Arbitration Act, 1940: Award by arbitrator – Claimantcontractor and opposite party entered into an agreement for construction of Sutlej Yamuna Link Canal and in that regard to carry out earth work, drainage behind lining and cement concrete lining – Estimated cost of project was Rs.31 lakhs and contract amount for the work was fixed at Rs.59.86 lakhs – Claimant raised demand for additional payment on the ground that during execution, the scope of work was considerably increased on account of various decisions by department regarding rebuilding of river banks and changes in the strata encountered during excavation due to incorrect geological data observations by department prior to inviting tender – Demand of additional payment led to arbitral dispute – Arbitrator accepted claim and passed award with 18% interest – Award presented before Sub-judge for making ‘rule of court’ – Opposite party filed objection that no reason was indicated for giving the award – Sub-judge accepted the objection to the extent of rejection of Claim no.1 and reduction of interest to 12% p.a. and in other respects the Award was made ‘Rule of Court’ – First appellate court rejected the claim in toto taking note of Clause 39 of the Contract Agreement which provided that the contractor was required to deliver in the office of the Executive Engineer every month during continuance of the work, the return showing details of extra work done with value of such work and if the details are not indicated, it shall be deemed that the contractor has waived all claims not included in such returns and will have no right to enforce any such claim not so included – In that light since the claim was ultimately found as not included in the monthly statement, the First Appellate Court held that the requirement of the conditions of the contract was not adhered to and set aside the Award of the Arbitrator – High Court also took note of Clause 39 of the contract and declined the claim except claim no.1 – In the instant appeal, it was contended by appellant-claimant that Note 6 to the schedule of work which formed a part of the contract provided that extra or other items of work shall be paid at the rate worked out on the basis of relevant Punjab Common Schedule of Rates Basis Plus Sanctioned Premium at the time of tendering – The difference between the estimated cost of Rs.31 lakhs and contract amount of Rs.59.86 lakhs was the sanctioned premium which corresponded to the overall premium of 93.12% on the work for computing the rates of extra items/quantity or work done – Insofar as the remaining claims, 93.12% would become applicable – It was contended that when the contract agreement is explicit insofar as the value and the difference being the sanctioned premium and the percentage being evident at 93.12%, the decision of the Arbitrator not indicating any further reasons in the Award would not be fatal – Opposite party (State of Punjab), referred to Clause 63 of the contract which provides for reference of the disputes to arbitration – The said clause specified the requirement that all Awards shall be in writing and in case of awards amounting to Rs.1 lakh and above, such Award shall state the reason for the amount awarded – Held: The quantum of the contract amount as against the estimated cost by itself could not have formed the basis to conclude the claim as made by the claimant towards sanctioned premium – Claim No.8 related to the work carried out on Daldal land wherein the soil was marshy and extra construction material was required to complete the work – Arbitrator awarded Rs.19.15 lakhs after indicating the amount for the said work on the same basis and deducting the agreed rate – Clause 39, no doubt, prescribes a method by which the claim is to be put forth in the statement every month – The said requirement will have to be construed as being put in the agreement so as to ensure that the additional work has actually been done, the claim is put forth along with details so that baseless claim is not made at a distant point in time when it will not be possible to determine – Though the Clause also indicates that if such claim is not made, it would amount to waiver, in a circumstance where the claim is ultimately put forth in the forum where an adjudication is made and based on the material if the adjudicating authority is satisfied that the actual work had been done and the contractor being entitled to the extra amount spent by him to carry out the work in an appropriate manner, it would not be just and proper to deny such claim only on the ground that it had not been indicated strictly in the manner as provided in the contract specially keeping in view the nature of work undertaken – When the fact remains that the Daldal land was situated in the area, work was carried out and extra material was used, the claim cannot be rejected outright adopting a technical view of the matter – However, the claim for the extra item will have to be calculated with premium at the same rate of 35.02% over and above the agreed rate and not at 93.12% – Regarding Claim No.16, no reason to interfere with the impugned orders – Further with regard to the interest sought under Claim No.18 in the absence of agreement with regard to the rate of interest, the interest as awarded by the Arbitrator was on the higher side and the First Appellate Court was justified in reducing the same to 12% p.a. – Claimant is entitled to the claim for extra items as put forth under Claim Nos. 2, 3, 8 and 12 by working out the difference of cost on the tender premium at 35.02% – On arriving at the quantum of the amount, the same shall be payable with interest at 12% p.a. in the manner as ordered by the First Appellate Court – Claim No.1 ordered by the High Court is sustained.
