Union Of India vs M/S. Goel Construction Co. & Anr.
2010 Latest Caselaw 240 Del

* IN THE HIGH COURT OF DELHI AT NEW DELHI

+                       OMP NO. 337/2005

                           Date of Decision: January 18, 2010

UNION OF INDIA                                     .....Petitioner

                          Through:    Mr. Rao Vijay Pal,
                                      Advocate.
                          VERSUS

M/S. GOEL CONSTRUCTION CO.& ANR.   .....Respondents
                  Through: Mr. R.Rajappan,
                           Advocate.
%    CORAM:
     HON'BLE MS. JUSTICE ARUNA SURESH

(1)   Whether reporters of local paper may be allowed to
      see the judgment?

(2)   To be referred to the reporter or not?          Yes

(3)   Whether the judgment should be reported in the
      Digest ?                               Yes

                          JUDGMENT

ARUNA SURESH, J.

1. Parties to the petition executed a contract on

20th February, 1997, being Agreement No.01/EE/Pa.W.D.-

IV/97-98 for construction of two MP flats at South Avenue,

for a total cost of Rs.9,46,004/-. Respondent was to

commence the work on 21st April, 1997 and the work was

required to be completed by 20th October, 1997.

However, respondent actually completed the work on 6th

January, 2000 and the department executed the

completion certificate on 7th March, 2000. In the

meantime, petitioner department issued eight running

bills, which were accepted by respondent No.1. On 6th

January, 2000, respondent was intimated about readiness

of final bill, which was finalized on 5th July, 2000. The

claimant/respondent did not accept the final bill.

2. A dispute arose between the parties regarding

the amount raised in the final bill on 6th January, 2000.

Respondent sent a letter dated 27th October, 2000, to the

Chief Engineer for invocation of the arbitration clause to

settle the disputes between the parties. Since the Chief

Engineer declined to appoint an Arbitrator, respondent

No.1 filed a petition under Section 11 of the Arbitration

and Conciliation Act (hereinafter referred to as the „Act‟),

bearing Petition No.240/2000 before this Court. The said

petition was allowed by this Court vide its order dated

21st March, 2003 and Sh.R.J.Bakhru, (respondent No. 2)

was appointed as the Sole Arbitrator, who published his

award on 8th February, 2005. Petitioner received a copy

of the award on 14th February, 2005.

3. Petitioner department, being aggrieved by the

award, filed the instant petition under Section 34 of the

Act raising objections against the award dated 8th

February, 2005, initially before the District Judge. The

District Judge vide his order dated 9th August, 2005, was

of the view that, the objection petition should have been

filed before the court, which had appointed the Arbitrator

and therefore, returned the petition to be filed before this

Court. The petition was re-filed in this Court on 1st

September, 2005. The grounds on which the impugned

award has been challenged are:-

(1) Arbitrator did not consider Clause 9 of the

agreement while passing the impugned award as

he failed to appreciate that claimant was

required to submit the final bill within three

months of physical completion of the work, or

within one month of the date of final certificate of

completion furnished by the Engineer-in-Charge.

The claimant did not submit the final bill, as

stipulated.

(2) Arbitrator misconducted himself when he

entertained the time barred claim of the

respondent as per Clause 25 of the agreement.

The Arbitrator, while deciding this objection, took

extraneous considerations for rejecting this

objection by holding that the claim was within

the period prescribed in Clause 25 of the

agreement.

(3) The Arbitrator failed to consider that it was after

lapse of 2 ½ months from passing of the final bill,

the claimant invoked the arbitration clause.

(4) The Arbitrator exceeded his jurisdiction by

awarding Claim No. 1 because, there was no

digging work at the site, as the digging work was

part of demolition of foundation wall and no

separate or extra digging was done for the

foundation wall and therefore, the question of

removal of the earth from the digging work for

foundation wall did not arise. There was no proof

of transportation, quantity or measurement

before the Arbitrator, on the basis of which, he

awarded Claim No. 1.

(5) The Arbitrator exceeded his jurisdiction while

awarding Claim No.3 for short payment for extra

items, as he did not adopt the rate analysis by

both the parties and did not give any reason for

awarding this claim. The award, being non-

speaking award, is in contravention of Section 31

of the Act.

