Gauhati High Court
State Of Tripura vs Smt. Anita Barman And Ors. on 18 April, 2000
Equivalent citations: AIR2001GAU34, AIR 2001 GAUHATI 34, (2000) 4 ARBILR 151 (2000) 3 GAU LR 409, (2000) 3 GAU LR 409
Bench: M.L. Singhal, D. Biswas
JUDGMENT Biswas, J.
1. This appeal is directed against the judgment and decree passed by the learned Assistant District Judge No. 1, West Tripura, Agartala on 27-4-1995 in Title Suit No. 72 (ARB) of 1993. The learned Judge by the impugned judgment decreed the suit making the award a rule of the Court.
2. We have heard Mr. S. Deb, learned senior counsel, assisted by Mr. B. Debnath, learned counsel for the appellant as well as Mr. B. Das and Mr. A.K. Bhowmik, learned senior counsel, assisted by Mr. S.M. Chakraborty and Mr. A. Bhattacharjee, learned counsel for the respondents.
3. Before we embark upon a discussion on the legality and validity of the award as well as the impugned judgment. It is considered necessary to clear the facts that eventually culminated in this appeal.
4. The appellant issued a notice inviting tender (NIT) for the construction of West District Hospital at Hapania, West Tripura. The predecessor-in-interest of the respondents, late Bir Chandra Barman was eventually given the contract at 9% over the tender rate. A formal contract agreement was also executed by the parties and it was stipulated that the construction work would be completed within a period of 24 months. There was admittedly some delay in execution of the work because of certain omissions on the part of the appellant resulting into price escalation of various item required for the project. The contractor, Shri Bir Chandra Barman, since deceased, insisted for revision of contractual rate to the tune of 35% above the estimated cost. The appellants after consideration allowed price escalation at the rate of 10.88% over the value of the contract-rate for all works executed after 19-12-1990. The decision was communicated vide letter dated 23-12-1991. The contractor refused to accept the Increase at 10.88% worked out by the Executive Engineer. Thereafter, the matter was referred to Shri R.C. Chakraborty, Superintending Engineer, P.W.D. by the Chief Engineer, P.W.D. under Memo No. F. 6(27)-PWD (C)/91 dated 24-3-1992 to arbitrate over the dispute. The sole arbitrator after hearing the parties allowed enhancement to the tune of 27% w.e.f. 19-3-1990 on all items by the award dated 11-5-1993. The award was duly filed before the learned Assistant District Judge who made the award a rule of the Court by the impugned judgment.
5. Mr. Deb, learned senior counsel for the appellant at the very outset raised objection on the ground that the award was recorded beyond the terms of the contract. Elaborating this contention, the learned counsel pointed out that the arbitrator acted in violation of the terms of the contract embodied in Clause 10(c) read with Clause 25 of the contract and on this ground urged for setting aside the impugned judgment.
6. Mr, Bhowmik, learned senior counsel for the respondents, however, argued that the dispute having been referred to the arbitrator cannot now be questioned by the authorities concerned. According to him, the price escalation occurred due to delay caused by various lapses committed by the appellant State in handing over the site and the design etc. of the proposed construction in its entirety at a time and, therefore, they are estopped from taking objection to the award, specially when they themselves have had referred the matter to the sole arbitrator.
7. The rival contentions reproduced above in an epitomized form necessitate a minute scrutiny of the terms of the contract. Hence we reproduce herein below the terms of arbitration embodied in Clause 25 and the terms relating to price escalation embodied in Clause 10(c) of the contract:--
"CLAUSE 25. Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever, in any way arising out of or relating to the contract, designs, drawing, specifications, estimates, instructions, orders or those, conditions or otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by the Chief Engineer. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant, that he had to deal with the matters to which the contract relates and that in the course of his duties as Government servant he had expressed views on all or any of the matters in dispute or difference. The arbitration to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, such Chief Engineer or as aforesaid at the time of such transfer, vacation of office on inability to act, shall appoint another person to act as arbitrator in accordance with the terms of the contract. Such persons shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by such Chief Engineer or as aforesaid should act as arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all. In all cases where the amount of the claim in dispute is Rs. 50,000/ - (Rupees fifty thousand) and above the arbitrator shall give reasons for the award.
