State of M.P. Irrigation Deptt. vs M/s. Mittal and Company

S.K. Dubey, J.

This is an appeal u/s 39 of the Arbitration Act, 1940 (Act) against the judgment and decree dated 29th February, 1988, passed in Civil Suit No. 30-A/87 by Vth Additional Judge to the Court of District Judge, Jabalpur.

Facts giving rise to this appeal are thus :

A notice inviting tender 50/G/dated 12.7.1977 was issued by the Government of Madhya Pradesh, Irrigation Department, Bargi Projects. The tender of the respondent for excavation of foundation, concreting and masonry etc. upto specified elevations in the masonry dam including training wall, spill channel and tail race channel etc. as per specification and design of Bargi Masonry Dam Block No. 1 to 9 plus left key (Phase I) was accepted. An agreement No. 1/DL/1978-79 was executed between the parties. The work was to be completed within 36 months from the date of issue of work order excluding rainy season from 14th June to 15th October. The respondent completed the work during June 1981 from the issue of work order No. 1539/SAC dated 18.1.1978. A dispute arose in respect of certain claims which was referred for decision to the Superintending Engineer in terms of agreement clause 4.3.29.2 which was rejected by the Superintending Engineer in view of clause 4.3.15 as the respondent failed to raise the dispute/claims within the time limit of 30 days of cause of action. The respondent dissatisfied with the final decision of the Superintending Engineer in terms of clause 4.3.29.2 of the agreement called upon the Superintending Engineer to submit those disputes to arbitration. The Superintending Engineer did not take any action to get an arbitrator appointed and to refer the dispute for decision of the arbitrator, therefore, the respondent before the District Judge, Jabalpur filed an application u/s 20(1) of the Act to file the arbitration agreement and to appoint the arbitrator to decide the following claims in dispute:

S. No. Item No Particulars of item Amount Rs.

4 Double silt clearance in bucket portion and in training wall. 24920.00

6 Extra rate for excavation by wedging and barring. 48840.00

7 Grouting of anchor bars 3000.00

10 Claim on account of more cement 7,00,000/-

11 Feeder bags 282,408.00/-

13. Losses due to removal of existing approaches as in 1 General lay-out Masonry Dam Plan vide Page 186 of agreement. 0,00,000.00

14. Losses due to inadequate power supplies. 220,000.00

15 Payment of slurry bags 59,809.00

16 Extra excess charges in interest of old machinery. 200.000.00

17 Excess recovery of interest 150,000.00

22 Losses due to taking over site for Jhiry filling. 600,000.00

24 Payment for replacement of Masonry of DCR in blocks and training wall. 68160.00

25 Excavation and construction of Trash Rack 63280.00

(1)Excavation

(2) Masonry 220508.00

26 Losses due to bad road condition and work stoppage due to rain and slushy road. 200000.00

27 Refund of royalty paid to the State Mining Corporate for extraction of sand from Tilwara Ghat Quarry. in 16000.00

29 Losses due to heavy seepage from cut of trench of Earth Dam near left key Block. 300000.00

30 Losses due to shortage of cement. 300000.00

31 Losses due to reduction of contract amount. 390000.00

33 Losses due to carting of rubble and face stones from Bargi Hills quarry. 1050000.00

34 Losses due to delay in acquisition permission for Bargi Hills quarry. Rs. 500000.00

35 Claim on account of increased fair wages to labour by Irrigation Department. R s. 2431957.00

36 Payment of extra bags used in mix Rs. 100100.00

Total claim amount Rs. s. 9022979.00

The District Judge after notice to the appellant vide order dated 12th April 1985 passed in C. S. No. 33-A of 1984 appointed one Shri V.M. Chitale, a retired Engineer and Secretary to the Government of M.P., as sole arbitrator for making an award in writing within four months after entering on the reference, or after having been called upon to act by notice in writing from any party to the arbitration agreement of within such extended time as the Court may allow.

The sole arbitrator so appointed entered on the reference. After notice, the respondent filed its statement of claim. The appellant filed reply on 9.5.1986. The respondent then filed a rejoinder on 27.6.1986. Reply to rejoinder was filed on 11.8.1986, by the appellant. The parties submitted their documentary evidence in support of their case. The parties did not lead any oral evidence, but on the material adduced argued the case and also submitted written arguments. The sole arbitrator after perusing the statement of claim, reply, rejoinder, reply to rejoinder, evidence adduced and on going through the record carefully made the award in writing concerning the matter in respect of 22 item of claims refereed to him. The arbitrator by a non-speaking award rejected 13 claims and passed the award of the following sums for nine claims:

Rs.

