Food
Corporation of India Vs. M/S A.M. Ahmed & Co. and Anr [2006] Insc 716 (31 October 2006)
Dr.
Ar. Lakshmanan & Altamas Kabir Dr. Ar. Lakshmanan, J.
The
appellant - Food Corporation of India (hereinafter called the 'FCI') preferred
the above appeals against the judgment and final order dated 13.08.2002 passed
by the Division Bench of the High Court of Judicature at Madras in OSA Nos.
157-159 of 1997 whereby the High Court dismissed the appeals filed by the FCI
and passed a decree in terms of the Award together with interest @ 12% p.a.
from the date of the decree till the date of the payment.
The
present dispute and differences arise out of the contract relating to the work
of clearing, stevedoring, forwarding, exporting, handling and transport
contract and delivery of foodgrains, sugar, flour, for the users, gift,
hospital/suppliers and other commodities and gunny/twine bales imported at the
Port of Tuticorin at the FCI Storage Godowns in and around Tuticorin for a
period of two years from the date of contract i.e. 08.04.1981 in pursuance of
Work Order No. SPC.1(1)/80 dated 20.04.1981 issued by the Senior Regional
Manager, FCI, Madras. The respondent-
contractor/claimant submitted his offer on 20.02.1981along with covering
letter. On 07.04.1981, a communication was issued by the FCI to the claimant
accepting their offer which had been reduced through negotiation to 397% ASOR.
According
to the FCI, a perusal of the said tender document shows that in addition to
cargo handling work at the Port, the respondent-contractor had to perform
various other duties including unloading of food grains from railway wagons,
machine-stitching of food grain bags, loading into trucks and other vehicles,
etc. etc. According to the FCI, the tender agreement did not provide for any
escalation clause and also stated that other than the rates agreed between the parties,
the contractor would not be entitled to any other payments.
On
01.09.1981, the Tamil Nadu Government issued a notification in the Gazette
notifying the settlement arrived at between the Port Users and Cargo Handling labour
of Tuticorin Port regarding implementing of the settlement dated 04.01.1981.
The respondent, by his letter dated 07.09.1981 to the FCI, pointed out the
revision of wages and asked the FCI to review its case for revision of rates
and pass necessary orders for revising the rates. The claim for escalation made
by the respondent was rejected by the FCI by its letter dated 14.03.1984. The
respondent filed O.P. No. 49 of 1986 in the Subordinate Court, Tuticorin for appointment of an Arbitrator in the dispute
regarding escalation. The said Court passed an order appointing an Arbitrator
in the matter. The High Court of Madras modified the order passed by the Subordinate Court and directed the Managing Director
of the FCI to appoint an Arbitrator in terms of contract between the parties.
The special leave petition filed against the aforesaid order was dismissed by
this Court on 05.05.1989. The special leave petition was filed by the FCI being
aggrieved by the finding that the dispute between the parties was an arbitrable
dispute, since the only question to be determined was payment of escalation
which was not provided for in the contract, therefore, could not have been
referred to arbitration.
Following
the dismissal of the special leave petition, the FCI appointed respondent No.2 Mr.
B.S.Hegde Joint Secretary and Legal Advisor Government of India as Sole
Arbitrator. Respondent No.1 filed Statement of Claim raising several claims.
The FCI filed a counter claim. The Arbitrator, on 10.04.1992, passed the Award
awarding a sum of Rs.57,10,517/- and Rs. 22,84,207/- under claims (i) and (ii)
respectively with interest @ 9% p.a. from 08.08.1989 till date of the award and
future interest @ 12% p.a. till date of decree or realization.
