Engg. Projects India Ltd. vs Sh. C.Rama Rao
2009 Latest Caselaw 2535 Del

*        IN THE HIGH COURT OF DELHI AT NEW DELHI

                                     Date of Reserve: April 06, 2009
                                         Date of Order: July 09, 2009
+ CS(OS)Nos.2104/96 & 2021/96
%                                                    09.07.2009
     ENGG. PROJECTS INDIA LTD.                       .... Plaintiff
     Through : Dr.A.M.Singhvi, Sr. Adv. with
               Mr. Jagdeep Kishore, Adv.

     Versus

     M/S NOOR MOHD. & SONS                      .... Defendant
     Through: Ms. Suruchi Aggarwal with Ms. Rohini Moosa, Advs.

                 &

     ENGG. PROJECTS INDIA LTD.                       .... Plaintiff
     Through : Dr.A.M.Singhvi, Sr. Adv. with
               Mr. Jagdeep Kishore, Adv.

     Versus

     SH.C. RAMA RAO                             .... Defendant
     Through: Ms. Suruchi Aggarwal with Ms. Rohini Moosa, Advs.


     JUSTICE SHIV NARAYAN DHINGRA


1.   Whether reporters of local papers may be allowed to see the
     judgment?

2.   To be referred to the reporter or not?

3.   Whether judgment should be reported in Digest?

     JUDGMENT

1. By this order, I shall dispose of objections filed by

Engineering Projects India Ltd. against the award dated 29th July, 1996

published by sole Arbitrator Sh. C. Ramarao.

2. The brief facts relevant for purpose of deciding this petition

are that the State of Kuwait awarded a contract for construction of SEIF

Palace area building project at Kuwait to M/s. Fujita Corporation of

Japan. M/s. Fujita Corporation in turn awarded civil and electrical

works of the building project to M/s. Engineering Projects India

Ltd(EPI)(plaintiff herein). EPI sub-contracted a part of civil work to M/s.

Noor Mohammad & Sons (NMS), the respondent herein. The sub-

contract was awarded to NMS on 28.4.1976. While the work under this

sub-contract was in progress, supplementary agreement/work orders

were issued by EPI from time to time. In terms of the contract, almost

entire material required for the work was to be supplied by EPI at pre-

agreed rates and the value of the material so supplied was to be

adjusted out of the running bills raised by NMS from time to time. EPI

had initially given and continued to give mobilization advances and

various other advances to NMS from the start of the contract. These

advances were also to be adjusted out of the running bills. NMS was

supposed to raise running bills in respect of the work done and every

bill was to be verified by EPI and after verification payment was to be

made. Out of the each running bill, 5% retention money was to be

retained by EPI. The contract provided for a defect liability period of

one year and all defects were to be cured by NMS free of cost upto 12

months of the completion of the work and the retention money was

payable after this defect liability period was over. EPI was also liable to

deduct income tax in terms of the Income Tax Act out of the

payments/running bills being made to the NMS.

3. It is a case of EPI that NMS had no source of its own to

raise money locally or by borrowing through banks. Under these

circumstances, whenever money was required by NMS the same used

to be paid by EPI as adhoc advances in the interest of the work and to

help NMS to fight its financial difficulties due to low productivity and

low billing. The value of original main contract was KD.21,36,992.412.

There were supplementary agreements namely for Pre-Cast Elements

for KD3.27 lakhs and for Storm Water Drainage work for KD1.54 lakhs,

beside other small work orders of the value of KD2,81,434.65. The

total value of all the works put together was KD.28,99,427.059.

However, these values of the works were estimated values. The

payment was to be made as per the rate agreed between the parties

under the contract in accordance with the actual bill of quantities.

There is no dispute that the running bills were raised on the basis of

measurements of the work done and the rates as agreed between the

parties in respect of different items. The work got completed

sometime in March, 1983 and NMS did not stay back after that. EPI in

1984 wrote a letter to NMs that its books of account show that EPI had

to recover approximately KD.10 lakhs from NMS because of the excess

payments made it in advance. The figure was arrived at by EPI in the

following manner:-

"DETAILS OF ADHOC ADVANCES/PAYMENTS/MISC. RECOVERIES

AMOUNT(KD) AMOUNT(KD)

