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1977 DIGILAW 167 (KER)

COMMANDER WORKS ENGINEERS v. EAPEN VARGHESE

1977-07-03

CHANDRASEKHARA MENON, K.BASKARAN

body1977
Judgment :- 1. The respondent in this appeal entered into a contract with the Union of India for the construction of as access road to N A.D (Naval Armament Depot), Alwaye The work under the contract consisted mainly of excavation of earth from the quarry, transporting of earth to the place, where the embankment on which the road to be laid has to be raised and raising the embankment. The contract was a lump sum contract for a sum of Rs. 5,48,659 and was predominantly a labour contract. During the course of the execution of the work a dispute arose between the contractor (the respondent) and the Commander Works Engineers, Cochin - the appellant herein - who on behalf of the Union of India was seeing to the execution of the work. It can be said that the dispute mainly centered around "the nature of the soil" to be excavated from the quarries viz., whether it is ordinary rock (laterite) or hard soil. As non-payment for extra expenditure for excavating the ordinary rock would have materially affected the progress of work, reference was made to the Arbitrator during the currency of the contract itself. The contract had provided (in para 70 of General Conditions of Contract I A.F.W. 2249) that unless the parties otherwise agree reference to arbitration shall not take place until after the completion, alleged completion or abandonment of the works or the determination of the contract In the particular circumstances the reference to arbitration was made as agreed to by the parties The provision for reference to arbitration in the contract - para 70 referred to above is to the effect that all disputes, between the parties to the contract, other than those disputes for which the decision of the C.W.E. - Commander Works Engineers - or any other person is by the contract expressed to be final and binding shall after written notice by either party to the contract to the other of them - be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents. The Arbitrator appointed was a Senior Officer in the department - a Superintending Engineer - who no doubt retired during the course of arbitration and his award was published on 6th July 1972 after his retirement from service, which was on 21st November 1971. The Arbitrator appointed was a Senior Officer in the department - a Superintending Engineer - who no doubt retired during the course of arbitration and his award was published on 6th July 1972 after his retirement from service, which was on 21st November 1971. The contractor submitted his various claims before the Arbitrator and the appellant submitted his objections thereto. The Arbitrator passed an award for Rs. 8,91,561.36 altogether for the claims of the contractor allowed by him 2. The respondent contractor filed O. P 38 of 1972 in the Court of the Additional Subordinate Judge for a decree in terms of the award. The appellant as respondent in the said O. P. filed application I. A. 4762/72 in the same court for setting aside the award on modification of the same. The award was challenged on the grounds. (i) there is legal misconduct inviting court's jurisdiction under S.30 (a) of the Arbitration Act; and (ii) there is error apparent on the face of the record. After a detailed discussion of the case the award was accepted by the learned Sub Judge and a decree was passed in accordance with the award. The contractor-respondent herein was held entitled to 6 per cent interest from the date of decree till date of realisation on the amount held due to him. The parties were directed to suffer costs of the proceedings 3. Aggrieved by the order of the Subordinate Judge, the Commander Works Engineers, has approached this court for relief under S.39 (1) (vi) of the Arbitration Act. 4. The contentions taken up by the appellant can be summarised as follows: The Arbitrator had deviated from the terms of the contract by which he has to pass an award and has really exceeded his terms of reference. The General Conditions of Contract I. A. P. W. 2249 and M.E. S. Standard Schedule of Rates form part of the contract and the Arbitrator was required to pass his award in terms of the contract This the Arbitrator has ignored. According to the Arbitrator the extra work involved due to presence of rock at the quarry immediately below the surface soil amounted to radical change in the contract work and not merely a deviation as contemplated under the agreement. According to the Arbitrator the extra work involved due to presence of rock at the quarry immediately below the surface soil amounted to radical change in the contract work and not merely a deviation as contemplated under the agreement. But all these circumstances were such as were taken care of even at the time of entering into contract and were provided for under the term "deviation". Whenever the contractor has to execute such work by deviation, payment has to be made to him in accordance with the terms of the contract. If really it was the case of the contractor that these things have resulted in a radical change of the contract, then he should have come for a fresh arrangement, because the radical change can be recognised only under a fresh agreement. It was also contended at the time of argument that the contractor cannot plead a case of implied agreement based on the circumstances, of the case, because of the mandatory provisions in Art.299 of the Constitution. The learned counsel for the appellant, Sri Parasaran, Advocate-General of Madras very strongly contended that the Arbitrator in proceeding on the basis of a radical change is the contract has acted without jurisdiction. This contention was based on Clause.7 of the Contract I. A. F. W,-2249 wherein