of Rajasthan Vs.
M/S Nav Bharat Construction Company  Insc 538 (4 October 2005)
S. N. Variava & Tarun Chatterjee [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
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.
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
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 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
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
I award an interest difference of (18% - F.D.R. interest rate on F.D.R.
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
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:
(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
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 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
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 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 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 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
"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
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 12The 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 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 23Except 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 36The 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 38Fair 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 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
(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
(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 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
(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
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, recreation and cultural activities, general sanction and health
(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
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:
"LEAD STATEMENT S. Items Source Lead in Total No. Kms. Km.
__________________________________________ 1. Stone Ballast Local 1 km. 1
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
At this stage it becomes necessary to set out a summary of the claims made
by the respondent. They are as under:
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 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 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 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
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 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.
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 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
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.." 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 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 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
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