State of J & K & ANR Vs. Dev Dutt Pandit
 INSC 304 (27 August 1999)
M.B.Shah D.P. Wadhwa, J.
the parties are aggrieved by judgment dated February 6, 1989 of the Division Bench of the High
Court of Jammu and Kashmir passed in an appeal against
judgment dated May 10,
1986 by the learned
single Judge of that High Court.
the learned single Judge made the award given under the Arbitration Act, 1940 a
rule of the court and also granted interest, the Division Bench in appeal deleted
two claims from the award and also reduced the rate of interest.
award was in favour of Dev Dutt Pandit, the Contractor.
aggrieved by deletion of two claims and also lowering the rate of interest and
the State is aggrieved against the award itself. Thus two separate appeals.
of the contractor for earth work, excavation, minor drainage crossing, overhead
crossing, road bridges and cement concrete lining of Ravi Canal Project was
accepted by the State Government and by order dated May 6, 1976 work was allotted to him. The work was to be completed
within 18 months, time being the essence of the contract. On May 22, 1976 contractor commenced work. He could
not complete the work within the stipulated time. The contract was partially
terminated in the structural portion of the work on January 12, 1980. On June
6, 1980 the whole of
the contract was terminated because of default committed by the contractor.
contractor filed a petition under Section 20 of the Arbitration Act as the
contract stipulated arbitration agreement between the parties. Some of the
terms of the contract containing the arbitration agreement, we may reproduce as
CONTRACT RATES :
contractor shall be paid for the works executed by him under this agreement at the
rates specified in Annexure I annexed hereto subject to other terms and
conditions embodied in this agreement.
VARIATION IN QUANTITIES AND EXTRA ITEMS The quantities shown in the Annexure
III to this agreement shall not be taken as final. The Engineer in-charge shall
be authorised to direct the contractor to execute extra items not shown in the
aforesaid annexure III or increase/ decrease the quantities beyond these
described in the said annexures as may be required to be executed and for such
increase/decrease quantities the contractor shall be paid at the rates
specified in the annexure I.
quantities shown in the Annexure III may be decreased in detailed drawings to
be furnished to the contractor during execution and the contractor shall be
paid only for the work done or executed and shall have no claim for any
compensation on account of any profit or advantage that might have accrued or
that may accrue to him otherwise.
FORCE MAJOURE A. The completion schedule is subject to the operation of the
force Majour Clause which for the purpose of this contract is defined as acts
of God, Civil, commotion, sabotage, fires, floods, earthquakes explosions or
other catastrophes, epidemics, quarantines, restrictions, strikes, and other labour
troubles, embargoes, or other transportation delays beyond the control of the
contractor for which only extension in time considered reasonable by the
department shall be granted and the contractor shall have no claim for
compensation or increase in rates etc. or charges for restoring damages to the
works plant or material.
DAMAGE TO WORKS From the commencement to the taking over of the works by the
Department the contractor shall be responsible for any damage or loss to the
works or part thereof caused due to any reason whatsoever. The contractor shall
at his own cost repair and make good the loss or damage in every respect to the
satisfaction of the Engineer whose certificate in this behalf shall be
conclusive proof of the defects etc. having been removed.
contractor shall be responsible for the true and proper setting out of the
works and for the correctness of the positions, levels, bench marks alignments
and dimensions in works and for the provisions and maintenance of all necessary
instruments, appliances, bench marks and reference marks and labour etc. in
connection therewith including charges therefor shall be borne by him.
line and bench marks will be set upon at the site of works by the site of works
by the department at contractor's cost. The contractor shall at his own cost
and responsibility locate and establish temporary bench marks and reference
lines for all the structures as may be required for the execution of the works
according to the detailed drawings and specifications and as required by the
Engineer. The contractor shall provide at his own cost all labour and materials
that may be required for checking the works during execution by the staff of
checks shall not absolve the contractor of his responsibility from carrying out
the works strictly according to the detailed drawings and specifications and as
per instructions issued to him by the Engineer during the execution of the
RESPONSIBILITY OF CONTRACTOR.
being the essence of the contract, the responsibility for execution of works
within eighteen (18) months in an efficient and workmen like manner and in
conformity with the department's drawings and specifications shall be of the
DEVIATIONS ALTERATIONS ETC. IN THE WORKS The contractor shall not in any way
alter the works or any part thereof in respect of designs, quality, materials
or specifications without the previous permission in writing of the Engineer.
