Bombay High Court
Municipal Corporation Of Greater ... vs Jyoti Construction Company on 25 October, 2002
Equivalent citations: 2003(3)ARBLR489(BOM), 2003(4)BOMCR770, 2003(4)MHLJ25
Author: D.Y. Chandrachud
Bench: D.Y. Chandrachud
ORDER D.Y. Chandrachud, J.
1. Admit. The learned counsel for the respondent waives service. By consent taken up for hearing and final disposal.
2. In these proceedings under Section 34 of the Arbitration and Conciliation Act, 1996, the Municipal Corporation of Greater Mumbai calls into question an award rendered on 3rd June, 2002 by a sole Arbitrator who was nominated to adjudicate upon the disputes that arose between the parties. The disputes between the parties were referred to the arbitration of Shri Madhav Yeshwant Oke, a former Secretary in the Irrigation Department of the Government of Maharashtra. The Contract between the parties
3. The Municipal Corporation of Greater Mumbai invited tenders in 1989 for, the installation of a pipeline with a diameter of 3000 mm over a length of 7 km from Majiwade (Thane) to the junction of the Mulund- Goregaon Link Road on the Eastern Express Highway at Mumbai. The respondent was a successful bidder whose tender came'to be accepted on 14th August, 1989. The cost of the work tendered for was Rs. 9.14 Crores and the period of completion that was originally fixed was 50 months, so as to expire on 8th January, 1994. The work commenced on 9th November, 1989 and by the stipulated date of completion 53% of the work had been completed, leaving a balance of 47%. The Municipal Corporation granted extensions of time to complete the work under the contract. In March 1996, a proposal was placed by the Municipal Commissioner before the Standing Committee recording the reasons that had led to the delay in the completion of the work. These reasons have been extracted in the Arbitral Award. The reasons for the delay which were acknowledged by the Municipal Commissioner included ;
(i) The encountering of hard rock in large quantities along the alignment and blasting of the rock was not permitted due to the proximity of commercial and residential structures which had come up along the Eastern Express Highway. This necessitated the removal of the rock by chiselling;
(ii) The progress of the work in laying the pipeline was affected between November 1990 and February 1992 due to the widening of the Eastern Express Highway by the State P.W.D.;
(iii) The construction of a fly-over bridge at Teen Hath junction, Thane from January 1992 by the P.W.D. led to a situation wherein the Municipal Corporation was not permitted by the P.W.D. to carry out the work of laying the pipeline over a stretch of 1.1 km of the alignment until the fly-over was completed;
(iv) Encroachments at Anand Nagar Colony, Near Kopri had reduced the width of the road, as a result of which there was no space to temporarily remove and stack the excavated material. Consequently, the P.W.D. was approached for permission to lay down the pipeline in the embankment of the Highway road over bridge. This permission was granted only in May, 1995;
(v) The completion of a bridge across the railway tracks by the Central Railway had been delayed, as a result of which the laying of the pipeline over the bridge was also delayed;
(vi) Road crossings for laying the pipeline had to be carried out in stretches as permitted by the traffic police;
(vii) There was a restriction on construction activities due to heavy container traffic; and
(viii) On 6th March, 1992, a live water pipeline laid by the Municipal Corporation under the II Bombay Water Supply Project burst and the work of restoring that pipeline was carried out under the contract entered into with the respondent on an emergency basis. Apart from these reasons, various other reasons which were of a general nature were referred to in the proposal which was made by the Municipal Commissioner. Under the proposal for revision, the Municipal Commissioner contemplated that the original cost of the work under the contract would stand increased to Rs. 15.86 Crores (exclusive of supervision charges and cost contingencies) and to Rs. 22.25 Crores, if these additional items were to be included.
4. On 13th March, 1996, the petitioner and the respondent entered into an agreement, styled as a supplementary agreement, under which the bill of quantities and rates for the work which remained to be carried out beyond 8th January, 1994 were revised in respect of certain items. The supplementary agreement provided that it would be read with the original agreement and that the conditions appearing therein would apply mutatis mutandis to the supplementary agreement. There is no dispute between the parties that the rates in respect of certain items were revised in the supplementary agreement. Equally, there is no dispute about the fact that in respect of 18 items, the Municipal Corporation had not agreed to a rate revision when the supplementary agreement was entered into on 13th March, 1996 and that in respect of these 18 items, the rates adopted in the agreement of 1989 continued to be applied by the Municipal Corporation.
5. The work under the contract was to be completed on 31st December, 1996 in pursuance of the supplementary agreement. However, an extension of time was granted to the contractor to complete the work and the work was actually completed on 31st October, 1997. In respect of those rates which were revised in the supplementary agreement dated 13th March, 1996, the contractor was paid at the revised rates with effect from 8th January, 1994 which was the date originally stipulated for the completion of the contract. However, insofar as the rates of those items that were not revised by the Municipal Corporation in 1996 were concerned, payment was made at the same rates as prevailed in the original contract of 1989.
The Provision for Arbitration
6. The agreement between the parties contains a provision for a reference of their disputes to arbitration. Clause 97, insofar as is relevant, provides as follows :
"97. Arbitration :--All disputes or differences whatsoever which shall at any time arise between the parties hereto touching or concerning the works or the execution or maintenance thereof or this contract or the construction, execution, or maintenance thereof or this contract or the construction meaning operation or effect thereof or, to the rights or liabilities of the parties or arising out of or in relation thereto whether during or after completion of the contract or whether before or after determination, foreclosure or breach of the contract (other then those in respect of which, the decision of any 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 specify the nature of such dispute or difference and call for the point or points at issue to be referred to the arbitration."
