Siri Ram Syal and Sons (Engineers) Pvt. Ltd. vs IRCON International Ltd. and Another

Shiv Narayan Dhingra, J.—This petition is filed by the petitioner under Sections 14 and 17 of the Arbitration Act, 1940 for giving directions to the Arbitrator to file the award along with all documents and other record as well as to make the award a rule of the Court. On filing of the petition, notice was sent to the learned Arbitrator, who filed the award and the proceedings. The respondent M/s IRCON International Ltd. on receipt of notice filed objections against the award under Sections 30 and 33 of the Arbitration and Conciliation Act, 1940 (for short ''the Act'') with a prayer that the award be set aside.

Brief facts relevant for the purpose of deciding this petition and the objections are that the petitioner entered into two sub contracts with respondent No. 1 bearing Nos. IRCON/BD/553/Contract dated 3.3.1989 and IRCON/BD/RIP/553/Pavements dated 16.11.1989 for carrying out road improvement between Daud Khandi to Chandina Bypass (RIP-I) and Comilla Bypass to Feni Bypass (RIP-III) on the National Highway between Dhaka and Chittagong in Bangladesh. The main contracts were issued by the Bangladesh Government in favour of M/s IRCON. M/s IRCON had given sub-contracts to the petitioner. A dispute arose between the petitioner and respondent No. 1, as petitioner made allegations of breach of agreements by respondent No. 1 and its failure to make payment of the amount due to the petitioner. Petitioner invoked Arbitration Clause in the agreements. On this respondent No. 2 was appointed as the Sole Arbitrator and the claims of the petitioner were referred for adjudication to the learned Arbitrator. Respondent No. 1 also made counter claims against the petitioner. Learned Arbitrator after considering all the claims and counter claims of the parties the material and evidence placed before him and after granting hearing to the parties made a common award in favour of the petitioner on 27th November, 1997 awarding Bangladesh Taka (BDT) 1,69,21,488/- and US$ (USD) 8,39,177.15 along with interest. The notice of making and signing of award was given by the learned Arbitrator to the parties vide letter dated 12th December, 1997.

Before the learned Arbitrator the claimant/petitioner had made several claims against which different amounts were awarded. The table showing the claims of the petitioner and the amount awarded is as under:

Claim Brief title/description of claim Amount claimed Award No. 1. Bills passed but not paid BDT 13,77,964 USD 13,796.14 BDT 10,88,964 USD 13,796.14

Work done but not paid BDT 1,71,42,455 USD 1,71,133.30 BDT 33,72,482 USD 36,774.94

Balance of escalation payment BDT 3,95,62,571 USD 21,44,387.37 BDT 1,13,86,774 USD 7,12,012.54

Arbitrary reductions BDT 6,29,427 USD 8,547.00 BDT 5,40,063 USD 7,333.53

Royalty for earth BDT 10,49,911 BDT 4,65,306

Loss due to breach of contract BDT 10,26,840 USD 69,260.00 BDT(-)21,85,967 USD 69,260.00

Wrong and illegal recoveries BDT 74,92,644 BDT 25,59,587 8. Share of proceeds of insurance BDT 16,98,788 BDT NIL

Recovery for defects rectification BDT 2,89,880 BDT NIL

Recovery for empty cement bags BDT 1,69,920 BDT 1,32,110

Interest on delayed payments BDT 10,21,896 USD 34,153.44 BDT NIL USD NIL

Interest on withheld payments BDT 87,63,695 USD 10,608.17 BDT NIL USD NIL

Prolongation expenditure/losses BDT 6,29,41,970 Rs 20,41,754 BDT NIL Rs NIL

Cost of arbitration Rs 5,00,000 (Provisional) Rs NIL Total BDT 1,73,59,319 USD 8,39,177.15 Rs NIL

The IRCON made several claims against different heads. The award passed by the Arbitrator in respect of the claims made by IRCON are as under:

Claim Brief title/description of claim Amount claimed Award No. 1. Overheads on FLO BDT 3,99,000 FC 9,94,000 BDT 41,831 FC NIL 2. Collection of field samples BDT 2,36,00,000 BDT 2,50,000