The contractor shall not take advantage of any error or discrepancies occurring
in the drawings, designs or specifications but shall report the same to the
Engineer who shall make or approve the corrections if necessary.
CLAIMS NOT ENTERTAINABLE From the date of allotment of works and taking over on
completion by the department no claim shall be entertained in respect of the
works under this agreement against the department for, a) Increase in the cost
of POL Railway or road freight b) Taxes duties and octroi, etc. c) Increased
wages of labour skilled or unskilled and cost of materials d) Rise in cost of
living index e) Business or any other losses, and f) Idle employees on any
ARBITRATION If at any time any doubt, question dispute or difference
whatsoever, shall arise between the contractor and the Government upon or in
relation to or in connection with this contract, either of the parties may give
to the other notice in writing of the existence of such doubt, question,
dispute or difference and the same shall be referred to a person mutually
agreed upon by the parties failing such agreement by any officer of the
Government as the minister In-charge, P.W. Department Jammu and Kashmir
Government may nominate for arbitration under the Jammu and Kashmir Arbitration
Act and rules framed thereunder. The decision of the Arbitrator shall be final,
conclusive and binding upon the parties.
contractor shall not delay the carrying out of works by reason of any reference
to Arbitration and shall proceed with the works with all one due diligence and
shall until the decision of the Arbitrator, abide by the decision of the
engineer or his representative in-charge of the works duly conveyed by
him." Petition under Section 20 of the Arbitration Act by the contractor
was filed on June 12,
1980. On the following
day when the petition was taken up without any notice to the State the Court
appointed Local Commissioner to take measurements of the work done at the site
by the contractor.
application for seeking interim relief the contractor prayed that "a
commissioner may be appointed to go on spot and record the measurements of the
work done by the petitioner in presence of the parties" and till then
"the respondents may be restrained from changing the status quo at site or
disturbing the position of the work already done". Court passed the
following order:- "An application has also been moved on behalf of the
petitioner which is O.M.P. No. 136 of 1980 with the prayer that measurements of
the work done at site may be got recorded by appointing a Commissioner as the
work done by him is(?) obliterated. The application is supported by an
affidavit. Shri Bashir Ahmed Shah, Ex. Engineer, R&B C/o Chief Engineer,
P.W.D. Jammu, is appointed as Commissioner to visit the spot and record the
measurements and submit his report within a week. Till the measurements are
recorded the respondent will not execute any fresh work. The Commissioner's fee
is fixed at Rs.300/- to be borne by the petitioner." Subsequently Local
Commissioner was changed. Local Commissioner submitted his report on December 9, 1980 which formed part of the record. In
his petition under Section 20 of the Arbitration Act the contractor claimed a
sum of Rs.39,47,000/- under various heads. This petition was allowed by order
dated April 9, 1982. We quote the operative portion of
the order as under:- "The disputes mentioned in the application u/s 20 of
the Arbitration Act as well as the objections filed thereto by the other side
are, therefore, referred to the aforesaid Arbitrator with a direction that he
shall enter upon the reference and make his award within four months thereafter
in accordance with law. The parties shall be at liberty to raise any further
disputes before him provided it is not against the term of the agreement. The
parties, however, shall be in possession of the original agreement, shall
produce the same before the Arbitrator. Copy of the application, the objections
filed thereto and a copy of this order shall be provided to the arbitrator.
Arbitration petition No. 72 of 1980 stands finally disposed of." Before
arbitrator the contractor now claimed a sum of Rs.63,61,000/-. On the basis of
the report of the Local Commissioner giving details of the measurements of the
work done by the contractor a final bill was prepared by the contractor which
amounted to Rs.14,32,436.62. He claimed this bill to be based on the terms of
arbitrator gave his Award on February 2, 1983.
It is a non-speaking Award. He awarded a sum of Rs.20,08,000/- to the
contractor with interest at the rate of 10% per annum from the date of
application for appointment of the arbitrator upto the date of payment. It was
also provided that the "interest on the amount awarded against claim Nos.