The Dispute and Reference to Arbitration
7. On 31st December, 1998, the respondent submitted a set of claims for the consideration of the Municipal Corporation and these were as follows :
1) Revised rate during the extended period of contract Rs.
7.45 Crores
2) Escalation Rs.
1.02 Crores
3) Extra items Rs.
2.56 Crores
4) Idle machinery, Labour and staff Rs.
4.88 Crores
5) Loss of profit and Overhead charges Rs.
71.91 lacs The total claim of the respondent was in the amount of Rs. 19.86 Crores. In addition, a claim for interest was also made. These claims were rejected by the Municipal Corporation by its letter dated 24th February, 1999. On 21st October, 1999, the respondent invoked the provision for arbitration contained in Clause 97 of the General Conditions of Contract and sought the appointment of an Arbitrator to adjudicate upon the claims adverted to in the letter. The claims referred to in the letter dated 21st October, 1999 included all the heads of claim which had already been submitted to the Municipal Corporation on 31st December, 1998. On 3rd August, 2000, the Deputy Municipal Commissioner (Special Engineering) Addressed a letter appointing as sole Arbitrator, Shri M. Y. Oke, a former Secretary, in the Irrigation Department of the Government of Maharashtra. The letter recorded that in connection with the work which had been awarded to the respondent and the final bill, the respondent had put up claims which were examined in detail, but which had been rejected by the Municipal Corporation. The Arbitrator was informed that the respondent had opted to take recourse to arbitration for settlement of its claims "as per the provisions of contract". In terms of the request made by the respondent, the petitioner appointed Shri. Oke as a sole Arbitrator to adjudicate upon the disputes. Parties produced documentary evidence before the Arbitrator and after hearing the parties, the arbitral award has been made on 3rd June, 2002.
The Challenge to the Arbitral Award
8. The challenge to the arbitral award is founded on the ground that the arbitral award is in conflict with the public policy of India and the submission, therefore, is that a case for interference has been made out under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996 ("the Act"). Therefore, at the very outset, it would be necessary for this Court before considering the merits of the challenge to have regard to the scope of a petition challenging an award on the ground that it is in conflict with the public policy of India. On behalf of the petitioners it has been urged that whatever is wrong, unreasonable, unconscionable or against public interest or public welfare must be regarded as against the public policy of India. In the present case, the award is sought to be challenged on the ground that it is (i) contrary to contract conditions/case law; (ii) one sided and does not consider the defence of the petitioners; (iii) barred by the principles of accord and satisfaction; (iv) not a speaking award and violates Section 31(3); (v) against public interest or public welfare since it would lead to the enrichment of the respondent at the cost of the public exchequer; (vi) self contradictory and (vii) based on engineering judgment, conjectures, estimates and generalizations and reveals a non-application of mind. Whether the aforesaid submissions urged in challenging the validity of the award are of merit in themselves would be considered separately, but it would be instructive at the outset to refer to the provisions of the Arbitration and Conciliation Act, 1996. The interpretation of those provisions does not take place in a vacuum, since the Court has before it judgments of the Supreme Court and of this Court which are binding.
The Scope of Judicial Intervention under the Act : Public Policy ground
9. The Arbitration and Conciliation Act, 1996 was enacted with a specific Parliamentary objective of minimizing the supervisory role of Courts in the arbitral process. The Statement of Objects and Reasons accompanying the Bill that was introduced in Parliament expressly refers to this as an object underlying the enactment. Section 5 of the Act expounds upon that theme by providing that no judicial authority shall in matters governing by Part I, intervene except where it is so provided in the Part. Section 34(2) provides that an arbitral award may be set aside by the Court only if one of the grounds set out in Clauses (a) or (b) thereto is established.
10. The scope of the provision for challenge to an arbitral award on the ground that the award is in breach of public policy came up for consideration before a Division Bench of this Court in Vijaya Bank v. Maker Development Services Pvt. Ltd., 2001(3) Bom.C.R. 652, Mr. Justice B. N. Srikrishna, (as the learned Judge then was) speaking for the Division Bench, noted the Statement of Objects and Reasons appended to the Bill introduced in Parliament, and the provisions of Sections 4 and 5, and held that the avowed object of Parliament was to curtail judicial intervention in the arbitral process. The Division Bench held that the "1996 Act is intended to reduce to the barest minimum the legal challenge to arbitral awards". This Court held that the use of the non obstante clause in Section 5 and the embargo on judicial intervention except as provided and the repeated use of the word "only" in Section 34 puts the matter beyond cavil. This Court held that its view found support in two judgments of the Supreme Court viz. Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Ors., , where the Supreme Court held that the scope for a challenge to an award under the Act of 1996 is considerably less than under the Arbitration Act of 1940 and in Konkan Railway Co. Ltd. v. Mehul Construction Co., 2001(1) Mh.L.J, 115 (SC) = 2001(1) Bom.C.R. 771, where the Supreme Court held that the 1996 Act had limited the intervention of the Court with the arbitral process to the minimum and that in interpreting the provisions of the Act, it was not open to the Court to ignore the object and purpose of the enactment. Before the Division Bench of this Court in the Vijaya Bank case, reliance was placed on the judgment of the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co., and on the basis of the observations of the Supreme Court therein, it was urged that the expression "public policy" has a wider meaning in the context of a domestic award as distinguished from a foreign award. This Court held that irrespective of whether the expression "public policy" has to be given a wider or restricted meaning, it cannot carry the meaning of a contravention of law simpliciter. However, one thing which does emerge from the judgment of the Division Bench is a categoric finding that whatever be the width of the expression "public policy", it does not include a mere contravention of law.