Partly allowing the appeals, the Court
HELD: 1. The First Appellate Court as also the High Court was correct to arrive at the conclusion that the claim as put forth by the claimant in respect of Claims No.2, 3 and 12 at the premium of 93.12% worked out only on the basis of difference of the amount between the estimated cost and the contract amount is not justified. However, in that circumstance when the Arbitrator has not assigned any reasons but had unilaterally in a cryptic fashion awarded the claim at the premium of 93.12% and when the same was disapproved as not sustainable, the appropriate course in the normal circumstance ought to have been to set aside the Award and remit the matter to the arbitrator to make a fresh consideration to determine the percentage of premium at which the claim for the extra items would be sustainable, more particularly in a circumstance where the additional work carried out was not in serious dispute but the premium for rate of payment was to be determined. The said course would be open even at this stage, but in the instant case, the claim was under the Act, 1940 in respect of agreement dated 05.12.1985 and the claim before the Arbitrator itself was of the year 1994. In that background, a perusal of the consideration as made by the First Appellate Court would indicate that it does not refer to the claim that was admissible after working out the percentage of premium that is applicable. It has only arrived at the conclusion that the working out of the premium at 93.12% in respect of the extra items on Claim Nos.2, 3 and 12 are set aside. The First Appellate Judge ought to have arrived at the conclusion of the admissible claim and in that regard a conclusion ought to have been reached instead of rejecting the claim outright since the course to remand the matter to the Arbitrator was not adopted. Instead of rejecting the entire claim as made by the claimants, premium for the extra items is to be determined at 35.02% and the claim based on the same is required to be awarded. To that extent, the calculation is to be made by the opposite party and the amount be paid to the claimant. The said calculation with the premium at 35.02% shall be made in respect of the extra items indicated under Claim Nos.2, 3 and 12. [Paras 14-16][838-C-H; 839-A-C]
2. Insofar as the Claim No.8, it relates to the work carried out on DALDAL land wherein the soil was marshy and extra construction material was required to complete the work. The Arbitrator through the impugned Award had taken note of the same and awarded the sum of Rs.19,15,143/- after indicting the amount for the said work on the same basis and deducting the agreed rate. Though the Sub-Judge had accepted the same for making it the ‘Rule of Court’, the First Appellate Judge on taking note of the claim had arrived at the conclusion that the Arbitrator was not justified in granting the claim. In that regard, the First Appellate Court had taken note of Clause 39 of the Contract Agreement wherein a provision was made for extra items. The second paragraph therein which provides for the manner in which the contractor is required to submit the returns of the work claimed for extra items was referred to. The said requirement indicated that the contractor shall deliver in the office of the Executive Engineer on or before the 10 th day of every month during continuance of the work, the return showing details of any work claimed for extra, and such return shall also contain the value of such work as claimed by the contractor. If the details are not indicated, the Clause indicates that it shall be deemed that the contractor has waived all claims not included in such returns and will have no right to enforce any such claim not so included. In that light since the claim was ultimately found as not included in the monthly statement, the First Appellate Court was of the opinion that the requirement of the conditions of the contract was not adhered to and, therefore, set aside the Award of the said amount by the Arbitrator and the same claim being made ‘Rule of Court’ by the Sub-Judge was also set aside. The High Court while adverting to this aspect of the matter has held that insofar as the amount sought under Claim No.8 the question is not whether the petitioner undertook this work but whether the petitioner raised any claim for this extra amount in terms with the contract. The High Court has also taken note of Clause 39 of the contract and has declined the claim. [Para 17][839-C-H; 840A]
3. Clause 39 of the Contract Agreement no doubt prescribes a method by which the claim is to be put forth in the statement every month. The said requirement will have to be construed as being put in the agreement so as to ensure that the additional work has actually been done, the claim is put forth along with details so that baseless claim is not made at a distant point in time when it will not be possible to determine. Though the Clause also indicates that if such claim is not made, it would amount to waiver, in a circumstance where the claim is ultimately put forth in the forum where an adjudication is made and based on the material if the adjudicating authority is satisfied that the actual work had been done and the contractor being entitled to the extra amount spent by him to carry out the work in an appropriate manner, it would not be just and proper to deny such claim only on the ground that it had not been indicated strictly in the manner as provided in the contract specially keeping in view the nature of work undertaken. To that limited extent a perusal of the Award passed by the Arbitrator would indicate that the Arbitrator had taken into consideration the letter dated 14.11.1986 wherein the identification of soil which was agreed to. The letter dated 09.03.1987 submitting the test results identifying the strata encountered as DALDAL is referred therein. The work having been completed during the March, 1988 was also taken note. In that circumstance when the fact remains that the DALDAL land was situated in the area, work was carried out and extra material was used, the claim cannot be rejected outright adopting a technical view of the matter. However, the claim for the extra item in that regard for the work of 1,33,181.00/- ‘Cum’ will have to be calculated with premium at the same rate of 35.02% over and above the agreed rate and not at 93.12% as has been taken into consideration by the Arbitrator for awarding the amount. The appropriate calculation in that regard shall however be worked out in such manner so as to award the amount under the said Claim No.8. Insofar as Claim No.16, there is no reason to interfere with the orders passed by the High Court or by the First Appellate Court. Further with regard to the interest sought under Claim No.18, in the absence of agreement with regard to the rate of interest, the interest as awarded by the Arbitrator was on the higher side and the First Appellate Court was justified in reducing the same to 12% per annum and the High Court was also justified in not interfering with the same. [Paras 18, 19][840-B-H; 841-AB]
4. The claimant is entitled to the claim for extra items as put forth under Claim Nos. 2, 3, 8 and 12 by working out the difference of cost on the tender premium at 35.02%. On arriving at the quantum of the amount, the same shall be payable with interest at 12% per annum in the manner as ordered by the First Appellate Court. Claim No.1 ordered by the High Court is sustained. The said exercise for calculating and paying the amount to the claimants on claim Nos.1, 2, 3, 8 and 12 shall be completed by the opposite party within the period of six weeks from this date. [Para 20][841-E-F]
Indian Oil Corporation v. Indian Carbon Ltd. (1988) 3 SCC 36 : [1988] 3 SCR 426; Ispat Engineering and Foundry Works, B.S. City, Bokaro v. Steel Authority of India Ltd. B.S. City Bokaro (2001) 6 SCC 347 : [2001]
3 SCR 1190; D.C.M Ltd. v. Municipal Corporation of Delhi & Anr. (1997) 7 SCC 123; M/s Naraindas R. Israni v. Union of India DRJ (1993) 25; Raipur
Development Authority & Ors. v. M/s Chokhamal
Contractors & Ors. (1989) 2 SCC 721 : [1989] 3 SCR 144; Gora Lal v. Union of India (2003) 12 SCC 459 : [2003] 6 Suppl. SCR 1129 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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