Kochhar Construction Co. vs Union Of India And Anr.
1987 Latest Caselaw 164 Del

JUDGMENT

G.C. Jain, J.

(1) The Executive Engineer, P & T (Civil) Div. No. Iii P.O. Building, Chankyapuri New Delhi on behalf of the President of India, invited tenders for "construction of Vertical Extension of T. E. Building. Chankyapuri. The estimated cost of the work was Rs. 5,22,818. M/s. Kochhar Construction Company (hereafter to be referred as the contractor) submitted its tender for executing the said work for a sum of Rs. 8,84,534.66. This tender was accepted by letter dated July 29, 1980 and the work was awarded to the Contractor vide agreement No. 23/PE III/80-81. Under the agreement the department was to provide 230 metric tonnes of cement; 67.5 metric tonnes of TOP.. steel and 4 metric tonnes of mild steel at the rate of Rs. 495; Rs. 3180.50 and Rs. 2455 per metric tonne respectively. The work was to commence on August 13, 1980 and was to be completed by August 12, 1981. The work could not be completed by the stipulated date and the agreement was rescinded by letter dated August 21, 1982.

(2) The contractor, contending that the rescission of the contract was illegal and unjustified, raised various disputes and claims and invoked arbitration pursuant to arbitration clause (clause 25) and asked the Chief Engineer P & T (Civil) to appoint an arbitrator to adjudicate the said disputes/claims. The claims raised by the contractor and the counter claims of the respondents were referred to Sh. S. K. Ahuja. Superintending Engineer, for adjudication. Mr. Ahuja resigned on administrative grounds and therefore, the same were referred to Mr. N. N. Chakraborty, Superintending Engineer for adjudication. Learned arbitrator made and published his award on January 31, 1986. He held that the rescission of the contract by the respondent was unjustified. He further found that the contractor was entitled to increase in the rates because of the delay caused by the respondent in the execution of the work. The following

claims were allowed. No. of claim Name of the Amount Amount Claim claimed allowed Claim No. 1 Refund of security Rs. 32,000.00 Rs. 33,641/. deposit modified to Rs. 33,641/. Claim No. 2 (a) Claim for further Rs. 12,188.89 Rs. 655.00 payment for part later modified to rates items Rs. 8,996,98 Claim No. 2(b) Claim for further Rs. 1,444.83 Rs. 631.00 payment for extra items Claim No. 2(d) Claim for further Rs. 43,698.22 Rs. l8,355.00 payment for the work already done Claim No. 3 Claim for extra Rs. 2,91,390/. Rs. 2.86.895.00 payment due to modified to escalation of rates Rs. 2.91.693.00 Claim No. 5 Claim for payment Rs. 4000.00 Rs. 2.143.00 of dismantling alleged to have been done by chiselling Claim No. 15 Claim for (i)) Interest at 12% p.a. from March pendente lite 3, 1983 to the ate of the award interest on items No. 1,2 (a), 2(b) and 2(d) and (ii) from the date of the award till the date of payment or decree on the entire amount of Rs.3,42,320.00

(3) On February 27, 1986 the contractor filed an application under Section 14(2) of the Indian Arbitration Act, 1940 for directing the arbitrator to file the original award along with the arbitration proceedings in the court thereafter to proceed in accordance with law. Pursuant to the notice issued to the arbitrator to file the award and the proceedings the same were duly filed in the court. Notice of the filing of the award was issued to the parties.

(4) Union of India filed objections (I.A. 3077/86) under Sections 30 & 33 of the Indian Arbitration Act for setting aside the award. It was averred that the arbitrator has misconducted himself and the proceedings. He had exceeded his jurisdiction in awarding future interest and the interest for the period prior to the-date he entered upon the reference as that dispute was not referred to him. He misconducted himself in holding that the rescission of the contract was unjustified and also in attributing the delay to the respondents-objectors. He had misconducted himself in allowing 60% increase as on gross value of the work of Rs. 4,78,159 done after August 12. 1981, the date of completion of the work when admittedly this amount included cement and steel of the value of Rs. 2,60,711.57 supplied by the department on the agreed rate. There was no evidence in support of this claim and in any case the contractor himself had claimed escalation at 57% in his statement of claims. It was also alleged that the arbitrator was in error in considering recovery of only 61.10759 M.T. of steel whereas the total steel issued to the contractor was 65.150 M.T.

