifications, designs,
drawings and instructions herein before
mentioned and as to the quality of workmanship,
or materials used on the work or as to any other
question, claim, rights, matter, or thing
whatsoever in any way arising out of, or relating
to, the contract, designs, drawings, specifications,
estimates, instructions, order, these conditions or
otherwise concerning the works, or the execution
or failure to execute the same, whether arising
during the progress of the work, or after the
completion or abandonment thereof, or the
contract by the contractor shall be final,
conclusive and binding on the contractor.
......................................................................
Clause 36\027The Sales Tax or any other tax on
materials issued in the process of fulfilling
contract payable to the Government under rules
in force will be paid by the contractor himself.
......................................................................
Clause 38\027Fair Wages Clause:--(a) The
contractor shall pay not less than fair wage to
labourers engaged by him on the work.
Explanation:-- ‘fair wages’ means minimum
wages for time on piece work fixed or revised by
the State Govt. under the minimum Wages Act,
1948.
(b) The contractor shall not withstanding the
provisions of....................contract to the
contrary cause to be paid fair wages to labourers
indirectly engaged on the work including any
labour engaged by him, his sub-contractors in
connection with the said work as if the labourers
has been immediately or directly employed by
him.
(c) In respect of all labourers indirectly or directly
employed on the work for the purpose of the
contractor’s part of this agreement, the contractor
shall comply with or cause to be complied with
the P.W.D. contractor’s labour regulation made
way of that be made by the Government from
time to time in regard to payment of wages
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period, deductions, maintenance of wages
register, wage card, publications and submission
of wages periodical returns in all other matters of
like nature.
(d) The Executive Engineer-in-Charge shall have
the right to deduct from the money due to the
contractor may sum required to estimate to be
required for making good the loss suffered by a
worker by reasons of non-fulfillment of the
conditions of the contract for the benefit of the
worker or workers non-payment of wages or
deductions made therefor which are not justified
by the terms of contract or as a result of non-
observance of the aforesaid regulations.
(e) Vis-‘-vis the Government of Rajasthan the
contractor shall be primarily liable for all
payments to be made and for the observance of
the regulations aforesaid without prejudice to his
right to claim indemnity from his sub-contract.
(f) The regulations aforesaid shall be deemed to
be part of this contract and breach thereof shall
be deemed to be breach of contract."
Special Conditions of the contract inter-alia provide as follows:
"31 LABOUR CONDITIONS:-
(a) The contractor shall comply with the
labour laws viz. Contractor Labour
Regulation Act, Minimum Wages Act.
Workman’s Compensation Act, Industrial
Disputes Act, etc. as may be current and
shall furnish the returns and information
as any required and be specified from time
to time. The contractor will have to carry
out registration with the office or Regional
Labour Commissioner, and obtain a valid
licence for employing labour.
(b) The contractor shall as far as possible,
obtain his requirements of labour, skilled
and unskilled from the local area. No
person below the age of 12 years shall be
employed as labour.
(c) The contractor shall pay fair and
reasonable wages (whether or not such
wages are controlled by any Laws existing
at the time) to the workmen employed by
him for the work. In the event of any
disputes arising between the contractor
and his workmen on the grounds that the
wages paid are not fair and reasonable the
dispute shall in the absence of legal or
other relief to the workmen, be referred to
the Engineer who shall decide the same
the decision of the Engineer shall be
conclusive and binding on the contractor
but such decision or any decision in this
behalf that the contractor’s workmen may
obtain by resource to law or other legal
means available to them, shall not, in any
way, affect the condition in the contract
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regarding payment to be made by Govt. to
the contractor only at the rate accounted
in this contrtact.
(d) The contractor shall not employ animals
suffering from source, lameness, or
emaciation or which are immature nor
shall treat them in a way that may be
considered in human.
(e) The Engineer shall have the authority to
remove from the work any animal or
workmen that, in his opinion which shall
be conclusive, he may consider unfit or
undesirable and no responsibility shall be
accepted by the Government for any delay
or extra expenses caused towards the
completion of the work such removal.
