Delhi High Court
National Highways Authority Of ... vs Som Datt Builders- Ncc-Nec(Jv) & ... on 17 November, 2009
Author: Vipin Sanghi
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 25.09.2009
% Judgment delivered on: 17.11.2009
+ FAO(OS)No.427 OF 2007
NATIONAL HIGHWAYS AUTHORITY OF INDIA ..... Appellant
Through: Mr. A.S. Chandhiok and Mr.
Chetan Sharma, Senior
Advocates with Mr. Tarun Dua,
Ms. Geetika Panwar and Mr.
Abhishek Kumar, Advocates.
versus
SOM DATT BUILDERS- NCC-NEC(JV) & ORS. ....Respondents
Through: Mr. V.A. Mohatta and Mr. Amit
K. Chadha, Senior Advocates
with Mr. Arvind Minocha,
Advocate.
CORAM:
HON'BLE MR. JUSTICE MUKUL MUDGAL
HON'BLE MR. JUSTICE VIPIN SANGHI
1. Whether the Reporters of local papers may Yes
be allowed to see the judgment?
2. To be referred to Reporter or not? Yes
3. Whether the judgment should be reported Yes
in the Digest?
VIPIN SANGHI, J.
1. This appeal under Section 37 of the Arbitration and
Conciliation Act (The Act) has been preferred by National
Highway Authority of India (NHAI) to challenge the judgment of
the learned single Judge of this Court in OMP 316/2005 dated
29.8.2007 whereby the objections preferred by the appellant
under Section 34 of the Act, to the award dated 3.6.2005 made
by the Arbitral Tribunal have been dismissed.
2. The appellant awarded a contract to respondent no.1 in
respect of Four Laning and strengthening of existing Two Lane
Section of NH-2 near Kanpur. The contract was awarded on
27.3.2002 for an amount of Rs.4.961 billion. The contract
awarded was a unit rate contract comprising of a detailed Bill of
Quantities (hereinafter referred to as the BOQ). The BOQ
contained the description of the items of the work to be executed
by the contractor and the estimated quantities of each item
involved in the execution of the contractor. The rates were to be
filled by the bidders/contractors against the estimated quantities
provided by the employer i.e. NHAI in the BOQ. During the
progress of the work, a dispute arose between the parties in
respect of Item No.7.07 (ii) of the BOQ which reads as under:
Item Description Unit Quant Unit Rate Amount
ity
In In
figures words
7.07 Providing
reinforced
earth work as
per Technical
Specifications
clause 703
with precise
concrete plain
finish facia
panel in
cruciform
shape (grade
of concrete M
35, thickness
180 mm)
including soil
reinforcing
geogrid with
all approved
design &
drawing of
specialized
firm.
i) ------------- ----- ---- ----- ---- ----
ii) Greogrid/geo- Sq. 6800 300.00 Three 204,000,000.00
textile m 00 Hundre
reinforcement d Only
fabric with
necessary
overlaps
jointing or
stitching etc.
complete as
per drawing.
(iii) ----------- ---- ------ ----- ----- ------
3. From the above it would be seen that for the estimated
quantity of work of 6,80,000 Sq. Mtrs. Of ‗Geogrid/geotextile
reinforcement fabric‖, the respondent contractor quoted a rate of
Rs.300/- Sq. Mtrs.
4. The dispute that was referred to arbitration was not really
in respect of the quality or nature of work to be performed, but
was the consequence of the geogrid/geotextile material
exceeding the estimated quantity as indicated in the BOQ
contained in the contract. While the appellant claims that under
the contractual terms the Engineer is entitled to seek re-
negotiation of rates since the quantity of geogrid required to
execute the contractual work exceeded the BOQ quantity by
nearly three times, according to respondent No.1 the rates do not
call for re-negotiation under the contractual terms in the given
fact situation.
5. The relevant contractual terms, which are contained in
the General Conditions of Contract (GCC) and conditions of
Particular Application (COPA) may be stated before we proceed
further.
Alterations, Additions and Omissions
"51.1 Variations (GCC)
The Engineer shall make any variation of the
form, quality or quantity of Works or any part
thereof that may, in his opinion, be necessary
and for the purpose, or if for any other reason it
shall, in his opinion, be appropriate, he shall
have the authority to instruct the Contractor to
do and the Contractor shall do any of the
following:-
(a) increase or decrease the quantity of any
work included in the Contract,
(b) omit any such work (but not if the omitted
work is to be carried out by the Employer or by
another contractor),
(c) change the character or quality or kind of any
such work,
(d) change the levels, lines, position and
dimensions of any part of the Works,
(e) execute additional work of any kind
necessary for the completion of the Works, or
(f) change any specified sequence or timing of
construction of any part of the Works.
No such variation shall in any way vitiate or
invalidate the Contract, but the effect, if any, of
all such variations shall be valued in accordance
with Clause 52. Provided that where the issue of
an instruction to vary the Works is necessitated
by some default of or breach of contract by the
Contractor or for which he is responsible, any
additional cost attributable to such default shall
be borne by the Contractor.
51.2 Instructions for Variations (GCC)
The Contractor shall not make any such variation
without an instruction of the Engineer. Provided
that no instruction shall be required for increase
or decrease in the quantity of any work where
such increase or decrease is not the result of an
instruction given under this Clause, but is the
result of the quantities exceeding or being less
than those stated in the Bill of Quantities.
52.1 Valuation of Variations (GCC)
All Variations referred to in Clause 51 and any
additions to the Contract Price which are
required to be determined in accordance with
Clause 52 (for the purposes of this Clause
referred to as ―varied work‖), shall be valued at
the rates and prices set out in the Contract if, in
the opinion of the Engineer, the same shall be
applicable. If the contract does not contain any
rates or prices applicable to the varied work, the
rates and prices in the Contract shall be used as
the basis for valuation so far as may be
reasonable, failing which, after due consultation
by the Engineer with the Employer and the
Contractor, suitable rates or prices shall be
agreed upon between the Engineer and the
Contractor. In the event of disagreement the
Engineer shall fix such rates or prices as are, in
his opinion, appropriate and shall notify the
Contractor accordingly, with a copy to the
Employer. Until such time as rates or prices are
agreed or fixed, the Engineer shall determine
provisional rates or prices to enable on-account
payments to be included in certificates issued in
accordance with Clause 60.
(COPA)
―Where the Contract provides for the payment of
the Contract Price in more than one currency,
and varied work is valued at, or on the basis of,
the rates and prices set out in the Contract,
payment for such varied work shall be made in
the proportions of various currencies specified in
the Appendix to Bid for payment of the Contract
Price. Where the Contract provides for payment
of the Contract Price in more than one currency,
and new rates or prices are agreed, fixed, or
determined as stated above, the amount or
proportion payable in each of the applicable
currencies shall be specified when the rates or
prices are agreed, fixed, or determined, it being
understood that in specifying these amounts or
proportions the Contractor and the Engineer (or,
failing agreement, the Engineer) shall take into
account the actual or expected currencies of cost
(and the proportions thereof) of the inputs of the
varied work without regard to the proportions of
various currencies specified in the Appendix to
Bid for payment of the Contract Price.‖
52.2 Power of Engineer to fix Rates (GCC)
Provided that if the nature or amount of any
varied work relative to the nature or amount of
the whole of the Works or to any part thereof, is
such that, in the opinion of the Engineer, the rate
or price contained in the Contract for any item of
the Works is, by reason of such varied work,
rendered inappropriate or inapplicable, then,
after due consultation by the Engineer with the
employer and the Contractor, a suitable rate or
price shall be agreed upon between the Engineer
and the Contractor. In the event of
disagreement the Engineer shall fix such other
rate or price as is, in his opinion, appropriate and
shall notify the Contractor accordingly, with a
copy to the Employer. Until such time as rates or
prices are agreed or fixed, the Engineer shall
determine provisional rates or prices to enable
on-account payments to be included in
certificates issued in accordance with Clause 60.
(COPA)
―Where the Contract provides for the payment
of the Contract Price in more than one currency,
the amount or proportion payable in each of the
applicable currencies shall be specified when the
rates or prices are agreed, fixed or determined
as stated above, it being understood that in
specifying these amounts or proportions the
Contractor and the Engineer (or, failing
agreement, the Engineer) shall take into account
the actual or expected currencies of cost (and
the proportions thereof) of the inputs of the
varied work without regard to the proportions of
various currencies specified in the Appendix to
Bid for payment of the Contract Price.‖
(GCC)
Provided also that no varied work instructed to
be done by the Engineer pursuant to Clause 51
shall be valued under Sub-Clause 52.1 or under
this Sub-Clause unless, within 14 days of the
date of such instruction and, other than in the
case of omitted work, before the commencement
of the varied work, notice shall have been given
either:
(a) by the Contractor to the Engineer of his
intention to claim extra payment or a varied rate
or price, or
(b) by the Engineer to the Contractor of his
intention to vary a rate or price. (GCC)
(COPA)
―Provided further that no change in the rate or
price for any item contained in the Contract shall
be considered unless such item accounts for an
amount more than 2 percent of the Contract
Price, and the actual quantity of work executed
under the item exceeds or falls short of the
quantity set out in the Bill of Quantities by more
than 25 percent.‖
52.3 Variations Exceeding 15 per cent
(GCC)
If, on the issue of the Taking-Over Certificate for
the whole of the Works, it is found that as a
result of:
(a) all varied work valued under Sub-Clauses
52.1 and 52.2 and
(b) all adjustments upon measurement of the
estimated quantities set out in Bill of Quantities,
excluding Provisional Sums, dayworks and
adjustments of price made under Clause 70,
But not from any other cause, there have been
additions to or deductions from Contract Price
which taken together are in excess of 15 per
cent of the ―Effective Contract Price‖ (which for
the purposes of this Sub-Clause shall mean
Contract Price, excluding Provisional Sums and
allowance for dayworks, if any) then and in such
event (subject to any action already taken under
any of Sub-Clause of this Clause), after due
consultation by the Engineer with the Employer
and the Contractor, there shall be added to or
deducted from Contract Price, such further sum
as may be agreed between the Contractor and
Engineer or, failing agreement, determined by
the Engineer having regards to the Contractor's
Site and general overhead costs of the Contract.