The
FCI filed O.P.No. 350 of 1992 under Section 14(2) of the Arbitration Act
praying for a direction to the Arbitrator to file the Award before the High
Court so as to enable it to challenge the same. Respondent No.2 filed the Award
before the Sub-Court Tuticorin on 30.06.1992. The claimant filed a petition
before the Subordinate
Court for making the
Award rule of Court and a decree in terms of the Award. The Division Bench of
the Madras High Court in appeal preferred by the FCI against the dismissal of
O.P. No. 350 of 1992 directed withdrawal of the O.P. filed before the Tuticorin Court to the High Court. The FCI, upon
being informed by the Registry of the High Court regarding transfer of OPs and
their re- numbering as O.P.Nos. 441 and 441A of 1993, filed objections to the
Award under Sections 30 and 33 of the Arbitration Act which was numbered as
O.P. No. 697 of 1993. A learned Single Judge of the High Court dismissed the
objections filed by the FCI by holding the same to be time-barred and made the
Award as rule of Court and passed decree in terms of the Award. The FCI
preferred an appeal to the Madras High Court which was dismissed by the
Division Bench of the said Court on 14.07.1997. The High Court, vide judgment
and order in special leave petition Nos. 21377-21379 of 1997, set aside the
dismissal and remanded the matter back to the Division Bench of the High Court
for disposal on merits. The Division Bench, after dismissing the objections
filed by the FCI, passes a decree in terms of the Award together with interest
@ 12% p.a. from the date of the decree till the date of the payment.
Aggrieved
by the dismissal of the appeal by the High Court, the FCI preferred the above
appeals.
We
heard Mr. K. Mohan, learned senior counsel and ASG appearing for the appellant
and Mr. R. Anand Padmanabha, learned counsel for respondent No.1.
Mr. K.
Mohan, learned senior counsel appearing for the appellant, made the following
submissions:
1. In
the absence of an escalation clause in the contract, the Arbitrator could not
have awarded any amount towards escalation and, therefore, the Arbitrator has
erred in awarding and the courts below in upholding the escalation awarded by
the Arbitrator;
2. The
High Court completely erred in not noticing that Clause 7 of the contract deals
with payment of minimum wages and this is different from the wage increase in
the present case which is not minimum wages but are wages prescribed through
settlement and, therefore, erred in holding that there was an implied provision
in the contract to pay the wages;
3. The
High Court ought not to have taken into account the ex-gratia payment made by
the Corporation to bypass the absence of the escalation clause and in holding
that despite absence of escalation clause, the contractor would be entitled to
escalation.
4.
Relying on the judgment of this Court reported in (2000) 3 SCC 27 State of Orissa
vs. Sudhakar Das (dead) by LRs submitted that in the absence of any escalation
clause, an arbitrator cannot assume any jurisdiction to award any amount
towards escalation and, therefore, that part of the award which grants
escalation charges is clearly not sustainable and suffers from patent error;
5.
Relying on the judgment of this Court reported in (1990) 4 SCC 647 S.Harcharan
Singh vs. Union of India for the proposition that only when there is provision
for variation the arbitrator can award escalation and since there was no such
clause the arbitrator has exceeded his jurisdiction;
6.
Associated Engineering Company vs. Govt. of A.P. reported in 1999 (4) SCC 93
was relied on for the purpose that the award in question was rendered beyond
the limits of contract and that the arbitrator cannot depart from the contract
and award;
7. He
placed strong reliance on Rajasthan State Mines and Minerals Limited vs. World
Engineering Enterprises and Others, 1999 (9) SCC 283 for the very same
proposition that the award cannot be against the stipulation in the contract;
8.
2001 (4) SCC 241 Ramachandra Reddy vs. State of Andhra Pradesh was cited for the
proposition that the escalation in rates of labour and materials can only be
granted on the basis of agreement;
9. He
also relied on 2002 (1) SCC 659 State of Rajasthan vs. New Bharat Construction
Company for the proposition that award of 9% interest for the period 08.08.1989
to 10.04.1992 and 12% interest for the future is excessive. He placed strong
reliance on para 8 of the said judgment wherein this Court reduced the rate of
interest from 18% and 15% to 6% through out;
10. He
also drew our attention to the award passed by the arbitrator, orders passed by
the different courts and also the relevant clauses in the agreement with
reference to the appointment of wages etc.;
11.
Concluding his argument, Mr. Mohan submitted that the High Court has completely
erred in not noticing that the award suffers from the gross errors apparent on
the face of the record and that the arbitrator has not gone into the evidence
as to the amount of enhanced wages actually paid by the respondent to the
workers and has merely awarded an assumed amount without giving any reason as
to how the amount was arrived at.