(f) While employing skilled or un-skilled
labourers piece workers the contractor
shall be first preference to the person
certified to him by the Engineer, or his
duly authorized representative as persons
who are adversely affected by the
Bhimsagar submergence and are suitable
for employment and shall be minimum fair
wages not below the minimum which has
been fixed to this implementation of this
work sited by the Engineer, whose
decision shall be final, binding on the piece
worker/contractor.
(g) The contractor shall employ any famine,
convict or other labour of a particular class
or kind if ordered in writing to do so by the
Engineer.
(h) Should Government declare a state of
famine to exist in any village within 10
miles of the work, the contractor shall
employee upon such parts of the works
are suitable for unskilled labour, any
persons certified to him by the Engineers
or by a duly authorized agent of the
Engineers, in writing to be in need or relief
and the contractor shall pay to such
persons wages not below the minimum
which the Government may have fixed in
this behalf. Any disputes which may arise
in the implementation of this provision
shall be decided by the Engineer whose
decision shall be final and binding on the
contractor.
(i) The contractor shall provide reasonable
facilities to the satisfaction of the
Engineer, for the labour employed by him,
where no such natural facilities exists.
The usual facilities are weather proof
shelter for rest and supply or whole some
drinking water, facilities for obtaining food
reasonable washing and sanitary facilities
special facilities for women workers,
suitable residential accommodation,
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recreation and cultural activities, general
sanction and health measures etc.
(j) The implementation of any provision of
this clause shall, in no way, entitle the
contractor to claim compensation or rates
higher than tendered in his contract.
....................................................................
57) The quantities given in Schedule ‘G’ are
approximate and payments will be made on
measurement of actual quantities of different
items of work executed by the contractor.
The rates quoted shall be for the
committed item in the schedule. The contractor
is advised to see the site fully and investigate in
detail as to the source of materials availability of
labour means of approach and carrying quarries
to be put stocking of materials putting tools and
plants in use and other site conditions such of
flood levels etc. He is expected to have
investigated as site the execution of work and
quote his tender accordingly. No claim on his
account shall be accepted. It shall be assumed
that his rates quoted in ‘G’ Schedule cover all
possible eventualities that may be not within the
course of execution of this work.
....................................................................
60. Owning to difficulty in obtaining certain
materials in the open market the Government
has undertaken to supply materials specified in
the schedules of the tender form. There may be
delay in obtaining materials by the Department
and the contractor is therefore required to keep
in touch with the day to day position of supply of
material from the Engineer-in-Charge need to so
adjust the progress of the work that their labour
may not remain idle not there may be no other
claim due to or arising from delay in obtaining
materials. It should be clearly understood that
no monetary claim whatsoever shall be
entertained by the Government on account of
delay in supplying way.
61. Under no circumstances shall any claim for
compensation from the Government on any
account be considered unless the contractor
shall have informed the reasons for the claim in
writing to the Engineer-in-Charge within 7 days
of occurrence of cause of such claim. Similarly
any hindrances to the work which may cause
extension of period of completion of work shall
be immediately informed in writing to the
Engineer for his consideration."
Schedule ‘G’ to the contract lists the estimated quantities of items of
work and the rates payable for such work. At the end of this Schedule
a lead statement and some notes appear, the relevant portion of which
reads as follows:
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"LEAD STATEMENT
S. Items Source Lead in Total
No. Kms. Km.
__________________________________________
1. Stone Ballast Local 1 km. 1 km.
2. Sand Piplia river 46 km. 46 km.
1) Any extra items if involved will be paid on the
basis of the B.S.R. 1975 of Ajmer Irrigation on
which ‘G’ Schedule is prepared plus the
tendered premium of the Contractor.
2) If any construction material is not available at
the sources indicated in the Lead Statement and
has to be obtained from other sources intimated
in writing by the Executive Engineer and if such
other sources are nearer or further than the
original source indicated recovery or extra
payment will accordingly be made for the leaser
or greater distance involved as per B.S.R. on
which ‘G’ Schedule is based plus the premium
tendered by the contractor."(emphasis supplied)
Thus the Respondents had fully acquainted themselves with the local
conditions and had agreed to execute the work as per specifications
and at the rates specified in Schedule ‘G’. It is only in respect of
additional work that the Respondents were entitled to be paid at rates
set out in B.S.R. 1975. Clause 12 provides that the Respondents had
to make their own arrangements for petrol, diesel and lubricants.
