Kerala High Court
Union Of India vs Haji C M Abdul Khader on 20 December, 2019
Equivalent citations: AIRONLINE 2019 KER 885
Bench: C.T.Ravikumar, N.Nagaresh
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR
&
THE HONOURABLE MR.JUSTICE N.NAGARESH
FRIDAY, THE 20TH DAY OF DECEMBER 2019 / 29TH AGRAHAYANA, 1941
Arb.A.No.41 OF 2015
AGAINST THE ORDER AND DECREE DATED 18-12-2014 IN OP(ARB).21/2009
OF DISTRICT COURT,THALASSERY
APPELLANT:
UNION OF INDIA
REPRESENTED BY THE EXECUTIVE ENGINEER,
KANNUR CENTRAL DIVISION,
CENTRAL PUBLIC WORKS DEPARTMENT, IST FLOOR,
KMC BUILDING, NEAR GANDHI MAIDAN,
PAYYANNUR, KERALA - 670 307.
BY ADVS.
SRI.K.R.RAJKUMAR, ADDL.CGSC
SRI.K.RAMAKUMAR (SR.)
RESPONDENTS:
1 HAJI C M ABDUL KHADER
KURDOLI WHITE HOUSE, 5TH MILE, P.O. CHENGALA,
KASARAGOD, KERALA - 671 541. (DIED)
2 ADDL.R2.
SMT.NAFEESABI, KUDROLI WHITE HOUSE, 5TH MILE,
P.O.CHENGALA, CHERKALA, KASARAGOD, KERALA -671 541.
3 ADDL.R3. SRI.SHRAJU MOHAMMED KADER,
H.NO.2/304, ORCHID AVENUE, BABU NAGAR,
BIBANDER GOA- 403006.
4 ADDL. R4. SMT.CINAMMUNISSA,
W/O.P.M.MANSOOR, AQUE MARINE, PAYYAMBALAM,
KANNUR, KERALA- 670001.
5 ADDL.R5. KALANDAR SHANIBU, KUDROLI WHITE HOUSE,
5TH MILE, P.O.CHENGALA, CHERKALA, KASARGODE,
KERALA- 671541.
Arb. A. No.41 OF 2015
2
6 ADDL.R6. ISMAIL SHAHILUDHEEN,
KUDROLI WHITE HOUSE, 5TH MILE, P.O.CHENGALA,
CHERKALA, KASARGODE, KERALA.
(THE LEGAL HEIRS OF THE DECEASED RESPONDENT ARE
IMPLEADED AS ADDL. R2 TO R6 AS PER ORDER DATED
23.3.17 IN IA 1088/17)
R1-6 BY ADV. SRI.RANJITH VARGHESE
R1-6 BY ADV. SRI.RAHUL VARGHESE
R1-6 BY ADV. SMT.SANTHA VARGHESE
R1-6 BY ADV. SRI.K.L.VARGHESE SR.
THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON
09-10-2019, THE COURT ON 20-12-2019 DELIVERED THE FOLLOWING:
Arb. A. No.41 OF 2015
3
[CR]
JUDGMENT
~~~~~~~~~ Dated this the 20th day of December, 2019 Nagaresh, J.
Aggrieved by the order and decree dated 18.12.2014 in O.P.(Arb) No.21/2009 of the District Court, Thalassery, the Union of India has preferred this appeal under the Arbitration and Conciliation Act, 1996.
2. The Executive Engineer, Kannur Central Division of CPWD invited tenders on 12.01.2005 for the work of construction of bulk services and development to RTC.III, CRPF, Peringom, Kerala. The work included construction of Arb. A. No.41 OF 2015 4 internal roads, peripheral roads, culverts, drains, parade ground and one RCC bridge. The estimated cost was ₹5,30,58,016/- and the time allowed for execution of work was 18 months. The respondent-Claimant was awarded the work. In the agreement executed between the parties, it was agreed that if the prices of materials and/or wages of labour required for execution of the work increase, the Contractor shall be compensated for such increase. However, no escalation shall be paid for work executed in extended contract period. It was also stipulated that no such compensation shall be payable for a work for which the stipulated period is equal to or less than 18 months.