Mr. Anand
Padmanabha, learned counsel, made the following submissions by way of reply to
the arguments advanced by the appellant's counsel:
1. there
is no specific bar to the claim for escalation being made and that the conduct
of the FCI when it requested the claimant to continue their work would amount
to promissory or equitable estoppel;
2. the
claim for escalation is justifiable on the ground that the claimant could never
have anticipated the sudden wage increase and other statutory obligations
imposed by the Government under any stretch of imagination while tendering for
the work as early as February, 1981. It is further submitted that the claimant
had quoted for the work based on the then prevailing wages at the time of
tender who by providing them with a marginal increase for feasibility of
execution.
3. The
statutory obligation to pay higher wages arose under the notification published
in the Tamil Nadu Gazette extraordinary published in Part-6 Section 3a dated
01.09.1981 marked as Exhibit-C5.
4. The
above claim of unawareness of increase in wages consequent to Tuticorin being
declared as a major Port entailing higher wages on par with wages being paid to
dock labour in other major ports.
5.
Owing to the enormous losses that mounted up, the claimants had represented the
matter to the FCI reiterating the grave and disastrous monetary losses,
sustained by them and requesting for relief by neutralizing the increased
operational cost and its payment. Thereafter, the FCI had appointed a series of
committees who had gone into the requests made and although the committees have
recognized the need to neutralize the increase of extra costs incurred by the
claimants on labour, as it has occasioned by an order of Government, but to the
dismay of the claimant, no adequate relief was granted by the FCI. Various
representations were made by the claimants to the official hierarchy of the FCI
as early from 07.09.1981, 06.11.1981, 23.12.1981 during the currency of the
contract and thereafter effective persuasion continued since then.
Notwithstanding the fact that the FCI hierarchy was fully convinced to be just
and proper in neutralizing these losses, it was only marginally met with by the
Zonal Manager (South) who had reimbursed a paltry sum as an interim relief and
recommended for sanction of appropriate escalation to be granted.
Although
the claimants were given the sanguine hope for their entitlement as genuine and
reasonable, no final decision was taken during the tenure of contract including
extended period of three months which the claimant was called upon to continue
for the storage operations.
6.
Large amounts were expended by the claimants to meet this extra cost incurred
to pay the new wage structure and additional benefits given to labour as per
the directives of the Government. The unexpected expenditure incurred by the
wage hike, necessitated immediate requirement of enormous outlay which crippled
the claimants resources. Consequently, the claimants had to raise additional
funds from private sources at exorbitant interest to meet these contingencies.
Instead of resorting to a cease work out of frustration in contract by a
supervening event which was not within the contemplation of the parties at the
time of entering into the contract, the claimants had carried on with the work
effectively making enhanced wage payments in sizable amounts on the strength
and faith of the assurance given by the FCI hierarchy. The huge expenditure
incurred in mobilizing resources at exorbitant interest to meet the emergent
situation had created additional burden on the claimants by way of accumulation
of interest alone, owing to the indecisions of the FCI in settling this matter.
Therefore, the claimants have claimed to 10% contractor's profit or interest as
damages as the case may be on the amounts claimed for reimbursement. Ever since
07.09.1991, various representations submitted by the claimants seeking redressal
of their grievances, the matter remained pending for want of final decision.
Although the claims of the claimants were justified and had every reason for
granting the same as recommended by the FCI officials at, different levels, of
late, it has been turned down and denied to the claimants. Therefore, disputes
and differences had arisen between the parties to the subject contract.
7. The
claimants acted upon and carried on the work on the strength and faith of the
assurance given by the FCI to meet the claimants demand and in the interest of
smooth working of the contract and in order to avoid the stoppage of work a
decision was taken to grant enhanced rates w.e.f. 01.09.1981.
We
have carefully considered the rival submissions with reference to the records,
pleadings, judgments and with reference to the rulings cited by both the sides.
