Joseph VilangadanChurch Road v. M/s. Indian Oil Corporation Ltd

Appeals filed under Clause 15 of the Letters Patent read withOrder 36 Rule 1 of O.S. Rules against the order of this Court dated30.9.2003 made in O.P.No.793 of 2001.For Appellant: Mr.K. Babu Thomas andin OSA.428/03 Mr.K.F. ManavalanFor Respondent-1: Mr.K. Kumarin OSA.No.66/04 Senior Advocate for Mr.V. Anandha NatarajanCOMMON JUDGMENTP.K. MISRA, JThese two appeals have been filed under Section 37 of theArbitration and Conciliation Act, 1996 (hereinafter referred to as"the Act") against the order passed by the learned single Judge inthe Original Petition filed under Section 34 of the Act.2. O.P.No.793 of 2001 has been filed by the Contractor,whereas the connected appeal had been filed by the Indian OilCorporation Limited (hereinafter referred to as "the Corporation"),which had entrusted the contract with the contractor. TheCorporation invited tenders for construction of Water Bound Macadam(hereinafter referred to as "WBM" in short) for Indane BottlingPlant at Cochin on 29.7.1991 and the tender was submitted by thecontractor for construction of WBM. On 24.9.1991, the Corporationaccepted the tender of the contractor in question and work order wasissued. The work allotted to the contractor are (1) Supply of10,000 cubic metre of imported earth (red earth) for filling,spreading and consolidating inside the site and under the roads asper the darwings, specification and direction of the Engineer incharge. (2) The supply of materials and construction of 375 mm thickWBM (finished thickness) in 40,000 sq.metre cut stone soling, metalincluding preparation of sub-grae by excavating in all types of soilor filling with red earth if required upto a depth of 250 mmconsolidated with 8/10 tonnes of roller, making good all depressionsand undulations. As per the work order, the work was required to becompleted within 5 months, i.e., by 23.2.1992. The work was howevercompleted on 30.6.1993 and the final bill was prepared on 4.10.1993.Thereafter the contractor raised certain disputes respect to certainamounts payable by contending that the Corporation had not handedover possession of the entire site which was brought to the noticeof the Corporation and, therefore, there was inevitable delay incompletion of the work forcing the contractor to pay fair wages tothe workers as per the enhanced wage structure and similarly thecost of the materials had also gone up. The contractor also https://hcservices.ecourts.gov.in/hcservices/ notified to the Corporation that the soling stones/metals were notavailable in the quarries specified by the Corporation therebyforcing the contractor to procure soling stones/metals from distantquarries thereby enhancing transportation cost. The contractor hadnotified to the Corporation all these aspects and had claimed thathe should be paid at the increased rate for the works done beyond23.2.1992 as the delay was on account of the fact that possession ofonly 10460 sq.m out of 40000 sq.m had been handed over on the saiddate, i.e., 23.2.1992. It was further claimed that even though thebill was prepared on 4.10.1993 in printed form, the contractor hadmerely signed the same, but subsequently the officials of theCorporation had written as if such bill was 7th and final bill.Therefore, the contractor had demanded unpaid value and subsequentlyinvoked the arbitration clause in the agreement by issuing notice on8.12.1995. On 28.12.1995, the Corporation intimated that thequestion of appointment of arbitrator is under consideration. Atthat stage, on 6.8.1997, the Madras High Court in C.S.No.459 of 1996directed appointment of an arbitrator and initially one Mr.S.Aravamuthan was appointed as arbitrator. The statement of facts andclaims were submitted by the contractor on 12.9.1997 and on24.11.1997 the Corporation submitted its defence statement and on23.12.1997, the contractor submitted a rejoinder. However, on19.1.1999, the said arbitrator declined to continue the proceedingsand on 25.4.2000 one arbitrator was appointed, who refused to takeup the matter, and, thereafter, ultimately on 25.7.2000, Mr.S.Ramalingam, Retired District Judge was appointed as the solearbitrator in Appln.No.1809/1999. Even though the appointment ofsuch arbitrator had been challenged upto the Supreme Court, nothinghappened. Ultimately, on 5.6.2001, the award was passed by the soleArbitral Tribunal. Relating to the claim of reimbursement ofincreased cost incurred as against the claim of Rs.14,34,680/-, thearbitral tribunal awarded a sum of Rs.11,95,567/-. As against ClaimNo.2 of Rs.6,46,104/- for the extra leads, the arbitral tribunalawarded a sum of Rs.6,45,000/-. As against Claim No.3 ofRs.9,61,240/- towards unpaid cost in imported red earth, thearbitral tribunal has awarded a sum of Rs.8,21,400/- . As againstClaim No.4 of Rs.12,00,000/- towards additional quantity ofmaterials, the arbitral tribunal has awarded a sum of Rs.5,31,192/-.Besides, the arbitral tribunal awarded 18% interest and a sum ofRs.3,25,000/- as the cost of arbitration.3. O.P.No.793 of 2001 was filed by the Corporation underSection 34 of the Act challenging such arbitral award. Learnedsingle Judge confirmed the award of Rs.11,95,567/- relating to claimNo.1, but disallowed Claim Nos.2,3 and 4 and reduced the interestpayable to 9% and reduce the costs to Rs.1,25,000/-. The contractorhas filed O.S.A.NO.428 of 2003 against that part of the order of thelearned single Judge whereunder the learned single Judge has setaside the award relating to Claim Nos.2,3 and 4 and reduced the https://hcservices.ecourts.gov.in/hcservices/ interest and cost of the arbitration. The Corporation has filedO.S.A.No.66 of 2004 against that part of the order of the learnedsingle Judge, whereunder the award of Rs.11,95,567/- relating toClaim No.1 has been confirmed. 