A. Value of work done(encl 1) 25,36,424.927

B. Deductions/recoveries due against

i) Materials supplied (encl 2) - 10,99,052.352

ii) Concrete supplied (encl 3) - 4,29,807.644

iii) Equipment hire charges (encl 4) - 1,23,439.030

iv) Miscellaneous recoveries including 2,00,648.438

PTAs etc. (encl 5) -

v) Income tax (encl 6) -                 31,752.183

vi) Retention Money -                    1,23,108.061

vii) Amount released (encl. 7) -         16,52,638.192             36,60,445.900

                                         Amount recoverable (-)    11,24,020.973

C. Retention money available with the                              1,23,108.061
claimant - item B(vi) above

                                         Net     amount      (-)   10,00,912.912
                                         recoverable from   the
                                         respondent"

4. Since NMS did not agree to this recovery, EPI referred the

matter for arbitration. Initially one Sh. J.S. Marya was appointed as an

Arbitrator who died after conducting proceedings for some time. Then

the matter came up before the Delhi High Court. NMS raised an issue

that supplementary work orders were not to be treated as part of the

same contract. However, during proceedings pending before this

Court, it was agreed by the parties that the reference of the dispute

raised by both the parties in respect of the main work order and

supplementary work orders be made to one common Arbitrator and

thereafter Mr. C. Ramarao was appointed as the Arbitrator who gave

the award in question. After Mr. C. Ramarao entered into the

reference, revised statement of claim was filed by EPI and counter

claim and rejoinder was filed by NMS. The claims were raised by EPI

on account of mobilization advance of KD.1,40,192/-, equipment

advance of KD.9,094.250, excess of ad hoc advances of

KD.10,00,912.912 and claim for overdrawn material for KD.34,875.570.

Claim no.5 was towards administrative cost for procuring material on

behalf of NMS of KD.61,513.168, claim no.6 for KD.29,258.072 on

account of maintenance expenses, claim no.7 for interest and claim

no. 8 for KD2,89,942.706 on account of delay penalty on the ground

that NMS had not completed the work within the stipulated time.

Claim no. 9 was for costs of arbitration.

5. The counter claims of NMS were as under:

Counter claim no.1 for KD.481,668.00 towards idling of resources upto

July, 1980.

Counter claim no.2 for KD.354,448.00 towards losses and damages

due to work prolonging beyond August, 1980.

Counter claim no.3 for KD.11,72,759.634 towards extra work done by

NMS (This claim had various sub-heads).

Counter claim no. 4 for KD.23,000.000 on account of non-payment

against tools, plant and machineries of NMS taken over by EPI.

Counter claim no. 5 for KD.1,42,400.000 towards loss due to offsite

overheads.

Counter claim no. 6 for KD.2,84,800.000 towards the loss of profit

earning capacity.

Counter claim no. 7, an unspecified claim towards non-release of

money withheld/unpaid as per final bill/retention money.

Counter claim no.8 for KD.378,170.000 against excess recovery of cost

of plant, machinery, material, etc.

Counter claim no. 9 for KD.559,108.034 towards extra cost involved in

re-mobilization of workers in extended period.

Counter claim no.10 for KD.126,500.000 towards excess costs involved

due to labour camp being 35 kilometers away from the work spot.

Counter claim no. 11 for KD.42,028.000 towards difference in cost of

labour supplied to EPI.

Counter claim no.12 for KD.60,834.000 towards non-payment of day

work schedule.

Counter claim no.13 for KD.640,744.00 towards extra cost involved in

engaging labour locally.

Counter claim no. 14 for interest.

6. Above counter claims were in respect of the main works.

NMS also preferred counter claims in respect of Storm Water Drainage

work as under:-

Counter claim no.1 for KD.1,07,642.303 as per letter dated 7.12.80 of

NMS.

Counter claim no. 2 for KD.7,700.000 towards loss of business due to

non-payment by EPI - 5% of the contract cost.

Counter claim no. 3 for KD.97,199.000 for interest.

Counter claim no.4 is an unspecified amount towards unpaid final bills

and release of retention money.

7. The third head of counter claims made by NMS was for Pre-

Cast Elements. Under this head counter claims are as under:-

Counter claim no. 1 for KD.51,670.000 towards idling resources.

Counter claim no.2 for KD.69,790.882 towards extra cost due to delay

beyond May, 1980.

Counter claim no. 3 for KD.284,135.891 towards non-payment of

various works carried out as per EPIs instructions (this claim contains

several sub-heads).

Counter claim no. 4 for KD.15,000.00 towards cost of tools and

machinery taken over by EPI.