This
Court, while issuing notice dated 13.12.2002 in the special leave petition
passed the following order "ORDER Learned Attorney General argues that
there is no clause providing for escalation to reimburse the expenses incurred
by the contractor in the contract agreement. In spite of the same the
Arbitrator has awarded escalation in expenses.
Issue
notice on SLPs as also on the prayer for interim relief." In our opinion,
the argument of the learned senior counsel for the FCI that there is no clause
in the contract providing for escalation to reimburse the expenses and,
therefore, the arbitrator had exceeded his jurisdiction has no substance. The
issue of jurisdiction of the arbitrator to go into the claim of the claimant
towards compensation and neutralization of the extra expenditure incurred on
account of statutory wage revisions had already concluded in the earlier
proceedings arising out of the application filed by the claimant firm under Section
20 of the Arbitration Act for appointment of the arbitrator. The FCI in the
said proceedings specifically contended that there was no escalation clause in
the contract, the claim of the claimants for compensation on account of wage
revision should not be referred to arbitration and that the said claim was non-arbitrable.
However, the learned Subordinate Judge, Tuticorin by order dated 16.02.1987 in
O.P. No. 49 of 1986 rejected the said contention holding that the said claim
was arbitrable. On appeal filed by the FCI before the High Court the High Court
also confirmed the same by order dated 01.03.1989 in CMA No. 291 of 1987. This
Court also dismissed the special leave petition No. 5213 of 1989 filed by the
FCI by order dated 05.05.1989. Thus, the FCI is barred by res judicata from
raising the same issue again in the present proceedings.
Even
on merits, the claimants firm is entitled to be paid the said compensation, in
view of clause 7 of the contract dealing with payment of wages.
PAYMENT
OF WAGES TO WORKERS:
The
contractors shall pay not less than minimum wages to the workers engaged by
them on either time-rate basis or piece rate basis on the work. Minimum wages
both for the time rate and for the piece rate work shall mean the rate(s)
notified by the appropriate authority at the time of inviting tenders for the
work. Where such wages have not been so notified by the appropriate authority,
the wages prescribed by the Senior Regional manager as minimum wage shall be
made applicable. The contractors shall maintain necessary records and registers
like wage book and wage slip etc., register of unpaid wages and Register of
fines and deductions giving the particulars as indicated in appendix VI. The
minimum wages prescribed for the time being for piece-rate and time-rate
workers are as indicated below:-
(1)
Time Rate Worker (Male) : Rs.5.50 (Rupees Five and paise fifty only per day)
Time Rate Worker (Female) : Rs.5.50 (Rupees Five and paise fifty only per day)
(2)
Piece rate Workers: Rs.5.50 (Rupees Five and paise fifty only per day)"
It is
also submitted that in the subsequent correspondence with the claimant firm
also the FCI agreed to pay the expenditure incurred on account of wage
revision. In this regard, the learned Arbitrator after elaborately considering
the correspondence between the parties has found in the impugned award as
follows:-
"Whatever
may be the arguments now put forth by the respondents, from the admitted facts,
it is borne out and evident that the respondents had accepted their responsibility
to compensate the extra expenditure sustained by the claimants. Having not made
any reservations about its responsibility to neutralize the extra expenditure
of the claimants by enhancing the contract rates, the respondents had accepted
its liability after an exhaustive study of the matter, including the aspects of
the arguments now put forth by the respondents and finally accorded sanction
for enhancement in the contract rates. Since the relief was meager and
inadequate, the claimants again appealed for the balance due to them which too
was not protested or denied but on the contrary was acted upon. The respondents
sincerely wanted to know the actual expenditure incurred by the claimants and
its bonafides, for which purpose the District Officers at Tuticorin were
deputed in Oct.81 for verification of payments vouchers and other relevant
records connected with the discharge of one Vessel prior to 01.09.1981 and one
after 01.09.1981. This aspect is very relevant and has a direct bearing on the
issues relating to claims I & II.
It is
borne out from the records and argued by the claimants that soon after the
completion of the claimant's contract, the next contract was awarded by the
Food Corporation to a Stevedoring Agency for 1297% ASOR for port operations
alone (vide Ex.C24) as against the claimants' rate of 397% ASOR for port as
well as godown and railhead operations combined, which was offered prior to the
introduction of the new working pattern and increased wages in labour rates.