(6) The Arbitrator misconducted himself and

travelled beyond the terms and conditions of the

agreement by awarding Claim No.6 regarding

escalation of labour and machinery charges, as

he failed to consider and appreciate that Clause

10CC of the agreement was not applicable but

Clause 10C was applicable, specially when the

delay in completion of the work was entirely

attributable to the claimant.

(7) The Arbitrator acted beyond jurisdiction while

awarding Claim No. 7 without any material on

record to show that the establishment was

engaged and lying idle at site during the alleged

period. There was no requirement of keeping the

alleged machinery and workers at the site, as the

respondent knew that during the piling work, he

was not required to keep anything at the site.

There was no evidence before the Arbitrator to

award Claim No. 7.

(8) The interest awarded by the Arbitrator is much

higher than the prevailing rates and is, therefore,

liable to be rejected.

Respondent has controverted the abovesaid

challenges to the award made by the petitioner in his

reply to the petition.

4. Before I deal with the objections raised by the

petitioner, I feel the necessity of reproducing Section 34

of the Act, so far as is relevant to the present petition.

The same reads as follows:-

"34. Application for setting aside arbitral award (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the court only if,-

(a) the party making the application furnishes proof that,-

(i) a party was under some incapacity; or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the court finds that-

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation: Without prejudice to the generality of sub-clause (ii) of clause (b), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81. (3) ..................................:

(4) ..................................:"

5. A bare reading of this Section makes it clear

that provisions contained in Section 34 of the Act are

mandatory in nature and none of the parties can

derogate from the same. The scheme of the provision is

to limit the judicial intervention in the arbitration

proceedings and therefore, these provisions have to be

read with basic provisions contained in Section 5 of the

Act restricting the area of judicial intervention and

confining the intervention only to those, which are

specifically provided in part I. Sub-section (2) of Section

34 of the Act lists various grounds on which an arbitral

award may be set aside. Sub-clause (a) of sub-section

(2) gives list of five grounds and sub-clause (b) lists two

additional grounds upon which an award may be set

aside.

6. Thus, it is clear that by way of this new Act,

the supervisory role of the courts in arbitration has been

minimized and vast powers have been given to the

parties and Arbitrators without much intervention by the

court. Arbitrators are chosen by the parties and

decisions made by them are binding on the parties.

7. From perusal of the Statement of Objects and

Reasons contained in the Arbitration and Conciliation Bill,

1995, it is clear that the emphasis was on the objective of

minimization of the interference of the courts in

arbitration process besides for making comprehensive

procedure for arbitral process; to provide that the Arbitral

Tribunal gives reasons for its award to ensure that the

Arbitral Tribunal remains within its limits of jurisdiction, to

permit an Arbitral Tribunal to use every method of

alternative dispute resolution mechanism during the

course of arbitral proceedings for settlement of disputes

and to make the provision that the arbitral award is to be

enforced as a court decree and to give similar status to

the settlement arrived at, during the course of arbitral

proceedings.

8. Section 5 of the Act makes it explicitly clear

that notwithstanding anything contained in any other law

for the time being in force, in the matters governed by

part I of the Act, no judicial authority can intervene

except where so provided in this part. The provisions

contained in this Section are mandatory in nature.

9. It is no longer res integra that, where parties

have chosen a Forum to refer their disputes to be

adjudicated upon under the Act by appointing their

Arbitrator, may be through the process of law, the Court,

while exercising its powers cannot substitute its opinion

with that of the Arbitrator. If the clauses in the

agreement/contract are open to two plausible

interpretations, it is legitimate for the Arbitrator to accept

one or the other available interpretation and even if the

Court may think that the other view is preferable, the

Court cannot and should not interfere with the

interpretation of the Arbitrator (reliance is placed on

Food Corporation of India Vs. Joginderpal

Mohinderpal & Anr., MANU/SC/0427/1989).

10. In Delhi Development Authority Vs.

Anand & Associates, 2008 (1) ARLB 490 (Delhi), this

Court observed that a Court hearing the objections

against an arbitral award, does not sit in appeal over the

same nor it can reappraise the evidence adduced before

the Arbitrator to substitute the findings recorded by the

Arbitrator by those arrived at by the Court.