Counter claim no. 5 for KD.33,700.00 towards loss due to offsite

overheads.

Counter claim no. 6 for KD.67,580.00 towards loss of profit earning

capacity.

Counter claim no. 7 for an unspecified amount towards non-release of

money withheld/unpaid against the final bill/retention money.

Counter claim no. 8 for interest and

Counter claim no. 9 towards costs of arbitration.

8. The learned Arbitrator allowed the claim of EPI against

mobilization advance, equipment advance and maintenance expenses.

However, it rejected the claim of EPI for recovery of excess adhoc

advances paid to NMS to the tune of KD.10,00,912.912 and on account

of material overdrawn by NMS and administrative charges for material

procured for NMS. It also rejected the claim of penalty for delay. The

Arbitrator allowed the claim of the respondent to the tune of

KD.4,74,29.255 against the non-payment of various items of work

carried out by NMS and also allowed a claim of KD.88,740.00 towards

extra cost involved due to labour camp being 35 kilometers away from

the spot. He also allowed a claim of KD.42,688.00 towards non-

payment of day work schedule bills against main contract.

9. The learned Arbitrator allowed a counter claim of

KD.40,143.034 towards the Storm Water Drainage Work and allowed a

claim of KD.1,56,488.212 towards Pre-Cast Elements Work. The net

result of the award was that the petitioner was to pay a sum of

KD.3,59,057.074 to NMS and interest thereon at the rate of 18% per

annum as allowed by the Arbitrator. EPI had invoked bank guarantee

of NMS after the contract was over since there was no response from

NMS for settling the accounts. The learned Arbitrator also directed the

refund of bank guarantee amount to NMS along with the interest

thereon at the rate of 18% per annum.

10. One of the objections of the petitioner against the award is

that there was an error apparent on the face of the award in

calculating the total value of the work done. It is submitted that the

learned Arbitrator calculated the total value of the work done on the

basis of the income tax deducted at source. The amount of income tax

deducted was KD.31,752.183. The learned Arbitrator concluded that

this amount represented 1% of the value of the work executed. Thus,

the total value of the work executed by the respondent would be

KD.31,75,218.300. It is submitted that the Arbitrator erroneously

assumed that the tax deducted at source under the Income Tax Act,

1961 was only out of the running bills raised by the respondent. It is

submitted that advance tax was liable to be deducted by the petitioner

under Section 194 C (2) of the Income Tax Act at the time of credit of

all sums or payments made to NMS either in cash or by cheque or by

any other mode. The deduction of Income Tax was therefore to be

made even out of the ad hoc advances as well as of the running bills,

which included the value of the material supplied by the petitioner.

The deduction of income tax by no means was relatable to the actual

value of work done by the sub-contractor. The determination of total

value of works is reflected only on preparation of final bills. The total

value of work done could not have been arrived at by reverse

calculations, i.e., multiplying tax deducted by 100 since the income tax

deductions were made from time to time whenever payment was

made to NMS either by way of adhoc advances or by way of material

supplied or towards R.A. bills. Only running bills showed the work

done.

11. It is submitted that out of the each running bill raised by

the respondent 5% retention money was retained and this was a

uniform practice. There was no dispute on the amount of retention

money so retained. The learned Arbitrator, if wanted to calculate the

total value of work on the basis of deductions, then the retention

money was the proper base for reverse calculations. The income tax

deduction could not have been, under any circumstances, a base for

reverse calculation. It is further submitted that the petitioner had

placed sufficient material before learned Arbitrator to show that the

value of the work done by the respondent was of KD25.36 lakhs and

this found support from the fact that the cost of material used in the

work admittedly was of KD15.28 lakhs. It is argued that as per CPWD

Manual, in case of building works, the component of material and

labour are to be taken as 75% and 25% respectively. However, even if

this material and labour ratio is taken as 60%, since 40% labour

component was admitted by NMS, the value of total work would be

KD25.47 lakhs. Petitioner submitted that it was matter of record that

the respondent/NMS had protested during the course of contract

against reduced scope of block work in every building. While the

estimated value of the work was KD28.72 lakhs, the actual value of the

work done was less than the estimated value in view of the reduced

scope and thus the value of total work could not have been more than

KD25.47 lakhs under any circumstances and the learned Arbitrator by

committing an error of reverse calculation on the basis of income tax

deduction, doubled the value of the work done and this was an error

apparent on the face of the award.

