Dar Builders vs Chief Engineer and Anr.

Mansoor Ahmad Mir, Judge.

This appeal is directed against the judgment dated 28.05.1998 passed by learned Single Bench of this Court in Arbitration Petition No.564/89,

whereby and where under the application presented by the appellant for making the award rule of the Court stands rejected.

FACTS:

The appellant and respondents i.e. parties thereto entered into a contract for construction of paying ward (Civil Works) out of the 500 Beded

Hospital in the SheriKashmir Institute of Medical Sciences, Soura Srinagar. The work as per original proposal had been advertised at a cost of Rs.

150.00 lacs. The formal order was issued to the appellant herein in terms of agreement dated 19th February 1983 and the work was to be

completed within a period of one year and six months from the date of issue of N.I.T.

The agreement was executed on 19th February 1983 which contains arbitration clause also. The said contractual work was not completed by

the appellant within stipulated period and accordingly, request for extension from time to time was made and granted.

Disputes had arisen between the parties and accordingly, Mr. Shonthu, the then Chief Engineer, was appointed as Arbitrator vide Government

Order No. PW1141 of 1987 dated 17.12.1987. The respondents filed objections and resisted the claim. The Arbitrator has passed the award

dated 18.10.1989.

The appellant moved an application under Section 14 of the Jammu & Kashmir Arbitration Act, for short the Act. The Arbitrator was directed

to produce the award in the court. The respondents filed objections and resisted the application and following issues were framed, the onus

whereof was put on the respondents;

Whether the Arbitrator has misconceived the proceedings and misconducted himself while passing the award?

2 Whether the Arbitrator has not returned any finding regarding clauses 34 and 45 of the Arbitration agreement entered between the parties?

3 Whether the arbitrator while making award has not applied his mind and has merely repeatedly the claim of the petitioner in the award?

4 Whether the award is cryptic and speaks malafides on the part of the Arbitrator?

The respondents have not lead any evidence despite passing preemptive orders and ultimately the court closed evidence vide order dated

29.01.1996, which reads as under;

Order dated 22.1.1996 is clear, unambiguous. None of the witnesses as stated by Noor Mohammad Supervisor previously are present today.

Order dated 22.1.1996 is preemptive that in case witnesses are not produced on the next date of hearing, their evidence shall stand closed. Today

witnesses are not present, as such, their evidence is closed. Process the case for hearing.

The learned Single Bench passed the final order dated 28th May 1998 and set aside the award and directed the Government to appointment

new arbitrator.

The appellant feeling aggrieved of the said order, filed this appeal which is on the Board of this Court for the last more than seven years.

Mr. Qureshi argued that the impugned order has been passed illegally. There is nothing on the file suggesting the fact that Arbitrator has

misconduct himself or proceedings and, has passed the award which is not in terms of the agreement. The impugned order has been passed

ignoring the mandate of provisions of the Act and law laid down by the Apex Court. The arbitrator is within his jurisdiction to pass lump sum

award. The court has no powers to go through the mental process of the arbitrator. The arbitrator is not under legal obligation to pass a speaking

award. The learned Single Judge has exercised powers as an appellate Court. The learned Single Bench has no powers to lift the veil and look

behind the contain as to what had actually happened between the parties.

The learned counsel for the respondent on the other hand argued that the arbitrator has misconducted himself and, the proceedings. The

arbitrator has passed the award which is not in terms of the agreement.

Heard. Perused. Considered.

It is worthwhile to mention herein that this court is not in a position to examine the record, if any, maintained by the Arbitrator during the arbitration

proceedings because no such record was produced. However, during the course of arguments, the learned counsel for the appellant produced

Photostat copies of the agreement and objections filed by the respondent no.4 before the arbitrator.

The meat of the matter is whether the impugned order has been passed by learned Single Judge rightly or wrongly and the arbitrator has

misconducted himself or the proceedings.

In order to marshal out all these facts, it is necessary to reproduce relevant portion of the award herein in order to notice that what claims were

made by the appellant before the arbitrator under each head;

(i) Nonavailability of site in time and its availability later on in piecemeals.

(ii) Nonavailability of departmental stores as per the requirements from time to time.

(iii) Nonavailability of construction drawings.

(iv) Delays caused due to the incompletion of other allied works awarded to other agencies, which were required to be completed simultaneously.