(5) This application was opposed by the contractor. It was averred that the objection raised were not covered by the provisions of Section 30 and 33 of the Arbitration Act. The respondents wanted to reopen the matter which could not be done. The arbitrator had neither misconducted himself nor the proceedings. He was competent to allow future interest as well as the interest from March 3, 1983 as it was the date on which the arbitration was invoked. The contractor could not challenge the findings regarding the claim for escalation over the agreed rate. The contractor-though had claimed 57% escalation but in the proceedings he has filed a statement showing that the escalation was to the extent of 66.31 per cent and thus the claim stood modified corrected to this extent. The. petitioner had claimed escalation due to overall change in the increase in the cost of building material and labour except the cement and steel. This fact was clear from the statement submitted, by the contractor with his claims. The award retarding the supply-of steel was absolutely correct. There was no error of law apparent on the face of the award.

(6) On the pleadings of the parties following issues were framed:-

"1. Whether the dispute regarding the award of interest was referred to the Arbitrator? If not, its effect.

2.Whether the Arbitrator was competent to award interest without there being specific reference in this behalf ?

3.Whether the Arbitrator had awarded increase @ 60% on cost index basis in spite of the fact that the petitioner had claimed @ 57% in the statement of claim and the Arbitrator has misconducted himself and the proceedings ?

4.Whether there was an error apparent on the face of the award ?

5.Whether the arbitrator had misconducted himself or the proceedings as alleged in para 6 to 9 and 14 of the objection petition and the award was liable to be set aside ? (as amended by order dt. 19-8-86)

6.Relief."

ONE of the claims (claim No. 15) raised by the contractor referred for adjudication reads as under:-- "WHETHER the claimant is entitled to any pendente lite interest ?"

(7) It is settled law an arbitrator must confine himself within the scope of his authority. He cannot enlarge the scope of reference. It is Pre-requisite of a valid award that it confirms to the submissions.

(8) In the present case the question regarding interest referred for adjudication was "whether the claimant is entitled to any pendente lite interest". Thus only the dispute regarding the entitlement of the contractor to get 'pendente lite' interest was referred for adjudication. 'Pendente lite' according to Shorter Oxford English Dictionary means during the process of litigation. Litigation in this case started on March 3, 1983 when claims were raised and arbitration invoked. It came to an end on January 31, 1986 when the award was made. Learned arbitrator therefore could award interest from March 3, 1983 up to January 31, 1986 only.

(9) There was no reference regarding entitlement of the contractor to get future interest. Reference regarding future interest, in view of the specific question limiting the dispute to the entitlement of the 'pendente lite' interest, could not even be implied. There is nothing in the reference order to indicate that the question of interest subsequent to the award had been referred to the arbitrator. The arbitrator, therefore, had no jurisdiction to award future interest. The decision of the Supreme Court in Union of India vs. Bungo Steel Furniture Private Ltd., does not help the contractor. In that case .all the questions in suit including interest had been referred. In this case the reference was limited to the question of grant of pendente lite interest.

(10) The award for future interest being separate and distinct from rest of the award, this part of the award only was liable to be set aside.

(11) I consequently hold that the dispute regarding the grant of pendente lite interest only had been referred to the arbitrator. The arbitrator was not competent to award future interest. The award made for future interest i.e. interest at 12% p.a. from the date of the award till payment or decree whichever Was earlier on the entire amount of award, was invalid and liable to be set aside. The issues are decided accordingly.

ISSUESNo. 3 & 4 Disputes/claim No.3 and 16 raised by the contractor and counter claim No. 1 raised by the respondents read as under:-

"(3)Whether the claimant is entitled to any extra payment said to have been incurred due to higher cost in the execution due to alleged breach of contract? Rs.2,91,3901-

(16)Whether decision of the department to rescind the contract was illegal and unjustified ? Counter claim No.