Clause 31 of the special conditions provides that the Respondent shall
pay fair wages and comply with labour laws. The contract provides
that the fact that the contractor had to pay fair/minimum wages and
comply with labour laws would not entitle the contractor to claim
compensation or rates higher than those tendered in the contract.
Clause 57 of the special conditions provides that the rates quoted in
Schedule G cover all possible eventualities and that no claim can be
made in respect of items like source of material, availability of labour,
means of approach etc.
At this stage it becomes necessary to set out a summary of the
claims made by the respondent. They are as under:
S.
No
Claim No.
Claim
Amount
(Rs.)
1
Claim No. 1
Amount of Final Bill
2,00,000.00
2
Claim No. 2
(1) For Chisel Dressed Face Stone
2,78,737.92
(2) Cost of C.R. Stone
3
Claim No. 3
Cost of R. R. Stone
2,71,282.00
4
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Claim No. 4
Rehandling of Sand
1,18,559.82
5
Claim No. 5
Rehandling of Stone
15,743.59
6
Claim No. 6
Extra lead of stone
15,743.59
7
Claim No. 7
Extra lead of Rubble Stone
11,123.19
8
Claim No. 8
Preparation of Foundation for
slides
1,49,955.00
9
Claim No. 9
Final excavation of sides
18,556.57
10
Claim No. 10
Carriage of porus pipes
2,662.90
11
Claim No. 11
Finishing of the concrete
5,861.16
12
Claim No. 12
R.C.C. in inspection gallery and
sluice
32,000.00
13
Claim No. 13
Rock cutting by line drilling
chiseling
25,947.31
14
Claim No. 14
Mechanical mixing of cement
mortar
1,82,990.72
15
Claim No. 15
Cleaning of surface by air & water
daily
66,079.74
16
Claim No. 16
Shuttering of stair case in
Galleries
2,231.60
17
Claim No. 17
Cement concrete in saturated
condition
29,223.81
18
Claim No. 18
Shuttering at the junction of the
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Dam heel and the Down stream
protection
5,126.49
19
Claim No. 19
Mechanical mixing of cement
concrete
2,463.26
20
Claim No. 20
Carriage of Air vent pipe
2,497.50
21
Claim No. 21
Crusher broken aggregate
33,669.00
22
Claim No. 22
Cleaning the foundation surface
handed over by the department
28,092.00
23
Claim No. 23
Increased in rates of royalty
17,216.87
24
Claim No. 24
Increased in rates of Diesel
1,22,604.36
25
Claim No. 25
Increased in minimum labour
wages
5,27,638.60
26
Claim No. 26
Increased in minimum labour
wages and increase in price in the
rates
10,52,797.30
27
Claim No. 27
Loss of profit
3,07,038,00
28
Claim No. 28
Due to unlawful withdrawl of the
running work
1,58,904.85
29
Claim No. 29
Over establishment and overheads
beyond 16.5.81 (stipulated date of
completion)
4,33,347.00
30
Claim No. 30
Difference of interest of F.D.R.
56,800.00
31
Claim No. 31
Wrong recovery from bills for sand
department & extra carriage
(6364.71 + 23206.90
29,571.61
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32
Claim No. 32
Recovery of labour
2,730.30
33
Claim No. 33
Recovery of Storage charges
22,549.30
34
Claim No. 34
Material remain unused
5,856.00
35
Claim No. 35
Electric charges
10,205.20
36
Claim No. 36
Excess charges of hire charges of
machine
37
Claim No. 37
Recoveries to be final
38
Claim No. 38
For screening of sand
4,165.00
39
Claim No. 39
Royalty charges on departmental
material
6,243.30
Mr. Mohta relied upon the case of Bharat Coking Coal Ltd. vs.