it was provided. "The contractor shall not make any alteration, in addition to or omission from the works as described in the tender documents except in pursuance of the Chief Engineer No work that radically changes the original nature and scope of the contract shall be ordered as a deviation and in the event of disagreement between the contractor and the Accepting Officer, the decision, of the next higher authority (or Chief Engineer in the case of contracts accepted by him) shall be final and binding on the con-tractor"; The learned counsel pleaded that the action of the Arbitrator in this matter being absolutely without jurisdiction, the fact that objection was not taken before the Arbitrator or even in the court below in regard to this jurisdictional question will not be of any significance. It was also contended on behalf of the appellant that the Arbitrator's jurisdiction in the nature of the agreement extends only to matters arising out of the contract. 5. The appellant urges that the award is vitiated by errors of law apparent on the face of the record. It was also contended on behalf of the appellant that the Arbitrator's jurisdiction in the nature of the agreement extends only to matters arising out of the contract. 5. The appellant urges that the award is vitiated by errors of law apparent on the face of the record. The appellant had objected to the following claims awarded by the Arbitrator: According to appellant claim No. 6-A and 6-B really constitute one composite claim for application of the rates provided in Clause.17 (a) (iv) in section I - General Rules of M.E.S.-Standard Schedule Rates. The-Arbitrator had awarded separate amounts under each of these two heads even though the claim under 6- A really covered the claim under 6-B if the rates provided under Clause.17 (a) (iv) of the S.S.R. is correctly applied. It is said that the Arbitrator has thus led himself into a clear error in awarding damages for the same purpose twice over. Claim No. 6-B related to extra payment for working in foul position and tidal conditions. The work site is situate at a distance of about 17 kilometres from sea-coast and is not affected by tides and is not in foul position. Therefore, no claim is admissible under 6-B. Even assuming that there were tidal conditions at the site of the embankment, the Arbitrator had to arrive at the amount payable 10 the contractor by finding out the quantum of work done in actual tidal conditions and foul positions and apply the extra co-efficient as stipulated in Clause.17 of the SSR. which is a part of the contract Clause.17 provides that the rates therein should apply to actual work done in the foul position or liquid mud and interrupted by tides. The clause also provides that the rates so stipulated are inclusive of loss of materials, tools and plants or reinstatement of damage in connection with such work. But the Arbitrator failed to comply with the terms of Clause.17. He has applied the rates as per the clause even to the portion of the work above the water level. He also applied the same principle and formula to the work of excavation in the quarries far removed from the above work site and to the transportation of earth from quarries to the place of forming embankment where there was no water or liquid mud or foul position. 6. He also applied the same principle and formula to the work of excavation in the quarries far removed from the above work site and to the transportation of earth from quarries to the place of forming embankment where there was no water or liquid mud or foul position. 6. It is the appellant's case that the Arbitrator has misconducted himself, legal misconduct is what is alleged which might not amount to moral turpitude. Without taking physical measurements, arriving at the actual quantum of the work involved and applying the rates contained in the SSR. to the work involved, using his engineering skill and technical know how, he being a qualified Engineer and the arbitration proceedings related to Engineering contract, he awarded huge amounts as claimed by the contractor without any material on record or evidence. He is alleged to have misinterpreted condition 7 of the General conditions of contract. He manifestly misdirected and exceeded the scope of condition 7 of the general conditions by limiting the deviation limit to individual item of schedule 'A' of the contract agreement under claim No.1 instead of limiting it to "individual trade items" and awarding the market rate in respect of claim No. 2. In regard to the claim for loss due to flood made by the contractor it is contended that this is not an item coming under the accepted risk under condition 1 (p) of the General conditions of Contract (LA.F.W. - 2249) forming part of the contract. The respondent was continuing the Work during the extended period of contract (during" which time the alleged flood occurred) and therefore not entitled to claim damages which is not provided for in the contract. Thus the Arbitrator exceeded his jurisdiction. 