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2001 DIGILAW 964 (RAJ)

UNION OF INDIA v. GOURI CONSTRUCTION COMPANY

2001-05-30

PRAKASH TATIA

body2001
JUDGMENT PRAKASH TATIA, J. - These two appeals are directed against the judgment and decree dated 23.11.1998 passed by the learned Additional District Judge No. 3, Jodhpur in Civil Misc. Cases No. 1-A/97 and 3-A/96. In Civil Misc. Case No. 1-A/97, an application was filed by the Union of India under Sections 30 and 33 of the Arbitration Act, 1940 and the appellant-Union of India submitted objections against the award dated 25.7.1996 and prayed that the award may be set aside, whereas in case No. 3-A/96, the respondent No. 1 submitted application under Sections 14, 17 and 29 of the Arbitration Act and prayed that the award passed by respondents No. 2 and 3 be made rule of the Court. Both the above miscellaneous cases were decided by the learned Additional District Judge No. 3, Jodhpur by common judgment and decree dated 23.11.1998. The appellant Union of India has challenging the above judgment and decree dated 23.11.1998 by filing two separate appeals involving the same point in controversy, therefore, both the appeals are being decided by this judgment. In these appeals, the learned counsel for respondent No. 1 raised preliminary objection with respect to the maintainability of the appeals on the ground that the present appeals have been filed under Section 37 of the Arbitration and Conciliation Act, 1996 whereas, admittedly, the proceedings before the Arbitrator was under the old Act, i.e. Arbitration Act, 1940 and the rule of the Court was made by the Court below due to the fact that proceedings were under the old Act. Therefore, in view of the objection of the learned counsel for respondent No. 1, the learned counsel for the appellants requested that the appeals may be treated as appeals under the old Act. Both the appeals have been filed within period of limitation and there is no bar in treating the appeals under the old Act, therefore, the appeals are treated as appeals under Section 39 of the Arbitration Act, 1940. Both the appeals have been filed within period of limitation and there is no bar in treating the appeals under the old Act, therefore, the appeals are treated as appeals under Section 39 of the Arbitration Act, 1940. The learned counsel for the respondent No. 1 further raised objection that the appeals are not maintainable in view of the fact that award was passed on the basis of the consent of the parties for which the learned counsel for the respondent relies upon the facts mentioned in the award dated 25.7.1996 and submitted that at page No. 2 of the award, while considering Item No. 1, it is mentioned as under : "This claim is for transporting debris of dismantled materials. During the hearing both the parties agreed that the quantity is 999 cubic meters. We have added 30% bulkage. Both the parties also agreed that the rate applicable would be as per SOR. We have considered a lead of around 6 kms. as reasonable. Accordingly we are making the award." The learned counsel for respondent No. 1 submitted that it is clearly mentioned that both the parties also agreed that the rates applicable would be as per SOR, therefore, this award is by the consent of the parties and hence the appellants cannot challenge this award. I am unable to accept submission made by the learned counsel for respondent No. 1 because this admission, on the face, is that both the parties agreed that what should be the rate applicable. There was also agreement with respect to the quantity of the dismantled material which is 999 cubic meters but, it is no where admitted that simply because the quantity and rates applicable as per SOR, therefore, only the appellant may be held liable for the payment of the amount as claimed by respondent No. 1. The claim amount was of Rs. 1,60,000 as mentioned against Item No. 1 in the award itself but the Arbitrators, in their best wisdom, awarded Rs. 22,000 only. This itself shows that there was no agreement with respect to the claim of the claimant respondent No. 1 and, on the basis of this reasoning, the submission of the learned counsel for the respondent that award was passed by agreement is not factually correct. Hence, the objection is rejected. The learned counsel for the appellants challenged only two items. This itself shows that there was no agreement with respect to the claim of the claimant respondent No. 1 and, on the basis of this reasoning, the submission of the learned counsel for the respondent that award was passed by agreement is not factually correct. Hence, the objection is rejected. The learned counsel for the appellants challenged only two items. Claim No. 1 which was claimed by the claimant respondent No. 1 for transporting debris of dismantled material and claimant respondent No. 1 claimed Rs. 1,60,000 against this head and the Arbitrators awarded Rs. 22,600 in favour of respondent No. 1 and against the appellants. The learned counsel for the appellants referred the condition of the tender notice which is mentioned in the