L. K. Ahuja & Co. reported in (2001) 4 SCC 86, wherein it has been
held that if an Arbitrator has not applied his mind to important terms
of the contract between the parties and has not applied such terms in
making his award, then, even though the award is a non-speaking
award. This error is apparent on the face of the award, the entire
lump sum award is required to be set aside. He also relied upon the
case of Continental Constructions Co. Ltd. vs. State of M. P.
reported in (1988) 3 SCC 82. In this case also it has been held that if
an Arbitrator awards extra costs on account of changes in
circumstances such as price rise, in spite of a provision in the Contract
to the contrary, it would amount to the Arbitrator mis-conducting
himself and that such an award would be required to set aside.
Mr. Mohta took us through a number of claims and pointed out
that under most of the claims additional/higher amounts were being
claimed in respect of works covered by the Contract. He submitted
that there were a number of claims where, for doing the contracted
work during the extended period, higher rates were claimed and the
Umpire has awarded those claims not on the basis of contracted price
but on basis of rates given to the new contractor who was appointed to
complete the work left unfinished by the Respondent. Mr. Mohta
submitted that the letters extending time categorically provided that
the work would be done at the contracted rate. He submitted that this
had been accepted by the Respondent. As we propose to remit the
matter back to an Umpire we do not deal with each instance pointed
out by Mr. Mohta. Only by way of example we refer to two claims.
As set out hereinabove claim no. 2 is in a sum of Rs.2,78,737.92
and it is for chisel dressed face stones. Under this claim, the
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Respondents have claimed extra amounts for chiseling the stones on
all four sides when, under the Contract, they are supposed to do this
work at the rates specified for such work in Schedule G. Mr. Mohta
pointed out Clause 5.11(iii) of the Technical Specifications the relevant
portion of which reads as follows:
" xxx xxx xxx
Dressing:- The face stone shall be squared on all joints
and beds. The beds shall be hammer dressed true and
square for at least 7.5 cms. Back, from the face and the
side joints for atleast 7.5 cms. The faces of the stones
shall be single line chisel dressed and bushing shall not
project by more than 3.75 cms. No pinnings will be
allowed on the face. All side joints shall be vertical and
beds horizontal and no joint shall be more than 12 mm. in
thickness. Stones shall break joints in courses above and
below by at least half the height of the courses. The joint
in face work shall not be thicker than 12 mm. for single
line chisel dressed stones.
xxx xxx xxx"
He submitted that this was the work which was required to be done
under the Contract at the rate specified in Schedule G and yet the
claim had been made at higher rates. He submitted that the Umpire
had not rejected the claim. He submitted that even though the award
was a lump sum award it was also in respect of claim No. 2. Mr.
Mohta also referred to claim No. 26 which was for Rs. 10,52,797.30 for
increase in minimum labour/wages and increase in prices. He pointed
out that this claim was contrary to Clause 38 of the Contract and
Clause 31 of the Special Conditions of the Contract which specifically
provided that the contractor would not be entitled to claim
compensation or higher rates because he had to implement labour
laws or pay fair wages.
In the same manner, Mr. Mohta took us through a large number
of other claims to show that they were contrary to the terms of the
Contract. As stated above it is not necessary, for the purposes of this
Judgment, to set out in detail the submission of Mr. Mohta in respect
of other claims referred to by him.
On the other hand, Mr. Luhadia submitted that this was a non-
speaking lump sum award and therefore the grounds on which this
Court can interfere with such an award are very limited. In support of
his submission he relied upon a number of authorities including the
cases of Hindustan Steel Works Construction Ltd. vs. C.
Rajasekhar Rao reported in (1987) 4 SCC 93. In this case it has
been held that it is only in a speaking award that the Court can look
into the reasoning of the award. It is held that it is not open to the
Court to probe the mental process of the arbitrator and speculate,
where no reasons are given, as to what impelled the arbitrator to
arrive as to his conclusions. He also relied on the cases of S.
Harcharan Singh vs. Union of India reported in AIR (1991) SC 945;
Hindustan Constructions Co. Ltd. vs. State of J. & K. reported in
AIR (1992) SC 2192 and Continental Construction Ltd. vs. State of
U. P. reported in (2003) 8 SCC 4. In these cases the question was
regarding interpretation of the terms of the contract. It was held that
the Court cannot substitute its own interpretation to that of the
arbitrator so long as the interpretation of the arbitrator is a possible
one. Reliance was also placed upon the case of M/s. Sudarsan
Trading Co. vs. State of Kerala reported in AIR (1989) SC 890. In
this case also it has been held that it is for the arbitrator to interpret
terms of the contract and that if the view taken by the arbitrator is a
possible view then the court would not interfere. In the case of P. M.