(v) Stoppage of work for 1 1/2 years for final decision with regard to the execution of the work either as per the original proposals or restricting

the same at three floors only.

(1) Loss suffered due to delay by the deptt. in handing over the site and supply of departmental stores and the drawings. Rs. 34,54,135.00

(2) Loss suffered due to idle machinery due to above reasons Rs. 24,44,100.00

(3) Loss suffered due to increase in the cost materials used for construction. Rs. 15.08,902.00

(4) Loss suffered due to increase in the wages of skilled and unskilled workers. Rs. 10;10,350.00

(5) Loss suffered due to maintaining office for additional years. Rs. 1,53,023.00

(6) Loss suffered due to margin money blocked against Bank Guarantee. Rs. 2,80,000.00

(7) Loss suffered due to interest paid on advance. Rs. 2,59,000.00

(8) Loss of profit due to incorrect escalation formula. Rs. 86,000.00

(9) Loss due to incorrect formula for Material escalation. Rs.2,44,000.00

Total Rs. 94,39,600.00

While going through the entire claim, it appears that the petitioner has made claim under different 'heads' only on the ground of delay which has

crept in the execution of the work.

The core question is whether the appellant is entitled to the claims projected by him, noticed above, in terms of agreement.

It is profitable to reproduce condition of the agreement herein;

PERIOD OF COMPLETION.

Time being the essence of the contract the work under this contract shall be completed by the end of December 1983. The completion schedule is

subject to the operation of the Force Majoure clause which for the purpose of this contract is defined as acts of God. Civil commotion, sabotage,

fires, floods, earthquakes, explosions, or other cathstrophies, epidemics, quarantines, restrictions, strikes and other labour troubles or other

transportation delays beyond the control of the contractor for which only extension in time considered reasonable by the Department shall be

granted and the contractor shall have no claim for compensation or increase in rates etc. or shortages for restoring damages to works, plant and

material. The work shall be executed side by side with the other connected works being executed side by side with the other connected works

being executed by other agencies and in case of any delay in work suitable time extension shall be granted but the Department shall not be liable to

any claims of the contractor on this account.

This clause makes time as the essence of the contract and provides that if work is not completed within the stipulated time the contractor is

only entitled to extension of time. Further, petitioner is also not entitled to the loss suffered due to, delay i.e. increase in the cost of materials used

for construction, increase in the wages of the labourers, expenses for maintaining the office for additional years, loss due to incorrect formula for

material escalation and loss of profit due to incorrect escalation formula.

The contractor, as per condition 14 of General Conditions of the Contract, is also not entitled to any compensation for stoppage of work. It is

apt to reproduce condition 14 of the General Conditions of the Contract herein:

TEMPORARY SUSPENSION OF WORK

The Engineer Incharge may suspend the work wholly or in part for such period as he may deem necessary, due to unsuitable whether or for such

other causes as are considered unfavourable for the execution of work, or for such time as is necessary due to failure of the contractor to carry out

any orders given to him.

It is also profitable to reproduce condition 34 of General conditions of the Contract herein:

EXTRA WORK, ALTERATIONS, ADITIONS OMISSIONS AND VARIATIONS.

The Engineer Incharge with the approval of Chief Engineer may make any variation of the form, quality and quantity of the works or any part

thereof that may in his opinion be necessary or desirable. The Engineer Incharge shall be empowed to order to the contractor to do any of the

following:

(a) Increase or decease the quantity of any work included in the contract:

(b) Omit any portion of work.

(c) Change the character or quality or kind of any such work.

(d) Change the levels, lines, positions and dimensions of any part of the work; and

(e) Executive additional works of any kind necessary for the completion of the works.

No such variation as aforesaid shall in any way vitiate or invalidate the contract. The value, if any, or such variation shall be taken into account in

ascertaining the amount of the contract price and determine as per original contract. No such variation shall be made by the contractor of his own

without any order in writing of the Engineer Incharge.

If at any time after the commencement of the works, the Engineer Incharge for any reason whatsoever does not require the whole works as

specified on this agreement to be carried out, then he shall give notice in writing in this behalf to the contractor who shall not claim any payment or

compensation whatsoever on account of any profit or advantage which he might have derived from the execution of the works in full, which he did

not derive in consequence of the full amount of work not having been executed by him. The contractor shall not also claim any compensation by

reason of any alteration having been made in the original specifications, drawings, designs and instructions which involve any curtailment of the

works as originally contemplated.

