Arbitration – Arbitral Award – In the instant case, the State issued tender notice for construction of Masonry Dam and the appellant-contractor was successful bidder – During the course of work, the contractor requested for an alternate quarry which request was denied and the matter was referred for arbitration – Thereafter, the contractor made another request for another alternate quarry (Mahuar Quarry) – Upon inspection, the constituted committee approved the request and a conditional permission was granted to the contractor – Despite conditional permission, the contractor raised claim of Rs 5,51,03,040/towards escalated cost of transportation – The claim was rejected by the authority but the same was accepted in arbitral proceeding by the Arbitrator – High Court upheld the award – Hence instant appeal – Held: A contractual clause which provides for the finality of rates quoted by the Contractor and disallows any future claims for escalation is conclusive and binding on the parties and if the clause debarring future claims permits escalation subject to certain conditions, and the conditions are satisfied, which in the present case were actually satisfied as the circumstances were beyond the control of the contractor, the Contractor will have a right to claim escalation. Contract: Government contracts – The rights and duties of the parties to the contract subsist or perish in terms of the contract itself – Even if a party to the contract is a governmental authority, there is no place for discretion vested in the officers administering the contract – Discretion, a principle within the province of administrative law, has no place in contractual matters unless, of course, the parties have expressly incorporated it as a part of the contract – It is the bounden duty of the court while interpreting the terms of the contracts, to reject the exercise of any such discretion that is entirely outside the realm of the contract.
Dismissing the appeal, the Court
HELD: 1. Determination of the claim for escalation depends on the construction of clause 3.11(A) of the contract, which provides that the claim for escalation w ill not be entertained unless there exist circumstances beyond the control of the contract. Further, the claim is admissible only upon the written order of the Superintending Engineer in charge of the work. In instant case both conditions are satisfied. In the first instance, the inspection report clearly indicates that the original quarry is depleted of the sand and therefore an alternative quarry is necessary for the execution of the contract. Secondly, this is a circumstance which is certainly beyond the control of the Contractor. Further, the permission granted by the Superintending Engineer is in complete satisfaction of the requirement of the clause. Therefore the claim for escalation is in full satisfaction of the terms of the contract. [Para 18][739-C-E]
2. A contractual clause which provides for the finality of rates quoted by the Contractor and disallows any future claims for escalation is conclusive and binding on the parties. If the clause debarring future claims permits escalation subject to certain conditions, no claim is admissible if the conditions are not satisfied. However, if the conditions are satisfied, the Contractor will have a right to claim escalation. This is a contractual right. The right originates and subsists by virtue of the contract itself. It is the duty of the Court, while interpreting the contract to decipher the true and correct meaning the parties intended and enforce the rights arising out of the contract. Officers administering the contract will not have any discretion whatsoever to admit or deny escalation after the conditions specified in a contract are satisfied. [Para 22][740-C-E]
3. The Executive Engineer has acted beyond the scope of clause 3.11(A). Under the clause, if a circumstance beyond LTD.
the control of the Contractor exists and the Superintending Engineer, in charge of work grants a written order to the effect, a right to seek escalation arises. When the two conditions provided under clause 3.11 (A) were satisfied, there was no discretion left with the Executive Engineer to impose any further conditions for claiming escalation. The Executive Engineer has certainly acted beyond the scope of the contract. The role of the Executive Engineer was only to forward the decision of the Superintending Engineer and enable the Contractor to raise a claim for escalation. [Para 23][740-E-G]
4. The rights and duties of the parties to the contract subsist or perish in terms of the contract itself. Even if a party to the contract is a governmental authority, there is no place for discretion vested in the officers administering the contract. Discretion, a principle within the province of administrative law, has no place in contractual matters unless, of course, the parties have expressly incorporated it as a part of the contract. It is the bounden duty of the court while interpreting the terms of the contracts, to reject the exercise of any such discretion that is entirely outside the realm of the contract. [Para 24][740G-H; 741-A-B]
5. In the instant case, whether the escalation is justified or not is another matter, and it is for the Arbitral Tribunal to decide the admissibility of the claim depending on the evidence on record. That will be a finding of fact. For the reason stated the Arbitrator was justified in granting the claim for escalation as the conditions precedent for raising a plea for escalation are admittedly satisfied by the inspection report followed by the letter of the Superintending Engineer. [Para 25][741-B-C]
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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