11. The binding principle that therefore emerges from the decisions of the Supreme Court and of this Court is that the approach of the Court, when confronted with a challenge to an arbitral award under Section 34, has to reflect a consciousness of the legislative intent in enacting the Arbitration and Conciliation Act, 1996 which was to restrict and curtail the extent of judicial intervention in arbitral proceedings and awards. Moreover, even though the expression "public policy" is recognized judicially as being an "elusive concept", difficult to define and capable of interpretation both in narrow as well as in broad terms, that would not be a warrant for the Court to extend judicial intervention in arbitral awards beyond the restricted sphere envisioned by Parliament.
12. From the judgments of the Supreme Court which deal with the content of the expression "public policy" it emerges that public policy is a concept which relates to the public good and to public interest. In Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguli, , the Supreme Court while striking down a hire and fire clause contained in employment contracts of a public sector corporation held that the concept of what is for the public good or in the public interest or what would be injurious or harmful to the public gqpd or, public interest has varied from time to time. In Renusagar (supra). Chief Justice Venkatachaliah, speaking for a Bench of three learned Judges of the Supreme Court noted that the doctrine of public policy is somewhat open-textured and flexible and has comprehended a narrow view and a broad view. The narrow view is that Courts cannot create new heads of policy, while the broader view which has been accepted in later decisions of the Supreme Court is that the heads are not necessarily closed for judicial interpretation. The judgment of the Supreme Court adverted to the fact that in England, the ground of public policy is capable of being invoked where the enforcement of an award "would affront some moral principle the maintenance of which admits no possible compromise", such as (1) Where the fundamental conceptions of English justice are disregarded; (ii) Where English conceptions of morality are infringed; (iii) Where a transaction prejudices the interest of a nation or its good relations with foreign powers; (iv) where the foreign law or status offends English conception of human liberty and freedom of action. The judgment of the Supreme Court in Renusagar's case, as noted earlier has been considered in Vijaya Bank's case by B. N. Srikrishna, J. and it would, therefore, not be necessary to pursue that aspect of the matter any further. It would, however, be in the fitness of things to refer to the judgment of a Bench of two learned Judges of the Supreme Court in Smita Conductors Ltd. v. Euro Alloys Ltd., (2001)7 SCC 728, where in the context of the enforcement of a foreign award under the Foreign Awards (Recognition and Enforcement) Act, 1961, the Supreme Court held that the expression "public policy of India" would mean that a foreign award cannot be recognized or enforced if it is contrary to (i) the fundamental policy of Indian law; (ii) the interests of India; (iii) justice or morality.
13. These decisions, though they have been rendered in the context of the enforcement of a foreign arbitral award, are in my view, of relevance in laying down for this Court the approach to a challenge to an arbitral award on the ground that it is in conflict with public policy. Conscious as the Court must be of the varying content of the doctrine of public policy, it would be appropriate to regard a breach of public policy as involving a conflict with something so fundamental so as to constitute or lie at the root of legal principles in India. Similarly, something which is so unconscionable so as to be contrary to fundamental notions justice or morality may well be regarded as a breach of public policy. However, in searching for an answer to the question as to whether there has been a breach of the concept of justice or morality, it would not be permissible for the judge considering a challenge to an arbitral award to reappreciate the reasons underlying an arbitral award or for that matter to reappreciate the oral or documentary evidence on the record before the arbitrator. In other words, a conception of justice or morality which the judge regards as fundamental to the law cannot be a warrant for opening up the flood gates for the factual evaluation of an arbitral award. Indeed, as the judgment of the Division Bench lays down in the Vijaya Bank case, even an error of law is not by itself or simpliciter a breach of public policy. Therefore, in considering the formulation which has been sought to be urged on behalf of the petitioner, I am of the view that an investigation into whether an arbitral award offends against public policy cannot be in the broad terms in which it has been stated on behalf of the petitioner. The Court for instance would not be justified in interfering with an arbitral award merely because in a given case, the interpretation which is sought to be placed on the terms of the contract by the Arbitrator does not accord with the interpretation which the Court, if it were to conduct an adjudication in the first instance, would have placed or, for that matter, because the view which has been taken by the Arbitrator either on law or on fact does not accord with the view of the judge before whom a challenge is made under Section 34. So long as the Arbitrator has acted within jurisdiction in interpreting the provisions of the contract, and has applied the law to his evaluation of the facts, the Court must rest with the decision of the Arbitrator unless the Court is satisfied that the arbitral award is in conflict with the public policy of India. Breach of public policy is indeed a test of a high order. In that context, the challenge in the present case to the arbitral award can be considered.
The challenge to the Arbitral Award considered
14. On behalf of the petitioner, the arbitral award has been sought to be challenged first and foremost on the ground that it is disproportionate. The learned counsel appearing on behalf of the petitioner has urged that a revised contract was arrived at between the parties on 13th March, 1996 and the benefit of revised rates has been granted to the respondent from 8th January, 1994, which was the stipulated date for the completion of the contract as originally fixed. Counsel urged that the extended period of the contract was only between 31st December, 1996 and 31st October, 1997 and that the Arbitrator has ignored the provisions of the contract and the rates which came to be revised in the supplementary agreement of March 1996. It was urged before the Court that the value of the work under the original contract was Rs. 9.42 Crores and that the claim which was made in the final bill, if it had been paid, would have been to the extent of Rs. 3.14 Crores. In these circumstances, it was urged that there was no justification for the Arbitrator to make the arbitral award to the extent as in the present case.