Paul vs. Union of India reported in AIR (1989) SC 1034 the
questions referred to the arbitrator were (a) who was responsible for
the delay; (b) what are the repercussions of the delay and (c) how to
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apportion the consequences. The arbitrator gave a reasoned award
holding the Union of India responsible for the delay and awarded
escalation in costs to the contractor. It must immediately be
mentioned that there was no provision in the contract which permitted
or barred grant of escalation. This Court held that the arbitrator had
not exceeded his jurisdiction nor misconducted himself. In the case of
Build India Construction System vs. Union of India reported in
(2002) 5 SCC 433 after the contract was entered into it was amended
to provide that in cases where the claim is more than 1 lakh a
reasoned award should be given. The arbitrator gave an unreasoned
award. The challenge to it on the ground that the award was
unreasoned was not accepted as this point was taken for the first time
in the high court and also on the ground that a contract cannot be
unilaterally altered.
There can be no dispute to the well established principle set out
in these cases. However these cases do not detract from the law laid
down in Bharat Coking Coal Ltd’s case or Continental
Construction Co. Ltd’s case (supra). An arbitrator cannot go beyond
the terms of the contract between the parties. In the guise of doing
justice he cannot award contrary to the terms of the contract. If he
does so he will have misconducted himself. Of course if an
interpretation of a term of the contract is involved than the
interpretation of the arbitrator must be accepted unless it is one which
could not be reasonably possible. However where the term of the
contract is clear and unambiguous the arbitrator cannot ignore it.
Mr. Luhadia submitted that the respondents had made claims
totaling Rs. 4556155.56p. He submitted that claims for damages were
to the tune of Rs. 27.50 lacs. He submitted that the claim for final bill
was for Rs. 2 lacs. He submitted that the claims for extra items were
for Rs. 1598495. He submitted that the Umpire had only awarded
Rs. 2996060. He submitted that as the award is a non speaking award,
even presuming without admitting that some claims were covered by
the terms of the contract, it still could not be said that the Umpire has
awarded towards claims covered by the contract. He submitted that
thus the award could not be set aside. In support of this submission he
relied upon the case of Paradip Port Trust & Ors. vs. Unique
Builders, reported in AIR (2001) SC 846. In this case the claim had
been for Rs. 1293260. The arbitrator awarded as follows:
"M/s Unique Builders Ltd. the claimant is entitled to receive
from Paradeep Port Trust a sum of Rs. 851315 with
interest\005\005\005\005.."
It was contended in that case that claims 2 and 7 (therein) could not
have been awarded. This Court held that as the award was a lump
sum award and as only Rs. 851315 had been awarded against a claim
of Rs. 1293260 it was not possible to say whether any amounts had
been awarded against claims 2 and/or 7. relying on this Mr. Lohadia
submitted that even in this case it cannot be said whether any
amounts have been awarded against claims alleged to be covered by
the contract. We are unable to accept this submission. In this case
the award itself states that the award of Rs. 29,96,060/- is against
claims 1 to 39, except claim no. 30. Therefore this award is in respect
of claims covered by the contract and to that extent the Umpire has
misconducted himself. Even otherwise the claim for damages is not in
a sum of Rs. 27.50 lacs as claimed. Claims 27 and 28 which deal with
damages are for Rs. 3,07,038/- and Rs. 1,58,904.85. The other
claims, included in the figure of Rs. 27.50 given to this Court appear to
be claims at enhanced rates for the contracted work done during the
extended period. Mr. Lohadia denied that Respondents had agreed to
do work during the extended period at the contracted rate. Thus at
this stage, unlike in Paradip Port Trust’s case (supra), it does appear
on the face of the record that higher rates for items covered by the
contract have been awarded.