18 shall start and will be computed from the date of the publication of the
Award". Claims 16 and 18 respectively were claims of interest at the rate
of 24% per annum by the contractor respectively on recoveries made and delay in
release of illegally deducted amounts for excess consumption of cement. Awards
on claims 16 and 18 were restricted to Rs.20,400/- and Rs.9,524/-. Lastly, it
was directed that if the amount awarded was not paid within three months from
the date of the Award interest payable shall be 18% per annum on the amount so
awarded upto the date of realisation.
noted above, the contract was for a total sum of Rs.12,23,500/-. The contractor
allegedly committed breach of the contract. It was partially terminated on January 12, 1980 in respect of structural portion of
the work and the contract was finally terminated on June 6, 1980. By this time the contractor had executed less than 50% of
the work and had been paid a sum of Rs.5,71,900/-.
matter now again came to the court. This time for making the Award rule of the
court. State filed objections to the Award under Sections 30 and 33 of the
Arbitration Act and alleged misconduct by the arbitrator. It was on the grounds
that the Award was against the terms of the contract and the arbitrator travelled
beyond the order of reference.
submitted that new claims were introduced before the arbitrator which were not
made in the petition under Section 20 of the Arbitration Act and, therefore,
could not be taken cognizance of by the arbitrator. What the contractor claimed
in Section 20 petition was given in the annexure thereto and this is how the
claims were advanced:- "Similarly numerous other items in which the
petitioner either was not paid at all or was not paid have been comprehensively
indicated in the Annexure to this petition which may kindly be treated as a
part and parcel of the present petition. The petitioner has tentatively
assessed the various claims on various accounts which he is entitled to from
the said department which may be referred to for the purpose of
convenience." Annexure contained summary of claims which included claims
on account of earth work cutting as the original alignment was later abandoned,
idle labour, illegal recoveries, interest on illegal recoveries, etc.
submitted by the State that the order dated April 9, 1982 referring the disputes to
arbitration did not allow the contractor to advance additional claims not
mentioned in the summary of claims annexed to the petition.
objection was to the claim made by the contractor of Rs.14,32,436/- which was
based on the measurements recorded by the Local Commissioner of the work done
by the contractor under the contract. This amount is reflected in claims 13 and
14 before the arbitrator.
single Judge of the High Court by order dated May 10, 1986 dismissed the objections raised by the State and made the
Award rule of the court. He, however, reduced the rate of interest and now the
interest was payable at the rate of 6% per annum from the date of the Award
till payment. Award of penal interest at the rate of 18% was deleted. Matter
was then taken to the appellate Bench of the High Court in appeal. Same
objections to the Award were repeated by the State. Contractor objected to that
part of the order of learned single Judge by which interest awarded by the
arbitrator was reduced. The Division Bench upheld the order of the learned
single Judge except that claims under items 13 and 14 were deleted which
amounted to Rs.8,08,250/-. The appeal of the State was thus allowed in part.
Plea of the contractor against reducing the interest by the learned single
Judge was rejected. While deleting the claims under items 13 and 14 the
Division Bench observed as under:- "The work done by the contractor was
duly measured and the final bill prepared in accordance with paragraph 40 (measurements
and terms of payment) of the Agreement enclosed by the contractor with his
statement of facts and claim before the arbitrator amounting to Rs.14,32,436.62
paise out of which deducting the amount of Rs.5,71,915.60 paise paid to the
contractor leaves the balance of Rs.8,60,521.02 paise only over and above this
amount any measurement subsequently done by the commissioner cannot form part
of the agreement and could not be allowed to be multiplied to an unlimited
extent beyond the rates and work prescribed in the agreement. Even the summary
of claims submitted before the court for reference do not include the amount
claimed under this head. The other heads of claim overlap the claim No. 20 on
which item 13 is awarded. In consideration of the foregoing circumstances we
have no doubt in our mind to hold, that the arbitrator made these items of the
award No. 13 granting Rs.95,400.00 based on claim No. 20 (due to escalation
Rs.2,86,487/- - claim rejected by arbitrator) of the subsequent statement of
facts and claim, exceeded his jurisdiction which is against the terms of the
agreement and thus invalid in view of the reference. The items No. 13 and 14 of
the Award being independent of the entire award are separable, there can be no
legal impediment in deleting the two items based on claim No. 20 from the
Award. The appeal to this extent, in our opinion, deserves to be allowed to
disallow the claims of Rs.7,12,850.00 and Rs.95,500.00 totalling to
Rs.8,08,250.00 (Eight lacs, eight thousand two hundred and fifty only) and the
award to that extent is set aside." State still felt aggrieved. Contractor
became more aggrieved because of deletion of his two claims and rejection of
his plea for enhancement of the interest as awarded by the Arbitrator.