15. Insofar as this submission is concerned, the question as to whether the arbitral award is disproportionate will have to be revisited after the individual challenges on each of the heads of claim on which there has been a dispute are addressed. At this stage, it would be necessary, however, to clarify that while initially it was urged on behalf of the Municipal Corporation that the total amount awarded by the Arbitrator is Rs. 10.42 Crores, it is now accepted by both the learned counsel that the total quantum of the award is Rs. 5.98 Crores, while awarding Claim No. 2 which was the claim for revised rates, the Arbitrator directed that from the award in the amount of Rs. 8.20 Crores a deduction has to be made of the value of the work which had already been paid by the Municipal Corporation (A) and the amount of escalation paid by the Municipal Corporation (B). This was quantified by the Arbitrator at Rs. 2.92 Crores and Rs. 1.51 Crores respectively. Consequently, the amount that was due and payable in respect of Claim No. 2 would work out to Rs. 3.77 Crores. The Arbitrator, however, noted while dealing with Claim No. 2 that the figures of the deductions would have to be reworked out by the Municipal Corporation and that out of the amount which had been awarded in respect of Claim No. 2, the precise deductions would have to be indicated by the Corporation. In that view of the matter, I had requested the learned counsel for the Corporation to inform the Court as regards the deductions which would have to be made as indicated in the arbitral award on Claim No. 2. The learned counsel appearing on behalf of the Municipal Corporation has informed the Court that in respect of the deduction on account of A above, the value of the work paid would be Rs. 1.51 Crores and in respect of B above, escalation paid would be Rs. 1,50,77,390/-. The learned counsel, therefore, stated that the total deduction would be Rs. 4,43,43,740/-. This deduction which has been indicated by the Municipal Corporation is in fact marginally lower than the deduction which has been provided for in the arbitral award. The learned counsel appearing on behalf of the respondent has stated before the Court that since the arbitral award has warranted a larger deduction from the award under Claim No. 2, the respondent would accept the said deduction.
16. The first head of challenge insofar as the arbitral award is concerned is in respect of the claim on the final bill amount. Insofar as the first claim is concerned, this claim was in respect of additional quantities which had not been measured earlier and paid. The Arbitrator in the course of the arbitral award has noted that in a letter dated 25th February, 1999, the respondent had made a complaint about the manner in which the petitioner had recorded the measurement of the work which had been carried out. The respondent had contended that there were discrepancies in almost all items of measurement and that a large amount had been withheld since 31st January, 1998. On the other hand, it had been urged before the Arbitrator by the petitioner that all measurements at the stage of the running bills had been duly accepted by the respondent and could not be reopened. The grievance of the petitioner is that the Arbitrator has recorded that he had studied a few pages of Measurement Books No. 11, 12 and 13 and had directed the parties to carry out test checks to measure the trench measurements at 5 chainages. On the basis only of this enquiry, it was urged, the Arbitrator recorded that there were numerous discrepancies in the measurements carried out by the Municipal Corporation.
17. In considering this ground of challenge, it must be noted that in fact, at the arbitration meeting held on 1st April, 2002, the Municipal Corporation had conceded that the cross sections plotted by the respondent as per the original records and entries in R. A. bills had been verified and found to be correct. Moreover, the quantities of certain items as worked out by the respondent had been found to be arithmetically correct. In these circumstances, the Arbitrator was of the view that there had been on the part of the petitioner significant discrepancies in measuring the actual work which had been carried out by the respondent. This is a pure finding of fact which the Arbitrator has arrived at. The Arbitrator has acted within his jurisdiction in doing so.
18. On behalf of the petitioner, the approach of the Arbitrator was sought to be called into question by contending that it was only on 25th February, 1999 that complaints had been made about the measurements not having been recorded correctly. Moreover, it was urged that the Arbitrator ought to have considered the running account bill record drawn over a period of nine years during which the work had been carried out and that the conclusion that there were discrepancies in the measurements which had been arrived at was without an exhaustive consideration of all the material before the Arbitrator.
19. In assisting the Court in considering whether the charge against the approach of the Arbitrator is justified, the attention of the Court has been drawn by counsel for the respondent to the Minutes of the meetings that took place before the Arbitrator on various dates. At the 12th arbitration meeting held before the Arbitrator on 26th December, 2001, it was conceded on behalf of the petitioner herein that the quantities of various items of work executed upto January 1994 as mentioned by the respondent were correct and may be taken as correct. Similarly, it was accepted before the Arbitrator at the arbitration meeting that the petitioner does not dispute the indices which has been adopted by the respondent. The minutes of the next set of arbitration meetings (the 13th arbitration meeting) held on 17th January, 2002 similarly record that the Municipal Corporation had produced results of a test check of excavation measurements at five chainages on the lines of the direction previously issued by the Arbitrator at the 11th Meeting. The Arbitrator recorded in those minutes that the examination of the results of only two of those checks had revealed a large number of discrepancies as a result of which the counsel for the petitioner had admitted that the Municipal Corporation would need to have a fresh look at the final measurements and in fact sought the participation of the respondent in this exercise. The Arbitrator then directed that cognizance should be taken of the entries in the field books, cross section sheets, contract specifications and measurements of all disputed items would need to be reviewed. At the 14th arbitration meeting thereafter the Arbitrator noted in the minutes that the scrutiny of the final bill had brought to the fore three categories of disputed measurements - (a) there were clear omissions in carrying forward relevant measurements recorded in the running bills; (b) certain measurements appeared to have remained to be recorded at the running bill stage itself, but could nevertheless be represented by the measurements recorded in respect of another associated item of a sequential nature. This would be a strong circumstantial evidence of the execution of such items and (c) other items for which their were