The Engineer shall notify the Contractor of any
determination made under this Sub-Clause, with
copy to the Employer. Such sum shall be based
only on the amount by which such additions or
deductions shall be in excess of 15 per cent of
the Effective Contract Price.
(COPA)
―Where the Contract provides for the payment of
the Contract Price in more than one currency,
the amount or proportion payable in each of the
applicable currencies shall be specified when
such further sum is agreed or determined, it
being understood that n specifying these
amounts or proportions the Contractor and the
Engineer (or, failing agreement, the Engineer)
shall take into account the currencies (and the
proportions thereof) in which the Contractor's
Site and general overhead cost of the Contract
were incurred without being bound by the
proportions of various currencies specified in the
Appendix to Bid for payment of the Contract
Price. (COPA)‖
Measurement
55.1 Quantities(GCC)
The quantities set out in the Bill of Quantities are
the estimated quantities for the Works, and they
are not to be taken as the actual and correct
quantities of the Works to be executed by the
Contractor in fulfillment of his obligations under
the Contract.‖
55.2 Omissions of Quantities (COPA)
Items of Works described in the Bill of Quantities
for which no rate or price has been entered in
the Contract shall be considered as included in
other rates and prices in the Contract and will
not be paid for separately by the Employer.‖
6. After adopting the procedure prescribed under the
contract for settlement of disputes through a Dispute Resolution
Board (DRB) (who opined in favour of the respondent contractors'
contention), the dispute was referred to arbitration consisting of a
panel of three arbitrators- one appointed by each side while the
third Arbitrator was appointed by the two Arbitrators so
appointed. All the three were technical persons conversant with
the nature of the transaction. The limited question raised before
the Arbitral Tribunal for adjudication was ―whether as per the
provisions contained in the contract, the Engineer has the right to
revise the rate for additional quantities of BOQ which are required
for actual execution of work of RE Wall as per the approved
design‖. The award rendered by the Arbitral Tribunal is a majority
Award, with one of the learned arbitrators viz. Shri S.N. Mane
giving a dissenting opinion. The Arbitral Tribunal in its award
upheld the interpretation advanced by the respondent. It held
that variation in terms of Clause 51.1 was not established. The
appellant was directed to pay to the respondent for the actual
quantity of geogrid required to be executed to complete the work
of the RE Wall as per the approved design at the BOQ rate.
7. The Arbitral Tribunal took note of the fact that the design
approved by the Engineer requires execution of 19,58,105 sq.
meters of geogrid as compared to 6,08,000 sq. meters as
estimated in the BOQ. In paragraph 7.5 of the award the Tribunal
notes the disagreement between the parties on the point whether
in a situation the increase or decrease in quantity is not the result
of an instruction, but is the result of quantity exceeding or being
less than those stated in the Bill of Quantities, it constitutes a
―variation‖ or not. While the appellant/ claimant contended that it
constitutes a ―variation‖ and consequently the rate could be re-
negotiated by the Engineer for the excess quantity, the respondent
contended that such increase or decrease, where instructions are
not required and it is not the result of instructions but is the result
of quantity exceeding or being less than those stated in the Bill of
Quantities as per proviso in sub-Clause 51.2, it would not
constitute a ―variation‖ and provisions made under sub-Clause
52.2 are not applicable to this situation. The respondent also
contended that the rates could be re-negotiated only where the
―variation‖ in work is the result of an instruction issued by the
Engineer pursuant to Clause 51.
8. The respondent relied upon the stand taken by the
petitioner before the DRB which was contained in a question as
framed by the appellant/claimant and the answer given by it to the
said question. The question framed by the appellant/claimant was
―Would the Engineer be contractually correct to fix a new rate on a
variation of quantity over and above the Contract bill of Quantities,
which varies from the original design concept?‖ Answer given by
the appellant/claimant was ―Normally and contractually this
practice is not done as Clause 51.1 does not permit a change in
rate due to change in quantity as long as the form or character of
the line item is not altered or affected, however, because the
Contractor's design varies considerably from the original design, a
negotiated rate should be considered‖.
9. The Tribunal observed that the claimant/appellant had
admitted that the design evolved by the respondent's consultants
met the specified criteria. Consequently, there was no change in
design and no such change was established before the Tribunal.
The implication of this finding was that there was no instruction
given by the Engineer referable to Clause 51.1 of the GCC. The
Tribunal also held that the quantity of geogrid given at the tender
stage has been found to be wrong. Therefore, the increase in
quantity is a mere increase to meet the requirement for
completion of RE Wall work. The Tribunal further held that ―in a
contract of the type in question which is an item rate contract
based on the priced schedule of provisional quantities the ultimate
contract amount can be ascertained when all the work done in
terms of the contract is finally measured and the contract amount
computation done on the basis of the prices and rates set out in
the Bills of Quantities. The contract between the parties,
therefore, is a framework which determines the parties rights and
obligations.‖
10. The Tribunal held that the parties knew about the scope
of work of RE wall and both the parties knew ―that it was
impossible to determine the ultimate contract amount before the
completion of RE Wall work and if ultimate quantity exceeds the
BOQ quantity, it will be an automatic change and shall be paid at
BOQ rate in such type of measurement contracts where the
quantities are provisional and ultimate quantities required for
completion of the work are to be executed and paid as per the
quoted rate.‖
11. The Tribunal further held ―The fact that ultimate
measured amount of work performed is different from estimated
quantity is irrelevant because both the parties contracted on the
basis that the ultimate quantity may increase or decrease.‖
12. In support of its conclusion the Tribunal took into account
the fact that the Engineer and the project director demanded
funds for the increased quantity of work at the contractual rate.
The Tribunal further held that ―.........the second para of sub-clause
52.2 clearly provides that the provision in this Sub-clause is
applicable only for varied work instructed to be done by Engineer
as per Clause 51 and the present case before us is not a case
where Engineer's instruction are required as per the provisions of
Sub-Clause 51.2. The Engineer who was administering the
contract, when the variation became known, did not give any
notice of 14 days of any intention to vary the rate; rather he found
in his opinion that BOQ rate shall apply being a mere change in
quantity and the work including the use of geogrid material was
allowed to be executed accordingly, checked at every stage and
paid at BOQ rate. The COPA which is continuation of sub para to
sub-Clause 52.2 mentioned above accordingly will not apply in the
present case. The notices on 28th October, 2003 and subsequently
are just after-thoughts and we hold these being of no effect, and
not applicable to the present case.‖
13. The Tribunal also placed reliance upon the FIDIC Guide.
14. In his dissenting opinion the Arbitrator Sh. S.N. Mane took
note of Clause 67.3 and particularly Clause 67.3(iii) of the contract.
According to Clause 67.3 the Arbitral Tribunal had full power to
open up, review and revise any decision, opinion, instruction,
determination, certificate or valuation of the Engineer and any
recommendation of the DRB. According to Clause 67.3 (iii) neither
party was limited in the proceedings before the Tribunal to the
evidence or arguments raised before the DRB. He observed that in
an item rate measurement contract, each item was an entity by
itself with its own nomenclature, specification, rate and quantity
and could not be treated as contingent to other items. In a way, in
a construction contract each item was contingent upon other to
produce the net product i.e. the completed work as a whole.
15. He held that the variation in the quantity of geogrid was a
result of an instruction and, even if the same was not an instructed
variation, to the extent of the variation, the rates could be revised
by the Engineer. He held that the Engineer had given notice to the
contractor of his intention to re-negotiate the rate vide letters
dated 20.10.2003 and 22.11.2003 even before the
commencement of varied work i.e. the work exceeding the
quantity set out in the BOQ by more than 25 per cent. Thus the
authority of the Engineer to re-negotiate the rate in terms of the
contract agreement stood established, according to him.
16. The learned Single Judge while passing the impugned
order took note of the appellant's submission that Clause 51.1
refers to all kinds of variations which will include variations arising
as a result of issuance of instructions by the Engineer as well as
variations which are not the result of any instructions by the
Engineer. After setting out the relevant clauses of the contract
agreement the learned Single Judge observed that Clause 52.1
"deals only with the variations as provided for in Clause 51 which
are required to be determined in accordance with Clause 52". He
also noted the respondent's submission that the aforesaid clauses
had no application to the case in hand as there were no instruction
given by the Engineer -- the increase in the quantities of geogrid
occurring only on the account of increase in the BOQs.
17. After considering the rival submissions, the learned Single
Judge held as follows:
A. That there was little doubt that clause 51.1 read with
the other clauses referred to the variations which are
instructed variations, i.e. variations which are a
consequence of issuance of instructions and clause 52
did not come into play since the same applied only to
variations arising as a result of issuance of
instructions.
B. It was the categorical finding of the Arbitral Tribunal
that the ultimate measured work performed was
different from the estimated quantity but the parties
contracted on the basis that such quantity may
increase or decrease.
C. There was no change in the design in view of the clear
admission of the appellant before the DRB that the
design was reviewed and found according to the
specified criteria and the appellant was not able to
establish any change in the design.
D. The Arbitral Tribunal had not held that the Engineer
failed in its duty to give the 14 days notice but had, in
fact, held that since the matter fell within the domain
of uninstructed variations i.e. variations which resulted
without the issuance of instructions, the Engineer was
not required to give 14 days' notice, that would have
been the requirement only in case of variations
resulting from the issuance of instructions.
E. He adopted the decision in Grinaker Construction
(TVL) (Pty) Ltd Vs. Transvaal Provincial
Administration 1982 (I) AD 78 wherein a somewhat
similar contractual clause was interpreted by the
Appellate Division of the South African Court. In that
case it was held that automatic increases or decreases
in quantities did not constitute variation. The learned
Single Judge noted the similarities in the relevant
clause before the South African Court and the relevant
clauses of the contract in question. The learned Single
Judge agreed with the observations made by the South
African Court wherein it had been held that the
expression ―variation/variations‖ could only refer to
the ones made by the Engineer in terms of clause
49(1) (the relevant clause before the South African
Court) which are not to include automatic increases or
decreases in the quantity.
