Kerala High Court
Tomkos Engineer & Contractors vs Union Of India on 13 December, 2000
Author: J.B. Koshy
Bench: J.B. Koshy
JUDGMENT
J.B. Koshy, J,
1. Appellant herein was the respondent in O.P. (Arb) No. 229/90. Respondents filed a petition under Ss. 16 and 30 of the Arbitration Act to set aside the award passed by the Arbitrator. The second respondent invited tenders for the work of Design; Fabrication, Supply, Erection and Commissioning of Assembly Tower at Polar Satellite Launch Vehicle Project, Valiamala Complex, Nedumangad. The appellant quoted for the work and the same was awarded to him. The contract period was originally stipulated as 9 months from 14.9.1984 and the price of the work was also stipulated. According to the appellant immediately after the award of the work they went to execute the work with necessary men and machinery. But because of the default in performing the obligations of the respondents the work could not be completed as originally scheduled and there was delay in completion of the work. Therefore, the appellant requested that in view of the delay caused on the part of the respondents an amount of Rs. 26,66,711.10 should be paid. Since the matter was not settled, it was referred for arbitration. A copy of the concerned agreement was produced by the respondents along with the counter affidavit as Annexure -Rl. Clause 9 of Annexure Rl agreement provides for settlement of disputes by arbitration. The above clause reads as follows:
'"SETTLEMENT OF DISPUTES Any disputes arising out of his contract shall be, to the extent possible, settled amicably through discussions between the contractor and the purchaser. If amicable settlement is not reached through mutual discussions the disputes shall then be settled by Arbitration in accordance with Clause 27 of the Arbitration Act, 1940".
2. As a settlement could not be reached between the parties, the appellant invoked the Arbitration Clause in the agreement and filed O.S. (Arb) No. 205/87 before the Sub Court, Trivandrum for referring the disputes for arbitration. The disputes which have to be settled by the Arbitrator were specifically stated in the suit which are as follows:
"1. What is the amount payable to the plaintiff on account of the enhancement in rates, caused due to the delay in completion of the work.
2. What is the amount payable to the plaintiff on account of the increase in the price of structural steal and accessories.
3. What is the amount payable to the plaintiff on account of the rectification/additional construction effected to the foundation of the Assembly Tower.
4. What is the extra expenditure incurred by the plaintiff and payable by the defendants on account of the transportation charges from the storage and fabrication site to the base of the assembly tower.
5. What is the rate of interest payable on account of the unlawful withholding of the various amounts due to the plaintiff.
6. What is the amount payable as final bill as per the agreed rates.
7. What is the amount payable by the plaintiff towards cost of arbitration".
3. The respondents entered appearance and contended that the disputes are not liable to be referred for arbitration as there is no escalation clause in the agreement and the contract was a fixed price contract. Rejecting their contentions Sub Court referred the disputes for arbitration and the parties were directed to suggest names of persons for appointment as Arbitrator. This decision was accepted by the respondents and they suggested one of their officers to be appointed as Arbitrator. Thereupon the appellant challenged the said order by filing C.R.P. No. 1612/88 and this Court appointed a retired District and Sessions Judge as Arbitrator. Accordingly the Arbitrator entered on reference and both parties appeared before him and filed their statements. Issues were framed. Thereafter the respondents filed a petition for adding/amending certain issues. In that petition Arbitrator ordered that it can be considered at the time of final hearing. Issues were thereafter remodified at the time of final hearing taking into account the issue raised by the respondents also. But substantially the issues were one and the same. Arbitrator found that three years' delay occurred on account of the default of the respondents and thereafter it found that the prices of steal and certain other materials were increased and actual price increase of those materials should be paid. Other claims were rejected and therefore the Arbitrator awarded a" total amount of Rs. 13,36,972.10. According to the respondents since it is a fixed price contract, the Arbitrator had no power to grant raw-material price increase apart from the original price agreed and therefore the Arbitrator has no jurisdiction to pass the award in question, and therefore filed a petition to set aside the award. The Sub Court accepted the contention of the respondents and found that the award of the Arbitrator is liable to be set aside because of the following three grounds. (1) Time was the essence of the contract and contract was completed after the fixed time. (2) The Arbitration award is without jurisdiction as it is a fixed price contract. (3) Arbitrator has redrafted the issues.