12. The other objection raised by the petitioner is that the

learned Arbitrator made an award contrary to the terms of the

contract. The Arbitrator mechanically picked up some large claims and

some small claims out of the given counter claims of NMS and allowed

a sum of KD7.74 lakhs (approximately Rs.9 crores) to the respondent

without any justification, contrary to the terms of the contract. While

the Ministry of Public Works, Kuwait allowed 50% extra payment on

rates of quantities with respect to some of items, the learned Arbitrator

allowed 50% of higher rates to NMS on all the items on the ground of

higher wages to the workers while the workers were employed by NMS

under a contract in India. The Arbitrator also failed to note the correct

labour wages. It is stated while allowing 50% higher wages, the

learned Arbitrator quoted example of EPIs rates in Storm Water

Drainage Works. The Arbitrator did not consider the fact that the

Storm Water Drainage Work was completely underground and hence

higher labour rate was allowed for working in filthy conditions. Even

the BOQ rates in respect of Drainage Work items were higher than the

main contract on this ground. These rates could not have been taken

as a criteria by the Arbitrator and the Arbitrator mis-conducted himself

by allowing 50% extra amount on the ground of higher wages.

13. The petitioner has also submitted that the award of the

learned Arbitrator in respect of various items of counter claims of NMS

was non-speaking award although the learned Arbitrator had agreed to

give reasons during the arbitration proceedings. No justification or

reasons had been given as to why the counter claim had been allowed,

how the figures of amount had been arrived at by the Arbitrator. In

some cases the Arbitrator has given rates much above 150% of the

agreed rates.

14. It is further submitted that the learned Arbitrator

committed grave error by relying upon RA bills submitted by NMS

believing that NMS was submitting RA bills for the work done. It was

pleaded on affidavit before learned Arbitrator that EPI was preparing

RA bills and the same were cross-checked by NMS and then forwarded

for payment to the employer. While the learned Arbitrator disbelieved

the figures/value of the work done as projected by EPI on account of

non-submission of the final bill, the learned Arbitrator wrongly

presumed that the NMS was preparing RA bills and the figure as

projected by NMS was corrected.

15. In response to the objections taken by the petitioner, it is

submitted by the respondent that the award does not suffer from any

infirmity or illegality and the learned Arbitrator has passed its award on

the basis of evidence and material placed before him. The objections

raised by the petitioner were vexatious and frivolous.

16. Regarding total value of the work done, the respondent has

supported the method of calculation adopted by the learned

Arbitrator and has stated that the Arbitrator rightly came to conclusion

that the total value of the work done was KD39,77,257.955. There

was no misconduct on the part of the Arbitrator. The learned Arbitrator

dealt with each claim and counter claim carefully. He was an

experienced person, having knowledge of the technical aspects and

the award of a technical person should not be interfered with by the

Court so lightly. It is stated that the learned Arbitrator has specifically

recorded that the claimant and the respondent both feel that income

tax deduction from RA bills was KD31,752.183. If the income tax

deduction from the RA bills was KD31,752.183, there was no reason to

disagree that the total work would be 100 times of the income tax

deducted since income tax was only 1% and the Arbitrator rightly

came to conclusion that the total work under main contract was for

KD31,75,218.300. It is also denied that the Arbitrator had not kept the

terms and conditions of the contract in mind while adjudicating the

dispute. The Arbitrator was very well aware of the terms and the

conditions of the contract.

17. Learned counsel for the respondent submitted that this

Court does not act as a Court of appeal while considering the

objections against the award. Since this award was under Arbitration

Act, 1940, the scope of interference in the award was limited and the

error apparent on the face of the award must be such which goes to

the root of the award. However, every error on the face of the award

would not render the award null and void.

18. The main issue before the Arbitrator was as to what was

the total value of the work done by NMS. The Arbitrator observed that

the final bills were not finalized by March, 1983 and the number of

advances were given to NMS spreading over 4 years and odd. In

March, 1983 EPI had written to NMS that there persons in Kuwait were

now of little use in finalizing their claims and their bills would be

finalized on the basis of built-up drawings, as per record available in

New Delhi without any difficulty. The respondent's stand before the

learned Arbitrator was that it was not possible to settle the final

account on the basis of built-up drawings, running bills, advances,

materials, etc. During the pendency of the arbitration proceedings

(before the earlier Arbitrator) respondent (NMS) had made an

application for production of documents by EPI and EPI sent its

representative to Kuwait to collect the documents as ordered. The

learned Arbitrator observed that on EPI producing various documents

as demanded he had offered to give a speaking award provided all

documents were made available to him. But EPI could not make all

documents as demanded by him available to him. He therefore had to

adopt some method to find out the total value of the work done by the

respondent.