4. Both the appeals, thus arising out of one common orderof the learned single Judge, have been heard together and have beendisposed of by the present judgment.5. For convenience, the appellant in O.S.A.NO.428 of 2003is referred to as the contractor and the appellant in O.S.A.No.66 of2004 is referred to as the Corporation.6. The appeal filed by the Corporation is relating toClaim No.1. It is therefore more convenient to take up such appealfirst.7. The substance of Claim No.1 is to the effect that thework was to be completed within five months between 24.9.1991 and23.2.1992. However, such work continued upto 30.6.1993 squarely onaccount of failure on the part of the Corporation to make availablein its entirety the site and other aspects. It was the case of thecontractor that because of such undue delay, which had occassionedon the fault of the Corporation, there was enhancement in the wagespayable to the workers as well as increase in the cost of thematerials. The contractor, therefore, claimed 60% enhancement onthe value of the work done after the date contemplated i.e.23.2.1992. On this head, the contractor claimed accordinglyRs.14,34,680/-. 8. The Corporation in its counter denied the allegationthat there was any failure on the part of the Corporation to makeavailable the entire work site and the delay was on account of thefact that the contractor had brought only meagre quantity ofmaterials. It was also indicated that the rate quoted was for theentire period of contract and since there was extension, it must betaken that the period extended was also part of the originalcontract and, therefore, the rate must be taken to be valid for theentire period and in the absence of any escalation clause, no suchamount can be claimed by the contractor.9. Learned counsel appearing for the Corporation hascontended that in view of several decisions of the Supreme Court,when final bill had been prepared and payment had been accepted infull satisfaction, it must be taken that no dispute could be raised.10. The decisions relied upon by the Corporation clearly https://hcservices.ecourts.gov.in/hcservices/ indicate that in those cases matters had been subsequently settledand the contractor had received the money in full and finalsettlement and necessary instructions had been made. In the presentcase, the factual conclusion of the arbitrator on the basis ofanalysis of evidence has also been accepted by the learned singleJudge. We are, therefore, unable to accept the generic submissionmade by the learned counsel appearing for the Corporation that therewas no dispute to be raised before the arbitrator since the factualscenario in the present case is different from the facts of thecases relied upon by the counsel for the Corporation.11. The conclusion of the arbitrator relating to the pointas to who committed breach and prevented performance and completionof works in time, is that the Corporation prevented performance andcompletion of the work before 23.2.1992 in breach of the contract.In other words, the arbitrator has categorically found that delay incompletion of the work was on account of default on the part of theCorporation and the contractor was not to be blamed for theaforesaid. This conclusion is essentially a conclusion on the basisof evidence adduced before the arbitrator and the court dealing withthe matter under Section 34 or dealing with the appeal from suchdecision under Section 37 of the Act is not expected to go beyondthe conclusion. Therefore, the basic conclusion of the arbitratorthat the delay in completion of the work was on account of defaulton the part of the Corporation is required to be confirmed.12. The next question is even assuming that delay incompletion of the work was on account of the fault committed by theCorporation, whether the contractor could claim escalated cost.13. Learned counsel appearing for the Corporation hasplaced reliance upon several decisions of the Supreme Court insupport of its contention that in the absence of escalation clause,the arbitrator has no jurisdiction to award any amount towardsescalation. In this connection, reliance was placed upon thedecision of the Supreme Court reported in (2000) 3 SCC 27 (STATE OFORISSA v. SUDHAKAR DAS (DEAD) BY LRS.). In the said decision, itwas observed as follows :-“2. It is not disputed that the arbitration agreementcontained no escalation clause. In the absence of anyescalation clause, an arbitrator cannot assume anyjurisdiction to award any amount towards escalation. Thatpart of the award which grants escalation charges isclearly not sustainable and suffers from a patent error.The decree, insofar as the award of escalation charges isconcerned, cannot, therefore, be sustained.”14. Learned counsel appearing for the Corporation has alsoplaced reliance upon the decision of the Supreme Court reported in https://hcservices.ecourts.gov.in/hcservices/ (1991) 4 SCC 93 (ASSOCIATED ENGINEERING CO. v. GOVERNMENT OF ANDHRAPRADESH AND ANOTHER). In that case the question was not as towhether the arbitrator can award any amount towards escalation onaccount of revision of the minimum wages payable, but the maincontention, which was accepted, was regarding the fact that thecontract itself contemplated the exact mode in which such