4. First we will consider whether time is the essence of the contract. Clause 4 in the contract is the Delivery Schedule where it is stated as follows:
"DELIVERY SCHEDULE Nine months including one month for mobilisation will be the period from 14th September, 1984 (being the date of issue of the Letter of Intent) for commissioning the Tower".
In Clause 7 it is stated as follows:
"DELAY IN COMPLETION/LIQUIDATED DAMAGES Time is the essence of this Contract. If the Contractor falls to complete supply, erection, and commissioning of the Assembly Tower within the time specified in the contract the Purchaser shall recover from the Contractor as liquidated damages a sum of one half of one percent (0.5%) of the contract price of the undelievered components from the contractor for each calendar week of delay. The total liquidated damages shall not exceed 10% of the contract price of the undelivered parts. Thus commissioning of the total tower will be deemed to have been completed only when all its component parts and systems are delivered, erected and commissioned to the satisfaction of the Purchaser. The delivery of the Tower will be considered as delayed if, in the opinion of the purchaser, the commissioning is not satisfactorily completed".
It is true that in clause 7 it is stated that the time is the essence of the contract. But it is also stated that if the contractor fails to complete the supply, what has to be done is also mentioned in Clause 7 that the contractor is liable to pay liquidated damages to the respondents. However, it is not stated that what will be the consequences if the delay is occurred on account of the delay on the part of the respondents. Clause 6 is the clause regarding extension of time which is as follows:
"EXTENSION OF TIME ' If the commissioning of the tower is delayed due to reasons of force majeure such as acts of God, acts of public enemy, acts or inactions of Government, fires, floods, epidemics, quarantine, restrictions, strikes and freight embargoes, the Contractor shall without delay give notice to the Purchaser in writing of his claim for an extension of time. The Purchaser on receipt of such notice may agree to extend the Contract delivery date as may be reasonable but without prejudice to other terms and conditions of the Contract."
A reading of the above shows that if the delay is caused and the Contractor is unable to do the work in time, the purchaser respondent can agree for extension of the contract. In view of the above specific clause, the mere statement that time is the essence of the contract is of not much consequences. The Supreme Court in Hind Constn. Contractors v. Slate of Maharashira (AIR 1979 SC 720) held that even where the parties have expressly provided that time is the essence of the contract, such a stipulation will have to be read along with other provisions of the contract. In view of the specific clause regarding the extension of time in the contract, we are of the opinion that there is clear provisions regarding extension of time and the words 'time is the essence of the contract' is not of much. consequences. Here the finding is that respondents were responsible for delay and extension of time was also granted.
5. The major contention raised in this case is that whether Arbitrator has conducted misconduct by awarding an amount over and above the fixed price. Learned counsel appearing for the respondents relied on clause 5(1) of the Contract which is as follows:
"%.PRICE AND PAYMENT TERMS
5. I For the scope of work mentioned in Para 3 above and in the documents referred to herein, the price will be Rs. 17,89,750/-. This price is firm and fixed and no other charges or taxes will be pay able extra".
We have already noted that in the contract there is no provision mentioning the ground when contract is being delayed on account of the respondent purchaser. It only contemplates time granted to the contractor for completing the work. In that case contractor cannot claim price increase. Apart from the above, we have already pointed out settlement of disputes have to be sorted out by the Arbitrator. First of all Arbitrator considered the question who was responsible for the delay. The Arbitrator found that the Purchaser respondent is reasonable for the delay. If the Purchaser is responsible for the delay, in normal circumstances, he has to reimburse the damages caused on account of that delay and what is granted is only actual increase in price of raw-materials. We also note that the very same contentions were raised by the Purchaser when application was filed before the court in appointing an Arbitrator. That was overruled by the Sub-Court and Arbitrator was appointed. That order was not challenged. Therefore, it is no more possible for the purchaser to contend otherwise on the basis of the principle of constructive res judicata.