neither measurements nor any supporting associated items. At that stage, it was stated before the Arbitrator that the first item had been duly discussed with the respondent by the engineers of the Municipal Corporation and the process of computing quantities on the basis of a fresh cross section plotted was almost completed. Insofar as the second category was concerned, it was stated on behalf of the petitioner that the respondent was expected to provide details such as bill numbers, so that the concerned items of work could be traced to work out the quantities or missing items. Insofor as the third item was concerned, it was left to the respondent to argue out a substantiation of its case before the Arbitrator. This was then the approach which was agreed upon by the parties before the Arbitrator. The grievance of the respondent was that the recording of measurements had not taken place correctly and in view of that grievance the Arbitrator had directed that test checks should be conducted at five chainages. These test checks led the Arbitrator to conclude that there were indeed significant discrepancies as pointed out by the respondent. Parties thereafter filed their compilations of documentary material before the Arbitrator and at the 15th arbitration meeting these compilations were respectively marked as Claimants compilations 20 to 23 and respondent compilation No. 11. The view that has been taken by the Arbitrator is, therefore, based on a procedure which was followed with adequate notice to the parties and with the due participation of both the parties. Measurement Book Nos. 11, 12 and 13 which were stated by the Arbitrator to have been perused by him were those in connection with the final bill. That being the position, I am of the view that it would be impermissible for this Court, having regard particularly to the limited parameters of the jurisdiction under Section 34 to find fault with the approach of the Arbitrator in assessing the dispute before him. The finding of the Arbitrator that there were discrepancies in the measurements recorded by the Municipal Corporation are findings of fact. The procedure which was evolved by the Arbitrator for arriving at correct measurements was entirely within his jurisdiction. Both parties participated fully in the process before the Arbitrator. The factual determination by the Arbitrator cannot again be reappreciated.
20. Insofar as the final bill is concerned, objections have been raised on behalf of the Municipal Corporation to certain specific individual items which may now be taken up for consideration.
21. Item No. 9(a). Insofar as this item is concerned, it related to excavation which was required to be carried out in trenches at varying depths. The dispute which has been raised is in respect of excavation between 4 mtr. and 6 mtr. The Arbitrator has noted that while the respondent claims that 19630 cub.mtr., had been excavated what had been paid in the final bill was only 16998 cub.mtr. The petitioner was disputing a quantity of 1824 cub.mtr. The Arbitrator has held that the excavation of pits was absolutely necessary so as to provide welders with an access below the pipeline to provide a welding rung. The Municipal Corporation had in its measurements recorded that there were 275 welding pits at a depth of only 0 to 2 mtr. The Arbitrator has, however, held that it was inconceivable that the depth of the pit could only be to that extent, since for a 3 mtr. Diameter pipeline, the depth of the pit would have to be in the range of 4 to 6 mtr. or even greater. The view of the Arbitrator is based on the material produced before him by the parties and on the Arbitrators own expert assessment. The total amount which has been awarded is Rs. 78,963/-. I do not find any reason to interfere with this part of the award.
22. Insofar as Item No. 12 is concerned, that related to the excavation in hard strata by chiseling (excess quantity beyond 125%). The Arbitrator has, while awarding this claim, noted that for the same reason that he found it appropriate to award item No. 9(c), this particular item would also have to be allowed. Apart from the aforesaid, it would be necessary to note that out of 33721 cub. mtr. that has been executed by the respondent, the Municipal Corporation had admitted the claim upto an extent of 32123.65 cub. mtr. The difference therefore, related only to a quantity of 1597 cub. mtr. The Arbitrator has furnished cogent reasons for allowing the claim and I do not find that the award suffers from any infirmity.
23. The next item of challenge in the final bill claim is Item No. 17 relating to the transport of surplus material. In so far as this item is concerned, it is an admitted position that the work under the contract was done on the periphery of the Eastern Express Highway. Statement A of the supplementary agreement provided that as the pipeline laying work was being carried out on highway land, the surplus excavated material lying along the side of the trenches was required to be transported to a place as directed by the highway authority within 3 km from the excavated stretches. Moreover, it was pointed out that it was not possible to keep the material along the side Berms of the Eastern Express Highway. Item No. 17 of the bill of quantities fixed the rates for this particular work viz. of transporting the surplus material. The Arbitrator noted that several letters had been addressed by the, respondent in 1991 and 1993 recording that measurements for transport had not been correctly recorded by the petitioner, The arbitral award has further recorded that the respondent had reworked out the transportation of revised quantities following the same logic as followed by the petitioner herein for the original quantities. These reasons, are in my view, reasons which are possible for the Arbitrator to adopt. This is sufficient to sustain the arbitral award. The arbitral award insofar as this head is concerned, cannot be regarded as lying outside the jurisdiction of the arbitrator. The arbitrator has acted within the field of his jurisdiction by interpreting the relevant provisions of the contract. No inference in this is called for.
24. Item No. 18 of the final bill claim relates to providing of cement and concrete in the welding pits. Insofar as this item is concerned, the arbitral award notes that the respondent had furnished detailed calculations. The Arbitrator has made a reference to the relevant contractual conditions and has accepted the case of the respondent that a bed of concrete layer has been provided irrespective of whether or not hard rock had been encountered. This is also an area where the Arbitrator has followed the same reasoning as in the case of the welding pits. No case has been made out for the interference of this Court.
25. Similarly in regard to Item No. 19(c), an amount of Rs. 17,156/- has been awarded in relation to the claim for providing M.S/Tor Steel and in Item No. 62 for transporting a B. F. Valve, an amount of Rs. 40,525/- has been awarded. The Arbitrator has, on the material before him, came to the conclusion that the claim was acceptable. No infirmity in the finding has been established and none in any case so as to attract the provisions of Section 34.