Dressing and levelling of BPs BDT 3,50,099 BDT NIL

Cost of ''as-Build'' drawings BDT 2,34,503 FC 5,47,173 BDT NIL FC NIL

Additional thickness of BC and WC BDT 1,56,36,081 BDT NIL

P and M hired after 31.5.91 BDT 76,06,000 BDT NIL

Cost of IRCON''s own P and M BDT 8,77,68,000 FC 7,15,44,000 after 31.5.91 BDT NIL FC NIL

Provision of sand asphalt layer BDT 1,32,88,588 BDT NIL

Internal shifting of PandM by trailer BDT 8,16,000 BDT 46,000

Guarding and shifting of FD 40 dozers BDT 7,27,706 BDT NIL

Court case of private BPs BDT 1,42,287 BDT 1,00,000

Repair of rain cuts BDT 8,61,838 BDT NIL

Liquidated damages BDT 65,75,000 FC 21,92,000 BDT NIL FC NIL

Excess escalation paid to SRS BDT 2,62,80,700 BDT NIL

Prolongation expenditure/losses BDT 5,51,70,000 FC 4,76,70,600 BDT NIL FC NIL

Pendente lite and future interest BDT and FC- BDT and FC Not specified - See para 8

Cost of arbitration Not specified NIL

Total BDT 4,37,831 FC NIL Rs NIL

The respondent filed objections against the award u/s 30/33 of the Act, taking following objections:

(i). The award disregards and ignores contractual stipulations between the parties. The Arbitrator has entertained claims in respect of issues not open to the Arbitration and in respect of matter falling in the category of excepted matters.

(ii). The award suffers from error of fact and law apparent on the face of it. The award overlooked and ignored the mandate, i.e., the order of reference requiring separate reasoned award in respect of respective contracts.

(iii). The award was contrary to the express provisions of the contract and the sum awarded by the Arbitrator ignored the contractual stipulation and obligation of the respective parties.

(iv). The Arbitrator evolved its own formula contrary to the contract to award escalation in the cost of items of contract and for cost of extra items. The method evolved by the Arbitrator was contrary to the express provisions of the contract. The counter claims of the IRCON have been rejected by the Arbitrator without any basis.

In the objections, the respondent/IRCON has challenged the award on each claim. Claim No. 1 is in respect of bills passed but not paid. The Arbitrator considered the admissions of the IRCON and found that there was no dispute in respect of USD component of the claims in respect of RIP 1 and RIP 3 and there was no dispute in respect of BDT component in respect of RIP 3. The dispute was limited to BDT component of RIP 1. The Arbitrator observed that the difference between the petitioner and the respondent was limited only to recoveries sought to be made by IRCON and the amount of part payment already released to the petitioner. The Arbitrator recorded that IRCON conceded that relief in the recoveries to the extent of BDT.5,87,569/- can be given to SRS (the petitioner) under claim No. 1. The Arbitrator deferred the issue of recovery of BDT.7,11,200/- to be considered along with other recoveries and awarded the claim.

The petitioner in his objection though has challenged the claim but during arguments the entire emphasis of the petitioner was on claim Nos. 2, 3 and 6 and counter claim Nos. 4 and 14. Even otherwise I consider that this Court cannot interfere into the award in respect of this claim since this Court cannot re-determine the merits and arrive at a different conclusion.