(1) Extra rate for excavation by wedging and barring 1382.00

(2) Claim on account of more cement 24802.00

(3) Feeder bags 282408.00

(4) Losses due to removal of existing approaches as in General lay-out Masonry Dam Plan vide page 186 of agreement. 549960.00

(5) Payment of slurry bags. 34374.00

(6) Extra excess charges in interest of old machinery 162947.00

(7) Losses due to carting of rubble and face stones from Bargi Hills quarry. 317893.00

(8) Claim on account of increased fair wages to labour by Irrigation Deptt. 635632.00

(9) Payment of extra bags used in mix. 97862.00

Total amount awarded Rs. 2107260.00

The arbitrator filed the said award on 14.11.1986 in the Court u/s 14(2) of the Act to make the same a rule of the Court and to pass judgment accordingly. On the same day counsel for the respondent and the Government Pleader one Shri G.P. Choubey took notice to file objections to award, if any, within the time. Appellant filed application/objection u/s 30 of the Act on 11.12.1986 of which reply was tiled by the respondent on 20.11.1987. The trial Court after hearing the parties on the issue raised and perusing the record of the arbitration proceedings and the award filed in the Court, rejected the objection and directed the appellant to pay Rs. 21,07,260.00 and interest thereon at the rate of 12 per cent per annum from 12th November, 1986 till 29th February, 1988 and 9 per cent per annum on the said amount from the date of judgment dated 29.2.1988 till payment.

We have heard Shri A.S. Gaharwar, learned counsel for the State and Shri V.R. Rao learned counsel for the respondent and have gone through the record of the case and the written submissions.

It was first contended that the claims preferred were beyond the time limit and were not entertainable in view of clause 4.3.15 of the agreement which reads thus :

4.3.15 Time limit for unforeseen claims.

Under no circumstances whatever, shall the contractor be entitled to any compensation from Government on any account unless the contractor shall have submitted claim in writing to the Engineer-in-charge within one month of the clause of such claim occurring.

From a bare look at the clause 4.3.15 it is clear that it relates to ''unforeseen claims'' of which claim ii writing is to be submitted within one month to the Engineer-in-charge. The words "of the clause of such claim occurring" clearly indicate the nature of the claims described in the heading. The dictionary meaning of ''unforeseen'' is not foreseen. The expression "unforeseen claims" in relation to performance of the contract or its breach means those claims which arise out of the situations or the circumstances ''unforeseen", ''unexpected'', or which are un provided for in the contract and for which the contract makes no provision. W.J. Talem Ltd. V. Gamboa (1939) I.K.B. 132. Such claims may be of occurrence of loss due to acts of God or for force majeure, such as strikes, break downs, lock-outs, riots, or other unforeseen circumstances for which parties to the contract did not contemplate and for them no provision is made in the contract. The claims which arise out of breach of the contract or flow from the terms of the contract cannot be considered as ''unforeseen claims'' and to such claims the clause fixing a period of one month for submitting the claim from the date of cause or of occurring of the clause will not apply.

On merits of the claim learned counsel for the appellant contended that the arbitrator exceeded his jurisdiction, and awarded the claims by travelling dehorse the contract, therefore, the award is without jurisdiction. Counsel took us through each of the claim separately and submitted that according to the terms agreed upon the payments were made over and above the respondent is not entitled to any award. To support the contention, counsel cited K.P. Poulose Vs. State of Kerala and Another, . Associated Engineering Co. Vs. Government of Andhra Pradesh and another, , Union of India (UOI) Vs. Jain Associates and Another, .

Learned counsel for the respondent contended that the unreasoned award is based on the interpretation made by the arbitrator of the various clauses of the agreement under which the claims are raised and separately awarded. The arbitrator''s award on both fact and law is final and this Court will not review the award and correct any mistake in his adjudication unless the arbitrator has mi conducted himself or misconducted the proceeding''s or the mistake is apparent on the fact of the record. Counsel cited Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd. Indore AIR 1957 S.C. 1030; Allen Berry and Co. Pvt. Ltd. Vs. The Union of India (UOI), New Delhi, , N. Chellappan Vs. Secretary, Kerala State Electricity Board and Another, , Tarapore and Company Vs. Cochin Shipyard Ltd., Cochin and Another, , Sudarsan Trading Co. Vs. Government of Kerala and Another, ; P.M. Paul Vs. Union of India (UOI), , Tarapore and Co. Vs. State of M.P., , The Board of Trustees for the Port of Calcutta v. Engineer-De-Space-Age AIR 24 Suppl. 753, The State of Madhya Pradesh and Others Vs. Babulal Pathak, .