11. Keeping in mind the above said proposition of

law, this Court, while dealing with the objections raised

by the objector in this petition, would not interfere in the

fact findings of the Arbitrator regarding claims made by

the respondent in his petition filed before the Arbitrator

and would restrict itself only to the objections, which fell

within the ambit of Section 34 sub-section (2) of the Act.

It is made clear that petitioner/objector has not

challenged the impugned award on any of the additional

grounds incorporated in sub-section (3) of the Act.

12. Counsel for the petitioner Mr. Rao Vijay Pal has

submitted that the intimation of the final bill being ready

for payment was given to the respondent on 6th January,

2000. However, respondent invoked the arbitration vide

letter dated 27th October, 2000. Therefore, the claims of

the respondent are barred under Clause 25 of the

agreement, as respondent failed to invoke the arbitration

within 120 days of receiving the intimation that final bill

was readied for payment and therefore, by implication of

the said clause, the claims of the respondent were

deemed to have been waived after expiry of 120 days

and the petitioner was discharged and released of all the

liabilities under the agreement. The Arbitrator failed to

appreciate that the respondent was not entitled to invoke

Clause 25 of the contract for appointment of an

Arbitrator. In support of his submissions he has relied

upon Wild Life Institute of India, Dehradun Vs. Vijay

Kumar Garg, (1997) 10 SCC 528.

13. Counsel for the respondent Mr.R.Rajappan has

submitted that the Arbitrator has given his findings on

this objection, as it was also raised by the petitioner

before him in its reply, that there is no concept of

misconduct of Arbitrator under Section 34 of the Act and

the terms and conditions of Clause 25 of the agreement

were duly complied with by the respondent and observed

by the Arbitrator in the award. According to him, the bill

was finalized on 5th July, 2000 and the arbitration clause

was invoked on 27th October, 2000. He further submitted

that by virtue of Sections 55 and 73 of the Indian

Contract Act, limiting the legal right of speculation of

contract is void ab initio. As admitted by the petitioner,

actual date of completion of work was 7th March, 2000,

because the date of intimation of the final bill to be 6th

January, 2000, was not possible as final bill could not

have been readied before the date of the completion of

work.

14. Clause 25 of the agreement reads as under:-

"CLAUSE 25 Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, design drawings and instructions here-in before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever, in any way arising out of or relating to the contract, designs drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the cancellation, termination, completion or abandonment thereof shall be dealt with as mentioned hereinafter:-

i) If the contractor considers any work demanded of him to be outside the requirements of the contract, or disputes any drawings, record or decision given in writing by the Engineer-in-Charge on any matter in connection with or arising out of the contract or carrying out of the work, to be unacceptable, he shall promptly within 15 days request the Superintending Engineer in writing for written instruction or decision. Thereupon, the Superintending Engineer shall give his written instructions or decision within a period of one month from the receipt of the contractor‟s letter.

If the Superintending Engineer fails to give his instructions or decision in writing within the aforesaid period or if the contractor is dissatisfied with the

instructions or decision of the Superintending Engineer, the contractor may, within 15 days of the receipt of Superintending Engineer‟s decision, appeal to the Chief Engineer who shall afford an opportunity to the contractor to be heard, if the latter so desires, and to offer evidence in support of his appeal. The Chief Engineer shall give his decision within 30 days of receipt of contractor‟s appeal. If the contractor is dissatisfied with this decision, the contractor shall within a period of 30 days from receipt of the decision, give notice to the Chief Engineer for appointment of arbitrator failing which the said decision shall be final binding and conclusive and not referable to adjudication by the arbitrator.

ii) Except where the decision has become final, binding and conclusive in terms of Sub Para(i) above disputes or difference shall be referred for adjudication through arbitration by a sole arbitrator appointed by the Chief Engineer, CPWD, in charge of the work or if there be no Chief Engineer, the administrative head of the said CPWD. If the arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office due to any reason whatsoever another sole arbitrator shall be appointed in the manner aforesaid. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor.