As far as claim No. 2 is concerned, this claim is in respect of work done but not paid. The objector/IRCON/respondent submitted that the Arbitrator while adjudicating this claim wrongly disallowed the recoveries made by the respondent on the reasoning that contract does not deal with the materials scattered at site during construction. This finding of the Arbitrator was illegal and contrary to the contract. It is submitted that Para 3 of the conditions of sub-contract, cast obligation upon SRS for the same. It is also stated that award of the amounts made under this claim were beyond the purview of the arbitration agreement being excepted matter. The claim raised by the petitioner in the running bills were found not admissible in view of the contract. It is further stated that onus to prove the claim was wrongly placed on respondent. The respondent was not to dis-prove what was claimed by the claimant. The onus could only be put on the claimant to prove what was claimed by it. It is also stated that under the contract conditions, decision of IRCON in respect of the quantity and rate applicable for the work falling under various clauses was final. The Arbitrator grossly erred in awarding the amount under the claim ignoring contractual stipulations. In the award the Arbitrator observed that since IRCON had not verified/certified bills of the petitioner, the same were being scrutinized by him and the award has been given by the Arbitrator on the basis of his own scrutiny of bills. It is submitted that the work on the contract was done between 1989-1993. The dispute arose during 1994. The petitioner while doing the work had raised the bills simultaneously and these bills were scrutinized by IRCON and payments were made in terms of the contract from time to time. There was no reason for submitting bills in 1994 for the work done between 1989-1993. The Arbitrator gave undue benefit to the petitioner on the ground that bills were lying with the IRCON for few months, though they were not supported by certification by IRCON Engineers of work having been done.

It is argued by IRCON counsel that whenever work was done, a certificate was issued by the Site Engineer about the work having been done. This certificate used to accompany the bill and the bill was to be passed on the basis of this certificate. No bill could be passed unless it was accompanied by a certificate of the Site Engineer supervising the work and giving a certificate of work having been done. The Arbitrator could not have entertained the bills submitted in 1994 before him and scrutinized the bills and passed the bills. This was not within the domain or the scope of the arbitration and the error was apparent on the face of award and the award in respect of this claim was liable to be set aside.

On one hand, the Arbitrator rejected IRCON''s claim regarding machinery deployed by it for the work of the petitioner on the ground that IRCON did not inform SRS of its intention to recover the costs of deployment of its machines during the currency of contract, nor made the recovery for hiring the machinery from SRS bills. But the same test has not been applied by the Arbitrator while considering the bills of petitioner submitted after several years of the execution of contract and after completion of the work.

It is further submitted that claimant had all along been raising its bills in two broad categories; 1) main bills conforming to BOQ (Bill of Quantity) in accordance with contract and 2) miscellaneous bills for additional compensation for those items which did not form part of the BOQ under the contract. The miscellaneous bills were being raised on the principle of back to back payment. Therefore, there was no question of payment of any escalation on such bills. The bill raised by the claimant in respect of the lead between 5 to 10 km. and beyond, came in the category of miscellaneous items for which specific compensation was settled between the petitioner and the respondent taking into account profits and overheads. Neither the USD component was payable on such amount nor escalation was payable on such sums. However, the Arbitrator allowed these payments contrary to the contract.

A claim in respect of the ''borrow pits'' has been allowed by the Arbitrator. It is submitted by the respondent/IRCON that in the joint meeting of petitioner and respondent held on 9th April, 1992, an agreement was arrived between them that royalty was payable to the claimant at the agreed rate of TK 6.00/- cu.m. for Borrow pit No. 10L only and royalty for other pits would be at the rate of TK 3.00/cu.m. Despite this agreement between the parties in respect of this miscellaneous item, the Arbitrator observed that Borrow pits 10L and 11L were close enough and therefore they should have same rate and allowed the claim of the petitioner for royalty of the earth work at the rate of TK 6.00/ per cu.m. It is stated that Arbitrator committed grave error by changing the contract between the parties and awarding higher rate for Borrow pits.

It is further submitted that under claim No. 2, the Arbitrator allowed bills of the claimant for making diversion roads and maintenance thereof despite the fact that these bills were not tenable. Under Clause 8(1) of the general condition of contract, the claimants were supposed to have full knowledge of the main contract between RHD and IRCON. Sub-clause 2 contemplated that the sub-contractor shall complete the Agency works with same terms and conditions as correspondingly applicable to IRCON under the main contract. The BOQ of main contract and the one between the parties was the same except the rates. In the main contract between RHD and IRCON, the scope of work included construction and maintenance of diversion roads and structures for maintaining uninterrupted flow of traffic. There was no separate item for this work in BOQs since this work was an ancillary job connected with the main work of construction and improvement of roads. The respondent had awarded sub-contract to the claimant on the basis of the contract received by it. Since the construction and maintenance of diversion roads was not part of the contract between RHD and IRCON and was a job to be done as part of the main work, no separate BOQs were provided for it. However, the Arbitrator, contrary to the contract, allowed the claim of the claimant in respect of these items, despite the fact that these claims were not supported by the terms of contract. It is submitted that the award in respect of this claim, was liable to be set aside.