As regards claim No. 2 Mr. Luhadia fairly admitted that Clause
5.11(iii) of the Contract requires chiseling of stones on all sides. He
however submitted that the rates given in Schedule G were only for
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chiseling of stones on one side. He submitted that this was clear from
Note 1 under Schedule G which stated that Schedule G was based on
B.S.R. 1975. He submitted that B.S.R. 1975 showed that such rates
were only for chiseling stones on one side. He submitted that when
the stone has to be chiseled on all sides the rates given in B.S.R. 1975
were to be applied. He submitted that claim No. 2 was based on those
rates. We are unable to accept this submission of Mr. Luhadia. The
Contract is very specific. The work specified in the Contract has to be
done at the rates specified in Schedule ‘G‘. Even though Schedule G
may be based on B.S.R. 1975 it is not exactly as B.S.R. 1975. Where
in respect of a work specified in the contract the rate has been given
in Schedule G that work could only be done at that rate. Works
specified in the Contract does not become extra work. It is only in
respect of extra work that rates specified in B.S.R. 1975 can be
applied. To us it is clear that the claim No. 2 is contrary to the terms
of the Contract. It is barred by Clauses 57, 60 and 61 of the Contract.
As regards claim No. 26, Mr. Luhadia relied upon the case of
Tarapore & Co. vs. State of M.P. reported in (1994) 3 SCC 521. In
this case, the question was whether the contractor was entitled to
claim extra amounts because he had to pay increased wages to his
workers. This Court has held that the contractor would have tendered
on the basis of the then prevailing wages and as the contract required
the contractor to pay the minimum wages if the minimum wages
increased it was an implied term of the contract that he would not be
entitled to claim the additional amount. However, it must be noted
that, in this case, there was no term in the contract which prohibited
any extra claims being made because of the increase in wages.
Clause 31 of the Special Conditions of the Contract, which has been
reproduced hereinabove, specifically bars the contractor from claiming
any compensation or an increase in rate under such circumstances.
Not only that but the Respondents had with their initial tender put in a
term which provided that if there was any increase in the minimum
wages by the Government the rates quoted by him would be
increased by the same percentage. At the time of negotiation this
clause was dropped. Thus, the Respondents had themselves
specifically agreed not to claim any compensation or increase by
reason of increase in wages. This claim could therefore not have been
granted.
It prima-facie appears that the majority of the claims are against
the terms of the Contract. However, there are also other claims which
are not against the terms of the Contract. To merely set aside the
Award on ground of misconduct would work hardship on the
Respondent as they would then be deprived of claims which may be
maintainable. In our view the correct course would be to set aside the
award and refer the matter back to an independent Umpire appointed
by this Court. The Umpire will fix his own terms and conditions. We
however clarify that only those claims covered by the two applications
will be considered. Of course the Umpire will decide how many of the
39 claims formed part of the claims made in the two applications.
Needless to state that the terms of the contract will be kept in mind
and claims contrary to terms of the contract will undoubtedly not be
allowed. The Umpire will also decide whether the Respondent had
agreed to do the contracted work done during the extended period at
the same rates and/or whether the Respondent is entitled to increased
rates and if so at what rate. The Umpire shall decide only on the basis
of the materials already placed before the earlier Arbitrators and the
earlier Umpire.
Under the circumstances and for reasons set out hereinabove,
we set aside the Award and appoint Justice N. Santosh Hegde, a
retired Judge of this Court, as the Umpire. The Umpire, Mr. V. K.
Gupta, shall forthwith forward all papers and documents to Justice N.
Santosh Hegde at his residence, i.e., 9, Krishna Menon Marg, New
Delhi. The parties shall appear before Justice N. Santosh Hegde on
6.10.2005 at 5.00 P.M. at 9, Krishna Menon Marg, New Delhi. Justice
N. Santosh Hegde shall fix his fees which shall be borne by both the
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parties equally. Justice N. Santosh Hegde is requested to fix the
schedule and give his award within a period of 4 months from the date
of receipt of all the papers and documents from the outgoing Umpire
Mr. V. K. Gupta. The award to be filed in this Court. We leave the
question of grant of interest open to be decided by the Umpire in
accordance with law.
Lastly, it is clarified that this is not a new reference but a
continuation of the earlier proceedings and thus the Arbitration Act
1940 shall continue to apply.
The Appeals stand disposed off accordingly. There will be no
order as to costs.