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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.