Similarly, it is argued that in item No. 7 RIP 3 (claim No. 2), the Arbitrator wrongly awarded claim in respect of lead of earth work raised in bill No. 115 dated 22.7.1994. It is submitted that in the original claim petition, there was no averment that claimants had transported earth beyond one kilometer lead. The IRCON''s stand in the written statement was that claimant had been paid for transporting earth in accordance with the contractual rates. However, during hearing before the Arbitrator, claimant produced bill No. 115 dated 22.7.1994 and the Arbitrator did not invite any comments on this bill from IRCON but allowed the amount of the bill contrary to the contract.

It is submitted that had the claimant transported earth beyond one kilometer, it wold have raised the bills during the currency of the contract and correspondingly IRCON would have also preferred a bill upon RHD for transporting earth for a lead beyond one kilometer. The Arbitrator while agreeing that IRCON did not prefer any such bill, committed a grave error allowing the bill of the petitioner. The Arbitrator also wrongly observed that there was no item of lead over one kilometer in the main contract between IRCON and RHD. While in fact in the main contract between RHD and IRCON in volume 2 item 2.3 specified a rate for lead over one kilometer. Thus, the Arbitrator committed an error of fact on the face of the award by misreading the contract and erroneously passing a bill submitted during the pendency of the Arbitration proceedings before the Arbitrator. Claimant could not have submitted such a bill. All bills were to be submitted during the period when work was done accompanied by a certification from the Site Engineer about the work done. It is stated that had the petitioner effected transportation earth beyond one kilometer of lead, the bill would have been certified by site Engineer and IRCON would also have correspondingly raised bill on RHD. IRCON was not that fool not to raise the bills for the work done. The Arbitrator without giving an opportunity to the respondent even of commenting on the bill allowed the bill.

Claim No. 3 allowed by the Arbitrator is in respect of the payment of balance escalation to the claimant. Along with this claim, claim No. 14 of the respondent has been dealt with by the Arbitrator for refund of excess escalation paid to the claimant. It is submitted by the objector/respondent that the claimant was entitled to escalation of various items mentioned in the bills of quantities in terms of the contract. The admitted position is that the escalation was allowable as per Para 9 of the letter of the petitioner dated 21.12.88 which reads as under:

Claims for extra items and escalation payments etc, shall be passed on to us on back to back basis after taking IRCON''s overheads and profits.

It is stated by the respondent that the respondent was also entitled to escalation from RHD in respect of the contractual items and in order to calculate escalation payable to the respondent by RHD a specific formula was laid down in the contract and in the contract a table of weightages in respect of various items of work was given. The total weightage was one unit for various components and the fraction of the site unit was given in percentage for respective components in which 0.10 was known as a fixed coefficient. Initially the claimant was to be paid escalation corresponding to this formula. However, the claimant later on wanted that escalation should be paid to it on back to back basis and this was agreed by the respondent in terms of above letter. The extra items were not mentioned in BOQ. The letter dated 21.12.88 of the claimant stipulates that the rates of extra items shall be evolved by adding 25% overheads to the actual cost. It is stated that since IRCON had provided their inputs like plant, machinery, Bitumen, cement, steal, etc. to the petitioner free of cost, the cost of such inputs were not to be included while calculating escalation and IRCON was to be entitled to its share of escalation on such inputs. It is submitted that the escalation payments were received by IRCON from RHD and these payments were to be passed on to the claimant on back to back basis after taking IRCON''s overheads share and profits share. IRCON had paid escalation in Bangladesh Taka to the claimant on each RA bill on adhoc basis. IRCON claimed that it had paid more than the amount due/payable to the claimant on account of escalation in accordance with contract and therefore had made a claim of refund of the excess payment. However, the claimant claimed that an amount of BDT.6,53,11,241/- more was due on account of escalation after adjustment of the amount already received by it. The claimant later on enhanced this claim in respect of balance escalation from 6,53,11,241/- to BDT.10,72,42,224/-. Out of this USD component was also claimed, which originally was not claimed.