F. The aspect that the Dispute Review Board and the
Arbitral Tribunal had arrived at the same interpretation
could not be lost sight of, as the court did not sit as a
Court of Appeal over the decision of an Arbitral
Tribunal even within the expanded scope of scrutiny of
an award as per the judgment of the Supreme Court in
Oil and Natural Gas Corporation Limited Vs. Saw
Pipes Ltd., (2003) 5 SCC 705. So long as the view
taken was plausible, though it may not be the only
possible view, no interference was called for by the
Court. However, the Court was not without jurisdiction
to interfere where the view taken by the Arbitrator was
such that no reasonable person would have taken the
said view. The illegality must go to the root of the
matter and if the illegality is of a trivial nature, it could
not be held that the award was against the public
policy and the award could also be set aside if it is so
unfair and unreasonable as to shock the conscience of
the Court. The learned Single Judge also relied upon
Mcdermott International Inc. Vs. Burn Standard
Co. Ltd. 2006 (2) Arb. L.R. 498.
G. The interpretation of the contract was a matter for the
Arbitral Tribunal to determine. The present contract
had been interpreted by technical people who were
well conversant with the nature of dispute and for that
reason also a great weight had to be given to such a
view. Reliance was placed on DDA Vs. Bhagat
Construction Co. (P) Ltd. and Anr. 2004 (3)
Arbitration Law Reporter 481.
H. He also referred to the deliberations of the meeting
held between the parties on 07.11.2003 wherein the
Team Leader had taken the view that this was a case
of mere re-measurement under sub-clause 51.2 of the
contract agreement and variation was neither ordered
nor admissible under Clause 51 and hence application
of provisions of Clause 52.2 was out of the question.
I. The understanding of the parties was also that the
present matter was not one where the instructions of
Engineer were required in terms of Clause 51 and 52 of
the GCC between the parties. He also relied upon the
guide to the use of FIDIC conditions of contract for
work of Civil Engineering construction. By applying the
decision in Grinaker (supra) and the FIDIC guide he
held that it was only in respect of variations arising as
a result of issuance of instructions by the Engineer,
that there was scope for re-negotiation of rates of the
items.
J. The parties were ad idem that the variations are only
those, where instructions of Engineer were required
and given by him. The disagreement pertained only to
the point whether, in a situation where there was
increase or decrease of quantity, not as a consequence
or the result of any instruction, but of the quantity
exceeding or being less than those stated in the BOQs,
it constituted a variation or not.
18. As seen from above, the learned Single Judge had
proceeded to approve the interpretation given by the Arbitral
Tribunal to the contractual clauses and to hold that unless the
variations, inter alia, in quantity of works under the contract were
the result of instructions, there was no scope for renegotiation of
the contractual rates and prices in respect of the items of work
done under the contract.
19. The argument of the appellant that the variation in
quantity of the geogrid was the result of instructions, and that the
Engineer had given the requisite 14 day notice was not at all gone
into by the learned Single Judge, as he held that the Arbitral
Tribunal had proceeded on the basis that ―since the matter fell
within the domain of uninstructed variations, the Engineer did not
give 14 days notice as would have been the requirement in the
case of instructed variations". Therefore, the issues: whether any
instructions were issued by the Engineer in terms of Clause 51.1
and if so, whether the variation in the quantity of geogrid was a
result of any such instruction, as also the issue whether the
Engineer had issued the requisite notice to seek renegotiation of
the rates of the relevant item in the BOQ or not, have not been
gone into by the learned Single Judge. Though learned senior
counsel for the appellant has raised and urged these issues in this
appeal, as they have not been discussed by the learned Single
Judge, we are also not inclined to go into them in this appeal. It
does not, however, mean that we have either accepted or
rejected the submissions of the parties on these aspects of the
matter. For the present we are proceeding on the foundation that
the variation in the quantity of geogrid was not a result of any
instruction given by the Engineer, but only on account of the
geogrid/geotextile material exceeding the estimated quantity of
the BOQ. Accordingly, we proceed to deal with only one
submission of the appellant i.e. that under the contractual terms,
all variations in quantity beyond the tolerance limits set out in the
contract, whether arising a result of issuance of instructions by
the Engineer or arising even without the issuance of instructions,
were open to the renegotiation of rates by the Engineer.
20. It is argued by the appellant that the interpretation adopted
by the Tribunal violates the contractual terms, Section 28 (3) and
Section 31 (3) of the Act and the same is, therefore, patently
illegal and opposed to public policy. It is argued that the
interpretation adopted by the Tribunal is so unreasonable that no
reasonable person would take such a view. It is urged that the
view of the Tribunal is so unreasonable and unfair as to shock the
conscience of the Court and that the illegality in the award goes to
the root of the matter. Consequently, the award is against the
public policy of India. It is argued that the Arbitral Tribunal has
practically re-written the contract between the parties by
substituting the plain interpretation of the contractual terms which
emerged on a grammatical reading of the relevant clauses with its
self-imposed/assumed interpretation. According to the appellant
the only possible interpretation that could be given to Clauses 51
and 52 of the GCC read with COPA was that all variations of
quantity beyond the tolerable limits would constitute variation
entitling the Engineer to re-negotiate the rates and prices of the
concerned items.
21. We are conscious of the fact that primarily it was for the
Arbitral Tribunal to interpret the contractual terms and that if the
interpretation adopted by the Arbitral Tribunal is a plausible
interpretation i.e. if it is one of the various interpretations that
could reasonably be given to the contract, then the Court would
not interfere with the award merely because, according to the
Court's understanding, another interpretation is preferable.
However, it is equally well settled that if the interpretation adopted
by the Arbitral Tribunal in respect of the contractual terms is so
unreasonable that no reasonable person would adopt, which is so
unfair and unreasonable as to shock the conscience of the Court,
the illegality is one which goes to the root of the matter and is not
merely a trivial illegality and the interpretation of the contractual
terms goes contrary to the contractual terms themselves and is
patently incorrect, the court while hearing the objections to such
an award, would be justified in interfering with such an award and
setting aside the same (See ONGC Ltd. (supra) paragraphs 55 and
56).
22. To examine the submissions of the appellant that the
interpretation adopted by the Tribunal is not even a possible
interpretation of the contractual terms; that the same is so
unreasonable that no reasonable person would adopt the
interpretation given by the Tribunal; that the award suffers from
illegality which goes to the root of the matter; that the award is so
unreasonable and unfair as to shock the conscience of the Court
and it is, therefore, opposed to public policy of India; that the
interpretation adopted by the Tribunal is contrary to the
contractual terms; and that the interpretation advanced by the
appellant is the only interpretation that can be given to Clauses 51
& 52 of the contract, as also to examine the submission of the
respondent that the interpretation adopted by the Tribunal is one
of the plausible views, it is necessary for us to examine the
relevant clauses of the contract and also the basis on which the
said interpretation has been adopted by the Tribunal and upheld
by the learned Single Judge.
23. We now proceed to examine the relevant clauses of the
contract in question. From a reading of Clause 51.1, to us it is
clear that the expression ―variation‖ means variation of form,
quality or quantity of the work or any part thereof. The
expression ―variation‖ in the English language, in so far as it is
relevant for our purpose means "something that varies from a
standard"; "the extent to which something varies from a standard"
(Chambers 21st Century Dictionary). ―Variation‖, therefore, is the
difference between what is provided for or contemplated in
relation to the ‗work' under the contract, and what is the final
effect or outcome. This variation or outcome may or may not be
the result of an instruction, or a set of instructions, given by the
Engineer to:
(a) Increase or decrease the quantity of any work included in the
Contract,
(b) Omit any such work (but not if the omitted work is to be
carried out by the Employer or by another contractor),
(c) Change the character or quality or kind of any such work,
(d) Change the levels, lines, position and dimensions of any part
of the Works,
(e) Execute additional work of any kind necessary for the
completion of the Works, or
(f) Change any specified sequence or timing of construction of
any part of the Works.
24. The instruction issued by the Engineer to the contractor
does not necessarily call upon the contractor to carry out a
―variation‖. The instruction is to carry out one or more of the
specific acts enumerated above. When the instructed acts are
undertaken by the contractor, it may or may not lead to a
variation of form, quality or quantity of the works. In this case, we
are concerned with variation of quantity of one of the items in the
BOQ. Take for example a case where the Engineer issues an
instruction to decrease the quantity of any item of work under the
contract in one stretch, or during one phase of the work (which
itself may be linked to another instruction covered by clauses (b)
to (e) above), while increasing the quantity of the same item of
work in another stretch, or at another stage of the work. The net
result of the two instructions may not necessarily result in
―variation‖ of quantity, as it is possible that the decrease in the
quantity of work in one stretch/stage of work may be made up
due to increase of the quantity of work that may be instructed for
another stretch or at another stage of the work. Therefore, the
result of issuance of any instruction, particularly when it concerns
an instruction to increase or decrease the quantity of any work
included in the contract may or may not result in any variation in
the quantity of the work. This clearly brings out that an
―instruction‖ as enumerated in (a) to (f) above is distinct from
―variation‖. An ―instruction‖ may, or may not be the cause of a
―variation‖. A ―variation‖ may, or may not be the effect of an
―instruction‖ or a set of ―instructions‖. A ―variation‖ may be the
consequence of an ―instruction‖ under clauses (a) to (f) above, or
it may be a ―variation‖ in quantity simplicitor, inasmuch as, the
quantity of any item of work estimated in the BOQ may ultimately
vary upon actual execution at the site without there being a
relatable instruction as the cause of variation. Clause 51.1
empowers the Engineer to issue ―instructions‖ to the contractor of
the kind above enumerated, and states that even if such
instructions result in any variation in the form, quality or quantity
of the work, such variation shall not vitiate or invalidate the
contract. The only consequence would be that such ―variations‖
(not instructions) shall be valued in accordance with Clause 52,
provided that, where an instruction is necessitated on account of
a default or breach of the contract by the contractor, or for which
he is responsible, the additional cost, if any, resulting due to the
said default is to be borne by the contractor.
