International Construction Pvt. Ltd Vs. Union of India  Insc 939 (11 December 2006)
K. Sema & R. V. Raveendran H.K.Sema,J.
validity and legality of the judgment dated 31.10.2002 of the Division Bench of
the High Court of Madras in OSA. No. 27/1995 and 25/1996 is assailed in these
appellant was awarded two contracts - the first for construction of LRMR
Aircraft Hangar and Airtech Hangar and connected works; and the second for
construction of roads and allied works at NAS Arakonam. In respect of the two
contracts, hereinafter referred to as the Hangar Contract and Road Contract,
the tenders submitted by appellant were accepted on 10.10.1988 and 3/5.1.1989
respectively. The necessary agreements were executed between the parties.
Disputes arose between the parties in respect of those contracts and the matter
was referred to Arbitration. The Arbitrator after examining the oral and
documentary evidence made his Awards dated 20.7.1993 and 5.3.1994. Applications
were filed before the learned Single Judge by the respondent herein for setting
aside the Awards. The learned Single Judge by orders dated 24.8.1994 and
22.9.1995 rejected the applications and in each case made a rule of the court
in terms of the award. Being aggrieved the respondent filed OSA Nos. 27/1995
and 25/1996, which were partly allowed by the Division Bench of the High Court.
Hence, the present appeals by the claimant contractor.
may not be necessary for us to refer to the entire facts leading to the filing
of the present appeals as the substantial question of law posed requires
reference to limited facts. Suffice it to say that awards of the learned
Arbitrator related to claims under several heads. The controversy in these
appeals relate to award in respect of item no. 24 in the Hangar contract and
items 13 to 16 in respect of the road contract. The particulars thereof are
extracted below :
of work Amount claimed Amount awarded Hanger Contract 24 Amount due on account
of escalation in materials and labour Rs.2,77,41,692 Rs.51,36,015/98 Road
Contract 13 Loss of profit due to turnover loss for staying beyond contract
period Rs.2,34,78,404 Rs.41,51,847/50 14.
compensation for work done beyond original contract period Rs.22,89,200 15 Loss
of profit on balance work due to termination of contract Rs.26,00,000 16.
payable for the period 5.3.1992 to date of termination Rs.3,50,000
regard to Hangar Contract, undisputedly, the contract work had to be completed
in two phases, the first phase by 31.10.1989 and the second phase by 30.4.1990.
However, the contract work could not be completed within the stipulated time,
partly due to the default on the part of respondent. It is also undisputed that
on the request of the contractor, the employer gave several extensions by a
letter dated 28.2.1990 the period of completion of work was extended up to
30.6.1990; by a letter dated 10.5.1991 it was extended up to 31.5.1991; by a
letter dated 27.8.1991 it was extended up to 30.9.1991; by a letter dated
23.1.1992 the time was extended up to 15.4.1992; by a letter dated 15.5.1992 it
was extended up to 28.5.1992 and by a letter dated 4.6.1992, it was further
extended up to 22.6.1992. The contract was subsequently terminated by the employer
respect of the road contract, the date of commencement of work was 3.1.1989.
The due date of completion was 2.11.1990 (21 months). The employer granted
extensions from time to time on the request of the contractor up to 31.5.1992.
Subsequently, the contract was terminated by the employer on 14.7.1992.
basis of the disputed claims is that the execution of work was delayed on
account of breaches on the part of the employer and the employer is liable to
compensate the contractor for all losses and extra cost on account of such
delay and extended execution.
These claims were resisted by the employer on the ground that the contractor
himself was liable for delays; that the employer had granted extension for the
delays; and that the contract prohibits the contractor from making any claim
for compensation or otherwise, howsoever, arising as a result of extension of
time granted in terms of the contract.
Arbitrator held that where the work was delayed on account of delays
attributable to the employer, grant of extension of time by the employer for
completing of work does not exonerate the employer from the liability to pay
damages for breach on account of the delay caused by the employer unless the
employer establishes that the contractor has consented to accept the extension
of time alone, in satisfaction of his claims for the delay. The Arbitrator held
that in these two contracts, the employer was not released of his liability for
damages on account of the delays, by granting extension of time. He, therefore,
proceeded to quantify the loss and awarded the amounts as aforesaid. The awards
of the Arbitrator on these items were affirmed by the learned Single Judge by
making the awards a rule of the court, by judgments dated 24.8.1994 and
Division Bench of the High Court after considering the threadbare submissions
on the question of law arrived at a conclusion that the Arbitrator has exceeded
its jurisdiction in making an award towards claim no. 24 in the Hangar Contract
and an award towards claim nos. 13 to 16 in the Road Contract, as they were
made in derogation of clause 11(C) of the contract, which prohibited the
contractor from making any claim for compensation or otherwise, howsoever,
arising, as a result of extension of time granted under the contract.