19. The value of the work done by the respondent as per EPIs

figure was as under:-

S.No. Particulars Final Figures as As per Audited shown b y EPI P-30 figures at P-21 of of Folder-10 Folder No.12 as on 31-3-1982 (1) (2) (3)

(KD) (KD)

1 MDFA Building 9,94,927.948 10,53,269.079

2 ESP Building 2,57,499.459 2,68,665.000

3 CDM Building 3,44,021.566 3,69,610.430

4 AC Centre 63,252.419 83,175.547 Building

20. The learned Arbitrator found that there was difference in

the initial figures and audited figures of EPI (as seen in the above

table) and observed that EPI did not give any specific argument for

higher figures of work done shown in the audited accounts. The

Arbitrator also observed that the Ministry of Public Works, Kuwait vide

its order dated 22.12.81 had sanctioned 50% extra over BOQ rates and

these were not allowed by EPI originally but later it agreed to pay extra

to NMS. The Arbitrator also observed that regarding Pre-Cast Element

contract, EPI had not supplied him the schedule of quantities of the

agreement. However, NMS had supplied him a copy of 28th running bill

and according to NMS the work done was KD3,99,583.00 while the

work done as per final bill presented before him was of

KD3,44,835.640. Looking at the contradictions in the amount of total

work done between the figures of petitioner and the respondent, the

Arbitrator found that since 1% income tax had been deducted of the

value of the work done and income tax deduction made by EPI was

KD31,752.183, the total value of work done must have been

KD31,75,218.30, which he considered, tallied with the work orders of

all the agreements and 42 work orders. He further added to this the

work done of the value of KD8,02,039 and arrived at a value of work

done by NMS as KD39,77,257.955. It is this figure which is the bone of

contention, apart from other objections on different items.

21. Income tax deduction was done by the petitioner under

Section 194 C(2) which reads as under:-

"(2) Any person (being a contractor and not being an individual or a Hindu undivided family), responsible for paying any sum to any resident (hereafter in this section

referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein.

Explanation I : For the purposes of sub-section (2), the expression "contractor" shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India.

Explanation II : For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly."

22. It is apparent from reading of this provision that tax is to be

deducted whenever any payment is credited to the account of the sub-

contractor or any payment is made in cash or by cheque. Explanation

2 makes it further clear that even if the amount is credited to the

suspense account or account by any other name in the books of

accounts of the sub-contractor, income tax at 1% is liable to be

deducted. Thus deduction of 1% of tax was mandatorily to be made by

the petitioner out of all payments made to the respondent whether of

adhoc advances or by way of supply of material etc. It was for the

respondent to file return for the concerned years with the assessing

officer, if the deductions were more than the tax due, to claim refund.

It is not the case of the respondent that no income tax deduction was

made from the respondent when advances were given to him or when

ad hoc payments were made. The petitioner in this case had made ad

hoc payments to the respondent of KD16,52,638.192 and supplied

material to the tune of KD10,99,052.352 and supplied concrete to the

tune of KD4,24,807.664. These 3 figures together make more than KD

31 lakhs and would have necessitated deduction of an income tax

amount of KD31,752.183.

23. The question arises whether amount of income tax

deducted reflected one per cent of the work done. If the respondent

had been made payments of the running bills and tax had been

deducted only from the running bills, the income tax deducted would

have reflected 1% of the work done. But here the sub-contractor was

dependent upon the petitioner for all its finances and had neither

raised funds nor had capacity to raise funds locally from Kuwait. The

evidence shows that NMS was depending upon the petitioner for all its

requirements of finance and the petitioner had been making advances

irrespective of the work done, after deducting 1% tax, thus the tax

deduction could not correlate to the total amount of work done. It

would, in fact, reflect the total payment made to the respondent,

irrespective of the work done. If any figure had direct relationship with

the work done it was retention money or the value of material used for

the work. The retention money was retained by the petitioner out of

each running bill at the rate of 5% of the bill. Since the respondent

was not to purchase its own material and most of the material was

supplied by the petitioner, the other direct element which had

relationship with the work done was the material supplied. The

learned Arbitrator ignored both the elements which were having direct

relationship with the work done and choose to calculate the total

amount of work done on the basis of income tax deduction made by

the petitioner. I consider that this method of calculating the total work

done by the learned Arbitrator was fallacious, totally whimsical and

reflects an error apparent on the face of the award which goes to the

root of the entire award. Consider, for example a contractor who

received advance before the start of work and thereafter on one or the

other pretext, instead of doing the assigned work, spend money on

shopping and other things and comes back to India, leaving the work.