25. Clause 51.2 prohibits the contractor from making ―any
such variation" i.e. variation of form, quality or quantity of the
works without an instruction of the Engineer. It further provides
that no instruction shall be required for increase or decrease in
the quantity of any work, where such increase or decrease is not
the result of an instruction under Clause 51, but is a result of the
quantities exceeding or being less than those stated in the bill of
quantities. Therefore, the variation in quantity which is not the
result of an instruction given under Clause 51.1 does not require
any specific instruction by the Engineer. In our view, variation in
quantity, even when it is not a result of an instruction given under
Clause 51.1 by the Engineer to the contractor does not cease to
be a ―variation‖ within the meaning of that expression used in
Clause 51.1. It is the difference in the quantity of the work which
is actually performed or to be performed, and the quantity of work
which is expected/estimated to be performed (as contained in the
BOQ) under the contract.
26. Clauses 51.1 and 51.2 by themselves do not deal with the
aspect of valuation of variations. Clause 51.1 which enlists the
instructions which the Engineer may issue to the contractor
further states that the resulting variation shall be valued in
accordance with Clause 52. When clause 51.2 prohibits the
contractor to make any ―variations‖ on his own, without the
instructions of the Engineer, in our view, what it prohibits the
contractor from doing is to unilaterally i.e. on its own: (a)
Increase or decrease the quantity of any work included in the
Contract; (b) Omit any such work; (c) Change the character or
quality or kind of any such work; (d) Change the levels, lines,
position and dimensions of any part of the Works; (e) Execute
additional work of any kind necessary for the completion of the
Works; or (f) Change any specified sequence or timing of
construction of any part of the Works, which may result in a
variation of form, quality, or quantity of the work or any part
thereof. Not only can the contractor unilaterally not decide to
increase or decrease the quantity of any item of work, but it
cannot unilaterally carry out any other change, which the
Engineer has the power to instruct. Clause 51.2 further provides
that variations in quantity of any work which is not the result of an
instruction given under Clause 51.1, but is a result of the
quantities exceeding or being less than those stated in the bill of
quantities is not required to be instructed. This means that
variation in quantity, which may happen on its own, but not as a
consequence of an instruction should not result in the contractor
either stopping the work (where the actual quantity of any item
starts exceeding the quantity in the BOQ) to get specific
instructions from the Engineer, nor result in the contractor
carrying out wasteful work, until he receives the instructions from
the Engineer (where the actual quantity of any item of work be
required to be executed turns out to be less than the quantity
mentioned in the BOQ), merely because the engineer has not
instructed him not to do the work.
27. Clause 52.1 deals with ―valuation of variations‖. It opens
with the words ―All variations referred to in Clause 51............‖.
―All variations‖ referred to in Clause 51, in our view, would
encompass all variations in form, quality and quantity of the work,
whether or not the result of an instruction issued by the Engineer.
Clause 51.2 specifically deals with ―variations‖ in quantity which
are not a result of an instruction issued under Clause 51.1.
Therefore, even such variations are variations ―referred to in
Clause 51‖.
28. Clause 52.1 defines the expression ―varied work‖ to mean
―All variations referred to in Clause 51 and any additions to the
Contract Price which are required to be determined in accordance
with Clause 52‖. Clause 52.1, inter alia, states that all ―varied
work‖ "shall be valued at the rates and prices set out in the
contract if, in the opinion of the Engineer, the same shall be
applicable". Therefore, the variation in quantity is required to be
valued at the rates and prices set out in the contract, if in the
opinion of the Engineer the same shall be applicable. The opinion
of the Engineer in this regard can certainly not be his whimsical or
arbitrary opinion. The contract itself lays down the guidelines, as
to in what circumstances the Engineer may form an opinion
whether or not to value the variation at the rates and prices set
out in the contract. In this regard we may refer to Clause 52.2
(GCC) which empowers the Engineer to fix a suitable rate or price
where, inter alia, the amount of any ―varied work‖ relative to the
amount of the whole of the work or to any part thereof, is such
that, the rate or price contained in the contract for any item of the
work is by reason of such ―varied work‖ ―rendered inappropriate
or inapplicable‖. Further guideline in this regard is found in the
contract in the Condition of Particular Application (COPA) added to
Clause 52.2. The said sub-clause lays down the tolerance limits
within which the contractual rates would apply and only when the
said limits are breached, the case for renegotiation of rates would
be made out. The same reads:
―Provided further that no change in the
rate or price for any item contained in the
Contract shall be considered unless such
item accounts for an amount more than 2
percent of the Contract Price, and the
actual quantity of work executed under the
item exceeds or falls short of the quantity
set out in the Bill of Quantities by more
than 25 percent.‖
29. Therefore, the Engineer while forming his opinion in
relation to the clause 52.1 would be guided by the guidelines
prescribed in Clause 52.2 and the aforesaid Condition of Particular
Application. Only when these conditions are satisfied, the
Engineer may form an opinion that the rates or prices applicable
to the varied work have been rendered inappropriate or
inapplicable and, therefore, need to be renegotiated.
30. The second proviso of Clause 52.2 (GCC) lays down a further
condition. This condition is in relation to the time within which the
renegotiation in rates and prices may be sought owing to a
variation. This clause reads as follows:
―Provided also that no varied work
instructed to be done by the Engineer
pursuant to Clause 51 shall be valued
under Sub-Clause 52.1 or under this sub-
Clause unless, within 14 days of the date
of such instruction and, other than in the
case of omitted work, before the
commencement of the varied work,
notice shall have been given either:
(a) by the Contractor to the Engineer or
(sic of) his intention to claim extra
payment or a varied rate or price, or
(b) by the Engineer to the Contractor of
his intention to vary a rate or price.‖
31. As we look at it, the aforesaid sub-clause is in two distinct
parts. The first part of the aforesaid Clause pertains only to the
variations arising out of the instructions issued under Clause 52.1.
As noticed above, the expression ―varied work‖ has been defined
to mean ―All variations referred to in Clause 51 ......................‖.
However, the expression ―varied work‖ in the first part of
aforesaid sub-clause has been qualified with the words ―instructed
to be done by the Engineer pursuant to Clause 51‖. Therefore,
the first part of the aforesaid sub-clause, regarding the
requirement of giving of notice within 14 days of issuance of
instructions by the Engineer applies to those variations which
would arise as a result of issuance of instructions by the engineer.
It does not relate to variations which are not the result of issuance
of instructions by the Engineer to the contractor under clauses (a)
to (f) mentioned in Clause 51.1.
32. The second part of the aforesaid Clause deals with the
aspect of giving notice by the Engineer/Contractor in the case of
variations for which no instructions are required. For claiming
renegotiation of rates in such a situation the clause provides that
notice has to be given ―before the commencement of the varied
work‖. Pertinently, unlike the first part of the said clause, in the
second part the expression ―varied work‖ has not been qualified.
As the first part deals with ―varied work instructed to be done by
the Engineer pursuant to Clause 51‖, it would mean that ―varied
work‖ which is not so instructed to be done by the Engineer is left
to be covered by the second part of the aforesaid clause. In case
of ―instructed variations‖ the point of time when the period of 14
days begins, obviously, cannot be both i.e. the date of issuance of
instructions and the date of commencement of the varied work as
it is not necessary that both these dates coincide. Therefore, it is
obvious that the aforesaid sub-clause provides different dates for
commencement of the period within which notice is required to be
given by the Engineer or the Contractor, as the case may be,
depending on whether the variation is the result of an instruction
by the Engineer or whether the same is not the result of an
instruction. The aforesaid sub-clause is a further reaffirmation of
the only interpretation that can logically and reasonably be given
to clauses 51 and 52 of the contract that variations, whether they
are the result of issuance of instructions or not, would be open to
renegotiation of rates and prices if the other conditions set out in
the contract are fulfilled.
33. In our view, there is no basis or underlying principle
stated either by the Tribunal or in the impugned judgment for the
conclusion that only if the variation is the result of instruction
given under Clause 51.1, rates and prices of the BOQ item in
question would be open to renegotiation, and not otherwise.
34. We may, at this stage, reproduce the reasoning given by
the Arbitral Tribunal for its aforesaid interpretation to the
contractual clauses in question:
―8.1 The quantity of geogrid given at the
tender stage which was part of the
responsibility of the Claimant has been
found to be wrong. Therefore, the increase
in quantity is mere increase to meet the
requirement for completion of RE Wall
work which was indicated by the RCC facia
quantity at the tender stage.
8.2 Claimant has admitted the fact that
the design evolved by the Respondent's
consultant meets the specified criteria. In
other words there is no change in design
and the Claimant could not establish any
change in this regard before the Tribunal.
8.3 In a contract of the type in question
which is an item rate contract based on the
priced schedule of provisional quantities
the ultimate contract amount can be
ascertained when all the work done in
terms of the contract is finally measured
and the contract amount computation
done on the basis of the prices and rates
set out in the Bills of Quantities. The
contract between the parties, therefore, is
a frame work which determines the parties
rights and obligations. The scope of work
in this case was indicated by RCC Facia
quantity as mentioned hereinbefore which
determines the length of RE Wall to be
constructed for raised carriage way and
the quantity of other sub-item i.e. the
geogrid quantity to be used is contingent
to the facia quantity. Both the parties
knew about the scope of work of RE Wall in
this manner and both knew that it was
impossible to determine the ultimate
contract amount before the completion of
RE Wall work and if ultimate quantity
exceeds the BOQ quantity, it will be an
automatic change and shall be paid at BOQ
rate in such type of measurement
contracts where the quantities are
provisional and ultimate quantities
required for competition of the work are to
be executed and paid as per the quoted
rate. (emphasis supplied)
8.4 The fact that ultimate measured
amount of work performed is different from
estimated quantity is irrelevant because
both the parties contracted on the basis
that the ultimate quantity may increase or
decrease.