It is a term of this contract that the party invoking arbitration shall give a list of disputes with amounts claimed in respect of each such dispute alongwith

the notice for appointment of arbitrator and giving reference to the rejection by the Chief Engineer of the appeal. It is also a term of this contract that no person other than a person appointed by such Chief Engineer CPWD or the administrative head of the CPWD, as aforesaid should act as arbitrator and if for any reason that is not possible, the matter shall not be referred to arbitration at all.

It is also a term of the contract that if the contractor does not make any demand for appointment of arbitrator in respect of any claims in writing as aforesaid within 120 days of receiving the intimation from the Engineer-in-charge that the final bill is ready for payment, the claim of the contractor shall be deemed to have been waived and absolutely barred and the Government shall be discharged and released of all liabilities under the contract in respect of these claims.

The arbitration shall be concluded in accordance with the provisions of the Indian Arbitration Act, 1940, or any statutory modifications or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause.

The arbitrator may from time to time with the consent of the parties enlarge the time for making and publishing the award.

It is also a term of this contract that the arbitrator shall adjudicate on only such disputes as are referred to him by the

appointing authority and give separate award against each dispute and claim referred to him and in all cases where the total amount of the claims by any party exceeds Rs.1,00,000/- the arbitrator shall give reasons for the award.

It is also a term of the contract that if any fees are payable to the arbitrator these shall be paid equally by both the parties.

It is also a term of the contract that the arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties calling them to submit their statement of claims and counter statement of claims. The venue of the arbitration shall be such place as may be fixed by the arbitrator in his sole discretion. The fees, if any, of the arbitrator shall, if required to be paid before the award is made and published, be paid half and half by each of the parties. The cost of the reference and of the award (including the fees, if any, of the arbitrator) shall be in the discretion of the arbitrator who may direct to any by whom and in what manner, such costs or any part thereof shall be paid and fix or settle the amount of costs to be so paid."

15. It is a common case of the parties that though

the work was required to be completed by 20th October,

1997, but, it was physically completed on 6th January,

2000. However, petitioner finally inspected the premises

and issued the completion certificate on 7th March, 2000.

The final bill though stated to have been readied and

intimated to the respondent on 6th January, 2000, was in

fact finalized on 5th July, 2000. While following the

procedure laid down in Clause 25 of the agreement,

petitioner intimated to the Executive Engineer his claims

vide letter dated 15th July, 2000 with a copy to the

Superintending Engineer and the Chief Engineer. He

sought an amicable settlement of the disputes or its

reference to the Arbitrator. This was pursued by the

respondent vide letter dated 27th October, 2000,

addressed to the Chief Engineer with a copy to the

Executive Engineer. However, the claims of the

respondent were rejected by the Executive Engineer on

26th March, 2001 and the same were referred to the

Superintending Engineer on 3rd April, 2001. On

persuasion of the respondent to expedite the settlement

of his claims, Executive Engineer rejected his claims vide

letter dated 26th June, 2001. It was thereafter that

respondent filed a petition bearing AA No.240/2000, and

the Arbitrator was accordingly appointed. Arbitrator was

within his rights to interpret Clause 25 of the agreement.

It was on analysis of the documentary and other evidence

available with him on record, the Arbitrator concluded

that respondent/claimant had intimated its claims, after

final bill, for an amicable settlement within time of 120

days stipulated under Clause 25 of the agreement and

rejected the objections of the petitioner.

16. In Clause 25 of the agreement, the words

„arising out of‟ or „in relation to‟ have to be interpreted as

sufficiently wide to comprehend the matters in respect

whereof the decision of the Engineer-in-Charge of the

petitioner has been agreed to be final and binding on the

parties.

17. In the facts and circumstances of the present

case, it is obvious that reference to arbitration in

pursuance to the said clause between the parties was in

connection with or relating to all the claims of the

respondent against the petitioner. The question of

interpretation of terms of the contract is a question of law

and reference in respect thereof having been made to

the Arbitrator, even if the Arbitrator allegedly mis-

conducted or mis-interpreted the terms of the contract, it

cannot be considered as an error of law on the face of the

award and the award cannot be set aside on this ground.