6. We also note that detailed objections were filed before the Arbitrator, but no objection regarding the maintainability of the disputes or the lack of jurisdiction of the Arbitrator in granting these claims were raised. Apart from that, purchaser filed an application for amending the issues. That also included claims for execution. For example respondents requested that issue 2 and 3 may be clubbed together and prayed as follows:
"Issue 2 and 3 may be clubbed together and amended as under
2. Did the cost of materials and wages vary during the relevant period? If so how much? Is the claimant entitled to general enactment of rales as per the terms of the contractor?"
This will show that in effect the purchaser also did not question the jurisdiction of the Arbitrator or maintainability of the Arbitration to consider this issue. In this connection we refer to the Supreme Court decision in Prasum Roy v. The Calcutta Metropolitan Development Authority (AIR 1988 SC 205) wherein it was held that acquiescence of a party to arbitration proceeding by participating in it for long time cannot be allowed thereafter to contend that by reason of some disability matter is legally incapable of being referred to arbitrator. Almost in an identical case in P.M. Paul v. Union of India (AIR 1989 SC 1034) the Supreme Court held that when a dispute was referred to the arbitrator as to who is responsible for the delay, what are the repercussions of the delay in completion of the building and how to apportion the consequences of the responsibility, escalation can be considered by the arbitrator as it is part of damage. In State of Kerala v. Gopalakrishnan (1990 (1) KLT311) this court held that question of sustainability of the claim does not affect the arbitrability of the claim. When a non-speaking award was passed the court cannot sit in appeal over that award. In M/s. Tarapore & Co. v. Cochin Shipyard Ltd., Cochin (AIR 1984 SC 1072) it was held that even if the view taken by the arbitrator might not accord with the view of the court about the scope, ambit, and width of the arbitration clause the award of arbitrator could not be set aside on the ground that there was an error of law apparent on the face of the award.
7. Learned counsel for the respondents relied on the decision in Continental Construction Co. Ltd. v. State of M.P. (AIR 1988 SC 1166). There a specific objection was raised before the Arbitrator regarding the scope of the dispute and jurisdiction of the "Arbitrator. The Arbitrator did not consider that question at all and the Supreme Court held that the arbitrator should have considered that objection and as per the terms of that contract the award of the Arbitrator was without jurisdiction. In this case we also note that apart from the term contract, it was specifically proved that general conditions will also apply. Along with the tender, general conditions of contract were also referred to. In clause 10C of General Rules and Directions for the Guidance of Contractors Government of India, Department of Space specifically provides as follows:
"Clause 10C. If during the process of work the price of any material incorporated in the - works (not being a material supplied from the Engineer-in-charge stores in accordance with clause 10 hereof) and/or wages of labour increases as a direct result of the coming into force of any fresh law or statutory rules or order (but not due to any changes in S.T.) and such increase exceeds 10% of the price and/or wages prevailing at the time of receipt of the lender for the work and the contractor thereupon necessarily and properly pays in respect of that material (incorporated in the works) such increased price and/or in respect of labour engaged on the execution of the work at 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 Engineer-in-charge (whose decision is final and binding) attributable to delay in the execution of the contract within the control of the contractor."
The above clause specifically provides for escalation due to cost of materials on account of delay. That became part of the contract and therefore in view of the above clause escalation can be claimed. Here especially when the delay was caused on account of the purchaser, only actual price increase was granted, which is in the nature of damages.
8. Finally we may consider the sustainability of the award on account of the modifications in the redrafted issues. But on going through the redrafted issues and original issues we see no material difference. We also note that the respondent purchaser themselves applied for correction of the issues and at that time the Arbitrator ordered that it can be modified at the time of final hearing and issues were modified on the basis of the request of the respondents themselves and respondents cannot question the same. In this connection we refer to the decision in Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd. (AIR 1967 SC 1030) wherein the Supreme Court held that Arbitrator is not conducting misconduct if the issues are recasted without substantially deviating from the original issues.
In the above circumstances, all the three grounds stated by the Sub Court for setting aside the award are not sustainable and therefore we have no hesitation to set aside the judgment and decree passed by the Court below. Hence the appeal is allowed and judgment and decree is passed in terms of award.