3. The work was awarded to the respondent as per letter dated 23.03.2005 with stipulated date of start of work as 14.04.2005 and stipulated date of completion of work as 13.10.2006. The work was actually completed only on 30.06.2007 with a delay of 260 days. The parties blamed each other for the laches and lapses committed by them due to which the delay was caused.
Arb. A. No.41 OF 2015 5
4. The respondent-Claimant invoked arbitration clause and the matter was placed before a Sole Arbitrator. The respondent-Claimant put forth four claims:-
Claim No.1 - Increase in rates by 35% for
certain works after stipulated period
of contract - ₹40,11,573/-
Claim No.2 - Escalation in prices of bituminous
items - ₹1,21,77,063/-
Claim No.3 - Interest at the rate of 15% per
annum from 30.06.2007.
Claim No.4 - Cost of arbitration
The appellant-Union of India opposed the claims made by the respondent.
5. On appreciation of the evidence before him, the Arbitrator concluded that the appellant is responsible for delay of 4½ months in the work and the delay during period between 13.10.2006 to 28.02.2007 should be treated as one attributable to the department. At the same time, the Arbitrator found that delay beyond 28.02.2007 is attributable to the respondent- Claimant. On calculation of data, the Arbitrator awarded an Arb. A. No.41 OF 2015 6 amount of ₹3,78,220/- against Claim No.1. To arrive at this figure, the Arbitrator did not rely on vouchers signed by the suppliers and workers which were produced by the respondent. Instead, the Arbitrator relied on average Wholesale Price Index (WPI) of the Government of India.
6. As regards Claim No.2, the Arbitrator concluded that 15% increase should have been built into the basic rate of bitumen and the rate of bitumen taken by the Contractor shall be ₹15,776/- per Tonne. On that basis, the Arbitrator awarded ₹17,00,000/- against Claim No.2. The Arbitrator further awarded 10% simple interest on Claim No.1 and Claim No.2 from 30.12.2007 i.e., six months from the actual date of completion of work. An amount of ₹75,000/- was awarded as cost of arbitration to the respondent-Claimant. In conclusion, the Arbitrator held that the appellant shall pay to the respondent-Claimant a sum of ₹21,53,220/- plus simple interest. The total amount so calculated was to carry future interest at 10% per annum from the date of Award till the date of payment.
Arb. A. No.41 OF 2015 7
7. Aggrieved by the said Award dated 29.10.2008, the appellant filed O.P.(Arb) No.21/2009 invoking Section 34 of the Arbitration and Conciliation Act, 1996, before the District Court, Thalassery. Before the District Court, the appellant contended that the Arbitrator exceeded his powers in awarding amount towards price escalation since the agreement undoubtedly prohibited payment of any such amount. The District Court found that the grounds alleged by the appellant in O.P. (Arb) No.21/2009 could be appreciated only if the finding of the Arbitrator is re-appreciated and evaluated, which is not permissible in a petition under Section 34 of the Act. On that ground, the District Court dismissed the petition.
8. The learned Central Government Counsel Advocate Sri. Rajkumar K.R. appearing for the appellant argued that no Arbitrator could have adjudicated on matters not provided under the contract. The Arbitrator by allowing price escalation, travelled outside the contract, which is impermissible. The District Court miserably failed to notice that the Award of the Arbitrator was beyond the jurisdiction or competence of the Arb. A. No.41 OF 2015 8 Arbitrator. The District Court ought to have held that as long as increase in rates for price escalation is not provided for in the contract, the said issue could not have been subjected to arbitration. The learned Central Government Counsel argued that the delay in execution of work was solely attributable to the respondent-Claimant and the Arbitrator as well as the District Court failed to take note of this fact.