According to the claimants, the tenders for godown operations were separately
called for and was awarded by the Food Corporation at a rate of 777% ASOR which
was the lowest tender received. The percentage and the figures of this
statement submitted by the claimants are accepted to be correct by the
respondents FCI. The claimants reiterated that this will be ample justification
and testimony to prove and establish the rates that prevailed for the port
operations and godown operations in Tuticorin at the time of execution of the
work by the claimants and thereafter. The rates are reflected in terms and ASOR
by virtue of the acceptance of these percentage by the Food Corporation for the
subsequent years' work obtained as the lowest offer on the competitive tenders
invited by the Food Corporation. It was also stated that the other users of Tuticorin
Port viz. M/s SPIC and Railways had also accepted the revised notification as
mandatory and binding on all Port Users being statutory in character and
accordingly had reimbursed the difference by way of escalated rates fully
neutralizing the excess expenditure incurred by its contractors. The claimants
had also produced documents by way of Exhibits to this effect as certificates
issued by the respective organizations for having reimbursed the difference of
escalated rates. Respondents do not dispute these aspects, but state that the
payment by other Port Users cannot fasten them with any similar liabilities nor
is it binding on them." We have carefully perused the award. The award, in
our view, is not vitiated by any error of fact or law on the face of the record
and that the arbitrator has not committed any misconduct within the meaning of
the Act. The High Court has also in para 19 of the impugned judgment correctly
dismissed the objection raised by the FCI on the issue of absence of any
escalation clause in the contract while rendering the following finding, Raviraja
Pandian,J. speaking for the Bench, held;
"From
the payment of wages clause (Clause 1) of the letters referred to above and
also of the fact that, a committee of the High Officials of the appellant has
been constituted to go in depth of the factual position as to the payment of
wage hike as per the notification dated 01.09.1981 and the further fact that,
the committee has gone into and submitted a report as to the actual payment and
also the interim payment made by the appellant would clearly prove that, the
appellant had by the above said actions alive to the circumstance of payment of
enhanced wages considered the just demand of increase of rates and not stick to
his stand that there was no escalation clause in the agreement and as such the
claim of the respondents not maintainable. Hence, we are of the view that, the
learned counsel for the appellant is not well placed in the contention that,
the arbitrator has mis-conducted himself and passed an award for escalation of
price without their being any clause for escalation in the contract and the
same has to be rejected and is rejected." The respondent claimant was
awarded the contract for carrying out the work of clearing, forwarding,
stevedoring etc. from the Ports at Tuticorin for the period and from 08.04.1981
to 07.04.1983. During the currency of the contract w.e.f. 30.08.1981, the wages
of the workmen employed in the cargo handling was sharply increased to almost
three-fold consequent upon the settlement arrived under Section 12(3) of the
Industrial Disputes Act. The State Government notified the same in the Gazette
on 01.09.1981. In view of the statutory increase in the wages payable to the
port labourers, the claimant made a representation dated 07.09.1981 to the FCI
to revise the rates in respect of the contract besides pointing out that the
Claimant would be constrained to discontinue the work as the work at the
contracted rates would result in large loss. The claimant again wrote a letter
on 23.12.1981 to the FCI detailing the handling cost in view of the revised
wage pattern and for early order on the representation. In the said letter, the
claimant has also mentioned that it had offered its explanations on 22.12.1981
to the Committee appointed by the FCI and visited the FCI in this behalf. The
Committee constituted by the FCI made a report dated 15.01.1982 to the FCI
after inspecting the place of contract and after examining the issue. The said
Committee recommended for allowing the escalated rates specified therein,
supplementing with details. The first respondent wrote another letter on
19.01.1982 expressing anguish over the non-grant of relief claimed and
inability to carry on the works from 25.01.1982 as notified in the letter dated
25.12.1982. The FCI in its reply dated 21.01.1982 stated as follows:
"The
Committee's report is under examination. You are requested not to bring about
any stoppage in the work as contemplated by you as this will complicate
matters." The claimant was also served a phonogram dated 23.01.1982 which
reads thus:
"Your
request for escalation of rates is under consideration of the Zonal Manager.