7. Sri S. Narayanan Poti, learned counsel for the respondent, meeting the case of total lack of jurisdiction on the Arbitrator in the matter of allowing the claim of the contractor on the basis of radical change in the nature of contract and not a mere deviation as such, very strongly contended that such a plea cannot be raised now as neither before the Arbitrator nor before the learned Sub Judge such a case had been taken. Nor even in the appeal memo, such a question has been specifically raised. Nor even in the appeal memo, such a question has been specifically raised. The issue of lack of jurisdiction as now raised is not a contention to be raised in vacuum but on relevant factors to be established in evidence. The claim is based on the work done under the contract and the arbitration clause will apply and the Arbitrator will have jurisdiction in the matter. Mr. Poti also pleaded that even assuming that the claim is on quantum merit, ft is an incidence of the contract and hence can be referred to arbitration. This is an Engineering contract where extras are bound to arise and payment for extras are matters arising out of the contract. Assuming it is based on an implied agreement, Mr Poti argued, it will be binding upon the Government and not hit by Art.299. Mr. Poti also points out that in respect of the work, the petitioner has been directed to proceed with the work by the Government pending arbitration and therefore the; appellant is now estopped from questioning the Arbitrator's jurisdiction in the nature of reference to arbitration during the course of the work. It is also contended that as no question of deviation came up before the Chief Engineer, the Arbitrator's jurisdiction to allow a claim based on the basis of radical change of the original nature and scope of the agreement cannot be questioned. In regard to the alleged legal misconduct of the Arbitrator, Mr. Poti, contends that is the nature of the award which is not a speaking one, such a challenge cannot be made. The court cannot consider whether the view of the Arbitrator on the evidence is justified. It is not open to the court to speculate where no reasons are given by the Arbitrator, as to what impelled the Arbitrator to arrive. at his conclusion. On the assumption that the Arbitrator must have arrived at his conclusion by a certain process of reasoning the court cannot proceed to determine whether the conclusion is right or wrong. It is not open to the court to attempt to probe the mental process by which the Arbitrator has reached this conclusion where it is not disclosed by the terms of the award. No question also of an error apparent oh the face of the award will arise in such a case. It is not open to the court to attempt to probe the mental process by which the Arbitrator has reached this conclusion where it is not disclosed by the terms of the award. No question also of an error apparent oh the face of the award will arise in such a case. It is only when the Arbitrator proceeds to give his reasons or to lay down principles on which he has arrived at his decisions that the court is competent to examine, whether he has proceeded contrary to law and is entitled to interfere if such error in law is apparent on the face of the award. 8. In considering the question of jurisdiction of the Arbitrator as regards the claim of the respondent contractor for payment for excavation of rock at market rates, we might first look to his claim. What he demanded was that consequent on the major change of ordinary rock (laterite) cutting which according to him was incorrectly ordered by Garison Engineer as hard soil, as such excavation is altogether outside the scope of contract, he is entitled for payment for excavation in ordinary rock (laterite) in quarries at the governing market rates on principles of quantum meruit in law. The Arbitrator decided the matter in favour of the contractor, the reason which he gave in his examination being that change from hard soil to laterite radically changed the nature and scope of the agreement, because the quantities of laterite thus extracted from the quarries would be of an enormous magnitude as compared to what has been catered for list at provisional items of the contract. The jurisdiction of the Arbitrator to decide whether there has been a radical change or not is questioned by the learned counsel for the appellant in the nature of the provision in Clause.7 of I.A.F.W.- 2249. We are of the view that in the nature of the agreed reference of the question to the Arbitrator and as the appellant did not raise the jurisdiction of the Arbitrator to decide the question either before the Arbitrator or even before the court below, the appellant is disentitled to raise this question'in appeal. We are of the view that in the nature of the agreed reference of the question to the Arbitrator and as the appellant did not raise the jurisdiction of the Arbitrator to decide the question either before the Arbitrator or even before the court below, the appellant is disentitled to raise this question'in appeal. It also cannot be said that the work done by the respondent for which the claim is made is outside the contract as such and the appellant, it is clear from the circumstances the reference was made, did not want the Chief Engineer to decide on the question whether there was a radical change in the contract. A claim in quantum meruit can well be an incidence of this and can be referred to arbitration. That can well come within para 70 of the General Condition of the contract which states that all disputes between the parties to the contract other than those for which the decision of the C.W.E. or any other person is by the contract expressed to be final and binding shall after written notice by either party to the contract to the other of them, be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents. The appellant had no case at the time of reference that this claim is one which is by the contract to be decided by a person mentioned therein, thus ousting Arbitrator's jurisdiction. The variation of the work for which the claim is made is well within the contract. As stated in Hudson's Building and Engineering Contracts, a simple contract may be validly varied by subsequent agreement of the parties, so long as there is consideration to support the variation agreement. If, at the time when the variation agreement is made, obligations remain partly unperformed under the original contract by both the parties, there will usually be consideration for the agreement. Also if work is varied in accordance with express power in the contract, no change in the terras of the contract is involved and the variation order need only comply with the requirements of the contract in order to be valid (See Hudson, 10th Edn. pp. 22 and 24). 