It is submitted that the learned Arbitrator rejected the methodology adopted by IRCON. According to Arbitrator this methodology did not fully pay costs of the inputs of the claimant and the Arbitrator evolved his own formula and procedure in order to work out escalation payment to the claimant. This formula and methodology was not discussed during the arbitration proceedings and respondent came to know of this formula from the award. It is submitted that the learned Arbitrator himself observed in the award that for calculating escalation first alternative was ''to take care of overheads and profits which have to go to IRCON, the escalation payable to SRS can be worked out on the basis of amount received by IRCON from RHD under the inputs and weightages applicable to SRS and then 25% deduction made therefrom on account of overheads and profits.'' However the Arbitrator did not adopt this approach and adopted a different method of working out escalation which was contrary to the contract and in fact distorted and mutilated the contractual formula for escalation. The Arbitrator wrongly worked out escalation on the basic amount actually paid to SRS against their invoices/bills stating that these basic amounts already excluded overheads and profits of IRCON.

The respondent also submitted that the learned Arbitrator illegally allowed amendment of the claim of the claimant. Initial claim of the claimant against escalation was BDT. 6,53,11,241/. In the proceedings held on 18th July, 1995, it was specifically recorded that parties had agreed that no fresh claim will be entertained hereafter. However, the award of the Arbitrator shows that during hearing held on 3rd August, 1996, SRS (petitioner) enhanced and increased claim from BDT. 6,53,11,241/- (as initially claimed) to BDT. 10,72,74,224/- and split this into BDT component and Dollor component. The proceedings of 3rd August, 1996 do not show any amendment having been allowed or discussed, nor the prior proceedings or correspondence upto 3rd August, 1996 addressed by claimant to the Arbitrator contain any letter or application from claimant requesting for enhancement of the claim. It is stated that this enhancement of the claim came to the knowledge of the respondent only from the award. This enhancement was not there in the proceedings before learned Arbitrator. Allowing enhancement of claim from six crore to ten crore and allowing the splitting up of claim into BDT and US Dollar was an illegal act and the enhancement was allowed by learned Arbitrator in breach of the principles of natural justice, as it was done without notice and without hearing the respondent.

The contractual conditions stipulated that escalation payment was to be made to the claimant on back to back basis after deducting IRCON''s overheads and profits. Thus, in order to calculate the escalation payable to the claimant, the payment received by IRCON must have been before the Arbitrator to work out the amount payable to the petitioner after deducting overheads and profits. However, this method was not resorted to and the award was therefore contrary to the contract. The method adopted by the Arbitrator to calculate escalation by taking recourse to applying a new formula and dividing coefficient of the items between the parties was not in conformity with the contract. In the formula, in order to exclude IRCON''s inputs, the Arbitrator resorted to certain undisclosed adoptions which distorted the entire formula itself.

It is further submitted that as per contract escalation was permissible only on BOQ items and not on extra items. The extra items were to be paid in terms of letter dated 21.12.88 by adding 25% overheads to the actual costs. Since extra items were not present in the contract of BOQs, the question of any escalation did not arise. No rates for extra items were ever fixed so that escalation could be applicable on extra items. Payment for extra items was made on actual cost basis therefore escalation was not applicable on extra items. The learned Arbitrator, contrary to the contract, awarded escalation on extra items also. Respondent pointed out that under claim No. 2 item 7 RIP 3 lead was allowed as an extra item and the Arbitrator for this extra item allowed escalation at Page 13 appendix 4 of the award. Similarly, claim No. 4(a) in respect of sub grade was an extra item and escalation for this extra item has also been allowed in appendix 4 of the claim.