Pending decision, request continue work without stoppage." The claimant
was acting and carrying on the contract work without bringing any stoppage of
work from 25.01.1982 incurring heavy loss, as it was thus made to believe that
it would be adequately compensated.
While
the matter stood so, the FCI appointed Mr. P.N.Chinnaswamy, Joint Manager, New Delhi to look into the matters relating
to the demand of the contractor for increase in rates consequent upon the
implementation of the settlement arrived at between the representatives of Port
Users and cargo handling labour in Tuticorin which is effective from
01.09.1981. Mr. Chinnaswamy in his report dated 17.02.1982 under the head
"Final Recommendations" stated as follows:
"There
is definitely a necessity for escalating the rates of the present contractors. Contractors
were not aware of the definite shape of matters to take place when they
submitted their tender initially in February 1981. Enhanced rates of payment
have become statutory as the scheme has also been published in the Gazette
consequent upon settlement of 31.08.1981.." He recommended for 962% over
SOR for the operations at New Port and 1108% over SOR for the Operations at Old Port at Tuticorin
instead of 397% ASOR originally agreed for both the ports." The claimant
did not get any response from the FCI even after the report of Mr. P.N.Chinnaswamy,
a letter dated 24.02.1982 was sent to the FCI that it would become impossible
for the contractor to continue the work if the issue was not settled as the FCI
did not keep the promise that the issue would be settled by 04.03.1982.
The
FCI by its letter dated 28.03.1982 communicated the contractor as follows:
"With
reference to your telephonic information given, that you will be stopping the
work from Monday the 29th March, 1982 at the port and at Godowns in the absence
of a decision on your demand for escalation of rates, please be informed that,
our Regional office at Madras have already taken up the matter with Head
Office, New Delhi and a decision is awaited. In the meantime please arrange to
continue the work at the port as well as at the godowns without any
interruption." However, the FCI by its letter dated 13.04.1982 accorded
sanction of 488% of ASOR instead of 397% ASOR in relation to old port
operations and which would workout to an increase of 91% only and 430% of ASOR
instead of 397% of ASOR for the operations at new port and which would come to
an increase of 31% only .
The
claimant accepted the same under protest and without prejudice by its letter
dated 17.04.1982 and requested the FCI, New Delhi for review of the decisions of the above grant of marginal relief.
It is
seen from the records that the contract period was from 08.04.1981 to
07.04.1983 for a period of two years.
Wage
revision came into effect from 01.09.1981. From 07.09.1981 to 28.02.1984, the
contractor made various representations during the currency of the contract.
The FCI did not allow the contractor to discontinue the contract work during
the currency of the contract promising that the revision of wages is under
their consideration. It is stated by the contractor that they had handled about
1.68 lacs metric tones of foodgrains at both the ports incurring huge loss and
after the contractor had completed the performance of the contract the FCI by
its letter dated 14.03.1984 informed the contractor that the request for
escalation of rates had not been agreed to by their Head Quarters, New Delhi
which compelled the contractor to approach the court for redressal of its
grievances.
The
Corporation had raised a specific question before the arbitrator that
escalation in rates claimed by the contractor could not be granted for the
simple reason that the agreement did not provide for any grant of the escalated
rates during the tenure of contract and hence no enhanced rates other than the
rates agreed upon can be granted. The learned arbitrator specifically rejected
the above contention on the basis of the subsequent acceptance of
responsibility by the FCI.
In our
view, the arbitrator has not mis-conducted himself and that the award has been
passed in consonance with the principles of natural justice. The High Court of
Madras has also upheld the award of arbitrator rightly holding that there is no
error apparent on the face of the record.