9. Relying on the judgment of the Madras High Court in Sree Kamatchi Amman Constructions v. Divisional Railway Manager [(2007) 4 Arb. LR 261 (Madras)], the learned Central Government Counsel urged that if the Arbitrator decides a dispute which is beyond the scope of the reference or beyond the subject matter of the reference or if he makes the Award disregarding the terms of reference or the arbitration agreement or terms of the contract, it would be a jurisdictional error beyond the scope of reference. Relying on the judgment of Bombay High Court in Prabhubhai Jadhavji Rathod v. Union of India and others [2008 (3) Arb. LR 204 (Bombay)], the Central Government Counsel argued that Arb. A. No.41 OF 2015 9 when the arbitration agreement does not permit increase in rates on the ground of price escalation in respect of the contract in question, the Arbitral Tribunal ought not have awarded amounts towards price escalation. It is settled position that the Award of an Arbitral Tribunal cannot be contrary to law and that which is not permissible in law cannot be granted in arbitral proceedings. Relying on the judgment of Bombay High Court in Hindustan Petroleum Corporation Limited v. Batlibol Environmental Engineers Ltd. and another [2008 (1) Arb. LR 166 (Bombay) (DB)], the counsel argued that even in the case of Force Majeure which is beyond the control of both parties, an Arbitral Tribunal will not be justified in granting compensation. Therefore, in view of the settled position of law, the Award passed by the Arbitrator as well as order in O.P. (Arb) No.21/2009 of the District Court, Thalassery, are liable to be set aside by this Court, contended the Central Government Counsel.
10. The learned counsel for the respondent-Claimant, on the other hand, argued that the respondent was always Arb. A. No.41 OF 2015 10 ready and willing to execute the work in question within the stipulated time. The site of work was not handed over to the respondent in time. The respondent was not provided with the drawings of the work and suitable directions to enable him to start the work. The sketches provided to him did not mention the length or angle for marking of alignments. Even the Assistant Engineer under the appellant had admitted that alignment was not marked on certain missing points. Designs and drawings were not issued to the respondent to start the work. The delay in prompt payment of bills by the appellant also contributed to the delay. Due to the omission of the appellant, it was almost sure that the work cannot be finished within the stipulated time. Therefore, the respondent had issued two notices dated 08.08.2006 and 10.10.2006, both much before the expiry of the agreed period of work, seeking to extend the period, also making it clear that the work can be so carried out only if amounts are given towards price escalation. On the basis of the said materials, the appellant permitted the respondent to complete the work. After Arb. A. No.41 OF 2015 11 completion of work, the appellant turned around and said that no amount will be paid towards price escalation. The learned counsel for the respondent relied on the judgments of the Apex Court in (1) P.M. Paul v. Union of India [1989 Supp (1) SCC 368], (2) Assam State Electricity Board and others v. Buildworth Private Limited [(2017) 8 SCC 146], (3) K.N. Sathyapalan (Dead) By LRs. v. State of Kerala and another [(2007) 13 SCC 43], (4) General Manager, Northern Railway and another v. Sarvesh Chopra [(2002) 4 SCC 45], (5) Asian Techs Limited v. Union of India and others [(2009) 10 SCC 354] and (6) Bharat Drilling and Foundation Treatment Private Limited v. State of Jharkhand and others [(2009) 16 SCC 705] to justify price escalation awarded by the Arbitrator. The learned counsel for the respondent argued that scope of interference in an arbitral Award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, is very narrow and limited and to drive home the point, the learned counsel relied on the judgments of the Apex Court in (1) Associate Builders v. Delhi Development Authority [(2015) 3 SCC 49], (2) Arb. A. No.41 OF 2015 12 Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI) [2019 SCC OnLine SC 677] and (3) Infopark (Kerala) v. Billmoria & Company Ltd. Mumbai [2018 (1) KHC 449 (DB)].
11. We have heard the learned Central Government Standing Counsel appearing for the appellant and the counsel for the respondent.