letter dated 9.9.1988 sent to respondent No. 1 M/s. Gouri Construction Company. In this letter at the last page, there is a column No. 7, which is as under : "Nothing extra shall be paid for removing rubbish so released from the dismantled building and the same shall have to be dumped at a place as directed by the Engineer and have to be removed daily." The learned counsel for the appellants, therefore, submitted that it is clearly mentioned in the condition of the tender that nothing extra shall be paid for removing rubbish from dismantled building and it is also clearly mentioned that the same shall have to be dumped at a place as directed by the engineer. Therefore, the award given by the Arbitrator for transporting debris of dismantled material at Item No. 1 of the award is contrary to the terms of the contract. The learned counsel for the appellants further submitted that even as per the letter dated 23.8.1989 sent by the respondent No. 1. M/s. Gouri Construction Company to the Divisional Superintending Engineer, Northern Railway, Jodhpur, it is clear that even in this letter, respondent No. 1 admitted that the dismantling of the portion of the building was started immediately after 21.11.1998 and, in this letter, the respondent No. 1 claimed revised rates of the items mentioned in page No. 4 of Items No. (a) and (b) but in this letter also the respondent never claimed any claim for transporting debris of dismantled materials. Not only this, even in subsequent letters there was also no demand for any payment against transporting debris or dismantled material and even if the respondent No. 1 has raised any demand for above claim, that cannot be accepted. The Arbitrators have no jurisdiction to award any amount beyond the terms and conditions of the contract. The learned counsel for the appellants further assailed the award of Rs. 4,00,000 in Item No. 7 which has been awarded to the respondent No. 1 by the Arbitrators on the ground of increase in price. The learned counsel for the appellants relied upon the conditions of tender and instructions to tender and referred Clause 7.2, which is as under : "Every possible fluctuations in the rate of labour material and general commodities and other possibilities of each and every kind should be considered before quoting the rates and no claim on this account shall be entertained by the Railway under any circumstances." According to the learned counsel for the appellants, in view of this specific condition, neither respondent No. 1 could have claimed any price due to the fluctuations in the rates of labour and material or any general commodity and the language of Clause 7.2. also makes it clear that nothing was left and it is specifically mentioned that each and every kind of fluctuation, is to be considered by the bidder before submitting the rates. Therefore, the award at Item No. 7 is also contrary to the terms of the agreement between the parties. The learned counsel for the appellants further referred special conditions of contract which are placed on the record of the lower Court at page 71, wherein there is a conditions No. 3.2, which reads as under : "3.2. No material price variation, wages escalation and compensation for "Force Majors" etc. shall be payable under this contract." In view of the above facts, the learned counsel for the appellants vehemently submitted that the Arbitrators exceeded their jurisdiction in passing the award under Items No. 1 and 7 which is contrary to the terms and conditions between the parties. No material price variation, wages escalation and compensation for "Force Majors" etc. shall be payable under this contract." In view of the above facts, the learned counsel for the appellants vehemently submitted that the Arbitrators exceeded their jurisdiction in passing the award under Items No. 1 and 7 which is contrary to the terms and conditions between the parties. The learned counsel for the appellants further submitted that not only this, respondent No. 1 is not entitled for the above amount because there is a prohibition against the payment on the ground of escalation of price as well as there is specific condition that the bidder will not be entitled for charges for removing debris and when the Arbitrator decides something travelling beyond the agreement and reference and contrary to specific terms of contract then the award is illegal as the Arbitrators exceeded their jurisdiction. The learned counsel for the appellants relied upon the judgment of the Hon'ble Supreme Court in Rajasthan State Mines and Minerals Limited vs. Eastern Engineering Enterprises and another (JT 1999 (7) SC 379 = 1999 (3) Arb. LR 350 (SC)). In this case, Hon'ble the Apex Court observed as under : "The question would be whether Arbitrator will have authority or jurisdiction to grant damages or compensation in teeth of stipulation providing that no escalation would be granted and that contractor would only be entitled to payment of composite rate as mentioned and no other or further payment of any kind or item whatsoever, shall be due and payable by the company to the