In terms of this clause, the contractor cannot make any claim for awarding the compensation for the stoppage of work as claimed by him under

claim (v) reproduced hereinabove.

Condition 45 of the General Conditions of the Contract reads as under:

STOP PAGE OF WORK.

If the work is suspended for sometime on account of bad weather, floods, outbreak of fire or nonavailability of materials or tools and plants, etc.

or due to any cause beyond the control of the contractor, no compensation shall be paid to the contractor on account of the aforesaid reasons but

reasonable extension in time shall be granted at the request of the contractor.

While going through condition 45 of General Conditions of the Contract, it is specifically provided that if the work has not been completed

within the time frame due to the cause which was beyond the control of the contractor, the contractor is not entitled to any compensation. The

contractor in this claim has mainly projected that material was not made available in time and thus is entitled to compensation which expression is

contrary to this clause of the contract.

The arbitrator has passed the lump sum award it cannot be ascertained that how much amount has been awarded to the appellant for,

nonavailability of departmental stores i.e. nonavailability of material and, incompletion of other allied works allotted to other agencies. It can also

not be ascertained how much has been awarded as a loss to the contractor for stoppage of the work.

In Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises and another, reported in 1999(9) SCO 283, the Apex Court

has ruled as under:

The next decision on which reliance is placed is Continental Construction Co. Ltd. v. State of M.P. In the said case, it was contended by the

contractor that the contract could not be completed within the stipulated time because of alleged gross delay on the part of the State in allotment of

work and discharge of its obligation under the contract. He had, therefore, incurred unforeseen expenditure and claimed damages to the tune of

Rs. 5,29,812. The matter was referred to the retired EngineerinChief, PWD, Bhopal, who partly allowed the contractor's claim. The award was

set aside by the District Judge. Appeal was also dismissed by the High Court and in appeal before this Court, it was contended that the contractor

was not entitled to extra cost for material and labour in terms of the contract. This Court held that the arbitrator misconducted himself in allowing in

claim without deciding the objection of the State that in view of the specific clause of the contract, the contractor was not legally entitled to claim

extra cost.

In New India Civil Erectors (P) Ltd. v. Oil & Natural Gas Corpn. this Court again considered the contention wherein the arbitrator has passed

an award contrary to the specific stipulation/condition contained in the agreement between the parties. The Court observed thus: (SCC p.79, page

9)

It is axiomatic that the arbitrator being a creature of the agreement, must operate within the four corners of the agreement and cannot travel

beyond it. More particularly, he cannot award any amount which is ruled out or prohibited by the terms of the agreement. In this case, the

agreement between the parties clearly says that in measuring the builtup area, the balcony areas should be excluded. The arbitrators could not have

acted contrary to the said stipulation and awarded any amount to the appellant on that count.

In Steel Authority of India v. J.C. Budharaja, reported in AIR 1999 SC 3275, the Apex Court has observed as under;

Clause 32 of the agreement specifically stipulates that no claim whatsoever for not giving the entire site on award of work and for giving the

site gradually will be tenable and the contractor is required to arrange his working programme accordingly. Clause 39 further stipulates that no

failure or omission to carry out the provisions of the contract shall give rise to any claim by the Corporation and the Contractor, one against the

other, if such failure or omission arises from compliance with any statute or regulation of Government or other reasons beyond the control of either

the Corporation or the Contractor. Obtaining permission from Forest Department to carry out the work in wild life sanctuary depends on statutory

regulations. Clause (vi) of General condition of the contract also provides that failure or delay by the Corporation to hand over to the Contractor

possession of the lands necessary for the execution of the work or any other delay by the Corporation which due to any other cause whatsoever

would not entitle the contractor to damage or compensation thereof; in such cases, the only duty of the Corporation was to extend the time for

completion of the work by such period as it may think necessary and proper. These conditions specifically prohibit granting claim for damages for

the breaches mentioned therein. It was not open to the arbitrator to ignore the said conditions which are binding on the contracting parties. By

ignoring the same, he has acted beyond the jurisdiction conferred upon him. It is settled law that arbitrator derives the authority from the contract

and if he acts in manifest disregard of the contract, the award given by him would be arbitrary one. 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. In the present case, it

is apparent that awarding of damages of Rs. l lakh and more for the alleged lapses or delay in handing over work site is, on the fact of it, against

the terms of the contract.