escalatedamount is to be paid and the arbitrator has not followed suchspecific clause contained in the contract. Such is not the casehere. Therefore, such decision is distinguishable.15. Learned counsel appearing for the Contractor hasrelied upon a decision of the Supreme Court reported in 1989 Supp(1) SCC 368 (P.M. Paul v. Union of India), wherein it was observedas follows : “12. In the instant case, it is asserted that theextension of time was granted and the arbitrator hasgranted 20 per cent of the escalation cost. Escalation isa normal incident arising out of gap of time in thisinflationary age in performing any contract. Thearbitrator has held that there was delay, and he hasfurther referred to this aspect in his award. Thearbitrator has noted that claim No. I related to thelosses caused due to increase in prices of materials andcost of labour and transport during the extended period ofcontract from 9-5-1980 for the work under phase I, andfrom 9-11-1980 for the work under phase II. The totalamount shown was Rs 5,47,618.50. After discussing theevidence and the submissions the arbitrator found that itwas evident that there was escalation and, therefore, hecame to the conclusion that it was reasonable to allow 20per cent of the compensation under claim No. I, he hasaccordingly allowed the same. This was a matter which waswithin the jurisdiction of the arbitrator and, hence, thearbitrator had not misconducted himself in awarding theamount as he has done.13. It was submitted that if the contract work wasnot completed within the stipulated time which it appearswas not done then the contractor has got a right to askfor extension of time, and he could claim difference inprice. This is precisely what he has done and has obtaineda portion of the claim in the award. It was submitted onbehalf of the Union of India that failure to complete thecontract was not the case. Hence, there was no substancein the objections raised. Furthermore, in the objectionsraised, it must be within the time provided for the https://hcservices.ecourts.gov.in/hcservices/ application under Section 30 i.e. 30 days during which theobjection was not specifically taken, we are of theopinion that there is no substance in this objectionsought to be raised in opposition to the award. Once itwas found that the arbitrator had jurisdiction to findthat there was delay in execution of the contract due tothe conduct of the respondent, the respondent was liablefor the consequences of the delay, namely, increase inprices. Therefore, the arbitrator had jurisdiction to gointo this question. He has gone into that question and hasawarded as he did.”16. The arbitrator, has relied upon the decision of theSupreme Court reported in (1994) 3 SCC 251 (TARAPORE & CO. v. STATEOF MADHYA PRADESH). The arbitrator has mainly relied upon the factthat minimum wages had been enhanced by about 60% and the cost ofsome materials had been gone up even by 84% and ultimately thearbitrator has awarded 50% towards such escalation. The arbitratorhas come to the conclusion that under the contract the contractorwas bound to pay minimum wages, which was a statutory duty andfollowing the ratio of the decision of the Supreme Court, the awardhas been granted. The matter has been reconsidered by the learnedsingle Judge and award of such amount has been confirmed. 17. Keeping in view the conclusion that time of completionof work had to be extended and default was on the part of theCorporation and the fact that minimum wages had been enhanced duringthe extended period, it cannot be said that the award of thearbitrator suffers from any patent illegality requiring correctionby the court nor it can be said that the award is against the publicpolicy. Therefore, the main contention raised in the appeal by theCorporation cannot be accepted. The appeal by the Corporation istherefore liable to be dismissed.18. The appeal by the contractor is relating to part ofthe judgment of the learned single Judge setting aside the award ofthe arbitrator under Claim Nos.2, 3 and 4 and modifying the rate ofinterest and costs.19. The substance of Claim NO.2 is that the contractor hadto incur extra expenditure for bringing materials for WBM fromdistant places other than the quarry specified in the agreementbecause such materials were not available in the quarry specified.It was claimed that materials were to be procured from quarries at amuch longer distance and therefore a sum of Rs.6,46,404/- wasclaimed at 30% on account of additional conveyance. TheCorporation in defence has stated that there was no scarcity ormaterials in the sources specified and the claim for reimbursement https://hcservices.ecourts.gov.in/hcservices/ at 30% on account of procurement of materials from a longer distanceis unjustified and in fact that there was no proof that suchmaterials had been brought from far away quarries. The arbitratormade inspection and on the basis of such inspection as well as onthe basis of the certificates issued by various VillageAdministrative Officers regarding non-availablity of materials cameto the conclusion that the materials had to be procured from longerdistance, justifying the claim of the contractor. A sum ofRs.6,45,000/- was awarded on the said amount.20. Learned single Judge has mainly relied upon Ex.C-8,written by the Plant Manager on behalf of the Corporation. In suchletter, it was categorically stated :-“2. As specified in the specification the bolders ofsoling should be of specified quality from any of theapproved quarries. In case you are