Would the income tax deducted reflect the work done by him. I

consider that since EPI, as per law, was liable to deduct 1% of the

amount paid by it, as tax, irrespective of the fact whether respondent

had done the work or not, it could not be presumed by the learned

Arbitrator that the respondent had done work of the amount tax

deducted multiplied by hundred. Under no stretch of imagination, the

Arbitrator could have come to conclusion that merely because the

petitioner had deducted 1% tax of all the amounts it paid to the

respondent, the work done by respondent was also of equivalent

amount. The work done and the amount paid were not co-related in

this case. The amount was being paid as advance because of the

circumstances that respondent had landed in Kuwait to undertake the

work. Even for landing in Kuwait the mobilization advance was given

by the petitioner to the respondent. I therefore come to conclusion

that the award passed by the learned Arbitrator regarding the value of

the work done stood vitiated because of the error apparent on the face

of the award, i.e., the value of work done was calculated on the basis

of income tax deducted by the petitioner. The income tax deductions

only reflected the money paid either by way of cash or by kind

(material etc.) to the respondent. This income tax deduction could not

have been reflected the work done. The work done could have been

calculated by the Arbitrator either on the basis of material used by

using ratio 60:40; 60% for cost of material, 40% for cost of labour or

the work done could have been calculated on the basis of retention

money which was 5% of the total amount of all running bills. If this

had been multiplied by 20, the figure of work done would have been

correctly arrived at.

24. The learned Arbitrator while discussing the value of the

work done did not rely upon the final figures of petitioner on the

ground that there was difference in the final figures as shown by the

petitioner and the audited figures of the petitioner as given in the chart

below:

S.No. Particulars Final Figures as As per Audited shown b y EPI P-30 figures at P-21 of of Folder-10 Folder No.12 as on 31-3-1982 (1) (2) (3)

(KD) (KD)

1 MDFA Building 9,94,927.948 10,53,269.079

2 ESP Building 2,57,499.459 2,68,665.000

3 CDM Building 3,44,021.566 3,69,610.430

4 AC Centre 63,252.419 83,175.547 Building

25. Auditing is done in all public limited companies to

crosscheck the accounting of the accounts department and to see that

the bills have been prepared in accordance with the contract. If the

auditors of the petitioner had found some discrepancy in the

accounting of the petitioner and the final figure arrived at by the

auditors of the petitioner was more than the figures as prepared by the

accounts department of the petitioner, that rather shows that the

auditors of the petitioner acted in a fair manner and the Arbitrator

should have relied upon the figures as arrived at by the auditors of the

petitioner instead of rejecting the figures on this ground. Award also

shows that the petitioner, during proceedings, had conceded about

payment of 50 per cent extra amount on certain quantities as

sanctioned by Under Secretary's order dated 22.12.1981 in respect of

guard headquarter building, MOFA variation and MOFA New Gate. The

learned Arbitrator had a grievance that he was not furnished all the

documents as required to determine the exact value of the work done.

Therefore, he had no option but to calculate the work done on the

basis of income tax deduction. This was a grave error apparent on the

face of the award. The learned Arbitrator had sufficient material

before him like retention money retained by the petitioner, building

material supplied by the petitioner, to come at a proper value of the

work done by the respondent instead of adopting the method of

reverse calculation on the basis of income tax deduction despite

knowing that the income tax was deducted on all advances paid

whether against the running bills or ad hoc advances given to the

respondent to facilitate the doing of work irrespective of the quantum

of the work.

26. The total value of the main work was of KD21,36,942.412

and in respect of Pre-Cast Elements it was KD3,27,000.000 and in

respect of Storm Water Drainage work it was KD1,54,000.000 and in

respect of other work orders it was thus KD2,53,886.128. The total

value of the orders thus was KD28,71,828.540. As per petitioner the

total contract value even after including the supplementary orders was

of KD28,99,427.056. The learned Arbitrator on the basis of income tax

deduction first concluded that the work done was of KD31,75,218.000

and then added to it further work of KD8,02,039 and thus concluded

that the total work done was of KD39,77,257.955.