8.5 The fact of this case noted by us is
also that there is no change in the design
in view of the clear admission by Claimant
before DRB that the design was reviewed
and found according to the specified
criteria and the Claimant has not been able
to establish before us any change in design
which was the main contention of the
Claimant before DRB as per answer to
question No.1 recorded therein.
8.6 The Engineer and the Project
Director at the time when it became known
that the quantity of geogrid are far
exceeding the quantity given in the BOQ
recommended application of BOQ rate for
the excess quantity while demanding the
funds and the documents containing these
facts duly admitted by the Claimant before
the Arbitral Tribunal also support that the
change in quantity in this case does not
constitute a variation which can attract the
provision of Sub-Clause 52.2 including
COPA. On the other hand the second para
of sub-clause 52.2 clearly provides that the
provision in this Sub-clause is applicable
only for varied work instructed to be done
by Engineer as per Clause 51 and the
present case before us is not a case where
Engineer's instruction are required as per
the provisions of Sub-Clause 51.2. The
Engineer who was administering the
contract, when the variation became
known, did not give any notice of 14 days
of any intention to vary the rate; rather he
found in his opinion that BOQ rate shall
apply being a mere change in quantity and
the work including the use of geogrid
material was allowed to be executed
accordingly, checked at every stage and
paid at BOQ rate. The COPA which is
continuation of sub para to sub-Clause
52.2 mentioned above accordingly will not
apply in the present case. The notices on
28th October, 2003 and subsequently are
just after-thoughts and we hold these
being of no effect, and not applicable to
the present case.
8.7 The interpretation of the Respondent
is supported by FIDIC Guide. The relevant
portion filed before us in this document
which stands admitted by the Claimant
also fully supports that mere change in
quantity does not constitute a variation.
FIDIC organization which is author of the
FIDIC conditions have also stated that it
will be helpful in understanding the intent
of the conditions and according to settled
law by the Hon'ble Supreme Court what is
intended in the contract is to be followed.‖
35. A perusal of the aforesaid reasons shows that the Arbitral
Tribunal has completely ignored the contractual provision
contained in Clause 52.1 (GCC), and after referring to Clause 51.1,
the Tribunal has only referred to Clause 52.2 (GCC). The clear and
categoric language used in Clause 52.1 which begins with the
words ―All variations referred to in Clause 51..........‖, has,
therefore, been lost sight of by the Tribunal completely.
36. Assuming that the observation of the Tribunal that the
appellant had erred in estimating the quantity of
geogrid/geotextile while preparing the BOQ is correct, that, by
itself, in our view would not lead to the conclusion that even if the
actual quantities exceed by over 300 per cent, the appellant
cannot seek renegotiation of the rates. The contract does not
provide that the appellant/employer should suffer on account of
the estimated quantities mentioned in the BOQ turning out to be
way off the mark when the contract is actually performed. If the
interpretation advanced by the Tribunal is accepted, it would mean
that even where the variation from the estimated quantity of an
item in the BOQ is on the negative side, and such variation is not
the result of any instruction of the Engineer, the contractor would
not be entitled to seek renegotiation of the rates. To illustrate the
point let us take a case where one or more of the items mentioned
in the bill of quantities, at the time of actual execution of the
works, is not required to be done to the extent of 95% or even
more and the same is not the result of any instruction given by the
Engineer in terms of the Clause 51.1. In this example, let us also
assume that the item of work which is not so required to be done
constitutes a substantial part of the entire work, lets say, in excess
of 70%. Merely because the variation in the quantity of the
specific item of work is not the result of an instruction, should it
mean that the contractor should be left high and dry without any
remedy or compensation? Should the appellant, who is the author
of the BOQ, derive the advantage of its own failure to frame a
more accurate BOQ? The answer, in our view, is a plain ―No‖.
Apart from being inequitable, unreasonable and in defiance of
common sense, and an interpretation that no reasonable person
would adopt, such an interpretation is not even supported by a
plain reading of the contractual terms. In fact the contractual
terms clearly state to the contrary.
37. An interpretation of a contractual clause primarily has to
be done on the plain reading of the clause. The Supreme Court in
Delhi Development Authority v. Durga Chand Kaushish
(1973) 2 SCC 825 held as follows:
―19. .................. in Odgers' "Construction of
Deeds and Statutes" (5th ed. 1967) ......... (at
pages 28-29), the First General Rule of
Interpretation formulated is: "The meaning of the
document or of a particular part of it is therefore
to be sought for in the document itself". That is,
undoubtedly, the primary rule of construction to
which Sections 90 to 94 of the Indian Evidence
Act give statutory recognition and effect with
certain exceptions contained in Sections 95 to 98
of the Act. Of course, "the document" means
"the document" read as a whole and not
piecemeal.
20. The rule stated above follows logically
from the Literal Rule of Construction which,
unless its application produces absurd
results, must be resorted to first. This is
clear from the following passages cited in
Odgers' short book under the First Rule of
Interpretation set out above:
Lord Wensleydale in Monypenny v.
Monypenny (1861) 9 H.L.C. 114, 146
said:
―the question is not what the
parties to a deed may have
intended to do by entering into
that deed, but what is the
meaning of the words used in
that deed: a most important
distinction in all cases of
construction and the disregard of
which often leads to erroneous
conclusions.‖
Brett, L.J., in Re Meredith, ex p. Chick
[1879] 11 Ch. D. 731, 739 observed:
―I am disposed to follow the rule of
construction which was laid down by
Lord Denman and Baron Parke........
They said that in construing
instruments you must have regard,
not to the presumed intention of the
parties, but to the meaning of the
words which they have used.‖
21. Another rule which seems to us to be
applicable here was thus stated by this
Court in Radha Sunder Dutta v. Mohd.
Jahadur Rahim and Ors.: AIR 1959 SC 24:
―Now, it is a settled rule of
interpretation that if there be
admissible two constructions of a
document, one of which will give
effect to all the clauses therein while
the other will render one or more of
them nugatory, it is the former that
should be adopted on the principle
expressed in the maxim ‗ut res
magis valeat quam pereat'.‖‖
38. The clause, as interpreted, should be able to withstand
the test of reasonableness in all fact situations. It should not lead
to unreasonable or inequitable results in some situations. The
interpretation of the contractual term cannot change merely
because the fact situation may change. It should have the same
interpretation and meaning, though it may produce different
results in different fact situations.
39. The Tribunal's observation in para 8.3 quoted above that
the ―ultimate contract amount can be ascertained when all the
work done in terms of the contract is finally measured and the
contract amount computation done on the basis of the prices and
rates set out in the Bills of Quantities" is contrary to clause 51 and
52 of the GCC and particularly to Clause 52.3, which provides ―if,
...... it is found that as a result of .... All varied work valued under
sub-clauses 52.1 and 52.2......". The Tribunal has patently erred
in proceeding on the basis that all the work done is finally
measured and contract amount computation done on the basis of
the prices and rates set out in the Bill of Quantities. This is a
fundamental flaw and error in the impugned award as the Tribunal
proceeds on the assumption/interpretation that after all the work
under the contract is completed the contract amount computation
is done at the prices and rates quoted in the BOQ. This
understanding of the Tribunal militates against the Tribunal's own
finding that if the variations are the result of instructions, the
renegotiation of rates and prices can be sought by the Engineer or
the Contractor by giving requisite 14 days notice, and thereafter
the renegotiated rates or rates fixed by the Engineer shall prevail,
unless disputed. This brings out a clear contradiction within the
Tribunal's Award.
40. The Tribunal, with respect, has not given any reason at all
while making the following observation in Para 8.3:
―..........Both the parties knew about the scope
of work of RE Wall in this manner and both knew
that it was impossible to determine the ultimate
contract amount before the completion of RE
Wall work and if ultimate quantity exceeds
the BOQ quantity, it will be an automatic
change and shall be paid at BOQ rate in
such type of measurement contracts where the
quantities are provisional and ultimate quantities
required for competition of the work are to be
executed and paid as per the quoted rate.‖
(emphasis supplied)
41. There is no basis disclosed for the aforesaid finding of the
Tribunal. It is clear that the Tribunal, while interpreting the
contract was only focused on, and moved by the fact that in this
case the ―quantity exceeds the BOQ quantity‖. It did not address
the question as to what is to happen if the executed quantity turns
out to be far below the BOQ quantity.
42. The Tribunal merely gave the conclusion reached by it
without stating the reasons or basis therefor. This finding of the
Tribunal is de horse the contractual term, particularly that
contained in Clause 52.1 (GCC). In our view, the interpretation of
the Contract as adopted by the Tribunal is without any basis and
contrary to the only possible interpretation that the same could be
given. It is most unreasonable, inequitable, and one which no
reasonable person would adopt and one which shocks our
conscience.
43. Items of work and the corresponding quantities
mentioned in the bill of quantities prepared by the employer at the
tender stage, no doubt, is an estimation. However, the same is not
expected to be an arbitrary or whimsical estimation. The
estimates are worked out after carrying out a scientific study by
qualified Engineers. This is essential not only from the point of
view of working out the estimated cost of the project for budgetary
and financial purposes, but also to enable the contractors/bidders
to effectively make their offers while submitting their bids. When
the contract provides that the quantities mentioned in the bill of
quantities in respect of various items are estimates, it only seeks
to ensure that neither party is able to claim that the contract is
breached merely because the quantities during actual execution
have increased, or are less than those stated in the BOQ. In so far
as the quantities of the various items mentioned in the BOQ are
concerned, the contract is elastic and permits the change in the
quantities of the items, and the items in the BOQ themselves.
44. The expression ‗estimate' in the Random House
Dictionary of the English Language has been defined in the
following manner:
―Estimate 1. to form an approximate
judgment or opinion regarding
the value, amount, size,
weight, etc., of; calculate
approximately : to estimate the
cost of a college education.
2. to form an opinion of; judge.
3. .........................
4. an approximate judgment or
calculation, as of the value,
amount, time, size, weight, etc.
of something.