(1)Whether the respondent is entitled to recover compensation for getting the balance work done from other agencies at the risk and cost of the claimant as per clause 3 of agreement ? Rs.2,50,000l-"

(12) On entering upon the reference learned arbitrator by his letter dated October 7, 1983 called upon the contractor to file his statement of claims and /or points of disputes along with copies. of documents within 15 days of the receipt of the said letter. The contractor was further directed to simultaneously forward a copy of the said statement of facts along with documents to the respondents. The respondents were directed to file their counter statement of facts and counter claims, if any, along with the documents within 15 days from the receipt of the statement of facts/points of disputes with copy to the contractor. Pursuant to this letter the contractor submitted his statement of claim dated December 22, 1983. It was pointed out that under the agreement the work was to commence on August 12, 1980 and to be completed on August 11, 1981. The respondents however finalised the drawings and gave the same to the contractor only in December, 1980. They failed to provide the access to the terrace where the work was to be executed; the side staircase was constructed by July, 1981. On opening old dummy columns it was revealed that the reinforcement bars were either numerically inadequate or were so small that they could not meet the. structural requirements. It was therefore decided that the additional lengths of bars should be welded by some other agency and this work was completed in June, 1981. In the circumstances the contractor could not start the execution of the work before July, 1981. In view of these failures and breaches on the part of the respondents the contractor had to execute the work of the value of Rs. 5,11,741.45 after August, 1981. The market rate of the construction material to be procured by the contractor had gone up by 57% over the tendered cost and therefore be was entitled to 57% of Rs.5,11,741.45 i. e. Rs. 2,91,693.00. It was also alleged that the delay in starting the work was on the part of the respondents. The time was not the essence of the contract and under these facts and circumstances of the case the rescission of the contract was illegal and unjustified.

(13) The respondents in their counter statement of facts admitted , that due to unforeseen circumstances there was delay in supplying the structural drawings which were supplied in Decern-her, 1980. For this delay the contractor had been granted extension of time. It was further averred that the responsibility of providing access to the terrace was of the contractor and it was his duty to make proper and efficient arrangement for lifting the materials and conveyance of labourers to the site of work. It was admitted that after the dummy columns were opened it was observed that the length of dowel bars were not sufficient and it was decided to weld the reinforcement bars with the existing dowel bars. The contractor was required to execute the work and on his refusal the work was being done through other agency. On account of the initial delay in issuing the drawings the contractor was entitled to extension of time as per the provisions of the contract and the same had been taken into consideration, while granting extension of time to the contractor. The claim of the contractor was admissible only under clause 5 of the contract and the other reliefs were inadmissible in view of the terms contained in clause 10(c) unless there was statutory increase in prices of labour and material. The contractor had not submitted any claim during the progress of the work under that clause and he was not entitled to this amount. It was also alleged that the contract was rescinded after giving ample opportunities to the contractor to speed up and complete the work but the contractor failed miserably to complete the work and as such the respondents were left with no other alternative but to rescind the contract. The rescission of the contract was not illegal.

(14) The learned arbitrator held that the respondents had been in default and had committed breach of contract by, inter-alia, delaying the issue of drawings till December, 1980 and then amending in January, 1981 in getting the column bars welded by another agency etc. The respondents had to provide access to the site and they agreed to do so by getting a staircase constructed by another agency at their own cost, as late in July, 1981 and only thereafter the work could commence systematically.These delays caused prolongation of the contract and the contractor was not to be blamed for this. He further found that no reasonable time for completion of the work had been fixed by the respondents. The time was extended after one year of the expiry of the date of contract. The extension was not reasonable and in these circumstances the respondents were not justified in rescinding the contract. He further held that after the stipulated date of completion was over the claimant had executed work of gross value amounting to Rs. 4,78,159 and he was entitled to 60% increase which came to Rs. 2,86,895. The contractor was thus. allowed Rs. 2,86,895 under claim No. 3. Counter claim No. 1 of the Union of India was rejected.