The core questions which arise for our consideration are these:
Whether claim no. 24 of Hangar Contract and claim nos. 13 to 16 of road
contract are unsustainable being in derogation of clause 11(C) of the contract,
which prohibits any compensation as a result of extension of time granted by
the department? (b) Whether the Arbitrator committed a legal misconduct for not
acting in terms of clause 11(C) of the contract though pleaded and submitted
before him? Re: Question (i)
Section 11 of the General Conditions of Contract relates to time, delay and
extension. We extract below the portions of section 11 relevant for our
11 : Time, Delay and Extension (A) Time is of the essence of the contract and
is specified in the contract documents or in each individual works order.
soon as possible after contract is let or any substantial work order is placed
and before work under it is begun, the G.E. and the contractor shall agree upon
the time and progress chart. The chart shall be prepared in direct relation to
the time stated in the contract documents or the works order for completion of
the individual items thereof and/or the contract or works order as a whole.
shall include the forecast of the dates for commencement and completion of the
various trades processes or sections of the work, and shall be amended as may
be required by agreement between the G.E. and the contractor within the
limitation of time imposed in the contract documents or works order. If the
work be delayed:
force majeure, or
reason of abnormally bad weather, or
reason of serious loss or damage by fire, or
reason of civil commotion, local combination of workmen, strike or lockout,
affecting any of the trades employed on the work, or
reason of delay on part of nominated subcontractors, or nominated suppliers
which the contractor has, in the opinion of G.E., taken all practicable steps
to avoid, or reduce, or
by reason of delay on the part of contractors or tradesmen engaged by
government in executing work not forming part of the contract, or
by reason of any other cause, which in the absolute discretion of the accepting
officer is beyond the contractors control;
in any such case the officer herein after mentioned may make fair and
reasonable extension in the completion dates of individual items or groups of
items of works for which separate periods of completion are mentioned in the
contract documents or works order, as applicable.
x x x x
x (B) If the works be delayed :
reason of non-availability of government stores in schedule B or
reason of non-availability or breakdown of government tools and plant listed in
in any such event, notwithstanding the provisions hereinbefore contained, the
accepting officer may in his discretion, grant such extension of time as may
appear reasonable to him and the same shall be communicated to the contractor
by the G.E. in writing. The decision so communicated shall be final and binding
and the contractor shall be bound to complete the works within such extended
claim in respect of compensation or otherwise, howsoever arising, as a result
of extensions granted under condition (A) and (B) above shall be
admitted." Clause (C) provides that where extensions have been granted by
reason of the delays enumerated in Clause (A) which were beyond the control of
the contractor, or on account of the delays on the part of the employer
specified in Clause (B), the contractor is not entitled to make any claim
either for compensation or otherwise, arising in whatsoever manner, as a result
of such extensions. After enumerating certain delays, sub-clause (viii) of
Clause (A) specifically mentions delay on account of any other cause beyond the
control of the contractor. The causes for delays specified in clause A, thus,
encompass all delays over which the contractor has no control. This will
necessarily include any delays attributable to the employer or any delay for
which both the employer and the contractor are responsible. The contract thus
provides that if there is any delay, attributable either to the contractor or
the employer or to both, and the contractor seeks and obtains extension of time
for execution on that account, he will not be entitled to claim compensation of
any nature, on the ground of such delay, in addition to the extension of time
obtained by him. Therefore, the claims for compensation as a consequence of delays,
that is claim 24 of Hangar Contract and claims 13 to 16 of Road Contract are
barred by clause 11(C).
are fortified in this view by several decision of this Court. We may refer to
two of them. In Associated Engineering Co. vs. Government of Andhra Pradesh
[1991 (4) SCC 93], this Court was concerned with an appeal which related to
similar claims based on delays in execution. The High Court had held (reported
in AIR 1990 AP 294) thus:
the principle of the above decision to the facts of the case before us, it must
be held that clause 59 bars a claim for compensation on account of any delays
or hindrances caused by the department. In such a case, the contractor is
entitled only to extension of the period of contract. Indeed, such an extension
was asked for, and granted on more than one occasion. (The penalty levied for
completing the work beyond the extended period of contract has been waived in
this case). The contract was not avoided by the contractor, but he chose to
complete the work within the extended time. In such a case, the claim for
compensation is clearly barred by clause 59 -of the APDSS which is admittedly,
a term of the agreement between the parties.
Court noticed that the claims were set aside by the High Court on the ground
that those claims were not supported by any agreement between the parties, and
that the arbitrator had travelled outside the contract in awarding those
Court held that the said claims were not payable under the contract and that
the contract does not postulate, in fact prohibits, payment of any escalation
under those heads. It affirmed the decision of the High Court setting aside the
award of those claims.