27. Thus due to this error apparent on the award, the learned

Arbitrator calculated the value of work done more by about

KD10,78,830.896 from the total awarded work. Whereas there had

been no material on record to show that the respondent had done work

more than the work awarded to him.

28. Due to this error which crept into the award, the entire

award stands vitiated. On the basis of this calculation alone the

petitioner was burdened with an additional amount payable to the

respondent to the tune of KD5,38,060.000 after deducting

KD35,62,305.620 of which the advances, services and material had

already been supplied by the petitioner to the respondent. The learned

Arbitrator wrongly disallowed the claim of the petitioner regarding

refund of the excess advances paid to the respondent on the basis of

reverse calculation making income tax as the base.

29. It is settled law that an Arbitrator is a creature of contract

and is bound by the contract between the parties. He cannot write a

new contract between the parties. The contract between the parties is

contained in the document signed between the parties or the

correspondence which is entered into between the parties during the

continuation of the contract. The learned Arbitrator awarded a sum of

KD88,741.00 to the respondent under counter claim no.10 on the

ground that the respondent had to transport labour from labour camps

to site. A perusal of Clause 13 of the contract between the parties

would show that the respondent only was to make necessary

arrangements for labour and staff required for the execution of work

and it was the respondent who was to pay his labour and staff not only

for doing work but other expenses such as transportation, etc. The

petitioner's responsibility was only to provide a site for construction of

temporary labour residence. It was not provided in the contract that

the petitioner shall give this site for construction of temporary

residence near the site of the work. Rather the contract between the

petitioner and the employer specifically provided that no labour

residence, temporary or permanent, shall be near the site or within the

site of work. In view of the specific provisions in the contract that no

labour residence was to be near the site of the work or within the site

of the work, the petitioner could have provided to the respondent only

that site which was provided to it by the employer. The

correspondence between the parties shows that the respondent had

raised this issue of labour site being about 35 kilometers away from

the worksite and wanted the petitioner to bear the charges of drivers.

The petitioner had only agreed for sympathetic consideration of this

demand. The correspondence does not show that the petitioner had

agreed for payment of extra charges for drivers. However, the learned

Arbitrator went further and passed an award holding that the normally

the site for labour camp is provided either at the worksite itself or if the

building was government building, considering the security involved,

near the office building itself. The learned Arbitrator totally ignored

the contract between the petitioner and respondent that the labour

camp was not to be situated within the building or near the building.

The award of this amount is contrary to the terms and conditions of the

contract.

30. The learned Arbitrator awarded a sum of KD37,533.249

against counter claim no. 3 (sub-claim no.5) in respect of

manufacturing and affixing of Teak Grill works. A letter dated 15th

December, 1980 from the respondent to the petitioner which is on

record of the Arbitrator would show that the respondent submitted to

the petitioner that the rates of this item quoted by it were wrongly

quoted rates and the items were not workable within the quoted rates.

He wanted petitioner to revise the quoted rates. The petitioner had

not agreed to revise the quoted rates. Thus, the work was required to

be done in terms of the contract only on the quoted rates. The quoted

rates were provided in bills of quantities as signed between the parties

in respect of Teak Grills. However, the learned Arbitrator ignoring the

contractual rates awarded additional amount of KD37,533.000.

Obviously, the learned Arbitrator wrote a new contract between the

parties awarding a new rate to the respondent for manufacturing and

affixing of Teak Grills. It is settled law that the Arbitrator cannot write

a new contract between the parties and is bound by the contract

already executed between the parties.