12. The thrust of the arguments on behalf of the appellant is that there is no price escalation clause in the agreement, covering the claim made by the respondent. The agreement is sacrosanct and the Arbitrator ought not have compensated for price escalation. In the absence of an agreement for price escalation, the said dispute is not arbitrable and hence the Arbitrator ought not have ventured to decide the issue. The Award is therefore tainted with patent illegality. The Central Government Counsel argued that the Arbitral Tribunal could not have taken cognizance of any claim which is against the terms and conditions of the contract.
13. In Asian Techs Limited (supra) which came up Arb. A. No.41 OF 2015 13 before the Apex Court, in the arbitration clause in the agreement therein, it was provided that if the work is delayed due to non-availability of government stores or due to non-availability of tools or breakdown, time for completion of work can be extended and no claim in respect of compensation or otherwise howsoever arising as a result of such extension shall be admitted. The Apex Court, however, held that such a clause only prohibits Department from entertaining the claim, but did not prohibit the Arbitrator from entertaining it, and if the Arbitrator considers such a claim, it cannot be said that the Award is without jurisdiction.
14. In Bharat Drilling and Foundation Treatment Private Limited (supra) considered by the Apex Court, the agreement provided that no claim for idle labour, idle machinery, etc. on any count will be entertained and that no claim shall be entertained for delays in communicating decision drawing or specifications by the Department. It was further stipulated that in case it is not possible for the Department to make the entire site available on the Award of the work, the Arb. A. No.41 OF 2015 14 Contractor will have to arrange work accordingly and no claim in this regard will be entertained, though suitable time extension can be granted. The Apex Court therein relied on the judgment in Board of Trustees for the Port of Culcutta v. Engineers-De-Space-Age [(1996) 1 SCC 516] in which it was held that a similar clause prohibited the Department from entertaining claim for interest on those grounds, but it did not prohibit the Arbitrator from awarding interest.
15. The learned counsel for the appellant relied on a Division Bench judgment of this Court in Infopark (Kerala) (supra). That was also a case where the agreement specifically excluded price escalation, but the Arbitrator did grant compensation. It was argued in the said case that by entertaining claims for price escalation, the Arbitrator exceeded his jurisdiction, and therefore the Award is in violation of fundamental policy of Indian law. The Division Bench noted that the appellant in the said case had extended time limit for completion of work clearly indicating that the time is not considered as essence of the contract and the respondent was Arb. A. No.41 OF 2015 15 entitled to be compensated for the escalation in quantity as well as cost.
16. In General Manager, Northern Railway (supra), the Apex Court held that under the Indian law, in spite of a contract to the contrary, if the Contractor makes it clear that escalation of rates or compensation for delay shall have to be made by the employer and the employer accepts performance by the Contractor in spite of delay, then the claim of the Contractor can be entertained.
17. The Apex Court in judgment in K.N. Sathyapalan (Dead) By Lrs. (supra) considered the question whether in the absence of any price escalation clause in the original agreement and a specific prohibition thereon in the supplemental agreement, the appellant could have made any claim on account of escalation of costs and whether the Arbitrator exceeded his jurisdiction in allowing such claims as had been found by the High court. The Apex Court held that ordinarily the parties would be bound by the terms agreed upon in the contract, but in the event one of the parties to the Arb. A. No.41 OF 2015 16 contract is unable to fulfill its obligations under the contract which has a direct bearing on the work to be executed by the other party, the Arbitrator is vested with the authority to compensate the second party for the extra costs incurred by him as a result of the failure of the first party to live up to its obligations. The Apex Court held that in such circumstances, the Arbitrator has acted within his jurisdiction in allowing some of the claims on account of escalation of costs which was referable to the execution of the work during the extended period. In the judgment in Assam State Electricity Board (supra) also, the Apex Court took a similar view.