Subject as aforesaid the provisions of the Arbitration Act, 1940, or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause.
It is also a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute.
It is also a term of the contract that if the contractor(s) do/does not make any demand for arbitration in respect of any claim (s) In writing within 90 days of receiving the intimation from the Govt. that the bill is ready for payment, the claim of the contractor(s) will be deemed to have been waived and absolutely barred and the Govt. shall be discharged and released of all liabilities under the contract in respect of these claims.
The arbitrator(s) may from time to time with consent of the parties enlarge the time, for making and publishing the award."
"CLAUSE 10C. If during the progress of the works the price of any material incorporated in the works (not being a material supplied from the Engineer-in-charge's store 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 rule or order (but not due to any changes in sales tax) and such increase exceeds ten per cent of the price and/or wages prevailing at the time of receipt of the tender 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 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 Superintending Engineer (whose decision shall be final and finding) attributable to delay in the execution of the contract within the control of the contractor.
Provided, however, no reimbursement shall be made if the increase is not more than 10% of the said prices/wages and if so the reimbursement shall be made only on the excess over 10% and provided further that any such increase shall not be payable if such increase has become operative after the contract or extended date of completion of the work in question.
If during the progress of the works the price of any material incorporated in the works (not being a material supplied from the Engineer-in-charge's stores in accordance with Clause 10 hereof) and / or wages of labour is decreased 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 sales tax) and such decrease exceeds ten per cent of the prices and/or wages prevailing at the time of receipt of the tender for the work Government shall in respect of materials incorporated in the works (not being materials supplied from the Engineer-in-Charge's stores in accordance with Clause 10 hereof) and/or labour engaged on the execution of the work after the date of coming into force of such law, statutory rule or order be entitled to deduct from the dues of the contractor such amount as shall be equivalent to difference between the prices of materials and/or wages as they prevailed at the time of receipt of tender for the work minus ten per cent thereof and the prices of materials and/or wages of labour on the coming into force of such law, statutory rule or other.
The contractor shall for the purpose of this condition keep such books of account and other documents as are necessary to show the amount of any increase claimed or reduction available and shall allow inspection of the same by a duly authorised representative of Government and further shall at the request of the Engineer-in-Charge furnish, verified in such a manner as the Engineer-in-charge may require and documents so kept and such other information as the Engineer-in-Charge may require.
The contractor shall within a reasonable time of his becoming aware of any alteration in the price of any such material and/or wages of labour give notice thereof to the Engineer-in-Charge stating that the same is given pursuant to this condition together with an information relating thereto which he may be in a position to supply."
8. Before we scan the provisions relating to arbitration and the limitations thereon imposed under Clause 10(c), it would be of convenience to refer in brief to the case laws cited at the Bar. The decision in Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises, (1999) 9 SCC 283 : (AIR 1999 SC 3627) clearly lays down the ratio that the Arbitrator cannot travel beyond his jurisdiction as vested on him by the terms of the agreement and he is to act within the parameter of the agreement. Para-22 of the judgment reads as follows:-- (Para 21 of AIR) "22. Further, in the present case, there is no question of interpretation of clauses 17 and 18 as the said clauses are so clear and unambiguous that they do not require any Interpretation. It is both, in positive and negative terms by providing that the contractor shall be paid rates as fixed and that he shall not be entitled to extra payment or further payment for any ground whatsoever except as mentioned therein. The rates agreed were firm, fixed and binding irrespective of any or rise in the cost of the work covered by the contract or for any other reason or any ground whatsover. It is specifically agreed that the contractor will not be entitled or justified in raising any claim or dispute because of increase in cost of expenses on any ground whatsoever. By ignoring the said terms, the arbitrator has travelled beyond his jurisdiction as his existence depends upon the agreement and his function is to act within the limits of the said agreement. This deliberate departure from the contract amounts not only to manifest disregard of the authority or misconduct on his part but it may tantamount to mala fide action."