contractor; the rates wherever fixed are binding during the currency of the agreement irrespective of any fall or rise in the cost of the work covered by the contract or for any other reason or on any account or any other ground whatsoever". The Hon'ble Apex Court further observed : "The contract was signed with clear understanding that the rate under the contract was firm and final and that no escalation in rates except in case of diesel would be granted. Arbitrator has ignored the aforesaid stipulations in the contract. While passing the award basic and fundamental terms of the agreement between the parties are ignored. Arbitrator has ignored the aforesaid stipulations in the contract. While passing the award basic and fundamental terms of the agreement between the parties are ignored. By doing so, it is apparent that he has exceeded his jurisdiction." The Apex Court held on the above case that : "It is specifically agreed that contractor will not be entitled or justified in raising any claim or dispute because of increase in cost of expenses on any ground whatsoever." The Apex Court further held that : "By ignoring the said terms, Arbitrator has travelled beyond his jurisdiction as his existence depends upon the agreement and his function is to act within the limits of the said agreement." The Hon'ble Apex Court also held that : "This deliberate departure from the contract amounts not only to manifests disregard of the authority or misconduct on his part but it may tantamount to mala fide action." The learned counsel for the appellants further relied upon the judgment of the Hon'ble Supreme Court in Steel Authority of India Ltd. vs. J. C. Budharaja, Government and Mining Contractor ( 1999 (8) SCC 122 = 1999 (3) Arb. LR 355 (SC)). In this case the Hon'ble Apex Court observed that the award passed in disregard express terms of the contract would be arbitrary, capricious and without jurisdiction. It is also held by the Hon'ble Apex Court that the Arbitrator derives authority form the contract. The appointment of Arbitrator itself is because of the agreement between the parties for arbitration and, therefore, the Hon'ble Apex Court held that the award passed in disregard of express terms of the contract would be arbitrary, capricious and without jurisdiction. Another judgment relied upon by the learned counsel for the appellants is delivered in H.P. State Electricity Board vs. R.J. Shah and Company ( (1999) 4 SCC 214 = 1999 (2) Arb. LR 316 (SC)). In this case the Hon'ble Apex Court held that if the award is in excess of jurisdiction of Arbitrator then it is liable to be set aside. Another judgment relied upon by the learned counsel for the appellants of the Hon'ble Supreme Court is delivered in New India Civil Erectors (P) Ltd. vs. Oil and Natural Gas Corporation ( 1997 (11) SCC 75 = 1997 (1) Arb. Another judgment relied upon by the learned counsel for the appellants of the Hon'ble Supreme Court is delivered in New India Civil Erectors (P) Ltd. vs. Oil and Natural Gas Corporation ( 1997 (11) SCC 75 = 1997 (1) Arb. LR 292 (SC)), wherein Hon'ble the Apex Court held that Claim made by the contractor on account of escalation in cost of construction during the period subsequent to the expiry of original contract period found to be not sustainable in the face of the stipulation which was binding upon both the parties and Arbitrator. This judgment was also referred in the judgment of H.P. State Electricity Board (supra). The learned counsel for the appellants also relied upon the judgment delivered in Continental Construction Co. Ltd. vs. State of Madhya Pradesh ( AIR 1988 SC 1166 = 1988 (1) Arb. LR 400). In reply to above submission, the learned counsel for the respondent No. 1 submitted that the claim of the respondent No. 1 was with respect to the only work as in fact the respondent No. 1 removed the rubbish of the dismantled building and placed at the place where the engineer directed as per Clause 7 of the conditions of notice mentioned in letter dated 9.9.1988. In fact after putting rubbish at one place, the engineer directed the respondent No. 1 to remove that rubbish from the place to further different place away about six kilometers, therefore, the respondent No. 1 is entitled for the cost which was incurred by the respondent No. 1 for removing the rubbish six kilometers away. The learned counsel for the respondent further submitted that respondent gave letter dated 23.8.1989 and demanded increased rates and the railway authorities extended the date of the completion of the above work without penalty against respondent No. 1 by letter dated 6.9.1989, but when the conditions were not accepted by the railways authorities, the respondent No. 1 gave another letter dated 12.9.1989 to the railway authorities wherein the respondent No. 1 clearly demanded that the respondent clearly mentioned that he is giving this offer with a condition that the case of revised rate as mentioned in the above letter dated 12.9.1989 will be considered and the decision may be conveyed to the respondent No. 1 before 9.11.1989 so that the respondent No. 1 may go