(15) Section 30 of the Arbitration Act provides that an award shall not be set aside except on one or more of the grounds mentioned therein. The grounds are : (i) that the arbitrator has misconducted himself or the proceedings; (ii) that the award had been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Section 35; (iii) that an award has been improperly procured or is otherwise invalid. The words "shall not be set aside" are imperative and take away the jurisdiction of the Court to set aside an award except on one or more of said grounds. The arbitrator's adjudication is generally considered binding between the parties for he is a tribunal selected by them. The courts of law are not to sit in judgment on the arbitrators as they are judges both of question of law and fact and their decision cannot be shown to be wrong on merits. It is not open to the courts to reappreciate the evidence and arrive at fresh findings unless there is an error apparent on the face of the record which makes it unsustainable.

(16) The question "whether the decision of the department to rescind the contract was illegal and unjustified" (question No. 16) was specifically referred to the learned arbitrator for adjudication. His decision in favor of the contractor on this question, in my view, is unassailable. It was based on admitted facts. The view taken was a possible view. There is nothing on record to suggest that the learned arbitrator has misconducted himself or the proceedings in making his award on this question or the award on this question had been improperly procured or was otherwise invalid.

(17) Similarly, no ground has been made out for setting aside the decision of the learned arbitrator that prolongation of work was caused by the defaults and breaches on the part of the respondents and consequently the contractor was entitled to claim the revision of rates because of increase in construction costs. In view of the Division Bench decision of this Court in M/s. Metro Electric Co. v. Delhi Development Authority, Air 1980 Delhi 266(2) clause 10(c) of the agreement was applicable if there was statutory increase in the price of material or wages during the period within which the contract was required to be completed. This clause was not applicable to the work completed after the agreed date of completion.

(18) There is a serious challenge to the award of Rs. 2,86,895 on account of increased cost or rise in construction costs after August 12. 1981. Learned counsel for the respondents pointed out that after August 12, 1981 till the date on which the contract was rescinded, the contractor, as held by the arbitrator, executed work of the value of Rs. 4,78,159. This included a sum of Rs. 2,60,711.57, the price of steel and cement which was supplied by the department on the agreed rate. If this amount was excluded the contractor spent only Rs. 2,17,447.43 on the construction material and wages, etc. and at the most increase could be allowed on this amount and not on the total amount. In allowing the increase on the total amount, argued the learned counsel for the respondent, the learned arbitrator had exceeded his jurisdiction.

(19) In my opinion there is no merit in the objection of want of jurisdiction in awarding increase in the total value of the work executed after August 12, 1981. The contractor claimed increase on the total value and not on specific items of material. Learned arbitrator therefore had jurisdiction to award increase on the total value irrespective of the fact that it included the price of steel and cement amounting to Rs. 2,60,711.57 which was supplied by the department on the agreed rate.

(20) It was then contended that the contractor had himself claimed 57% increase on the total value of the work executed after August 12, 1981. Learned arbitrator had misconducted himself by allowing 60% increase. The award against this claim, therefore, was liable to set aside.

(21) I find merit in this contention. As noticed above the contractor in his statement of claim dated December 22, 1983 stated at page 7 as under :-

"ENHANCED amount claimed due to escalation of rates by 57% over the tendered rates- 57 X 5,11,741.45 Rs. 2,91,693.00". 100 Learned arbitrator in his award described this claim in these words : Rs. 2,91,390 modified to Rs. 2,91,693"

"CLAIMNo. 3-Claim for escalation of rates by 60%

(22) These facts reveal Without any doubt that there was an error apparent on the face of the award. The error is that the contractor had claimed 57% while the arbitrator treated the claim for escalation of rates by 60%. Not only there was an error in the description of the claim, learned arbitrator had in fact allowed increase in rates at 60% of the total price of the work done after the stipulated date.