9. For the purpose of adjudication of the controversy in the instant case, there being striking similarity between the case at hand and the case dealt with by the Supreme Court, we feel that the above decision is adequate enough for appreciation of the dispute of this case. It is clear from the above judgment that in a case where it is provided in the agreement that the Contractor shall be paid enhanced rate on escalation of price in the event of certain exigency. Such provision shall have to be construed pre-emptive of any claim for enhancement on the grounds not specified in the contract. Any departure therefore made by the arbitrator would amount to misconduct on his part rendering the award invalid. In the same tune, the Supreme Court in V.G. George, v. Indian Rare Earths Ltd., Respondents (1999)3 SCC 762 : (AIR 1999 SC 1409) held that an award beyond the scope of the agreement entered into by the parties cannot be sustained. In CH. Ramalinga Reddy, v. Superintending Engineer, (1999) 9 SCC 610, the Supreme Court after review of the number of earlier decisions delivered on the subject reiterated that an arbitrator is bound by the contract between the parties and is to decide the claims referred to him within the terms of the contract. The Supreme Court, it is needless to point out, set aside the award to the extent which was made beyond the terms of the contract.
10. Besides, Sri S. Deb, learned senior counsel has also referred to the judgments in The Chief Administrator, Dandakaranaya Project, Koraput, Orissa v. Prabartak Commercial Corporation Ltd., Calcutta, AIR 1975 Madh. Pra. 152. Prabartak Commercial Corporation Ltd. v. Chief Administrator, Dandakaranya Project, (1991) 1 SCC 498 : (AIR 1991 SC 957) and also the judgment of this Court passed in F.A. 21 of 1993, Jagadish Ch. Saha v. Food Corporation of India (2000 (1) Gauhati LR 58) (unreported) Sri A.K. Bhowmik, learned senior Counsel relied upon the decision in Steel Authority of India Ltd. v. J. C. Budharaja, Government and Mining Contractor, (1999) 8 SCC 122: (AIR 1999 SC 3275), Grid Corporation of Orissa Ltd., v. Balasore Technical School, AIR 1999 SC 2262, Prasun Roy v. The Calcutta Metropolitan Development Authority, AIR 1988 SC 205, Hindustan Tea Co. v. K. Sashikant & Co., AIR 1987 SC 81, Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar, AIR 1987 SC 2316, Tarapore and Company v. Cochin Shipyard Ltd., Cochin AIR 1984 SC 1072 P.M. Paul v. Union of India, AIR 1989 SC 1034, Bina Rani Dey v. State of Tripura (1998) 3 Gauhati LR 23 : (AIR 1998 Gauhati 139), Jagdish Chander Bhatla v. Lachhman Das Bhatla, (1994) 1 Cur.CC 23 : (1993 AIR SCW 590) and Vishwanath Sood v. Union of India, AIR 1989 SC 952 on various points relating to the arbitration. We have taken due note of the decision placed on behalf of both the parties. Since the law relating to the jurisdiction and powers. Since the law relating to the jurisdiction and powers of an arbitrator is well settled, we do not think it is necessary to reproduce the decisions in details. In our considered opinion, the resolution of the dispute at hand primarily rest on interpretation of the provision of Clause 10(c) and 25 (c).
11. Let us now refer back to the arbitration clause. For the instant case Clause 25 permit arbitration of all questions and disputes in relation to the interpretation of specification, designs, drawings and instructions and all workmanship or materials used in the work or as to any other question, claim, right matter or thing whatsoever, in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions orders etc. It provides that such dispute may be referred to the sole arbitrator to be appointed by the Chief Engineer. The phrase "except where otherwise provided" excludes those questions for which provisions have been made for adjudication in a different mode in the contract itself. The basis for claim of enhancement sought by the contractor is escalation of price of essential materials because of delay and obviously the provisions in Clause 25 do not make room for reference of this question to the sole arbitrator. Therefore, it will have to be examined whether provisions in Clause 10 (C) take care of the dispute relating to enhancement of rate on escalation of price of materials because of delay in execution of the work. If no effective machinery to take care of a dispute of this nature has been provided in Clause 10(c). It would require further consideration whether such claim for enhancement is at all permissible under the contract entered into by the parties and if not whether the parties can enlarge the scope of the terms of the contract by reference of such dispute to the arbitrator and taking part in the proceedings on such reference.