5. a judgment or opinion, as of
the qualities of a person or
thing.
6. a statement of the approximate
charge for work to be done,
submitted by a person ready to
undertake the work.‖
45. The Webster's Third New International Dictionary
explains the meaning of the term estimation as follows:
"1. a : to consider or judge to be of a
particular character or nature b: to
consider or judge to be of value
2. a: to judge the value, worth, or
significance of; b : to fix sometimes
accurately the size, extent, magnitude, or
nature of; c : (1) : to arrive at an often
accurate but usu. only approximate
statement of the cost of (a job to be done)
(2) : to arrive at a sometimes only
tentative price for which one is willing to
undertake (a job to be done)‖
46. The process of ‗estimation', therefore, requires the
formation of an opinion or a judgment by the person doing the
estimation. This, obviously, is an exercise undertaken on the basis
of relevant data and by application of scientific and recognized
principles by a person who is qualified to carry out such
estimation. It is not an arbitrary or whimsical determination made
by someone who may have no skill or knowledge of the subject he
is dealing with, and it is certainly not a shot in the dark by the
person preparing the estimate. The bidder/contractor possibly
could not have quoted their rates in a vacuum without knowing the
quantities of the items of work that were estimated to be
performed under the contract.
47. The question is, would the respondent/contractor and the
other bidders have quoted the same rates for the varied item in
question, had the employer/appellant given a better estimate of
the quantity in the BOQ? Where the variation in the quantity is
within tolerable limits, one may assume that the variation in the
quantity of the BOQ item may not have resulted in a difference in
the quoted rates. However, where the variation in the quantities is
manifold (like in this case, the variation is over 300 per cent in the
quantity of geogrid/geotextile), one would assume that it is
possible that the quoted rate/price would have been different, and
it is in such like situations where the Engineer may form an opinion
that the rates and prices have been ―rendered inappropriate or
inapplicable‖.
48. The concept of ―economy of scale‖ is a well recognized
concept. According to Wikipedia, a free encyclopedia on the
internet
Economies of scale, in microeconomics,
are the cost advantages that a business
obtains due to expansion. They are factors
that cause a producer's average cost per
unit to fall as scale is increased. Economies
of scale is a long run concept and refers to
reductions in unit cost as the size of a
facility, or scale, increases. Diseconomies
of scale are the opposite. Economies of
scale may be utilized by any size firm
expanding its scale of operation. The
common ones are purchasing (bulk buying
of materials through long-term contracts),
managerial (increasing the specialization
of managers), financial (obtaining lower-
interest charges when borrowing from
banks and having access to a greater
range of financial instruments), and
marketing (spreading the cost of
advertising over a greater range of output
in media markets). Each of these factors
reduces the long run average costs (LRAC)
of production by shifting the short-run
average total cost (SRATC) curve down and
to the right.
49. Wikipedia further states that:
―Economies of scale refers to the
decreased per unit cost as output
increases. More clearly, the initial
investment of capital is diffused (spread)
over an increasing number of units of
output, and therefore, the marginal cost of
producing a good or service is less than
the average total cost per unit (note that
this is only in an industry that is
experiencing economies of scale).‖
50. The aforesaid concept, in fact, finds reflection in Clause
52.3, which substantially provides that if the overall contract price
(after taking into account the valuation of all varied works and all
adjustments permissible under the contract) is more or less by
15% of the ―Effective Contract Price‖, then the Engineer may, in
consultation with the Contractor and the Employer, add to or
deduct from the contract price such sums as may be agreed to
between the contractor and the Engineer, failing which, as
determined by the Engineer.
51. The submission of the respondent that the appellant had
accepted a rate of Rs.474.00 per sq. meter of geogrid item of
same specification as against of Rs.290.40 per sq. meter in the
present contract (after 3.2% rebate) can hardly be a reason to
deny the authority of the engineer to seek renegotiation of the
rates, as the said authority springs from the contractual terms and
does not depend on the rate quoted by the respondent in its bid
and accepted by the appellant. However, these factors may be
relevant at the time of holding renegotiation of rates and prices.
52. We are not suggesting that whenever the quantity of any
item in the BOQ increases substantially upon actual performance
of the contract, the revision in the rate would always be
downwards. There may be instances where it may either remain
unchanged or may even require an upward revision. These would
be the aspects to be considered at the time of negotiation between
the Engineer and the Contractor in terms of the Contract by taking
into account all relevant factors.
53. If we are right in our above understanding, there is no
reason why variations in quantity beyond the limits set in the
contract, whether or not instructed, should not lead to
renegotiation of rates at the instance of either party. That is the
only fair, reasonable and equitable way to work the contract.
Whether the variation in quantity is in the positive or in the
negative direction, in either case, if the variation exceeds the
tolerance limits set in the contract, renegotiation of rates would be
called for.
54. The learned Single Judge has placed heavy reliance upon
the decision of the Appellate Division Court of South Africa in
Grinaker (supra). The clause considered by the South African
Court has been set out in para 16 of the impugned order. Though
the clause considered by the South African Court is very similar
both in letter and spirit to the clauses contained in the contract in
question, at the same time, in our view, there are marked,
significant and decisive differences in the said clauses. To
understand and appreciate the distinction in the clause considered
in Grinaker (supra) and the clauses in question, we set out below
the clause 49 considered in Grinaker (supra): -
―Alterations, additions and omissions
1) The engineer shall make any
variation of the form, quality or quantity of
that purpose, or for any other reason it
shall be in his opinion desirable, shall have
power to order the contractor to do and
the contractor shall do any of the following:
(a) Increase or decrease the quantity
of any work included in the contract.
(b) Omit any such work,
(c) Change the character or quality or
kind of any such work.
(d) Change the levels, lines, position
and dimensions of any part of the works;
(e) Execute additional work of any
kind necessary for the completion of the
works;
and no such variation shall in any way
vitiate or invalidate the contract provided
the total contract amount be not thereby
increased or decreased in value more than
20 per cent and provided further that the
total quantity of any sub-item whose value
in the schedule of quantities is in excess of
7½ per cent of the total contract amount,
be not thereby increased or decreased by
more than 25 per cent.
(2) No such variation shall be made by
the contractor without an order writing of
the engineer. Provided that no order in
writing shall be required for increase or
decrease in the quantity of any work where
such increase or decrease is not the result
of an order given under this clause, but is
the result of the quantities exceeding or
being less than those stated in the
schedule of quantities. Provided also that if
for any reason the engineer shall consider
it desirable to give any such order verbally,
the contractor shall comply with such
order, and any confirmation in writing of
such verbal order given by the engineer
whether before or after the carrying out of
the order, shall be deemed to be an order
in writing within the meaning of this
clause. Provided further that if the
contractor shall confirm in writing to the
engineer any verbal order of the engineer,
and such confirmation shall not be
contradicted in writing by the engineer, it
shall be deemed to be an order in writing
by the engineer.
(3) The engineer shall determine the
amount (if any) to be added to or deducted
from the contract amount in respect of any
additional work done or work omitted by
his order. All such work shall be valued at
the rates set out in the contract, if in the
opinion of the engineer the same shall be
applicable. If the contract shall not contain
any rates applicable to the additional work,
the same shall be classed as extra work
and payment in respect thereof shall be
made as hereinafter provided.
(4) Provided that if such variation or
variations shall result in an increase or
decrease of more than 20 per cent in the
value of the total contract amount or an
increase or decrease of more than 25 per
cent in the total quantity of any sub-item
whose value in the schedule of quantities
is in excess of 7½ per cent of the total
contract amount and subject to the
production of satisfactory evidence that
loss or damage has been sustained by the
contractor as a result of such variation or
variations, the engineer shall fix such other
rate or price as in the circumstances he
shall think reasonable and proper.
(5) Provided also that no increase of the
contract amount under sub-clause (3) of
this clause, or variation of rate or price
under sub-clause (4) of this clause shall be
made unless, as soon after the date of the
order as is practicable, and in the case of
additional work before the commencement
of the work or as soon thereafter as is
practicable, notice shall have been given in
writing:
(a) by the contractor to the engineer of
his intention to claim extra payment for a
varied rate, or
(b) by the engineer to the contractor of
his intention to vary a rate of (or?) price, as
the case may be.‖
55. The first part of clause 51.1 of the GCC is very similar to
sub-clause(1) of the above extracted clause 49. Clause 51.2(GCC)
is very similar to the substantive part of sub-clause (2) of clause 49
considered in Grinaker (supra).
56. The material and decisive difference in the two clauses, in
our opinion, arises when one compares clause 52.1 (GCC) with
clause(3) of clause 49 considered in Grinaker (supra). Whereas
clause 52.1 opens with the words ―All variations referred to in
clause 51 and any additions to the contract price.......‖, the
aforesaid sub-clause(3) of clause 49 reads ―The engineer shall
determine the amount (if any) to be added to or deducted from the
contract amount in respect of any additional work done or
work omitted by his order.‖ (emphasis supplied).
57. This, in our opinion, is a marked and very material
distinction between the contractual clauses in question and those
considered by the South African Court in Grinaker (supra). A
perusal of the clause considered by the South African Court shows
that the said Clause 49 does not contain any sub-clause like Clause
52.1 of the contract in question which begins with the words ―All
variations referred in clause 51.........‖ In contra distinction with
the clause in question, sub-clause (3) of clause 49 in the Grinaker
(supra) entitles the Engineer to ―determine the amount, if any, to
be added to or deducted from the contract amount in additional
work done or work omitted by his order‖ (emphasis supplied). It
further provides ―All such work shall be valued..........‖(emphasis
supplied). Therefore, sub-clause (3) of Clause 49 clearly pertains
to variations arising as a consequence of instructions by the
Engineer, as the said sub-clause talks about an ‗order' and also
talks about valuation of ―such work‖. ―Such work‖ in sub-clause
(3) of Clause 49 obviously means the work which is done as per
the Engineers ‗order'. Therefore, the aspect of valuation dealt with
by sub-clause(3) extracted above is limited only to all such work as
is carried out or omitted to be done under the orders of the
Engineer, which has been referred to by the learned single Judge in
the impugned order as an ―instructed variation‖.