In V.G. George v. Indian Rare Earths Ltd., reported in AIR 1999 SC 1409, the Apex Court has observed as under;

The arbitrator has come to the findings that the entire mining area covered with tender was made available to the appellant but according to

the arbitrator mining was not possible in some days in the month of April 1980 and whole month of May 1980 on account of obstructions by

kudikidappukars and local public. The above finding of the arbitrator is in respect of the issue No. 15 which forms part of the award. While

awarding the amount the arbitrator did not take note of the above Clause (c) of the tender notice which is a part of the agreement and under which

the respondent would not be liable for such obstruction. Therefore, we hold that the amount awarded under Claim No.3 is beyond the scope of

the agreement entered into between the parties and, therefore, the awarded amount in respect of Claim No.3 cannot be sustained.

The Apex Court in a recent judgment in case Bharat Coking Coal Ltd. v. M/s Annapurna Construction, reported in AIR 2003 SC 3660, has held

that when the arbitrator exceeds jurisdiction that is misconduct. It is profitable to reproduce paras 14, 18 and 39 of the judgment herein;

The question is as to whether the claim of the contractor is de hors the rules or not was a matter which feel for consideration before the

arbitrator. He was bound to consider the same. The jurisdiction of the arbitrator in such a matter must be held to be confined to the four corners of

the contract. He could not have ignored an important clause in the agreement; although it may be open to the arbitrator to arrive at a finding on the

materials on records that the claimant's claim for additional work was otherwise justified. 18. So far as these items are concerned, in our opinion,

the learned sole arbitrator should have taken into consideration the relevant provisions contained in the agreement as also the correspondences

passed between the parties. The question as to whether the work could not be completed within the period of four months or the extension was

sought for on one condition or the other was justifiable or not, which are relevant facts which were required to be taken into consideration by the

arbitrator.

However, as noticed hereinbefore, this case stands on a different footing, namely, that the arbitrator while passing the award in relation to some

items failed and/or neglected to take into consideration the relevant clauses of the contract, nor did he take into consideration the relevant materials

for the purpose of arriving at a correct fact. Such an order would amount to misdirection in law.

In the given circumstances, the arbitrator has passed the award against the terms of the contract and misconducted himself and the

proceedings.

The arbitrator has also not taken into consideration the correspondences passed between the parties. The respondents have specifically

pleaded in the objections that the appellant (contractor) has addressed some letters and have prayed for extension of time. It is profitable to

reproduce relevant portion of the objections filed by the respondent before the arbitrator herein;

Reference is also invited to the petitioner letter No. Nil dated 14.7.1983 addressed to the Executive Engineer 500 Bed Hospital Division Soura

Srinagar wherein the petitioner has indicated that although he was in need of cement and steel, his workmen could continue work w.e.f 14.7.83. It

is, therefore, clear that the work was in progress from 28.6.83 to 17.7.83 contrary to what has been claimed by the petitioner

Work could not be executed during the winter months of January and Feb. 1984 because of weather conditions. It is a natural phenomenon in the

valley of Kashmir that the construction work remains suspended during the winter months and so has been in this case also..............

In response to the aforementioned reference of 25th of Sept. 1984 the contractor/petitioner has vide his letter No: DB/PW31584 dated

16.11.1984 confirmed that both skilled and unskilled labour at the site are not available because of curfew imposed in the vicinity of Soura. They

have assessed 75 days as being lost by curfew..................

In terms of the mandate of condition 6 of the Contract read with the letter of appellant, mention of which is made by the respondent in the

objections, referred hereinabove, the contractor's claim that he suffered loss due to increase in the wages of skilled and unskilled labour is not

tenable.

While going through the award it is also difficult to ascertain as to what amount has been awarded by the arbitrator to the contractor for the

loss due to increase of the wages of skilled and unskilled labours.

Viewed thus, we hereby hold that the arbitrator has misconducted himself and also misconducted the proceedings. Accordingly, we hold that

the impugned judgment merits to be upheld for the reasons given hereinabove.

Accordingly, the appeal is dismissed alongwith all connected CMP(s).