12. Clause 10(c) as reproduced above, takes care of escalation of price of any material, not being a material supplied from the store and of increased in wages of labour as a direct result of any change in law or statute provided such increase exceeds 10% of the price and wages prevailing on the date of issue of works-order. Clause 10(c) also provides for that any claim thereunder has to be in accordance with the opinion tendered by the Superintending Engineer arrived at on inspection of the books of account and other documents in support of such increase. The opinion of the Superintending Engineer in this behalf has also been agreed to be final and binding. It is, therefore, clear that enhancement of rate is permitted on certain contingency as indicated in Clause 10(c). In other words, it signifies that the contractor is not entitled to claim any enhancement of rate for increase of price of any material for any reason other than those incorporated in Clause 10 (c). Therefore, the claim of the contractor for enhancement of rate to the tune of 35% for delay in execution of the work, even though such delay has been occasioned by the laches on the part of the State authorities, is not permissible under Clause 10 (c). This alternately leads to the conclusion that the award given by the sole arbitrator appointed by the Chief Engineer for increase of rate to 27% has been contrary to the provisions embodied in Clause 10(c). Ex facie, the award for such increase given by the sole arbitrator is beyond the scope of provision of Clause 10 (c) and as such it would have to be set aside.
13. Sri Bhowmik for the respondent argued that the appellants themselves have allowed 10.88% increase of the rate after taking into consideration the delay factor in execution of the work and they themselves have referred the matter to the sole arbitrator. According to Mr. Bhowmik, the appellants having referred the matter to the arbitrator for adjudication cannot now be allowed to take objection to the award on the ground that it is beyond the scope of the terms of contract. Here comes the question of estoppel and acquiescence. It is true that the appellants have referred the matter to the sole arbitrator the dispute for enhancement of rate and have also taken part in the proceeding before the arbitrator. This reference even though by the state-appellants appear to be beyond the scope of arbitration as provided in Clause 10 (c) and as such the appellant authority cannot be estopped from challenging the legality and validity of the award which is on the face of it contrary to the terms of the contract. The reference to the sole arbitrator may be competent, but this reference can not vest with the arbitrator a jurisdiction with regard to the matter not covered by the contract. The sole arbitrator on such reference and after hearing the parties ought to have acted within the parameter of the contract, specially the provisions of Clause 10 (c). His powers were limited to the matters specifically vested with him as per provision of Clause 25 and he had apparently no jurisdiction to assume powers to adjudicate over the matters covered by Clause 10 (c) and over other matters not specifically provided for in the contract. In our opinion, while recording the award, the arbitrator travelled beyond the terms of the contract and, as such, the award can not be validated by the Court on the ground that it is the State authority who had themselves referred the matter to the arbitrator. The law of estoppel, acquiescence will not apply as this will tantamount to negation of the contract. Hence had the terms of the contract been rewritten, the situation would have been altogether different. It may be clarified here that the increase of the price for any ground not covered by the contract is a matter of administrative discretion and, as such, the enhancement of contract amount @ 10.88% by the authorities cannot operate as a precedent to authorise the arbitrator to deal with the question on the basis of such increase. We are constrained to hold that Clause 10(c) provides for enhancement of rate on escalation of price of any material on certain contingency and the decision of the Superintending Engineer thereon is final and binding. As such no escalation can be allowed on any ground beyond the scope of Clause 10(c). There is no escape from the conclusion that in the absence of any definite clause for enhancement of rate on escalation of price on the ground of delay, no enhancement on such ground can be allowed. It was palpably wrong on the part of the arbitrator to make the award permitting enhancement of rate by 27%.
14. The discussion above leads to the inevitable conclusion that the arbitrator acted beyond the terms of contract in making the award and, therefore, it was not correct on the part of the learned Civil Judge, Senior Division, to make it a rule of the court under the provisions of Section 17 of the Arbitration Act, 1940.
15. In the result, we allow the appeal and set aside the judgment and decree passed by the learned Civil Judge. Senior Division in T.S. No. 72 (ARB) of 1993. We also set aside the award dated 11-5-1993 challenged in this appeal.