58. Sub-clause(4) of clause 49 extracted above may be called
a ―one way‖ clause, inasmuch as, the same can be invoked only by
the Contractor, upon the fulfillment of the conditions specified
therein including the condition that the Contractor has to produce
"satisfactory evidence that loss or damage has been sustained by
the contractor as a result of such variation or variations‖. Sub-
clause (4), therefore, is meant only to protect the Contractor and
enables him to seek renegotiation of the contract price upwards
upon production of satisfactory evidence that he is suffering losses
or damages as a result of ―such variation or variations‖. It is not a
clause for the protection of the interests of the employer.
59. However, in the contract in question the material
difference is that the relevant sub-clauses of clause 52 i.e. 52.1,
52.2 and 52.3 all seek to balance the rights of both the parties i.e.
the employer and the Contractor and can, therefore, be described
as two way clauses. These clauses not only contemplate
protecting the rights and interests of the Contractor, but also those
of the employer NHAI. Therefore, the revision of rates/prices of the
items can be upwards or even downwards.
60. The additional condition introduced by (COPA) as the last
paragraph of clause 52.2, which seeks to lay down the pre-
conditions (in terms of percentages) for change of rates or price of
any item contained in the BOQ of the contract is similar to the
conditions laid down in sub-Clause (4) of the clause in Grinaker
(supra).
61. Sub-clause (5) of clause 49 is similar to the second
paragraph of Clause 52.2 (GCC) which lays down the time limit
within which the notice is required to be given for renegotiation of
rates and prices in the case of variations, which arise out of
instructions issued by the engineer.
62. From the above comparison, to us it appears that while
Clause 52.1(GCC) deals with all variations referred to in Clause 51,
sub-Clause (3), (4) & (5) of Clause 49 in Grinaker's (supra) deals
with only variations which arise as a result of instructions/orders
issued by the engineer.
63. We are, therefore, of the view that the learned Single
Judge, with respect, failed to appreciate the relevant and material
distinction in the Clause considered by the South African Court and
the Clauses of the contract in question. The interpretation given
by the South African Court could not have been lifted and applied
in the face of the materially and decisively different contractual
terms between the parties in the present case.
64. The South African Court took the approach of showing its
helplessness in interpreting the contractual terms before it in an
equitable way by observing that where a party strikes a bad
bargain, the Court cannot, out of sympathy for him, amend the
contract in his favour.
65. Fortunately, we do not find ourselves in such a bind, for
the reason that in our view Clause 52.1 clearly and categorically
states that ―All variations referred to in Clause 51............‖ are
open to renegotiation provided the conditions stated in the
contract are satisfied. There is no reason to limit the meaning of
the words ―All variations referred to in Clause 51.......‖ to only
those variations which are the result of an instruction. There is no
logic behind the interpretation given to the contract by the Arbitral
Tribunal and accepted by the learned Single Judge. The same
appears to be contrary to the express language used by the
parties in their contract.
66. We may also note that the decision of the South African
Court was rendered a long time ago i.e. in the year 1982. The
parties to the contract in question entered into this contract
twenty years later i.e. in the year 2002. If the intention of the
parties had been to go along with the interpretation adopted by
the South African Court, there was no need for them to use
significantly different language in their contract and they could
well have adopted language identical/similar to that used in the
South African Contract. However, they chose not to do so. In a
way, we may say that the Contract in question is a refinement of
the contract before the South African Court. It could well be that
the parties became wiser upon the rendering of the South African
decision and therefore, consciously decided to avoid the same
pitfalls in the contract which were noticed by the South African
Contract.
67. In our view, there is no magic in the issuance of the
instructions by the Engineer under Clause 51.1, so as to trigger the
process of renegotiation of rates of the exceeded/depleted items.
Even without issuance of instructions, the rights of the parties
could be vitally affected if the quantities of work executed are
widely at variance with what was estimated in the BOQ. The
mechanism evolved in the Contract to seek renegotiation of rates
and prices could be invoked by the concerned party to avoid
unforeseen losses and expenses or to prevent unintended gain by
the opposite party.
68. We are also of the view that the Arbitral Tribunal was
unduly inhibited in its approach by the facts that: the appellants
had, before the DRB framed the question above extracted and
answered it in a particular way; that the Engineer and the project
director demanded funds for the increased quantity of geogrid
work at the contractual rate, and; that the FIDIC guide also
purportedly supported the interpretation advanced by the
respondent.
69. Under Clause 67.3 the Tribunal had the responsibility to
interpret the contract. That is why it provides that the Arbitral
Tribunal "shall have full power to open-up, review and revise any
decision, opinion, instruction, determination, certificate or
valuation of the Engineer and any Recommendation(s) of the
Board related to the dispute". It further provides "Neither party
shall be limited in the proceedings before such tribunal to the
evidence or arguments before the Board for the purpose of
obtaining its Recommendation(s) pursuant to Sub-Clause 67.1. No
Recommendation shall disqualify any Board Member from being
called as a witness and giving evidence before the arbitrator(s) on
any matter whatsoever relevant to the dispute."
70. Therefore, the parties were free to advance evidence and
arguments even beyond those advanced before the DRB. The
framing of the question and its answer given by the appellant
before the DRB did not bind the petitioner because the appellant
was not precluded from advancing an interpretation that it might
not have canvassed before the DRB. To our understanding, there
is no rigid rule that in all case, without exception, the Tribunal is
bound to accept an interpretation of a contractual term which at
one point of time may have been propounded by one or both the
parties. No doubt, if there are two or more plausible interpretations
possible in respect of a contractual term, the Arbitral Tribunal
should adopt the interpretation that the parties have themselves
ascribed to. However, if the view that the parties may advance,
either mistakenly or otherwise is unreasonable or contrary to the
plain grammatical meaning of the language used in the contract,
the Tribunal is not bound to accept the same. The Tribunal would
fail in its duty if it were to succumb to an interpretation which is
not borne out from a plain reading of the contractual term, only on
account of the consideration that the interpretation has been
advanced by the parties, even though, the same may be totally
absurd, unreasonable and/or not borne out of the contract. We
may hasten to add that in given cases, other equitable
considerations such as estoppel may influence the approach of the
Tribunal. However, that is not the case in hand. Interpretation of
a contract is a question of law. The same ought to have been
considered and answered by the Tribunal on a bare reading of the
contractual terms, uninfluenced by the earlier stand taken by the
petitioner before the DRB, particularly when only one possible
interpretation could be given to the contractual terms in question.
Else, there was no point in permitting the parties to advance their
arguments uninhibited by the stand taken by them at any earlier
stage. The approach of the Tribunal, in our view, was
fundamentally flawed.
71. The fact that the appellant Engineer and Project Director
asked for funds on the basis of the contractual rate even for the
varied quantity is neither here nor there. That was a wholly
internal matter of the appellant. The appellant was entitled to
make the provision to pay even at the contractual rate for the
varied quantity. This action of the appellant has no bearing on the
interpretation to be given to the contractual terms.
72. While relying on the FIDIC guide - which does not form
part of the contract, the Tribunal does not state as to what is the
interpretation given by the FIDIC guide, and how it supports the
respondent's contention. Since the award makes a reference to
the FIDIC Guide we have looked into the extract from the said
guide filed by the respondent along with its written submissions
dated 27.02.2009 as Annexure ‗B'. A perusal of the extract from
the FIDIC Guide placed on record unfortunately does not, in any
way, support the view taken by the Arbitral Tribunal. Pertinently,
the relevant extract of the FIDIC Guide pertaining to Clause 51.2
(which deals with variations in quantity which may arise without
the issuance of instructions) and Clause 52.1 which opens with the
words ―All variations referred to in Clause 51.....‖ have not been
placed on record. From the extract of the FIDIC guide as placed on
record, all that can be said with regard to Clause 51.2 is that
‗instruction' is not required if actual quantities of work envisaged
at the time of tendering proof of measurement is found to be
different from those recorded in the bill of quantities. It does not
mean that variation in quantity does not result when the actual
quantity of an item exceeds or is found to be less upon actual
execution of the work when compared to the estimated quantity in
the BOQ. Therefore, in our view, the reliance placed by the
Arbitral Tribunal on the FIDIC Guide is misplaced.
73. We, therefore, hold that the interpretation to the
contractual terms advanced by the learned Arbitral Tribunal and
that accepted by the learned Single Judge is an interpretation
which cannot be accepted as a plausible interpretation. It is, in
fact, an unreasonable and wholly implausible interpretation, which
no reasonable person could advance. The illegality committed by
the Tribunal while interpreting the contractual terms is certainly
not trivial. It goes to the root of the matter as the said
interpretation forms the bedrock of the impugned award. The
award is unfair and inequitable and such as to shock our
Conscience. The interpretation adopted by the Tribunal goes
contrary to the express language used by the parties in their
contract. The Tribunal, while interpreting the contract in the way
that it did, has been unduly swayed by the stand taken by the
appellant before the DRB which was not binding on the Tribunal.
The appellant was entitled to advance the interpretation before the
Tribunal by virtue of Clause 67.3 of the Contract, as it did. The
interpretation advanced by the Tribunal is in complete ignorance
of, and in the teeth of the plain language of the Contract as found
in Clauses 51 and 52 of the Contract. The impugned award is
opposed to public policy of India. The learned Single Judge has
heavily relied upon the South African decision of the case of
Grinaker (supra). With respect, in our view, that decision could
not have been applied to the contractual terms in question on
account of their being significant and material differences in the
contractual terms of the two contracts.
74. We have perused the decisions relied upon by the
respondent. These are:-
1. U.P.Hotels V. U.P.State Electricity Board, AIR 1989 SC
268.
2. Sudershan Trading Co. V. State of Kerala, AIR 1989 SC
890.
3. Himachal Pradesh State Electricity Board V. R.J.Shah &
Co., JT 1999(3) SC 151.