As
already noticed, the subject matter relates to the performance of the contract
between the periods from 08.04.1981 to 07.04.1983. Now that 23 years and odd
had already elapsed since the contract period and that the contractor is being
prevented by the FCI to receive the monies spent by him as awarded by the
arbitrator. It is also seen from the records that the quantum claimed by the
respondents was never disputed by the FCI and it is an admitted fact that the
wage revision came into force w.e.f. 01.09.1981 and the contractor firm had
paid the workers revised wages from 01.09.1981.
It was
argued by Mr. Mohan that the award of interest @9% for the period 08.08.1989 to
10.04.1982 and 12% for the future is excessive and in support of the said
contention 2002 (1) SCC 659 was relied on. During the pendency of the appeal,
this Court while granting special leave directed the FCI to deposit 50% of the
awarded amount which cannot be withdrawn by the respondent-contractor. It is
stated in the I.A. Nos. 4-6 of 2003 that the FCI had deposited only a sum of
Rs.39,97,362/- on 22.08.2003 which is 50% of the principal amount in the award
and that the FCI had not deposited 50% of the total amount awarded which
includes the principal amount of Rs.79,94,724/- and interest @ 9% p.a. from
08.08.1989 till date of publication of the award i.e. 10.04.1992 and future
award @ 12% p.a. till the date of realization.
Therefore,
an application was moved to pass appropriate orders directing the FCI to
deposit the balance of the amount as per the directions of this Court dated
25.07.2003. In clarification of the order dated 25.07.2003, this Court directed
the FCI to deposit half of the amount awarded by the arbitrator with interest
and permitted the contractor to withdraw the said amount on furnishing bank
guarantee of a nationalized bank to the satisfaction of the Registrar of this
Court. 3 months time was granted for depositing the amount.
Pursuant
to the Court's order, an amount of Rs.1,04,10,664/- has been deposited and kept
in FD and the same is renewed from time to time. Accordingly, the amount has
been released to the contractor on their submitting the bank guarantee to cover
the entire amount. However, it was alleged that the bank guarantee submitted on
12.08.2005 has since expired on 15.08.2006 and that the contractor has not taken
steps to submit fresh bank guarantee to cover the amount. The contractors are
liable for the consequences thereof. In the circumstances, the FCI prayed for a
direction to produce fresh bank guarantee or to renew the existing bank
guarantee so that the amount is secured as per the directions of this Court. On
31.08.2006, the Contractor filed extended bank guarantee and the validity of
the same is up to 15.02.2007.
Two
judgments of this Court on escalation and legal misconduct of the arbitrator
can be beneficially referred to, followed and applied to the case on hand.
The
first judgment is in Hyderabad Municipal Corporation vs. M. Krishnaswami Mudaliar
& Mudaliar & Anr., (1985) 2 SCC 9. The only question argued by the
counsel for the Hyderabad Muncipal Corporation was that the respondent
contractor was not entitled to claim 20% extra over and above the rates
originally agreed upon between the parties under the contract. Under the
contract, drainage work in question was entrusted to the respondent and under the
terms of the contract the work was to be completed by the contractor within a
period of one year. Admittedly, at the instance of the Executive Engineer, PWD
due to financial difficulties less budget having been provided for in the year
in question, therefore the respondent-contractor was requested to spread over
the work for two years more that is to say to complete the same in three years
but the contractor was agreeable to spread over the work for two years as
suggested on condition that extra payment will have to be made to him in view
of increased rates of either material or wages. The Government did not intimate
to the contractor that no extra payment on account of increased rates would be
paid to him or that he will have to complete the work on the basis of original
rates. In fact, no reply was sent by the Government and a studied silence was
maintained by the Government in regard to the contractor's demand for extra
payment, in spite of several reminders in that behalf, till the contractor actually
completed the work during the spread over period. After completion of work, the
contractor submitted his final bill claiming 20% extra over and above the rates
originally agreed upon between the parties. The Government stated that he was
not entitled to increased rates. The High Court, after considering the
correspondence exchanged between the parties has taken the view that the
government was liable to make extra payment for the work done as there was no
dispute that the rates of material, etc. had increased during the extended
period of two years and the contractor was entitled to such extra payment.
This
Court, after considering the relevant material on record, was also of the view
that both in equity and in law the contractor is entitled to receive extra
payment and the High Court was right in deciding the question in contractor's favour.