It was for the Arbitrator to interpret the provisions of the

contract including Clause 25. Since he had the

jurisdiction to do so and specially on an objection thereof

being raised by the petitioner, the Arbitrator had

interpreted the clause of the agreement in a particular

manner and had taken a decision on such interpretation,

based on appreciation of evidence and application of law,

his conclusions cannot be termed to be „erroneous legal

proposition‟ or based on erroneous application of law.

Hence, none of the objections raised by the petitioner

regarding interpretation of Clause 25 of the agreement

and its invocation by the respondent can be sustained by

this Court. Findings of the Arbitrator cannot be faulted on

the grounds raised by the petitioner. The view taken by

the Arbitrator is plausible and a possible view. Hence, no

different view can be taken. Therefore, observations of

the court in Wild Life Institute of India's case (supra)

were per curiam and have no bearing on the facts and

circumstances of this case. In this case, the contractor

did not receive any amount under the final bill but on

coming to know of the bill having been finalized by the

department, he immediately lodged his dispute with the

Engineer-in-Charge of the petitioner.

18. The second limb of arguments of learned

counsel for the petitioner is that as per clause 9 of the

agreement, respondent/claimant failed to submit his final

bill within three months of physical completion of the

work or within one month of the date of the final

certificate of completion issued by the Engineer-in-

Charge and therefore, the Arbitrator acted beyond the

jurisdiction in ignoring Clause 9 of the agreement while

publishing the award and accepting the claims of the

respondent.

19. While refuting the submissions of learned

counsel for the petitioner, it is argued by counsel for the

respondent that Clause 9 of the agreement is not

attracted in this case, as the final bill was not prepared

by the claimants.

20. Clause 9 of the agreement reads as under:-

"CLAUSE 9

The final bill shall be submitted by the contractor in the same manner as specified in interim bills within three months of physical completion of the work or within one month of the date of the final certificate of completion furnished by the Engineer-in-Charge whichever is earlier. No further claims shall be made by the contractor after submission of the final bill and these shall be deemed to have been waived and extinguished. Payments of those items of the bill in respect of which there is no dispute and or items in dispute, for quantities and rates as approved by Engineer-in-charge, will, as far as possible be made within the period specified hereinunder, the period being reckoned from the date of receipt of the bill by the Engineer-in-Charge or his authorised Asstt. Engineer, complete with account of materials, issued by the Department and dismantled materials.

             i)    If the Tendered value of work is upto Rs.5
                   lakhs :      3 months

ii) If the Tendered value of work exceeds Rs.5 lakhs : 6 months"

21. As per Clause 9 of the agreement, if the

contractor failed to submit his final bill within three

months of physical completion of the work or within one

month of the date of final certificate of completion

furnished by the Engineer-in-Charge, he would not be

entitled to make any further claims thereafter and all

such claims would be deemed to have been waived and

extinguished. The Arbitrator dealt with this objection in

the award in the following manner:-

"The final bill was prepared by Respondents after recording detailed measurements of work in their measurement books, completion of Accounts relating to advances, materials etc. in prescribed format in similar manner as interim bills as per general practice. I find that claims are extinguished ONLY in case final bill is prepared by Claimants. Claimants have right to raise the claims after final bill is prepared by Respondents. The claims were intimated to Respondents within a stipulated period of 120 days as per Clause 25 from date of finalization of final bill. Accordingly objection is not tenable and is rejected."

22. This clause in no manner debarred the

Contractor/claimant from invoking Clause 25 of the

agreement, which he did in the instant case. On receipt

of information that final bill was finalized on 5th July,

2000, he immediately wrote to the Chief Engineer on 11th

August, 1998 for redressal of the disputes amicably or for

appointment of an Arbitrator for settlement of the

disputes. Therefore, it is clear that he raised the dispute

against the final bill prepared by the department within

the period stipulated in Clause 9 of the agreement. He

did not submit his bill but he did raise a claim/dispute on

the final bill readied by the petitioner. The Arbitrator,

therefore, did not mis-interpret Clause 9 of the

agreement when he observed that claimant did not raise

the claim after final bill was prepared by the respondent

but claims were intimated to the respondent within the

stipulated period of 120 days, as per Clause 25 of the

agreement.