9. A claim in quantum meruit can well be a dispute within the scope of contract. pp. 22 and 24). 9. A claim in quantum meruit can well be a dispute within the scope of contract. The following observations of Sellers, J., in Government of Gibraltar v. Kenny 1956-3 All E.R 22 will be of use here. There the claim for the quantum meruit was based on the allegations that the agreement ceased to have any application to the services rendered by the first defendant in that case as quantity surveyor or that it was frustrated. The learned judge said: "I must now deal with the merits of the claim as it is framed before me. The question has to be judged by an interpretation of the arbitration clause and the claims which are sought to be made in the arbitration. In my view, this arbitration clause is very wide. It covers " any dispute or difference which shall arise or occur between the parties hereto in relation to anything or matter arising out of or under this agreement" The distinction between matters 'arising out of and 'under' the agreement is referred to in most of the speeches in Heyman v, Darwins Ltd. (1942-1 All ER. 337) and it it quite clear that'arising out of, is very much wider than'under' the agreement. This clause incorporates a difference or dispute in relation to anything or matter 'arising out of as well asunder' the agreement, and, in my view everything which is claimed here in this arbitration can be said to be a dispute or difference in relation to something 'arising out of the agreement. It is true that a quantum meruit is a quasi contract and arises, in a sense on an implied contract and not on any express agreement, but in my view in the circumstances of this case (although it may not be in all cases) the quantum meruit is an incident which arises out of the contract. It is not a remedy for breach or arising on frustration, but it is an incident, in my view', which does arise as a consequence of the contract or 'arising out of it. One has only to look at the pleadings at the points of claim, and to visualise what is involved in the arbitration to see the close association between the written contract and the claim advanced in this way on a quantum meruit." 10. As Russel points out in 'Arbitration' 18th Edn. One has only to look at the pleadings at the points of claim, and to visualise what is involved in the arbitration to see the close association between the written contract and the claim advanced in this way on a quantum meruit." 10. As Russel points out in 'Arbitration' 18th Edn. page 71, the phrase "all disputes" or "all claims" by itself is possibly wider than "all disputes arising out of the contract". The phrase man arbitration clause of a contract, 'all disputes arising between the parties", has been held to mean' disputes arising under this agreement" rather than "disputes arising in relation to the subject-matter of the agreement". 11. In regard to the respondent's claim, even if it is assumed was based on an implied contract that cannot be negatived because of non-compliance to make a written contract under Art.2 9(1) of the Constitution. We might in this connection quote the following words of Gajendragadkar, J., in State of West Bengal v. Mondal and Sons AIR. 1962 SC. 779 at 789. "It is well-known that in the functioning of the vast organisation represented by a modern state government officers have invariably to enter into a variety of contracts which are often of a petty nature. Some times they may have to act in emergency, and on many occasions in the pursuit of the welfare policy of the state government officers may have to enter into contract orally or through correspondence without strictly complying with the provisions of S.175 (3) of the Act. If. in all these cases, what is done in pursuance of the contracts is for the benefit of the government and for their use and enjoyment and is otherwise legitimate and proper S.70 would step in and support a claim for compensation made by the contracting parties notwithstanding the fact that the contracts had not been made as required by S.175 (3). If it was held that S.70 was inapplicable in regard to such dealings by government officers it would lead to extremely unreasonable consequences and may even hamper, if not wholly bring to a standstill the efficient working of the government from day to day. If it was held that S.70 was inapplicable in regard to such dealings by government officers it would lead to extremely unreasonable consequences and may even hamper, if not wholly bring to a standstill the efficient working of the government from day to day. We are referring to this aspect of the matter not with a view to detract from the binding character of the provisions of S.175 (3) of the Act, but to point out that like ordinary citizens even the state government it subject to the provisions of S.70, and if it has accepted the things delivered to it or enjoyed the work done for it, such acceptance and enjoyment would afford a valid basis for claims of compensation against it. Claims based on a contract validly made under S.175(3) must, therefore, be distinguished from claims for compensation made under S.70, and if that, distinction is borne in mind there would be no difficulty in rejecting the argument that S.70 treats as valid the contravention of S.175 (3) of the Act. In a sense it may be said that S.70 should be read as supplementing the provisions of S.175 (3) of the Act." The observations made therein with regard to S.175(3) of the Government of of India Act 1935, will in all force apply to Art.299(1) of the Constitution. 12. We, therefore, find no merit in the contention that the Arbitrator has acted without jurisdiction.