It is submitted by the objector/respondent that the award was a non-speaking award since the Arbitrator relied on some undisclosed factors for arriving at the amount of escalation payable to the claimant. The result achieved by the Arbitrator by applying a new formula was devoid of methodology as given in the contract and applied by IRCON. According to this methodology, only a sum of BDT.1,10,34,000/- were payable as escalation and more than this amount had already been paid, but the Arbitrator''s methodology resulted in a calculation of 7,49,06,805/- as amount payable to the claimant/petitioner.

It is also submitted that awarding BDT. 1,60,233 to the petitioner for breach of contract was also contrary to the contract between the parties. It is pleaded that the petitioner used the material supplied by IRCON from its store. It is not the case of the claimant that it had brought material at site from the market. It is also not its case that at any time it had resisted IRCON offering the material. Claimant had lifted material from IRCON store by incurring expenditure on transport. The claimants were therefore not entitled to any return on inputs made by IRCON in shape of machinery and material. Only IRCON was entitled to entire return on the value of inputs made by it, including the dollar component. Irrespective of the fact that IRCON produced documentary evidence in respect of supply of materials, a claim was made by the petitioner for loss due to breach of contract, and awarded by the learned Arbitrator.

The petitioner''s case was that the building material to be used for culvert/bridge construction/rehabilitation was to be supplied by SRS. However, the material was to be purchased after approval of the rates by GM of IRCON. IRCON later on purchased the material themselves and supplied the same to SRS at their depot. The cost of material at basic rates was recovered from SRS''s bills. IRCON/respondent therefore breached the contract causing them loss under three counts, i.e., 1. loss of overheads and profits on expected escalation, 2. Carriage of material, Ex. IRCON''s depot to site, 3. Loss of foreign currency.

The learned Arbitrator concluded that by making the supplies to SRS, IRCON became the vendor, whose rates had automatic (IRCON''s) approval. Viewed in this context there was no real violation of the contract and SRS suffered no loss. Rather SRS had a benefit that it had not to get the material inspected for quality and had not to make on spot payment for material. The contract did not confer any right on SRS, to purchase material at rates higher than those approved by IRCON and earn extra profit or claims overheads. Still the Arbitrator went on to hold that nevertheless, IRCON''s intervention (in taking over the supply of material) was not at the request of SRS or as a consequence of any default on their part. It was a unilateral action on the part of IRCON so this does not entitle IRCON to pay lesser payment in US Dollar than that prescribed under the contract. The Arbitrator upheld the claim of SRS to get its full share of foreign currency as per contract, amounting to US Dollar 69,260/- and held that IRCON should pay the corresponding amount back in BDT. It is stated by the respondent that this presumption of the Arbitrator was too hypothetic and was not supported by the conduct of the parties.

The petitioner advanced arguments only in respect of counter claim No. 4 wherein the Arbitrator did not allow the claim of IRCON/respondent in respect of failure of the petitioner to provide ''as-built'' drawings. It is submitted by the respondent that it was specifically provided in the scope of the work between RHD and SRS that submission of the ''as-built'' drawings was part of the job and SRS was bound by this condition of contract between IRCON and RHD. Thus it was a job of SRS/petitioner to give ''as-built'' drawings in respect of the work done by the petitioner and the claim of the IRCON was justified.

It is settled law that scope of interference by the Court in Arbitral award is limited. Section 30, provides somewhat in mandatory terms that award shall not be set aside except on one or more grounds enumerated in the provisions. While interpreting this statutory provision, Courts have laid down the circumstances under which the award of an Arbitrator could be set aside under the Arbitration Act of 1940.

If an award is made by the Arbitrator in disregard to the terms of the reference or the arbitration agreement or the terms of contract this is considered as a jurisdictional error. It is settled law that the Arbitrator cannot award an amount which is excepted or prohibited by the terms of the agreement, even if it is raised and referred to the Arbitrator. An award passed by Arbitrator awarding excepted amount would be in excess of his jurisdiction Rajasthan State Mines and Minerals Limited Vs. Eastern Engineering Enterprises and Another, ).