have noted the relevant terms of the contract. It is not necessary for us to
set out the claims made by the contractor in detail except to note that out of
23 claims under different heads claims 2, 6, 19, 20, 21 and 22 were rejected by
the arbitrator; claims 1 and 3 relate to the alteration of the work being
excavation done at original site abandoned, refilling of the original
excavation, fresh excavation on new alignment and shifting of centre line and
consequent refilling compacting and lean concrete lining;
4, 5, 10 (in part) and 11 are for damage due to monsoon; claims 8, 9, 10 (in
part) and 12 are on account of idle labour; claims 7, 13, 14 and 17 are by and
large under the terms of the contract; claims 15, 16 and 18 are for interest
which were not mentioned in the summary of claims annexed with Section 20
petition and claim 23 is for the cost of arbitration.
the learned single Judge four issues were framed arising out of the pleadings
of the parties. These are:
Whether any fresh claims were entertained by the Arbitrator during the course
of arbitration proceedings? 2) In case issue No. 1 is proved in affirmative
whether any such claim was beyond the scope of reference made to the arbitrator
by the court, if so how? 3) Whether the award made by the Arbitrator was
against the terms of the agreement? If so, whether the same amounts to
misconduct? 4) Whether the arbitrator committed misconduct legal or otherwise
in making of the Award? If so, how?" The court allowed the parties to lead
evidence on the issues so framed.
contract has been entered into on the basis of measurable item rate contract
and the rates of each items were quoted accordingly. According to the
measurements, as quoted, the contract was for a total value of Rs.12,23,500/-.
senior advocate for the State of Jammu and Kashmir reaffirmed the arguments advanced in the High Court that
the Award travelled beyond the terms of reference and was also against the
terms of the contract. He said claims 13 and 14 could not have been advanced before
the arbitrator as these claims were not mentioned in the summary of claims
filed with the Section 20 petition. He said High Court was right in deleting
these two claims. The order referring the disputes to arbitration allows those
claims to be raised before the arbitrator which fell within the terms of the
contractor has to be paid on the basis of measurement of the work done by him.
Local Commissioner measured the work done by the contractor in presence of both
the parties and thereafter he submitted his report. On the basis of measurement
so recorded by the Local Commissioner the contractor prepared the final bill of
claim for Rs.14,32,436/- and after taking out the amount already paid to him,
made claim for the balance. It is difficult to see how claims made under items
13 and 14 could be said to be either new claims or outside the terms of the
clause 5 of the contract, contractor is to be paid for the work executed by him
under the contract at the rates specified therein.
clause 17 of the contract it is the contractor, who is responsible for any
damage or loss to the works or part thereof caused due to any reason whatsoever
and he at his own cost is required to repair and to make good of loss or
damage. Contractor, therefore, could not claim any loss done to him on account
of early onset of monsoon or otherwise. Similarly under the terms of the
contract he cannot claim any amounts towards idle labour. As a matter of fact
under clause 69 these claims are not entertainable at all. Mr. Thakur for the
contractor said that "idle employees" as mentioned in clause 69 of
the contract is not the same thing as "idle labour". According to
him, the term "idle employees" would mean regular employees on the
roll of the contractor like engineers etc. We do not think such a restricted
construction can be put on the term "idle employees" as not include
idle labour as well. Read as a whole skilled and unskilled labour are all
employees of the contractor under the contract.
work done on account of deviation or alteration could not be undertaken without
the previous permission in writing of the engineer. It is admitted case of the
contractor himself that there is no writing though it was promised to him
orally. In view of clause 27 of the contract claims 1 and 3 could not have been
accepted. When the principal claims were wrongly awarded there is no question
of any award of interest on the amounts claimed under those heads.
submitted before us that it is a non-speaking Award and this Court cannot go
into the mental process of the arbitrator in making the award on various
claims. Court has certain limitations while examining a non-speaking award but
there is no complete bar in examining if the award is in terms of the reference
or the terms of the contract.