It is well established principle that if the arbitrator after interpreting the contract gives an award which is within the power of the arbitrator, in that case, on a view taken of a contract, the decision of the arbitrator on certain amounts awarded, though is a possible view not the only correct view, the award cannot be examined by the Court for substituting it''s own decision. However, an award may be remitted or set aside on the ground that the arbitrator in making it exceeded his jurisdiction in making the award out of the contract. See M/s Sundershan Trading Co.''s case (supra).

The award of the arbitrator even if there is an error of law or fact is final and that there cannot be any appeal or review for interfering in his jurisdiction. An award which does not give reason cannot be easily set aside. However, the Court can still examine if the arbitrator has acted beyond its powers as by granting relief with regard to matters already provided for by the contract or contrary to contract there is apparent error on the face of the award in awarding claim or claims, the award can be disturbed. An error of law on the face of the award means that an error which can be seen by a mere perusal of the record without reference to any other matter. Some legal proposition which is the basis of the award, is erroneous and such error is apparent in the award or the document actually incorporated therein. See the decisions of the Supreme Court in Firm Madanlal''s case (supra), N. Chelippans case (supra), and this Court''s decision in Babulal Pathak''s case (supra).

It is also well settled that an arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he travels outside the bound of the contract he has acted without jurisdiction. But, if he has remained inside the parameters of the contract and has construed the provision of the contract his award cannot be interfered with unless he acts in manifest disregard or totally opposed to the provisions of the contract in awarding the claims, he could be deemed to have misdirected and misconducted himself by manifestly disregarding the limits of his jurisdiction and the bounds of the contract from which he derived his authority thereby acting ultra fines compromissi. In such a situation, it is open to Court to see what dispute was submitted to him. If that is not clear from the award, it is open to the Court to have recourse to outside source. The Court can look into the affidavits and documents and pleadings of the parties, the Court can look at the agreement itself. See : Associated Engineering Co.''s Case (Supra).

After going through the record, to consider the contention whether arbitrator has travelled beyond his jurisdiction to award the claims of which provisions was already made in the contract agreement, we are of the opinion that so far as the claims Nos. 1, 2, 3, 4, 5, 7 and 9 the arbitrator within his bounds after interpreting the terms of the agreement and documents has passed the award. Though, a different view can also be taken but that would not be ground for interference as award is not dehorse the contract. Therefore we do not find any error apparent in the award. However, as regards claims nos. 6 and 8, we find that the arbitrator has travelled beyond his jurisdiction contrary to the contract in relation to payment of interest on old machinery advance, and award of wages to labour due to escalation which we deal one by one.

Re interest: Charges of interest on the advance on old machinery was regulated according to provision in clause 3.31 at page 52 of the agreement which reads thus:

3.31 Advance against Tools and plants.

The department will issue advance to the contractor against new machinery costing Rs. 5000/- (five thousand) and above, which shall be 75% of the value of machinery or 15% of the total amount of the contract whichever is less. Contractor shall have to pay an interest of 12% per annum on the advance thus given. The advance and the interest shall be recoverable from the bills payable to the contractor, and the contractor shall not remove the machinery from the site or work till the dues are cleared and after obtaining the permission of the Engineer-in-charge.

For the purpose of giving such advance, it is necessary that machinery should have been brought to site and that it is considered necessary for use on work by Engineer-in-charge and after it is used on works. The machinery on which advance is issued will be hypothecated to the Irrigation Department. The proof regarding the ownership and the cost of machinery shall be given by the contractor. The recovery of the advance shall be made from the running bills in equal instalments equal to the total number of months of the time left for the completion of contract minus 2 i.e. the advance will be recovered from first running bill after the issue of advance which will normally be prepared after one month and advance shall be fully recovered from the last but one running bill.

The respondent vide letter dated 10.5.1978 agreed to take advance in terms of the agreement against old machinery limited to Rs. 25 lacs. On the said advance the respondent agreed to pay interest at the rate of 12 per cent per annum in terms of the negotiations held before the Tender Sub-Committee on 12.4.1978 by making clarification that the advance against old machinery shall be limited to Rs. 25.00 lacs returnable with interest at the rate of 12% per annum (Page 109 of Paper Book). The arbitrator ignored this clarificatory letter and illegally held that the respondent was not liable to pay interest. The error is apparent on the fact of the record as the arbitrator travelled beyond the terms agreed.