ahead with work. Upon which, accordingly to the learned counsel for the respondent No. 1, he received communication dated 1.11.1989 and in that letter the railway authorities clearly mentioned as under : "In case you have any claim, you may act as per para 43 of Northern Railway General Condition of Contract, 1971 and accordingly each claim will be considered/dealt with on its own merits." According to the learned counsel for respondent No. 1, this communication clearly shows that the earlier conditions were given go-bye by the appellant and he was free to raise his claim and which was required to be considered as per para 43 of the Northern Railway General Condition of Contract, 1971. Therefore, according to the learned counsel for the appellants, the respondent No. 1 was entitled for the escalation price and was also entitled for the costs of the removal of the material as claimed in Item No. 1. It is also submitted by the learned counsel for respondent No. 1 that since the respondent No. 1 has complied with the condition of Clause 7 of removing of debris, therefore, it has no application for extra work. The learned counsel for respondent No. 1 further vehemently submitted that this Court is not entitled to look into the mental process of the Arbitrator for arriving at a decision and is not a Court of appeal and unless the grounds which are available to challenge the award of the Arbitrators as per the provisions of law available in the Arbitration Act, the award cannot be interfered with. The learned counsel for respondent No. 1 further submitted that the Arbitrators were not required to give reasons and, therefore, also the award which was made rule of the Court by the trial Court is in accordance with the law. The learned counsel for respondent No. 1 relied upon the various judgments and submitted that the award cannot be set aside on the ground that the reasons have not been given by the Arbitrators. The learned counsel for respondent No. 1 cited the judgment delivered in M/s. Kundale & Associates vs. M/s. Konkan Hotels (P) Ltd. ( AIR 1999 SC 2010 = 1999 (2) Arb. LR 119 (SC)). There is no dispute with respect to this proposition and the appellant has not challenged the award on this ground. The learned counsel for respondent No. 1 cited the judgment delivered in M/s. Kundale & Associates vs. M/s. Konkan Hotels (P) Ltd. ( AIR 1999 SC 2010 = 1999 (2) Arb. LR 119 (SC)). There is no dispute with respect to this proposition and the appellant has not challenged the award on this ground. The learned counsel for respondent No. 1 relied upon the judgment of the Hon'ble Apex Court deliver in State of U.P. vs. Harish Chandra & Co. ( (1999) 1 SCC 63 = 1998 (2) Arb. LR 716 (SC)), wherein Hon'ble the Apex Court held that the proceeding under Section 30 of the Arbitration Act, 1940 is not in the nature of appeal against the award and on this basis held that the claim regarding work of cutting of rock were wrongly granted by Arbitrator cannot be made subject-matter of objection under Section 30 of the Arbitration Act, 1940. It is true that the proceedings under Section 30 of the Arbitration Act, 1940 are not in the nature of appeal against the award. The learned counsel for the respondent No. 1 relied upon another judgment of the Hon'ble Apex Court in the case of The Hindustan Construction Co. Ltd. vs. Governor of Orissa and others ( AIR 1995 SC 2189 = 1995 (2) Arb. LR 1 (SC)). The learned counsel submitted that in this case escalation charges were allowed. In this case, the facts shows that the Special Tribunal awarded extra amount in respect of escalation of labour charges which had been stipulated in para 12.1 showing that for the increased in the cost of labour, the contractor shall be paid extra as per the formula given in the said clause. It was observed by the Hon'ble Apex Court that, in other words, the escalation charges allowed to Contractor by Special Tribunal is in respect of escalation of labour charges and that was not regulated by Clauses VI and VII of the supplementary agreement. The Hon'ble Apex Court held that the Special Tribunal was conscious of Clause 13 relating to compensation for delay in the work and labour escalation under Clause 12.1 of the agreement. Therefore, the above case cited by the learned counsel for respondent No. 1 is not applicable to the facts of the present case. The Hon'ble Apex Court held that the Special Tribunal was conscious of Clause 13 relating to compensation for delay in the work and labour escalation under Clause 12.1 of the agreement. Therefore, the above case cited by the learned counsel for respondent No. 1 is not applicable to the facts of the present case. Here in this case, there is a specific condition, as mentioned above, for not awarding any costs for removing the rubbish of the dismantled building and there is a specific condition that the price escalation will not be allowed whereas in the above judgment of the Hon'ble Apex Court shows that there was provision for grant of extra payment for escalation price. The learned counsel for respondent No. 1 relied upon another judgment