This
Court held that the liability to make this extra payment has been properly
saddled on the Municipal Corporation.
The
second judgment is in P.M. Paul vs. Union of India, AIR 1989 SC 1034. In this
case, the dispute that was referred to the arbitrator was as to who is
responsible for the delay, what are the repercussions of the delay in
completion of the building and how to apportion the consequences of the responsibility.
The arbitrator found that there was escalation and, therefore, he came to the
conclusion that it was reasonable to allow 20% of the compensation under the
claim.
He
accordingly allowed the same. Counsel appearing for the Union of India
submitted before this Court that the arbitrator had granted a sum of Rs. 2 lakhs
as escalation charges and cost in the absence of escalation clause was not a
matter referred to the arbitrator. In other words, it was urged that the
arbitrator had traveled beyond his jurisdiction in awarding the escalation cost
and charges. This Court in paragraphs 11 & 12 of the judgment held thus:
11. It
is well-settled that an award can only be set aside under Section 30 of the
Act, which enjoins that an award of an arbitrator/umpire can be set aside,
inter alia, if he has misconducted himself or the proceeding. Adjudicating upon
a matter which is not the subject-matter of adjudication, is a legal misconduct
for the arbitrator. The dispute that was referred to the arbitrator was, as to
who is responsible for the delay, what are the repercussions of the delay in
completion of the building and now to apportion the consequences of the
responsibility. In the objections filled on behalf of the respondent, it has
been stated that if the work was not completed within the stipulated time the
party has got a right for extention of time. On failure to grant extention of
time, it has been asserted, the contractor can claim difference in prices.
12. In
the instant case, it is asserted that the extension of time was granted and the
arbitrator has granted 20% of the escalation cost. Escalation is a normal
incident arising out of gap of time in this inflationary age in performing any
contract. The arbitrator has held that there was delay, and he has further
referred to this aspect in his award. The arbitrator has noted that Claim I
related to the losses caused due to increase in prices of materials and cost of
labour and transport during the extended, period of contract from 9.5.1980 for
the work under phase I, and from 9.1 1.80 for the work under phase II. The
total amount shown was Rs. 5,47,618.50. After discussing the evidence and the
submissions the arbitrator found that it was evident that there was escalation
and, therefore, he came to the conclusion that it was reasonable to allow 20%
of the compensation under Claim I, he was accordingly allowed the same. This
was a matter which was within the jurisdiction of the arbitrator and hence, the
arbitrator had not misconducted himself in awarding the amount as he has done.
The
above two cases, in our opinion, squarely apply to the facts and circumstances
of the case on hand.
Escalation,
in our view, is normal and routine incident arising out of gap of time in this
inflationary age in performing any contract of any type. In this case, the
arbitrator has found that there was escalation by way of statutory wage
revision and, therefore, he came to the conclusion that it was reasonable to
allow escalation under the claim. Once it was found that the arbitrator had
jurisdiction to find that there was delay in execution of the contract due to
the conduct of the FCI, the Corporation was liable for the consequences of the
delay, namely, increase in statutory wages. Therefore, the arbitrator, in our
opinion, had jurisdiction to go into this question. He has gone into that
question and has awarded as he did. The Arbitrator by awarding wage revision
has not mis- conducted himself. The award was, therefore, made rule of the High
Court, rightly so in our opinion.
In our
opinion, having considered the totality of the circumstances, we feel that it
would be just and proper to award interest @9% p.a. throughout instead of 12%
as awarded by the arbitrator for the period in question. The amount already
received by the claimant will be adjusted towards the entire claim and the
balance amount together with interest at 9% p.a. shall be paid by the FCI
within 2 months from the date of this order failing which the said balance
amount shall carry interest @12% from the date of its due till realization. In
view of this order in this judgment, the bank guarantee furnished by the
respondent-contractor shall stand discharged. The Supreme Court Registry is
directed to do the needful immediately.
The
impugned judgment of the High Court is modified accordingly. The appeals are
thus partly allowed as above leaving the parties to bear their own costs.
Back