(23) During the arbitration proceedings the contractor sent a letter dated July 25, 1985. The relevant part of this letter I reads : "We also enclose details of various items at the time of tender and it justifies request for Additional 60% against 197 per cent on which the balance work was awarded." On the basis of this letter learned counsel for the contractor contended that this claim was amended from 57 per cent to 60 per cent. I do not agree. This letter had not the effect of amending the claim. By this letter the contractor simply sent a chart in support of this claim. According to this chart the increase came to Rs. 8,50,201.70 in place of Rs. 5,20,528.19 i.e. 66.31 per cent above the tender amount. Had it amounted to an amendment of the claim then there should have been corresponding increase in the amount claimed because the contractor claimed increase at Rs. 5,11,741.45 in his statement of claim. The award however does not state any increase in the amount claimed. It simply says that the amount claimed on the basis of escalation of rate by 60% was Rs. 2,91,390 which was later on modified to Rs. 2,91,693. This modification which was in statement of claim was taken note of by the learned arbitrator. After July 25, 1985 the proceedings were held before the learned arbitrator on August 21, 1985. There is no mention of any amendment of claim No. 3 in those proceedings.

(24) The term 'misconduct' has not been defined in the Arbitration Act. It is difficult to give an exhaustive definition of what may amount to misconduct on the part of the arbitrator. The expression is of wide import, including on the one hand corruption and on the other the mere mistake as to scope of the authority conferred by the submission. There may be ample misconduct in the legal sense even though there is no ground for imputing the slightest improper motive to the arbitrator. The legal misconduct "would thus mean any neglect of duty and responsibility of the arbitrator". Even when the arbitrator fully complies with the terms of the arbitration agreement, in my opinion, he will be guilty of misconduct if he makes an award allowing increase at a percentage which was more than the percentage claimed by the claimant. Such an award ought not to be enforced even on grounds of public policy.

(25) The award of Rs. 2,86,895 against claim No. 3, as is clear from the award, is based on two reasons namely, (i) "the contractor had given calculation of the costs index. After the date of completion of the contract the cost of construction and price of building material and labour had abnormally risen because of sudden spurt in construction activities connected with the 9th Asian Games' 1982. The Cost of Index has been examined and claim for rise of 60% over and above the rates tendered by the contractor was realistic", (ii) "Failure of the respondents to give any reply to C-7 and remaining silent till the contract was rescinded on July 21, 1982 must be taken note in the light of the judgment ."

(26) In the statement of claim it was stated "the cost index worked out, on the basis of rates thus intimated on July, 1981, the date on which the claimants could really start the work, is detailed in Annexure D. In the Cost Index the basic rates of Dsr 1974 have been adopted as that schedule was applicable to the contract." Annexure D reads as under :- Annextured Cost Index As On 7/81 Taking Dsr 1974 As 100 Item Unit Rate as Rate as %increase Weight. Cost 1974 Dsr 7/81 age Index Bricks 1000 no. 106.82 350/. 327.65 16 52.42 Sand Cum. 28.06 71/. 253.03 5 12.65 Stone Grit Cum. 42.82 120.00 280.24 6.5 18.22 Cement Tone 266.13 505/. 189.76 21 39.85 Cold Twisted Steel Tone 1973.60 3211.00 162.70 10 16.27 Wood Scantling Deodar Cub.m. 1013.58 1588.00 156.67 18 28.20 Beldar Each 5.15 12.00 233.00 11 25.63 Carpenter Each Mason Each 11.53 11.53 30/. 30.00 260.19 260.19 4 8.5 10.41 22.12 225.77 less tendered fates 169.00 56.77 57% over tendered rates."

This annexure gives the rates as Dsr 1974. The rates in July, 1981 had increased. The basis of increase however has not been explained.

(27) As noticed above, along with the letter dated July 25, 1985 the contractor sent a chart giving the details of various items justifying his claim for additional 60% increase. The heading of this chart is "Justification of Market Rates." It does not speak at all of any Cost Index. After the hearing had been completed the contractor sent a letter dated January 21, 1986 offering his comments on the papers filed by the respondent. In that letter he stated "as regards Cost Index it is submitted that Cost Index of 225, details of which were given in Annexure D of the statement of Facts was as it was on July, 1981. There was phenomenal increase in costs of building materials in July, 1981 and thereafter due to the advent of the Ix Asian Games. To this Index of 225 was to be added a logical rise in prices, through a linear extension, during the period up to completion of the work. The arithmetic is as under :- Cost Index as on July 1981 225 Percentage increase from Index of 176 in July 1980 to July 1981 225-176 X 100 176 = 27.84"

Besides the fact that this letter was sent after the proceedings had been completed, this is again an assertion and the claim was not on the basis of cost index. This again was just a claim and no evidence. In short there was no evidence to prove the difference between the contract price and the market price. The charts filed by the contractor and referred by the learned arbitrator in his award do not furnish such evidence. This again was an error apparent on the face of the award.