26. The main head of challenge, insofar as the final bill claim is concerned, relates to the award of escalation in the amount of Rs. 44.91 lacs. In so far as the payment of escalation was concerned, the provisions of the contract in question were contained in Clause 74 of the General Conditions of Contract. Clause 74 provides for a formula for calculating escalation both in regard to the labour component and for the material component, similar to other such formulae in regard to the payment of escalation claims based on labour and material. The formula in the present case requires a difference to be calculated of the Consumer Price Index number of the Working Class for Bombay, declared by the Commissioner of Labour and Director of Employment, Bombay applicable to the period under reference (base year ending 1960 as 100) and the consumer price index prevailing 30 days prior to the submission of tenders. Insofar as escalation in the cost of material is concerned, the average wholesale price index published by Economic Adviser to the Government of India is taken for the period under reference and on a date 30 days prior to the last date of receipt of tenders. The Arbitrator in the present case was of the view that the relevant index that must be applied was the index as of 31st October, 1997 and that the escalation payment ought to be calculated with reference to that date. On this basis, the Arbitrator came to the conclusion that though the amount that would actually be payable to the respondent worked out to Rs. 64.60 lacs, the Award was limited to Rs. 44.91 iacs, since that was the amount which had been claimed by the respondent.
27. The grievance of the petitioner insofar under this head of the award is concerned, is that the Arbitrator was not justified in taking the date as 31st October, 1997 and the date that should have been taken into consideration should have been the actual date on which work was carried out for each item. Now in a case such as the present, it would be necessary to note that the date which the formula requires to be applied is that "applicable to the period under reference". The period under reference obviously does not refer to the index prevailing on a particular date, but over a period of time. The contract does not specifically define what this period under reference should be and it would be only appropriate to presume that this would be the period when the work was carried out. The Arbitrator was of the view that the relevant date would be 31st October, 1997, that being the date when the work was completed. This is a view which has been taken by the Arbitrator on the basis of an interpretation of the terms of the contract. This view may not necessarily accord with the view of the Court because on a reading of the contractual provision, it would be plausible to assume that the expression period under reference must refer to the period during which the work was carried out. However, that would not furnish a reason for interfering with the award for more than one reason. As a practical matter, the Arbitrator has not awarded the wider claim of Rs. 64.60 lacs which would have been due and payable if the relevant date was taken as 31st October, 1997. The respondent had submitted its claim before the Arbitrator by averaging out the indices during the period between January, 1994 and October, 1997. There is merit in the contention of the learned counsel appearing on behalf of the respondent that the work was actually carried out during the aforesaid period and it was, therefore, that the average of the indices over this period was taken into account, particularly since that was the basis on which the Municipal Corporation had itself computed the escalation payments. The price escalation had been claimed for additional quantities which had not been measured and paid earlier. On a perusal of the arbitral award, it is not possible for the Court to come to the conclusion that the Arbitrator has acted outside the scope of his jurisdiction or in breach of the contractual provision. The Arbitrator has interpreted the contract and has awarded escalation on the basis of his construction of the contract. Significantly, the Municipal Corporation had not provided to the Arbitrator what according to it would be the correct amount of escalation payment that would be due and payable. Essentially the period with reference to which price indices have to be taken into account for computing escalation payment cannot be determined with mathematical exactitude, particularly in a case where the contract is executed over a long period of time. So long as the overall approach of the Arbitrator is neither capricious nor arbitrary, it would not be appropriate for the Court to interfere. The Court would not be justified in substituting its own interpretation for the interpretation of the Arbitrator. The Court would not be entitled to reappreciate the material before the Arbitrator with a view to substitute its own findings for those of the Arbitrator. In the circumstances, I do not find any merit in the challenge.
28. The next ground of challenge is in respect of Claim No. 2 under which the Arbitrator has granted a revision of rates in respect of 18 items to the respondent. Insofar as this head of claim is concerned, the learned counsel appearing on behalf of the petitioner has urged that the arbitral award does not take into account the effect of the revised agreement dated 13th March, 1996. Counsel urged that by 8th January, 1994, 47% of the work had been completed. As a result of the revision which took place in March, 1996, substantially higher rates have been given to the respondent, the benefit of which has been given for the work which was completed between January 1994 and October 1997. Moreover, it was sought to be urged that if the Municipal Corporation had accepted the claim of the respondent, by paying the claim in the final bill of Rs. 3.14 Crores, the claim for revised rates would not have survived. It was also sought to be urged before the Court that the claim for revised rates was barred by limitation. Finally, it was urged before the Court that the arbitrator was not justified in revising the rates irrespective of whether or not the Municipal Corporation was responsible for the delay in execution of the work.