An Arbitrator is not a consulter and his duty is to decide the dispute submitted before him according to legal rights of parties in a fair and reasonable manner. The Arbitrator is not supposed to ignore the contract and write a new contract for the parties. He also cannot act arbitrarily, irrationally or surreptitiously. If he has traveled beyond the contract, he would be acting beyond jurisdiction and his award can be set aside.

An award can be set aside if it is given in violation of principle of natural justice or there is an error apparent on face of the award or the Arbitrator has ignored or violated a clause in the agreement. An award can also be set aside if it is based on proposition of law which is erroneous.

In the present case the main points of contention are claim Nos. 2 and 3. As far as claim No. 6 is concerned, I consider that there is no serious challenge to this claim. The Arbitrator had only directed for retention of dollar component and had not actually awarded anything. He converted the amount received by the claimant to dollars and asked for payment of dollars and directed for refund of equivalent amount in Bangladesh Taka. The serious contention is in respect of award under item Nos. 2 and 3. In item No. 2, the challenge is mainly to 1) royalty on earth in case of borrow pits, 2) passing of bills in respect of leads greater than one kilometer and 3) claim in respect of road diversions.

There was no provision in BOQs in respect of road diversions, neither the respondent had made any claim with RHD in respect of the road diversions. A perusal of sub-contract shows that the sub contract was given to the petitioner in respect of only those items which were there in the contract between RHD and IRCON. Even in respect of extra items, the contract between the petitioner and the respondent was that all payments in respect of extra items shall be on back to back basis. This only shows that the contract between the parties was for execution of only those works for which respondent had entered into contract with RHD and was to get payment from RHD. The extra items could be executed by the petitioner only with the consent of the respondent and the bill was to be raised on the respondent. The respondent in turn was to raise bill on RHD and the petitioner was to receive payment on back to back basis. Thus, no extra item could be claimed for which there was no provision in the contract. It is undisputed fact that there was no provision in the contract in respect of traffic diversions which were to be provided by the contractor while undertaking work of improvement of the roads. It is normal that diversion of roads and routes are provided by the contractor from time to time as required by the situation, at his own costs and labour. No separate quantities were provided in the contract in respect of the diversified routes, neither this item was mentioned in the contract. Thus, providing diversions was the part of the normal work to be done by the contractor and sub-contractor and RHD was not to pay for diversion of routes to IRCON. Similarly IRCON was not to pay for diversion of routes to the sub-contractor, i.e., petitioner.

In the light of the contract that all extra items were to be paid only on back to back basis, unless it is shown that the IRCON had received a claim from RHD in respect of diversion roads, no claim of the petitioner could have been awarded by the Arbitrator. This part of the claim awarded by the Arbitrator is therefore contrary to the contract between the parties. Similarly, the Arbitrator''s observation that pit 10L and 11L were just nearby and the same rate would be applicable for both is also contrary to the specific contract entered into between the parties where a different rate was fixed for pit 10L from other pits. The parties were the best judge of their interests and when the parties entered into a contract that pit No. 10L had a different situation than the other pits and rate for pit No. 10L would be different than other pits, the Arbitrator could not have substituted himself in place of party and could not have given same rate for other pits as for pit No. 10L. This was contrary to contract. The Arbitrator could not have written a new contract for the parties. It is settled law that the Arbitrator is equally bound by the contract between the parties. The award given by the Arbitrator in respect of Borrow pits is, therefore, contrary to contract.