18. Looking at the issue involved in the backdrop of the judgments of the Apex Court, let us examine the justifiability of the Award in this case. The core issue to be decided is whether there was any provision in the contract for allowing price escalation, and if not, whether the Arbitrator was justified in compensating the respondent for price escalation. It is an admitted fact that the agreement between the appellant and the respondent prohibited payment for price escalation, in Arb. A. No.41 OF 2015 17 respect of contracts for which the agreed period of work is equal to or less than 18 months. Therefore, going by the said clause, the appellant is not liable to grant any amount to the respondent for escalation of price of any materials. However, the Apex Court has held that if the work is delayed due to the employer and the employer has extended the time for completion of work, in such cases an Arbitrator will be within his jurisdiction if he entertains the claim for compensating price escalation. In the case on hand, Exts.C43 and C49 would show that the respondent-Claimant had sought for extension of time and had completed the work, which was accepted by the appellant. This is a case where the respondent-Claimant had made it clear that compensation for escalation of rates consequent to delay shall have to be made and the appellant had accepted the performance of the contract by the respondent-Claimant.
19. Ordinarily, the parties would be bound by the terms contained in a contract. But, in the event one of the parties to the contract is unable to fulfill his obligation which has a direct Arb. A. No.41 OF 2015 18 bearing on the work to be executed by the other party, then the Arbitrator can very well compensate the latter. Taking into consideration the factual aspects disclosed from the pleadings, we are of the opinion that the District Court, Thalassery is justified in not interfering with the Award, in the light of the judgments pronounced by the Apex Court which are cited hereinabove.
20. In this regard, it is to be noted that the work was awarded on 29.10.2008 and the period of contract was 18 months from the date of commencement of the work. Since the work commenced on 14.04.2005, it ought to have been completed by 13.10.2006. Since there was delay on the part of the appellant, the respondent forwarded Ext.C43 notice dated 08.08.2006 and Ext.C49 notice dated 10.10.2006, both before the expiry of the original period of contract, bringing to the notice of the appellant that the period of contract will have to be extended to complete the work. In the said notices, the respondent-Claimant had also sought for higher rates of payment due to escalation of price. The appellant did not Arb. A. No.41 OF 2015 19 reject the claim for enlargement of time and for payment of higher rates for escalation of costs when the work was progressing. To the contrary, the appellant has been requiring the respondent to complete the work within the period granted. In the circumstances, it can only be concluded that time was not the essence of the contract and appellant voluntarily permitted the respondent to complete the work within the extended period. Under such circumstances, going by the judgment of the Apex Court in General Manager, Northern Railway (supra), the appellant cannot contend that the Arbitrator travelled beyond his authority.
21. The strenuous contention of the appellant is that there was no omission on the part of the appellant in performing its part of the contract and the delay, if any, can only be attributed to the respondent-Claimant. As stated earlier, the period of contract was from 14.04.2005 to 13.10.2006. The respondent was granted extension of time up to the date of conclusion, viz. 30.06.2007. The Arbitrator found that while schematic or typical drawings for culverts could give Arb. A. No.41 OF 2015 20 some guidance to the Contractor, substantial work on the culverts cannot be done unless the basic details, namely invert level, number of pipes, and details of wing walls, etc. are given. The Arbitrator further found that the claimants could have of course taken up the work on the formation, but still the fact remains that without the details for culverts, the formation work would have been taken up by piecemeal thereby reducing the productivity. Thus, appreciating the facts, the Arbitrator held that the appellant was liable for delay of 4½ months in the work between 13.10.2006 and 28.02.2007. The finding of the Arbitrator regarding the delay in work and attributability thereof on the appellant, are being questions of fact, neither the District Court in an appeal filed under Section 34 of the Arbitration and Conciliation Act nor this Court entertaining a petition under Section 37 of the Act, will be justified in interfering with those findings.
22. Therefore, in view of the findings of fact made by the Arbitrator on the basis of materials available before him and in view of the judgments of the Apex Court in defining the Arb. A. No.41 OF 2015 21 competency of the Arbitrator in awarding compensation for price escalation, we are of the opinion that the District Court, Thalassery was justified in dismissing O.P.(Arb) No.21/2009 filed by the appellant. Hence, we find no merit in the above Arbitration Appeal and the same is, accordingly, dismissed.
Sd/-
C.T. RAVIKUMAR, JUDGE Sd/-
N. NAGARESH, JUDGE aks/10.10.2019