of the Division of Madras High Court delivered in T. Gajayalakshmi Thayumanavar and another vs. Secretary, Public Works Department, Govt. of Tamil Nadu, Madras and others (AIR 1997 Madras 263 = 1997 (2) Arb. LR 298). The learned counsel relied upon the observations of the Division Bench of the Madras High Court which says : "The scope of interference is very limited. The Court cannot sit in appeal over the views of the Arbitrator by re-examining and re-assessing the materials. The scope of setting aside the award is limited to the ground available under the Arbitration Act, it is not for the Court to re-appraise the evidence." In view of the above law cited on the point, it is clear from the judgment of the Hon'ble Apex Court in the case of Rajasthan State Mines and Mineral Limited (supra), that in what circumstances the award of the Arbitrator can be set aside and in this case the Hon'ble Apex Court held as under : "To find out whether the Arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. Arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award." It was further held by the Apex Court that : "In order to determine whether Arbitrator has acted in excess of his jurisdiction what has to be seen in whether the claimant could raise a particular claim before the Arbitrator. Arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award." It was further held by the Apex Court that : "In order to determine whether Arbitrator has acted in excess of his jurisdiction what has to be seen in whether the claimant could raise a particular claim before the Arbitrator. If there is a specific term in the contract or the law which does not permit or give the Arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the Arbitrator in respect thereof would be in excess of jurisdiction." It was further held as under : "The award made by the Arbitrator disregarding the terms of the reference of the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the Court. He cannot award an amount which is ruled out or prohibited by the terms of the agreement. Because of specific bar stipulated by the parties in the agreement that claim could not be raised. The Arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action." In view of the above settled position of law, here in this case, it is clear from the facts that there was a clear term agreed between the parties that the escalation is not permissible as per clauses referred above, therefore, the Arbitrators by ignoring the terms 7.2 and 3.2 as mentioned above travelled beyond their jurisdiction and committed jurisdictional error. The case of the respondent that the respondent completed his work of removing rubbish of the demolished building and, thereafter, in pursuance of further directions, the respondent was asked to remove the dismantled building rubbish to place which is six kilometers away, it is relevant to mention here that this plea was never raised by the claimant in his letter dated 23.8.1989 nor any claim was raised on the basis of above plea by the claimant respondent No. 1 and it is clear from the facts mentioned in para 10(1) of the reply to the application under Sections 30 and 33. Arbitration Act, 1940 filed by the respondent No. 1 that non-petitioner No. 1 has not stated that the claim of removal of debris is extra work and it has already removed debris of dismantled building as per direction of engineer and non-petitioner No. 1 was further directed to take away debris at another place and, therefore, it is extra work. There is no material available on record nor the amount has been awarded to the claimant respondent No. 1 on the above ground of extra work. So far as the submission of the learned counsel on the basis of letter dated 1.11.1989 wherein it is mentioned that the respondent No. 1, if has worked and has any claim, he may act as per para 43 of the Northern Railway General Condition of Contract, 1971, but neither para No. 43 of the Northern Railway General Condition of Contract, 1971 nor letter dated 1.11.1989 says that the terms and condition are relaxed for awarding any amount on the ground of escalation at Item No. 7. When respondent No. 1 failed to claim and prove amount on the ground of extra work, the respondent No. 1 was not entitled for the amount as awarded at Item No. 1 of the award. In view of the above discussion, the learned court below committed serious error in makings the award dated 25.7.1996 rule of the court by including the claim of Item No. 1 and Item No. 7 given in the award. In view of the above discussion, the learned court below committed serious error in makings the award dated 25.7.1996 rule of the court by including the claim of Item No. 1 and Item No. 7 given in the award. Therefore, the appeals are partly allowed and the decree dated 23.11.1998 is set aside to the extent of making rule of the Court the amount mentioned in Items No. 1 and No. 7 of the award dated 25.7.1996 and the award with respect to the Claims No. 1 and 7 as awarded by the Arbitrator are set aside. Rest of the award is upheld which has not been challenged by the appellants.