23. Under these circumstances, objections raised

by the petitioner to the findings of the Arbitrator in the

impugned award, pertaining to Clause 9 of the

agreement are unsustainable.

24. Another limb of argument of counsel for the

objector/petitioner is that Arbitrator misconducted

himself in invoking Clause 10 CC of the contract and

thereby awarding escalation for work executed beyond

the stipulated period due to prolongation of contract

amounting to Rs.1,10,728/-. Counsel of the

claimant/respondent has submitted that Arbitrator had

invoked Clause 10C of the contract and not Clause 10CC

and therefore, the Arbitrator rightly awarded him the

compensation amount of Rs.1,10,728/- for the work

carried beyond stipulated period due to prolongation of

the work against his claim of Rs.3,58,785/-. The work

was started by the respondent on 21st April, 1997 and

stipulated date of completion was 20th October, 1997.

25. As stated, the completion was delayed mainly

on account of petitioner‟s delays in disconnection of

electrical connection by NDMC, change in foundation

designs, giving decisions and drawings, releasing part of

work executed by other agencies, pile foundation work by

other agency was completed on 14th October, 1998 and

the last item of polishing of floors was completed on 25th

December, 1999. The work was completed only on 6th

January, 2000. The formal completion was initially

recorded by the petitioner on 6th January, 2000 and

revised on 7th March, 2000 after inspection of the site.

The claimant calculated the delay of 848 days upto 6th

January, 2000. The Arbitrator calculated the

compensation amount due to increase in cost of

materials and labour as per the CPWD cost index, which

was approximately 10% for materials and 17.50% for

labour (Minimum Wages) during the extended period,

after calculating prolongation of work for 27.33 months

(i.e. 20.10.1997 to 31.12.1999) as under:-

"(i) Materials (excluding : 0.85x0.70x9,64,015x0.10    = Rs.57,358.89
cost of cement & steel)

(ii) Labour             : 0.85x0.30x11,95,950x0.1750 =Rs.53,369.27

                            (i)    + (ii)              = Rs.1,10,728.16"

26. From the above it is clear that the Arbitrator‟s

findings that the delay was due to the default of the

petitioner are reasonable. These are findings of fact

which would normally not be interfered with by the Court

and objections covering such points are not justiciable.

The Court may intervene in post award proceedings, if it

is of the view that there is an error of law or fact which is

perverse and apparent on the face of the award and

results into miscarriage of justice. Once the parties have

chosen their own Forum to adjudicate upon their

disputes, they are left to reap the harvest of the seeds

that they have sown. Unless an error in the

interpretation of a term in the contract between the

parties is manifest merely by looking at the documents,

jural interference is uncalled for.

27. As already discussed above, in no case it is

permissible for the Court to substitute its own view,

however compelling, for that preferred by the Arbitrator,

even if it is only a plausible one. The Court has to

consider and decide the objections filed against the

award within this very restricted arena.

28. To appreciate the objections raised by the

petitioner, it becomes imperative to reproduce Clauses

10C and 10CC of the contract, which read as under:-

"CLAUSE 10C

If after submission of the tender the price of any material incorporated in the works (not being a material supplied from the Engineer-in- Charge's stores in accordance with Clause 10 thereof) and/or wages of labour increases as direct result of the coming into force of any fresh law, or statutory rule or order (but not due to any changes in sales tax) and such increase exceed ten per cent of the price and/or wages prevailing at the time of receipt of the tender of the last stipulated date for receipt of the tenders including extensions if any for

the work, and the contractor thereupon necessarily and properly pays in respect of the material (incorporated in the work) such increased price and/or in respect of labour engaged on the execution of the work such increased wages, then the amount of the contract shall accordingly be varied provided always that any increase so payable is not, in the opinion of the Superintending Engineer (whose decision shall be final and binding) attributable to any delay in the execution of the contract within the control of the contractor. Provided, however, no reimbursement shall be made if the increase is not more than 10% of the said prices/wages and if so the reimbursement shall be made only on the excess over 10% and provided further that any such increase shall not be payable if such increase has become operative after the contract or extended date of completion of the work in question.