31. The learned Arbitrator awarded 50% extra amount towards

the work done prior to 1981 to the respondent under counter claim

no.3 sub-claim nos. 1, 3, 6, 13, 19, 118 and 122. The petitioner had

got 50% additional rate for some of the quantities vide an order of

Under-Secretary dated 22nd December, 1981. Vide letter dated 30th

May, 1982, the petitioner intimated the respondent that since it would

be getting revised rates at the rate of 1.5 times of old rates with MPD

for new work in terms of Under-Secretary's order dated 22nd December,

1981, it shall be increasing the rates of bill of quantities in the same

proportion for all similar items for respondent also. It is obvious that

these additional rates were to be given by the petitioner to respondent

in respect of the new gate building, since petitioner was receiving

additional rates for this work only. However, the learned Arbitrator

allowed additional rates in respect of above stated items to which it

was not applicable. The Arbitrator therefore acted contrary to the

contract between the parties. The Arbitrator had no authority to

increase the rate of bill of quantities of his own. He could have

awarded increased rates only in respect of those items about which the

petitioner had got additional rates from the employer and not in

respect of those items about which the petitioner had not got the

increased rates. The petitioner has placed on record its

correspondence with the respondent regarding increased rates in

respect of various items. This shows that the petitioner passed on the

additional rates to the respondent in respect of those items for which it

got the additional rates. Apart from those items for which petitioner

had got the additional rates from employer, the Arbitrator could not

have increased the rates of bill of quantities. The Arbitrator allowed

counter claim of additional 50% for above items only on the ground

that 50% additional rate was being allowed over bill of quantities to

petitioner in view of sanction under MPW, Under-Secretary's order,

without considering that this sanction was not in respect of all items

and was not for the period prior to December, 1981.

32. However, the learned Arbitrator while dealing with the

counter claim no. 3 sub-claim nos.72 and 116 allowed more than 50%

of the additional cost amount to the claimant, while only 50% could

have been allowed in terms of the letter of Under-Secretary. In case of

sub-claim no.72 (claim no. 3), the Arbitrator awarded an additional

amount of KD15,230,00. The amount already paid was KD12,738.00.

50% of this would amount to KD6,369.00 while the Arbitrator awarded

KD15,238,861.00 amount. In sub claim no.116 (claim No.3), the

Arbitrator awarded KD46,295.00. The amount already paid was

KD57,777.00. 50% of this would have been KD28,888.00. The

Arbitrator thus awarded KD17,407.00 extra. These are all errors

apparent on record.

33. A perusal of award would show that instead of calculating

50% extra, the learned Arbitrator has relied upon the abstract cost of

estimate furnished by the respondent. The Arbitrator was not writing a

new contract between the parties on the basis of fresh costing to be

done by the respondent. The respondent was free to do costing before

tendering for the contract. The respondent had no liberty to do re-

casting while arguing counter claims before the Arbitrator. Since 50%

additional amount was allowed by the Under-Secretary to the

petitioner which was to be passed on to the respondent, the Arbitrator

could have only allowed 50% on the amount already paid. Thus, award

on these items is contrary to the contract.

34. It was pleaded before the Arbitrator that since the

Arbitrator was an Engineer he need not go into the various clauses of

the contract since the conditions of the contract and sub-conditions of

the contract in such type of contracts were known to him. The

Arbitrator recorded that he therefore would not like to go to the

respective clauses. I consider that the learned Arbitrator, despite

being told by the respondent that he was not required to go into the

various clauses of contract, should have considered it as his duty to

pass an award in accordance with the contract and not ignoring the

clauses of the contract.

35. In view of my above discussion, the counter claim no.

3(sub-claim no. 5), counter claim no. 3(sub-claim nos. 1, 3, 6, 13, 19,

118 & 122) and part of the counter claim no. 3 (sub-claim nos. 72 &

116) were awarded contrary to the contract and not tenable.

36. The learned Arbitrator had allowed the claim of

KD1,42,651.000 (mobilization advance), KD9,094.250(equipment

advance) and KD29,258.072(maintenance expenses) in favour of the

petitioner. However, the learned Arbitrator wrongly rejected the claim

of the petitioner for refund of excess ad hoc advances on the basis of

an error in calculating the total work done as discussed above. The

learned Arbitrator allowed the counter claims of KD4,74,029.255 of the

respondent on the basis of the same calculation of the work done

which could not have been allowed by the learned Arbitrator. As

discussed above amounts of KD88,741.000 and KD37,533.000 were

wrongly allowed in respect of counter claim nos. 3 and 10, contrary to

the contract, apart from allowing 50 per cent excess payment in

respect of various items as discussed in Para 23. If counter claims

allowed despite being contrary to contract and the amounts allowed on

the basis of wrongful calculation made in respect of total work done

are considered, the net result would be that EPI will have not to pay to

the respondent any amount and rather EPI would have to recover some

amount from the respondent. However, since this Court had not

ventured into the area as to what should the award had been, I

consider it would not be proper to direct the respondent to pay any

amount to the petitioner.

37. In view of my above discussion, I consider that the award

suffers from errors apparent on the face of it as discussed above. Part

of the award is also contrary to the contract between the parties. The

award is liable to be set aside on these grounds and is hereby set

aside.

July 09, 2009                      SHIV NARAYAN DHINGRA J.
ak