the claims made before the arbitrator in respect of items 1 and 3 evidence was
also recorded by the learned single Judge. Admittedly when there is no writing
for any alteration or deviation no claim could be allowed by the arbitrator. To
accept the claim of the contractor on claims 1 and 3 without examining the
pre-condition of there being any writing of any alteration or deviation would
not be legal.
does appear to us that the final bill amounting to Rs.14,32,436.62 encompasses
all the works done by the contractor which were measured by the Local
Commissioner in presence of both the parties and which perhaps also includes
the work for which contractor could not raise any claim under the contract. In
the evidence which has been led there is no objection to measurements recorded
by the Local Commissioner and the final bill prepared on that basis.
is all the amount contractor is entitled to. By raising other claims he is
merely trying to create confusion with the hope that he may be able to get some
payment outside the contract for which he unfortunately succeeded.
the final bill of Rs.14,32,436.62 the contractor has been paid Rs.5,71,915.60
thus leaving a balance of Rs.8,60,521.02 to which in all the contractor would
be entitled to under the Award.
the Interest Act, 1978, which came into force on August 19, 1981, court
includes arbitrator. Under Section 5 of the Interest Act Section 34 of Code of
Civil Procedure would, therefore, apply to the arbitrator as well.
is thus entitled to award interest pendente lite and future interest at the
rate not exceeding the current rate of interest which has also been defined in
clause (b) of Section 2 of the Interest Act.
present case arbitrator awarded interest at the rate of 10% per annum which was
reduced by the learned single Judge to 6% per annum and upheld by the Division
Bench. Under Section 34 of Code of Civil Procedure interest at the higher rate
than 6% can be awarded where the liability in relation to the sum so adjudged
had arisen out of commercial transaction. There is nothing on the record to
show that interest awarded by the arbitrator at the rate of 10% is in
contravention of Section 34 of Code of Civil Procedure. That being so we do not
think either the learned single Judge or Division Bench were correct in
reducing the rate of interest as granted by the arbitrator. We would,
therefore, restore the award of interest at the rate of 10% per annum as
granted by the arbitrator from the date the arbitrator entered into reference
till realisation of the amount under the award.
the appeal filed by the State of Jammu and Kashmir came up for admission before
this Court it was ordered on May 1, 1989 that the State Government shall
"pay 1/2 of the decretal amount payable under the order of the High Court
against bank guarantee to the respondent. The bank guarantee shall be given to
the satisfaction of the Deputy Registrar of the High Court. Issue stay of
further execution proceedings". If by the order dated May 1, 1989 excess
amount has been paid by the State to the contractor the same shall be refunded
to the State by the contractor with interest at the rate of 10% per annum from
the date the contractor got the excess amount till it is refunded to the State
is considered to be an important Alternative Disputes Redressal process which
is to be encouraged because of high pendency of cases in the courts and cost of
litigation. Arbitration has to be looked up to with all earnest so that
litigant public has faith in the speedy process of resolving their disputes by
happened in the present case is certainly a paradoxical situation which should
be avoided. Total contract is for Rs.12,23,500/-. When the contractor has done
less than 50% of the work the contract is terminated. He has been paid Rs.5,71,900/-.
In Section 20 petition he makes a claim of Rs.39,47,000/- and before the
arbitrator the claim is inflated to Rs.63,61,000/-. He gets away with Rs.20,08,000/-
with interest at the rate of 10% per annum and penal interest at the rate of
18% per annum. Such type of arbitration become subject of witticism and do not
help the institution of arbitration. Rather it brings bad name to the
arbitration process as a whole. When claims are inflated out of all proportions
not only that heavy cost should be awarded to the other party but the party
making such inflated claim should be deprived of the cost. We, therefore, set
aside the award of cost of Rs.7,500/- given in favour of the contractor and
against the State of Jammu
the appeals are partly allowed. Judgment and decree passed by the learned
single Judge making the Award dated February 9, 1983 Rule of the court and as modified
by the impugned judgment is further modified. Now Award is made Rule of the
court to the extent of Rs.8,60,521/- with interest at the rate of 10% per annum
from the date of reference till payment is made. There shall be no order as to
costs in both the appeals. The exact amount payable/due to any of the parties
shall be worked out while drawing up the decree keeping in view the order dated
May 1, 1989 of this Court.