(28) During the execution of the work the contractor sent a letter dated July 27, 1981 (C-7) staling "Looking to the present market rise all round and because the contract is going to overrun its stipulated period for no fault of ours we are, therefore, constrained to claim 60% over our agreement rates for the work done beyond the stipulated date of completion_______________" In case you do not respond to the contents of this para and prefer to remain silent then it will be taken and established that you have agreed to it and our further execution of work will proceed on the basis of such escalated rates arid we shall not exercise our right to rescind the contract on account of your breaches that have already been committed.

(29) Learned Arbitrator in his award has held that this letter was not replied and therefore these averments were to be taken note of. Reliance was placed on a decision of the Supreme Court Hyderabad Municipal Corporation v. M. Krishnaswami Mudaliar and another .

(30) On a careful examination, in my opinion, this preposition of law laid down in the award was an error of law on the face of the record. Section 7 of the Contract Act provides that in order to convert a proposal into a promise acceptance must be absolute and unqualified. It must be expressed in some usual and reasonable manner unless the proposal prescribes the manner in which it is to be accepted. It is, however, well established that the manner prescribed for acceptance of proposal cannot be a mere silence. There is no legal duty to answer at all. "The general rule is that if the only facts are that there has been an offer followed by silence on the part of the offence, there is no acceptance of that offer, though there might be liability to pay a reasonable sum for any benefit received. Thus, the offerer cannot bind the offeree against the latter's will by expressly stipulating that if the offeree does nothing, he will be bound to a contract, or to a variation of an existing contract. "(See Halsbury's Law of England, Iv Edition, Volume 9 para 250). The Supreme Court in Hyderabad Municipal Corporation's case (supra) does not lay down a contrary proposition of law.

(31) Learned Arbitrator had closed the proceedings on November 23, 1985. However, the contractor filed before him a letter dated 21st January, 1986 alleging interalia that the cost index of 225, details of which were given in Annexure D of the Statement of Facts was as it was on July, .1981, and there has been phenomenal increase in costs of building materials in July, 1981 and thereafter due to the advent of the Ix Asian Games. He also gave a statement of increase in that letter. Along with the letter he also filed copies of several other documents. Learned counsel for the respondents pointed out that the objectors were never heard about it. Learned arbitrator had acted on this letter and therefore, the award was liable to be set aside on this ground as well. In the view I have taken above I need not go into this question.

(32) In conclusion I hold that there was an error apparent on the face of the award relating the award against claim No. 3. Learned Arbitrator had misconducted himself in the legal sense. The award for claim No. 3, was therefore, liable to be set aside. Issue No. 5 The objection contained in para 6 to 8 in the objection petition have already been considered while deciding issues Nos. 1 to 4.

(33) In para 9 of the objection petition it was alleged by the objectors that learned arbitrator was in error in considering recovery of only .61.10759 M. T. of steel instead of 65.150 M. T. The award made by learned arbitrator under claim No. 2 (d) relating to the recovery of amount of steel related to a question of fact. There was no error apparent on the face of the award It is not the case of the respondents that this finding was based on no evidence. The award under that claim was, therefore, no liable to be set aside.

(34) In view of the above mentioned findings I set aside the award so far as related to the award against claim No. 3 as future interest.

(35) In accordance with the rest of the award, I, here grant a decree for Rs. 55,425.00 with interest at 12% per an nun on Rs. 53,282.00 (i.e. the amount awarded under items 1,20 2(b), ana 2(d) on which only interest was allowed by the has arbitrator) from 3rd March, 1983 till the date of the award Respondents, Union of India is directed to make this par within two months from today. In default the petitioner with be entitled to interest on the said amount of Rs. 55,425 at per annum from the date of the decree till payment.