A. Re claim of increased fair wages to labour : The provision was already made in the agreement as per the condition of escalation in negotiation letter dated 10.5.1978, as page 205 of the agreement, it was agreed upon that the department shall make payment for all types of escalation based on the following formula which shall be subject to a ceiling of 6% of the total value of work done. The amount payable on account of escalation shall be worked out quarterly by the department and paid thereafter :

VL-30/100 x R (IL-IOL)/(IOL)

Where VL = increase of amount in rupees to us.

R = Value of work done.

IOL = Consumer Price Index No. for working class (new series for Bhopal) as published by Ministry of Labour, Government of India, for October, 1977.

II = Average C.P.L. no (new series for Bhopal Centre for the period under consideration for payment of the amount VL.

(b) Escalation for commodities:

The escalation of price for commodities shall be based on following formula:

VC=20/100 x R (IC-IOC)/(100)

Where VC = increase of amount in Rupees payable to us.

R = Value of work done.

IOC =Index No. wholesale price in India "General Index" (all commodities) as published by Ministry of Labour, Government of India for October, 1977.

IC = Average Index No., of wholesale price - "General Index" (All Commodities) during the period under consideration for payment. The Average index No. of wholesale price General Index (all commodities) i.e. IC shall be the arithematical average of the monthly Index Nos. in that quarter.

In terms of the agreement and formulae the escalation in the wages as agreed upon could not have exceed 6% of the total value of the work done which was paid to the respondent which was disputed But the arbitrator over and above opposed to the agreed formulae awarded Rs. 6,35,632.00 dehorse the agreement by exceeding the jurisdiction. The Supreme Court in case of Continental Construction Co. Ltd. Vs. State of Madhya Pradesh, where after completion of the contract extra claim was raised by the contractor as to the price escalation, observed that the contractor having completed the work it was not open to him to claim towards the rise in price of material and labour and the arbitrator could be said to have misconducted himself in not deciding this specific objection, raised by the State regarding the legality of extra claim of the contractor. Recently, this Court dealing with escalation clause contained in the agreement following the decision in Continental Construction Co.''s case, (supra), in (State of M.P. and others v. M/s Mittal and Co. Civil Revision No. 86/91 decided on 31.8.1996, has held that the claim of escalation was prohibited and, therefore, in terms of contract award of escalation would amount to modify the terms of the contract to which the parties have agreed.

Terapore''s case (supra) relied by counsel for the respondent is distinguishable on facts as there was no such clause relating to escalation or payment of wages or fair wages. On the other hand, it supports the appellant''s contention that an arbitrator cannot travel beyond the contract, if an arbitrator acts beyond jurisdiction, the same would amount to misconduct because of which the award would become amenable to being set aside by a Court.

Now the question arises on the view taken by us, that out of nine claims awarded by the arbitrator, two claims were beyond his jurisdiction, as even after interpreting the agreement and the documents, the arbitrator could not have awarded the said two claims which are dehorse the contract whether the award having bad part has to be set aside or can be separated from the good part of the award. The law is well settled that if the award is inseperable from the rest or not so clearly seperable that it can be seen that the part of the award attempted to be supported is not at all affected by the faulty portion, the award will be altogether avoided. However, the award bad in part may be good for the rest and, if notwithstanding that some protion of the award is clearly void, the remaining part contains a final and certain documents of every question submitted, the valid protion may well be maintainable as the award, the void part being rejected. The bad portion, however, must be clearly separable in its nature in order that the award may be good for the residue. When it is so divisible, the faulty direction will alone be set aside or treated as null. See Russeel on Arbitration, Twentieth Edn., page 431. As the arbitrator has separately awarded nine claims out of nine claims award of two claims was dehorse the agreement, therefore, while maintaining the good part of the award for seven claims, we held that the respondent would not be entitled to Rs. 1, 62,947.00 towards the extra excess charges in interest of old machinery, and Rs. 635632.00 on account of increased fair wages to labour. Rest of the amount awarded under seven claims the respondent would be entitled with interest, as directed by the trial Court, at the rate of 12% per annum from 12th November, 1986 till 29th February, 1988 and thereafter at 9% per annum on the amount of the award so maintained by us from the date of judgment of the trial Court, i.e. 29.2.1988 till payment.

In the result the appeal is partly allowed, the judgment and decree passed by the trial Court in terms of the award shall stand modified as indicated hereinabove. No costs.