29. In considering tenability of these submissions, it would at the outset be necessary to refer to the admitted position which would have an important bearing on this issue. The admitted position is that though the rates in respect of certain items came to be revised by the Municipal Corporation in March 1996 in pursuance of a proposal put up by the Municipal Commissioner to the Standing Committee and a supplementary agreement was entered into, the rates of these 18 items which form the subject matter of Claim No. 2 had not been revised. In respect of the aforesaid 18 items, the supplementary agreement of 13th March, 1996 continued the same rate which prevailed in the year 1989. The question which arose before the Arbitrator was whether as a result of the supplementary agreement, the contractor must be bound to complete the work at the same rates as had been prescribed in 1989 or whether a revision of the rates of those 18 items was called for. The original date for the completion of the work under the contract was 8th January, 1994. The reasons which led the Municipal Corporation to extend the time for the completion of the contract have been adverted to earlier and these are contained in the proposal put up by the Municipal Commissioner for the approval of the Standing Committee. Each of those reasons would amply demonstrate that the delay was not as a result of any failure, breach or neglect of the respondent. Some of those causes may have been outside the control of the petitioner itself, but nevertheless the fact remains that as a result the work under the contract was delayed beyond the original date of completion viz. 8th January, 1994. Under the original contract that was entered into between the petitioner and the respondent, parties contemplated that the work would be completed in January 1994. This assumption was, however, belied by circumstances outside the control of the respondent. The question, therefore, was whether the respondent would be bound to complete the work without any revision in respect of 18 items which form the subject of claim No. 2 and at the same rates which were adopted in the year 1989. The Arbitrator has formed the view that the respondent was entitled to a revision in respect of those 18 items also. The contract does not contain any prohibition. In fact, the well settled position in law is that in such a case a contractor could not be expected to continue on the basis of the original rates for an indefinite period of time beyond the stipulated date of completion. The question as to whether the supplementary agreement that was entered into between the parties on 13th March, 1996 would exclude the respondent from the benefit of claiming a revision of those rates which were not revised at that stage was a dispute which lay within the jurisdiction of the Arbitrator. In holding that the respondent was entitled to a revision, the Arbitrator has not acted outside his jurisdiction. The claim of the respondent for a revision of rates was specifically referred to the Arbitrator. The arbitral award also takes note of the fact that during the pendency of the contract, the respondent had consistently been demanding an upward revision of rates both before and after the execution of the supplementary agreement. Moreover, it would be relevant to note that the rates which have been determined by the Arbitrator as revised rates have been adopted from the rates which were sanctioned by the Municipal Corporation for similarly worded extra items incorporated in the supplementary agreement or in the rate demanded by the respondent whichever is lower. The Arbitrator has therefore followed a cogent basis for adopting the revised rates. In a matter such as the present, it is trite law that it is not open to the Court even it were to have another view of the matter to reappreciate the reasonableness of the reasons in the arbitral award.
30. In a recent judgment of a Division Bench of this Court consisting of H. L. Gokhale and Mrs. Nishita Mhatre, JJ. Decided on 7th August, 2002, in BFIL Finance Limited v. G. Tech Stone Ltd. (Appeal No. 284 of 2002 in Arbitration Petition No. 499 of 2001 [2002(4) Mh.LJ, 434]), it has been clearly laid down that it is not the jurisdiction of a Single Judge considering a challenge under Section 34 to interfere with an arbitral award only because the Judge has a different view of the matter. The Division Bench has reiterated the principle that a mere contravention of law would not amount to a breach of public policy. The approach of the Court, where the arbitrator has not travelled beyond the arbitration clause and has acted within jurisdiction has to be to sustain the award unless a clear breach of public policy has been made out. I do not find that there is any breach of public policy in the present case.
31. The learned counsel appearing on behalf of the petitioner has drawn the attention of the Court to the well settled position in law. In Alopi Parshad and Sons Ltd. v. The Union of India, , Mr. Justice J. C. Shah (as the Learned Chief Justice then was) speaking for a Bench of three Learned Judges of the Supreme Court held that the parties to an executory contract are often faced with a turn of events which they did not at all anticipate. There is, therefore, no general liberty reserved to the Courts to absolve a party from its liability to perform a contract. In Thawardas Pherumal v. Union of India, , the Supreme Court held that an arbitrator is not a conciliator and cannot ignore the law or misapply the law in order to do the things which he thinks just and reasonable. In Steel Authority of India v. J. C. Budharaja, Government and Mining Contractor, , the Supreme Court held that where the arbitrator makes a deliberate departure from the contract, it would not merely amount to the disregard of his authority or misconduct on his part, but may tantamount to mala fide action on the part of the arbitrator. There can be no doubt about the principle of law that the Arbitrator is appointed by the parties to adjudicate upon their disputes in terms of the contract. An arbitrator who travels outside the bounds of the contract acts without jurisdiction and a conscious disregard of the law or the provisions of the contract will vitiate the award Associated Engineering Co. v. Government of Andhra Pradesh, . Similarly, in a judgment in Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises, the governing principles relating to whether an arbitrator has acted outside his jurisdiction were enunciated. This decision was considered in a subsequent judgment of the Supreme Court in West Bengal State Warehousing Corporation v. Sushil Kumar, 2002(4) All MR 251 (SC). The Supreme Court there held that the award made by an arbitrator can be set aside if he has acted beyond jurisdiction, and to find out whether the arbitrator has travelled beyond jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause and if the arbitrator acts beyond the arbitration clause, then it would be deemed that he has acted beyond jurisdiction. The Supreme Court held that in order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant can raise a particular claim before the arbitrator. In the present case, Clause 97 of the General Conditions of Contract has already been adverted to. Clause 97 contemplates that all disputes or differences whatsoever which shall at any time arise between the parties touching or concerning the works or the execution or maintenance thereof or the contract or, the construction, meaning operation or effect thereof or as regards the rights or liabilities of the parties whether during or after the completion of the contract shall be referred to arbitration upon written notice of either party. The only exception is in respect of those matters Where the decision of any person is by the contract expressed to be final and binding. It is not the case of the petitioner that any of the issues on which the arbitrator adjudicated were decisions on which the decision of any authority had been made final or binding under the terms of the contract. In fairness, it must be stated that no such submission is urged. In the earlier part of this judgment, I have adverted to the claims of the respondent submitted in the letters dated 31st December, 1998 and 21st October, 1999 and the letter of appointment of the Arbitrator by the petitioner on 3rd August, 2000. The claims of the respondent were referred to arbitration and were arbitrable in view of the plain language used in the arbitration clause. Therefore in view of the principles of law which have been laid down in several judgments of the Supreme Court, the Arbitrator must be held to have acted within his jurisdiction in adjudicating upon the claims and, no case for the interference of the Court with the Award has been established under Section 34 of the Act.