4. Olympus Superstructures V. Meena Vijay Khaitan, JT
1999(3) SC 514.
5. B.L.Sreedhar V. K.M.Munireddy, 2003 (2) SCC 355.
6. Pure Helium India Pvt. Ltd V. ONGC, 2003(8) SCC 593.
7. DD Sharma V. Union of India, 2004(5) SCC 325.
8. Mcdermott International Inc. V. Burn Standard Co.,
2006(2) Arbitration Law Reporter 498(SC).
9. Chowgule Brothers V. Rasthriya Chemicals, 2006(3)
Arbitration Law Reporter 457 (Bombay).
10. DDA V. Bhagat Construction Co.(P) Ltd, 2004(3)
Arb.L.R.481.
75. In our view, none of the decisions cited by the respondent
come to its rescue as, in our view, the Tribunal's interpretation of
the contractual terms cannot be said to be one of the possible
views that could reasonably be adopted. The legal position with
regard to the jurisdiction of the Court to interfere with an Arbitral
Award in proceedings under Section 34 of the Act has already been
noticed by us. We have also dealt with the respondent's
submission that interpretation given by the parties to the contract
has to be taken into consideration by the Tribunal, while
interpreting the contractual terms. So far as estoppel by conduct
is concerned, from the impugned award we do not find any
consideration of any such argument, if advanced by the
respondent. There is no finding returned by the Tribunal in this
respect. As the quantity of geogrid used when the disputes arose
between the parties was far below the BOQ quantity, there was no
question of ―estoppel‖ being invoked by the respondent. This
explains the absence of consideration of this argument by the
Tribunal. We find support for our approach in the matter from
Hindustan Zinc Ltd. V. Friends Coal Carbonisation, (2006) 4
SCC 445 which follows ONGC Ltd.(supra). Even in Mcdermott
(supra), the Supreme Court examined the contention that one or
the other formula should have been adopted for assessing
damages, and held that it was for the Arbitrator to adopt one of
the established formula for assessment of damages, and the Court
could not substitute its view in the matter, as the contract or the
law did not specify as to which particular formula should be
adopted. As one of the possible views was adopted by the
Arbitrator, the challenge to the award on this ground was repelled.
The Supreme Court relied upon State of U.P V. Allied
Constructions, (2003) 7 SCC 396, which, inter alia, holds:
―Once it is found that the view of the arbitrator is
a plausible one, the court will refrain itself from
interfering [See : U.P.SEB vs. Searsole
chemicals Ltd., (2001) 3 SCC 397= 2001(1)
Arb.LR 531(SC) and Ispat Engg. & Foundry
Works Vs. Steel Authority of India Ltd.,
(2001) 6 SCC = 2001(2) Arb.LR 650 (SC)].‖
76. Therefore, the decision in Mcdermott (supra) so heavily
relied upon by the respondent has not advanced its case. The
appellant has demonstrated as to how the Engineer was justified in
seeking renegotiation of the rates and prices of the relevant item
i.e. geogrid/geotextile reinforcement fabric contained in item no.
7.07 (ii) of the BOQ. According to the appellant this item alone
constitutes 4.11 per cent of the contract value. The BOQ item
value for the particular item geogrid /geotextile reinforcement
fabric contained in item at Serial No. 7.07 (ii) of the BOQ is Rs.
204,000,000.00/-. The contract value is Rs. 4,96,10,00,000/-.
Therefore, in percentage terms the relevant BOQ item 7.07 (ii)
equals 20,40,00,000 ÷ 4,96,10,00,000 ÷ 100 = 4.11%.
Consequently, the said BOQ item values more than 2 per cent of
the contract value. Admittedly, the consumption of the said BOQ
item has gone up by 300 per cent which is way beyond the limit of
25 per cent change contemplated by the last sub-clause of Clause
52.2 inserted by virtue of COPA. We may notice that there is no
dispute raised by the respondent in this regard.
77. The appellants have also argued that in terms of second
proviso to Clause 52.2 the Engineer had given the requisite notice
to renegotiate the rates and prices of the relevant item well before
the commencement of the varied work. The appellant argues that
it is the admitted position that even till the stage the arbitration
was being held in the year 2005, quantity of geogrid consumption
was less than the BOQ quantity of 6,80,000 Sq. Mtrs. The
appellant relies on written submissions made before the Arbitral
Tribunal by the appellant which have been placed on record as
annexure P-18 in volume 3. On internal page three of this written
submission the amount of geogrid/geotextile material consumed at
site (as of February, 2005) was shown to be 3,17,000 Sq. Mtrs.
Even the respondent had filed its own statement, which is filed as
annexure P-19 in volume 3, according to which the quantity of
geogrid/geotextile consumed when the said statement was filed
before the Tribunal was only 3,50,401 Sq. Mtrs. This document
was filed with the title ―Requirement of Geogrid Material and
Present Position‖. The BOQ quantity 6,80,000 Sq. Mtrs. + 25 per
cent, as per the contractual terms is payable at the contractual
rate. It is only when variation occurs in excess of the said
quantity, that the Engineer can seek renegotiation of the
rates/prices. The appellant submits that the Engineer had
admittedly given notice to the respondent for renegotiation of
rates/prices on 22.11.03 and 28.11.2003. He submits that the
Tribunal has refused to look into these notices on the ground that
they are afterthoughts. However, no reason has been assigned for
the said approach of the Tribunal.
78. From the aforesaid documents, particularly, from the
statement filed before the Arbitral Tribunal by the respondent itself
stating that the quantity of geogrid consumed at the relevant time,
i.e. when the arbitration was in progress, was 3,50,401 Sq. Mtrs. It
is apparent that the Engineer of the appellant had sought
renegotiation of rates much before the quantity as per BOQ had
been supplied/executed. This is evident from the fact that the
dispute arose between the parties on the issue of renegotiation of
rates which was first taken to the DRB and thereafter to
Arbitration. Even when the proceedings before the Arbitral Tribunal
were pending, the contractual quantity of geogrid/geotextile as
indicated in the BOQ had not been crossed. In our view, therefore,
the condition prescribed by the second proviso of Clause 52.2
stood squarely satisfied.
79. The appellant submits that while relying on the alleged
minutes dated 07.11.2003, the learned Single Judge has
proceeded on the assumption that the Team Leader is the
representative of the appellant. In fact, he is only the
representative of the Engineer who is an independent authority.
For this purpose the appellant relies upon Clause 2.6 of GCC which
states that the Engineer while exercising his discretion shall act
impartially within the terms of the contract and having regard to
all the circumstances. It is also argued that the same Team
Leader, who is alleged to have taken a view in favour of the
respondent in the meeting dated 07.11.2003, had expressed his
view earlier on 28.10.2003 and even later on 22.11.2003 by
issuing the two communications putting the respondent to notice
that the rates / prices of geogrid/geotextile would need to be
renegotiated. The appellant argues that the minutes recorded on
07.11.2003 do not contain a final decision which has been
accepted by the appellant. These minutes were recorded merely
during the course of discussions, and that too by the respondent.
Since the issue did not attain finality in terms of minutes dated
07.11.2003, the matter was referred to Arbitration. The learned
Single Judge could not have looked into any piece of evidence
which was not considered by the Arbitral Tribunal or referred to by
it in its award. By referring to and relying upon the self serving
minutes as recorded by the respondent, the learned Single Judge
has exceeded its jurisdiction.
80. We are of the view that there is merit in the submission of
the appellant that the learned Single Judge was not justified in
placing reliance on the minutes of the meeting dated 7.11.2003.
The said minutes as prepared by the respondent, have been
disputed by the appellant. A document which does not form part
of the award and which has not even been referred to in the award
could not have been looked into by the learned Single Judge
particularly when there is a dispute about the contents of the
same. In any event the said document could not have come in the
way of an independent interpretation of the relevant clauses which
the Arbitral Tribunal was obliged to given in view of Clause 67 of
the Contract.
81. In view of our discussion above, with respect, we cannot
agree with the approach and findings of the learned Single Judge
that Clause 51.1 read with other clauses refer to the variations
which are ―instructed variations‖ and Clause 52 would not come
into play since the same arises only for ―instructed variations‖;
that a similar clause was interpreted in Grinaker (supra) and that
the said decision is applicable to the contractual clauses in
question; that the alleged minutes of the meeting held on
07.11.2003 produced by the respondent could be relied upon
(when the same had not been relied by the Tribunal); that the
FIDIC guide provides that ―variation‖ is not required if actual
quantities of work envisaged at the time of tendering proof of
measurement is different from those entered in the bill of
quantities; that it is envisaged in such international contracts for
construction that ―variation‖ is only instructed variation arising
from the decision of the engineer and not an uninstructed variation
arising from change of quantity; that it is in accordance with
general understanding of the clauses that once a contract price is
provided and the quantities are held to be tentative, any increase
or decrease in quantity must be governed by the same price and it
is only in respect of any instructed variation arising from the
instruction of the engineer on account of any additional work or
less work that there has to be some element of renegotiation and
determination in terms of Clause 51 & 52 of the General Conditions
of Contract.
82. For all the aforesaid reasons we are of the view that the
impugned order of the learned Single Judge as well as the award
passed by the Arbitral Tribunal cannot be sustained. The
interpretation adopted by the Arbitral Tribunal in respect of the
contractual clauses is patently uncalled for, implausible, unfair,
unreasonable, erroneous and illegal. The said interpretation,
therefore, shocks the conscience of this Court. It is not even a
possible interpretation of the relevant contractual terms. The
express terms of the contract have been ignored by the Tribunal
and the Tribunal has by giving the interpretation that it has,
virtually re-written the contract between the parties. The illegality
in the impugned award goes to the root of the matter. The award
is, therefore, opposed to public policy of India.
83. Accordingly we set aside both the impugned orders
passed by the learned Single Judge as well as the award passed by
the Arbitral Tribunal. The appellant would be entitled to costs
quantified at Rs. 50,000/-.
(VIPIN SANGHI)
JUDGE
(MUKUL MUDGAL)
November 17, 2009 JUDGE
dp/rsk/as