Same is the case in respect of the bills raised by the petitioner after the contract was over, concerning leads beyond one kilometer. The parties had agreed upon a procedure for payment of the bills. Whatever work was being done by contractor, it was being supervised by IRCON Engineers. The bills were being raised by the contractor from time to time. Each bill raised by the contractor was to be accompanied with a certificate of the Site Engineer certifying that the work has been done. The bills were approved only on the basis of these certificates of work done. The Arbitrator could not have decided his own method of approval of the bills and could not have taken upon himself the job of scrutiny of the bills. No doubt, he had a right to decide about unpaid bills, but these unpaid bills had to be those which had been raised during the work period in accordance with the contract and during the currency of the contract. It is not that Arbitrator could entertain any bill which had been put by the petitioner at any point of time without a certificate of having done the work. I, therefore, consider that the Arbitrator''s decision to scrutinize the bills without there being a certificate of execution of the work, was beyond the scope of the arbitration and the amount awarded on this count is also contrary to law. Except on these three counts rest of the award on item 2 is sustainable.

Coming to item No. 3, I consider that the Arbitrator acted totally contrary to the contract. The parties had agreed upon a specific formula for payment of escalation. The escalation could be claimed by the petitioner in respect of the work executed by it and only concerning those items for which respondent had got escalation from RHD. This escalation could be claimed only on back to back basis after making adjustments for overhead charges and profits of the respondent. There is no dispute about the fact that parties had agreed for this mode of calculating escalation. The application of any other formula by the Arbitrator would defeat the contract itself. However, the Arbitrator devised a new formula unconnected with the contract between the parties. The Arbitrator observed that the escalation should be calculated by taking into account basic costs of the petitioner, since basic costs of the petitioner already takes into account overhead charges and profits of the respondent. After observing this the Arbitrator then evolved upon a method of calculating the escalation. The Arbitrator took a constant quotient and devised altogether a new formula for calculating escalation charges. This formula has been devised by the Arbitrator while writing the award. He did not disclose his mind to the parties as to how he was going to calculate the escalation charges, neither it is the case of the petitioner that this formula was suggested by either of the parties. I consider that the Arbitrator transgressed his limits by writing a new contract between the parties for escalation. Moreover, extra items could not have attracted escalation clause. The extra items were to be paid to the petitioner on the basis of actual costs incurred by the petitioner plus overheads of the petitioner. This itself takes into account the escalation. The escalation in respect of items in Bill of Quantities, for which rates were fixed in advance, was provided in contract because of possible escalation in the labour costs and the other costs of the work at the time of actual execution of work. Escalation was not a gift. The escalation clause is provided in a contract because of the actual increase in the cost of execution of the work. Where a work is to be charged on the basis of actual expenditure incurred plus administrative overheads, there can be no question of escalation. However, Arbitrator granted escalation even on those extra items which were charged by the petitioner on actual basis. Thus the approach of the Arbitrator and grant of award against claim No. 3 was totally arbitrarily and contrary to contract. Moreover, there is no justification as to how the Arbitrator allowed the claim for escalation to be changed midway during the arbitration proceedings without notice to the respondent. While initial claim made by the claimant was for BDT.6 crores few lacs, suddenly the claimant changed his claim to BDT.10 crores plus. There is no mention in the arbitration proceedings as to when an application was made for enhancing the claim against escalation. This came to the notice of the respondent when Arbitrator allowed the change in the claim. Obviously, there is a violation of principle of natural justice and the change in the claim regarding escalation during the arbitration proceedings was allowed to be made by the claimant unilaterally without a notice to the respondent. I consider that this was a serious procedural misconduct on the part of the Arbitrator and the award in respect of claim No. 3 is not sustainable on both counts viz. it is contrary to the contract and it is contrary to the principle of natural justice.

The award of the Arbitrator is therefore liable to be set aside in respect of claim No. 2, item No. 3 RIP 3 for a sum of BDT 4,40,685/- and claim No. 2 item No. 7 RIP 3 for a sum of BDT 33,72,438/- and USD 5,057/- and completely in respect of claim No. 3. The objections of respondent are allowed to the extent that award is not sustainable partly in respect of item No. 2 as stated above and completely in respect of item No. 3. Since the award is severable, the rest of the award is made a rule of the Court and the part of the award partly in respect of claim No. 2 and fully in respect of claim No. 3 is set aside.

The petition stands disposed of.