32. Finally, before disposing of the challenge in respect of claim No. 2, it would be necessary to advert to the challenge on the ground of limitation. In the arbitration petition, it has been set out in ground No. c(7) that the respondent had applied for a revision of rates in a letter dated 18th December, 1996 which was rejected by the Chief Engineer on 15th December 1997. The invocation of arbitration was by a letter dated 21st October, 1999. The invocation to arbitration was, therefore, preferred within a period of three years of the rejection of the claims and was therefore within limitation. Counsel for the petitioner then sought to submit that the claims had been raised even earlier in the year 1993 and thereafter. It is not possible to conclude in the present case that the period of limitation had commenced from the first letter written by the claimant. The work under the contract was being executed and as the contract progressed running account bills were raised from time to time. Measurements were recorded from time to time as part of the R. A. bills. It is only upon the preparation of the final bill, following the completion of the work that the claims were crystallized. In the circumstances. I am of the view that the challenge on the ground of limitation cannot be acceded to.
33. The next head of challenge is, insofar as the Arbitrator has awarded claim No. 4. (item No, 18) which was for the work of remobilization in October 1996. The admitted fact is that a demobilization was directed to be carried out since work was stopped by the P.W.D. authorities before the monsoon of 1996. The respondent was in the circumstances asked to demobilize. Payments were made for demobilization. However, when the respondent was asked to remobilize work in September, 1996, only 50% of the payment was made for the purpose of remobilization. The Arbitrator has found that in these circumstances, there was no justification to deny the respondent the benefit of the balance of the 50% payment on account of remobilization. I do not find any reason to interfere with this part of the award which is unexceptionable.
34. Insofar as Claim No. 5 is concerned that claim related to idle machinery. The Arbitrator has held that there was a certain amount of exaggeration in the claim. The contractor had claimed damages for idle machinery and idle labour on account of various causes. Some of these causes were outside the control of the petitioner whereas others were, in the view of the arbitrator, causes which could have been avoided by the petitioner. A total of 520 days was claimed to be the period of total idleness for material and labour. Since the arbitrator was of the view that the petitioner could not be held responsible for the entire period, an estimate was taken of the total period for which the petitioner must be held liable. This was estimated at 40%. Similarly, the Arbitrator has held that only 15% of the hire charges could be granted to the respondent and that the respondent was not entitled to full hire charges. Insofar as the award of this claim is concerned, it was urged that it is based on conjecture and surmise. There is no merit in the submission. The attention of the Court has been drawn by Counsel for the respondent to volumes C-8/A-2 and C-8/A-3 submitted on behalf of the respondent before the Arbitrator. The aforesaid compilation contains a reference to the extent of idleness in respect of machineries which had been deployed and in each case, the reasons for the prolonged period of idleness. The reasons why the machinery had been rendered idle have been duly scrutinized by the Arbitrator. The Municipal Corporation has been held responsible only for those reasons which were within its control. In the circumstances, I find there is no merit in the challenge to this part of the award.
35. Finally that leads the Court to the question of interest. The Arbitrator has awarded interest at the rate of 12% per annum from 1st March, 1999 on claim No. 1. On claim Nos. 2, 4 and 5, the Arbitrator has awarded interest at the rate of 12% from 21st October, 1999. On all the claims, thus awarded future interest has been awarded at the rate of 18% per annum. Claim No. 1 related to additional work which had been carried out and which had not been duly measured. That was a claim is respect of the final bill. The Arbitrator has awarded interest with effect from 1st March, 1999, since the claim made by the respondent was rejected by the Municipal Corporation on 24th February, 1999. Having regard to the facts and circumstances of the present case. I am of the view that the grant of interest for the pre-reference period by the Arbitrator in respect of the aforesaid claim is justified and does not call for any interference, save and except in regard to the rate of interest, In the facts of the case, I am of the view that it would appropriate to allow interest at the rate of 9% to the respondent. Insofar as claim Nos. 2, 4 and 5 are concerned, it was sought to be urged on behalf of the petitioners that these claims were in respect of an award of damages to the respondent and that in view of the judgment of a Division Bench of this Court in Maharashtra State Electricity Board v. Bharat Conductors Pvt. Ltd., 1996(2) Mh.L.J. 971, the award of interest pendente lite was not called for. In the case which came up before the Division Bench, though a written notice by the claimant was issued in December, 1992, the arbitral award had awarded interest from 1st February, 1983. Having regard to these circumstances the award of interest for the period prior to the making of the claim was held to be unjustified. On the other hand in the present case, interest has been awarded only with effect from the invocation of arbitration. In the letter dated 21st October, 1999, the respondent specifically included a claim for the award of interest. In the circumstances, while I am of the view that the award of interest was warranted, the rate of interest should be suitably reduced and the respondent should be granted interest only at the rate of 9% with effect from 21st October, 1999. Similarly, insofar as the award of future interest is concerned, the award of interest at the rate of 18% per annum is in my view unjustified. The award of interest shall accordingly stand reduced to 9% per annum, on and from the date of the award until payment or realization. Subject to the aforesaid modification in the rate of interest, I do not find any reason to interfere with the Award. The petition shall accordingly, stand disposed of.
There shall be no order as to costs.
Parties to act on a copy of this order duly authenticated by Associate of this Court.