Ramalinga Reddy vs. Superintending Engineer [1999 (9) SCC 610], while
considering the similar claim, this Court observed thus :
8 was for 'payment of extra rates for work done beyond agreement time at
schedule of rate prevailing at the time of execution'. The arbitrator awarded
the sum of Rs.39,540.
59 of the A.P. Standard Specifications, which applied to the contract between
the parties, stated that no claim for compensation on account of delays or
hindrances to the work from any cause would lie except as therein defined. The
claim falls outside the defined exceptions. When extensions of time, were
granted to the appellant to complete the work, the respondents made it clear
that no claim for compensation would lie. On both counts, therefore, claim 8
was impermissible and the High Court was right in so holding." We, therefore,
answer the first question in the affirmative.
Question (ii) :
The arbitrator in his two speaking Awards recorded the following finding
regarding delay :
the facts and evidence placed before me, I find that the department cannot
absolve itself of partial breaches committed which are of fundamental nature
and had snow-ball effect.
department alone is not fully responsible, the contractor also has contributed
to certain delays." (in the Hangar Contract).
documents, the evidence and the arguments clearly indicate that the delay for
completing has been a joint responsibility of both the Department and
Contractor" (in Road Contract).
of having held that both were responsible for the delay and having noticed the
arguments based on clause 11(C) of the General Conditions of contract, the
Arbitrator proceeded to award damages on the ground of delay on the reasoning
that the contractor is entitled to compensation, unless the employer
establishes that the contractor has consented to accept the extension of time
alone in satisfaction of his claim for delay. As rightly held by the High
Court, which decision we have affirmed while considering questions no. (i),
clause 11 (C) of the General Conditions of Contract is a clear bar to any claim
for compensation for delays, in respect of which extensions have been sought
and obtained. Clause 11(C) amounts to a specific consent by the contractor to
accept extension of time alone in satisfaction of his claims for delay and not
claim any compensation. In view of the clear bar against award of damages on
account of delay, the arbitrator clearly exceeded his jurisdiction, in awarding
damages, ignoring clause 11(C). In Associated Engineering Co. (supra) this
Court held :
arbitrator cannot act arbitrarily, irrationally, capriciously or independently
of the contract. His sole function is to arbitrate in terms of the contract. He
has no power apart from what the parties have given him under the contract. If
he has travelled outside the bounds of the contract, he has acted without
jurisdiction..." x x x x A dispute as to the jurisdiction of the
arbitrator is not a dispute within the award, but one which has to be decided
outside the award. An umpire or arbitrator cannot widen his jurisdiction by deciding
a question not referred to him by the parties or by deciding a question
otherwise than in accordance with the contract. He cannot say that he does not
care what the contract says. He is bound by it.
must bear his decision. He cannot travel outside its bounds. If he exceeded his
jurisdiction by so doing, his award would be liable to be set aside In the
instant case, the umpire decided matters strikingly outside his jurisdiction.
He outstepped the confines of the contract. He wandered far outside the
designated area. He digressed far away from the allotted task. His error arose
not by misreading or misconstruing or misunderstanding the contract, but by
acting in excess of what was agreed. It was an error going to the root of his
jurisdiction because he asked himself the wrong question, disregarded the
contract and awarded in excess of his authority. In many respects, the award
flew in the face of the provisions of the contract to the contrary." In
Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises
& Anr. [1999 (9) SCC 283], this Court held thus :
rates agreed were firm, fixed and binding irrespective of any fall or rise in
the cost of the work covered by the contract or for any other reason or any
ground whatsoever. It is specifically agreed that the contractor will not be
entitled or justified in raising any claim or dispute because of increase in
cost of expenses on any ground whatsoever. By ignoring the said terms, the
arbitrator has travelled beyond his jurisdiction as his existence depends upon
the agreement and his function is to act within the limits of the said
agreement. This deliberate departure from the contract amounts not only to
manifest disregard of the authority or misconduct on his part but it may be
tantamount to mala fide action.It is settled law that the arbitrator is the
creature of the contract between the parties and hence if he ignores the
specific terms of the contract, it would be a question of jurisdictional error
which would be corrected by the court and for that limited purpose the
agreement is required to be considered. He cannot award an amount which is
ruled out or prohibited by the terms of the agreement."
the view that we have taken the Arbitrator clearly misconducted himself in
awarding compensation under claim no. 24 under Hangar Contract and claim nos.
13 to 16 under the Road Contract which was rightly set aside by the High Court
in the order impugned herein, on the ground that the Arbitrator had acted in
excess of his jurisdiction.
There is no infirmity in the impugned order of the High Court. These appeals
being devoid of merits are, accordingly, dismissed. Parties are asked to bear
their own costs.