CLAUSE 10 CC "If the prices of materials (not being materials supplied or services rendered at fixed prices by the department in accordance with clause 10 & 34 thereof) and/or wages of labour required for execution of the work increase, the contractor shall be compensated for such increase as per provisions detailed below and the amount of the contract shall accordingly be varied, subject to the condition that such compensation for escalation in prices shall be available

only for the work done during the stipulated period of the contract including such period for which the contract is validly extended under the provisions of Clause 5 of the contract without any action under the clause 2 and also subject to the condition that no such compensation shall be payable for a work for which the stipulated period of completion is 6 months or less. Such compensation for escalation in the prices of materials and labour, when due, shall be worked out based on the following provisions:-

(i) The base date for working out such escalation shall be the last stipulated date of receipt of tender including extension, if any.

(ii) The cost of work on which escalation will be payable shall be reckoned as 85% of the cost of work as per the bills, running or final, excluding any work for which payment is made at prevailing market rates. From this amount the value of materials supplied under Clause 10 of this contract or services rendered at fixed charges as per Clause 34 of this contract, and proposed to be recovered in the particular bill, shall be deducted before the amount of compensation for escalation is worked out. In the case of materials brought to site for which any secured advance is included in the bill the full value of such materials as assessed by

the Engineer-in-Charge (and not the reduced amount for which secured advance has been paid) shall be added to the cost of work shown in the bill for operation of this clause.

Similarly, when such materials are incorporated in the work and the secured advance is deducted from the bill, the full assessed value of the materials originally considered for operation of this clause should be deducted from the cost of the work shown in the bill, running or final."

29. From reading of the said two clauses, it is

clear that Clause 10C of the contract speaks of payment

on account of increase in prices/wages due to statutory

orders. Whereas Clause 10CC of the contract can be

invoked by the claimant where payment due to

increase/decrease in prices/wages after receipt of tender

for works, for which the stipulated period of completion

was more than six months. Therefore, the Arbitrator

invoked Clause 10C of the contract and not Clause 10CC

of the same, as alleged by the petitioner.

30. Perusal of Clause 10C of the contract makes it

clear that it is not an absolute bar on the claims put

forward by the department and obviously so, if this

relates to the increases in the price of any material,

sourced and paid for by the Contractor, and increases in

wages of labour as a direct result coming into force of

fresh law which have been actually borne by the

Contractor, would be reimbursed or compensated. This

increase is regulated by this clause itself. The increase

must be in excess of 10% of the said price/wages and the

reimbursement has to be made only on the excess over

10% and further any such increase would not be payable,

if such increase had become operative after the contract

or extended date of completion of the work in question.

This clause does not prohibit the Constructor to claim any

increase in prices of material and wages of labour after

the stipulated period within which the work is to be

completed. Therefore, it is obvious that where a contract

stretches beyond the stipulated period, the claim for

escalation in prices is not excluded or barred under

Clause 10C of the contract.

31. In M.L.Mahajan Vs. Delhi Development

Authority & Anr., 99(2002) DLT 512, when invocation

of Clause 10C of the contract, entered into between the

parties, almost of similar in nature, by the Arbitrator,

while passing the award, came under challenge, this

Court observed:-

"9. ...................This factor is of obvious relevance while construing Clause 10C, and in particular the opening c- "if during the progress of the works....." Thereafter, Clause 10C clarifies that it shall have no applicability on any increase in the price of materials to be supplied by the DDA, which clearly stands to reason, It further stipulates that increases in the price of any material, sourced and paid for by the Contractor, and increases in wages of labour as a direct result coming into force of fresh law which have been actually borne by the Contractor, would be reimbursed. Of course, the increase must be in excess of 10%. The Clause does not exclude or prohibit claims for increase in prices of material and wages of labour after the stipulated period within the work is to be completed. If this is not to be so, the opening words would be rendered wholly otiose. It is, therefore, plainly obvious that where a contract stretches beyond the stipulated period i.e., the schedule time plus 50% thereof, the claim for escalation in prices is not excluded or barred under Clause 10C. We make this observation not so as to lay down the only interpretation that can be given to these Clauses, but rather to outline these possible understanding

by the Arbitrator. In consonance with the ratio of Sudersan Trading Co. And Associated Engineering (supra) if any other plausible meaning is preferred by the Arbitrator, he would be free to implement it. In no way therefore, can it be predicated that the Award is legally flawed on the contention that the Arbitrator has misconstrued Clause 10C. The judgments of this Court in which Clause 10C was directly in consideration ought to have been followed by the learned Single Judge. In the Continental Construction's case (supra) the relevant Clauses had a totally distinct intent."

32. Thus, it is clear that question of interpretation

of the terms of the contract is a question of law and

reference in respect thereof having been made to the

Arbitrator, even if there is misconstruction or

misinterpretation of a term or terms of the contract by

the Arbitrator, it cannot be considered as an error of law

on the face of the award and the award cannot be set

aside on that ground. It was for the Arbitrator to

interpret the contract including Clauses 10C and 10CC of

the contract.

33. In the instant case when petitioner failed to

appoint an Arbitrator to enter into reference and

adjudicate upon the disputes inter se the parties,

respondent had to have recourse to law and the

Arbitrator was appointed by this Court to enter into

reference to which the objector neither raised any

objection before the Arbitrator nor challenged his

jurisdiction to enter into reference and decide the claims

referred to him by the claimants.

34. Since the Arbitrator interpreted the provisions

of the contract and applied the terms contained in Clause

10C of the contract while awarding Claim No.6 in favour

of the claimant/respondent, he interpreted the said

Clause in the right perspective to the facts and

circumstances and evidence placed before him by the

parties. Therefore, it cannot be said that the Arbitrator

misconstructed or misinterpreted Clause 10C of the

contract, as pointed out above, the Arbitrator did not

exercise his jurisdiction in awarding Claim No.6 by

invoking Clause 10CC.

35. The Court could have interfered if the

Arbitrator's erroneous conclusion was manifestly

incorrect by merely looking at the Contract. In other

words, his conclusion was impossible in contra-distinction

to implausible. The Arbitrator in this case has not

travelled beyond his jurisdiction and therefore, the award

cannot be assailed by the petitioner on the ground that

the Arbitrator misconducted himself and acted against

the public policy. Therefore, the objection, as raised by

the petitioner, that the Arbitrator misconducted himself

and acted against the public policy, must fall as under

the circumstances the Court cannot interfere with the

findings of the Arbitrator and substitute its own decision.

36. Objections against awarding Claim Nos. 1, 3

and 7 in favour of claimant cannot be interfered with by

the Court for the simple reason that these awards are

based on findings of fact based on evidence produced

before the Arbitrator. Non-speaking award cannot be

interfered with by the Court to look into the mind of the

Arbitrator in awarding the said claims. Therefore,

objections as against these claims are not sustainable.

37. Arbitrator has awarded interest at the rate of

12% per annum on a sum of Rs.5,99,634/- with effect

from 8th July, 2000 till date of payment or decree,

whichever is earlier. The petitioner has challenged the

rate of interest awarded by the Arbitrator alleging that it

is much higher than prevailing rates for commercial

transactions and therefore, is liable to be rejected. This

award was published on 8th February, 2005. At the

relevant time, prevailing market rate and banking rate of

interest was around 9%. The higher rate of interest as

awarded by the Arbitrator, therefore, seems to have been

awarded with a view to terrorize the petitioner to ensure

that the payment, as awarded, was made to the claimant

as early as possible.

38. Under these circumstances, I am inclined to

interfere with the rate of interest awarded by the

Arbitrator but to a limited extent. Hence, considering the

disputes involved and overall circumstances of the case,

the award is hereby modified qua rate of interest and the

same is hereby reduced to 9% per annum. Reference is

made to Delhi Development Authority Vs. Anand &

Associates, 151(2008)DLT 18 and Krishna Bhagya

Jala Nigam Ltd. v. G. Harischandra Reddy and Anr.

AIR 2007 SC 817.

39. Consequently, the objection petition is partly

allowed and the impugned award dated 8th February,

2005 is modified to the extent that interest amount

awarded on the principal sum of Rs.5,99,634/- shall be

payable to the claimant at the rate of 9% per annum

w.e.f. 8th July, 2000 till date of payment or decree,

whichever is earlier.

ARUNA SURESH (JUDGE) JANUARY 18, 2009 sb