bringing soling stonesfrom other than approved quarries due to any reasonwhatsoever, the quality of the soling stones shall have tobe got tested and approved by us before execution of thework. Needless to mention we cannot consider anyescalations due to your inability to supply stones fromapproved quarries.”21. On the basis of the aforesaid, learned single Judgehas came to the conclusion that since it had been made specificallyclear that no extra rate could be paid even if the materials arebrought from other quarries, we do not find any reason to interferewith such conclusion. It is of course true that the fact as towhether materials are available in the nearer quarry was essentiallya matter to be decided by the arbitrator, the fact remains that thecorrespondence between the parties clearly indicate that even if thematerials are brought from other quarries, no extra amount would bepaid on that score. In the teeth of such categorical assertion inthe letter of the Corporation, the contractor cannot be subsequentlyheard to say that additional amount was payable on account of extralead. Though some of the reasonings by the learned single Judgerelating to admissibility of the certificates issued by the VillageAdministrative Officers may not be justified as such matters areessentially for the arbitrator to decide, we affirm the ultimateconclusion primarily because of the correspondence. 22. Claim No.3 is on account of costs allegedly incurredby the contractor in procuring approved quality of imported earth(red earth) for works of cambering, filling sunk portions in newlyfilled up area for carrying out WBM works at Rs.30/m2 for 32028 m2for an average of 30-40 cm. The arbitrator has awarded a sum ofRs.8,21,400/- on this head. https://hcservices.ecourts.gov.in/hcservices/

23. The document Ex.RR-IV, Measurement/Bill, which wasplaced upon before the arbitrator as well as before the learnedsingle Judge, clearly indicates that the extra item claimed by thecontractor as per the instruction of the engineer in charge has beentaken into account. This measurement/bill has been signed by thecontractor. The arbitrator has committed a patent error on recordin observing that there is no endorsement to the effect that paymentunder such bill is in final settlement of the bill. As a matter offact, at the foot of the bill, on every page, there is such clearendorsement (of course printed), which has been signed by thecontractor. Admittedly by the date of such measurement/bill dated4.10.1993, the work had been completed. In such bill it has beenclearly indicated that the work has been completed on 30.6.1993.Unlike the first running bill, which clearly indicates that the workwas in progress, in such VII & Final bill it is clearly indicatedthat the work was completed. It was the case of the contractorbefore the arbitrator that the expression “VII & Final” on the topof the bill has been subsequently interpolated by the Corporation.However, there is no such finding by the arbitrator and in view ofthe fact that work was already completed, obviously such documentwas the final measurement / bill, which had been signed by thecontractor. In such bill, whatever extra works done as per theinstructions of the engineer have been specifically accounted forand provisions had been made for payment. The contract itselfcontemplates that extra work can be done under the writteninstructions of the engineer in charge. The contractor in hisstatement of claim has stated as follows :-“8. Apart from the agreed items, claimant had to docertain extra items as well, which were indispensablyrequired for the work. Of course, these items were doneas per the instructions of the Engineers of therespondent. Claimant was instructed to provide camberingand making up the undulations due to sinkage withadditional filling of moorum to a height upto 30 – 40 cms.This had to be provided throughout the road. Invariably,in this type of work, this item was being measuredseparately on square metre basis. For reasons best knownto the respondent no provision was incorporated in theagreement regarding this item. Taking into account thecumbersome nature of the work and the expenditureinvolved, claimant claimed a minimum rate of Rs.30/m2.”24. At the time when the contractor signed suchmeasurement/bill, which also included such extra work, thecontractor does not appear to have raised any protest and for the https://hcservices.ecourts.gov.in/hcservices/ first time after expiry of about 6½ months, the contractor raisedthe issue relating to the so called extra work. The contract itselfenvisages that extra work, if any, can be done only when there iswritten instruction on that behalf and in the absence of any writteninstruction, the contractor cannot claim any amount. The contractordoes not claim anywhere that the amount he was seeking for thealleged extra work was done as per any written instruction. On theother hand, the contract itself contemplated that the contractor hasto complete the work and give delivery by rectifying all theundulations, which would obviously include undulation in respect ofsinkage due to whatever reason. The contemporaneous replies of theCorporation clearly indicate that the so called extra work was infact part of the original work. Since the arbitrator has not keptin view the basic conditions of the contract and has committed aclear error on record in respect of relevant measurement/bill, whichhad been admittedly signed by the contractor without any protest,the learned single Judge has rightly, though for slightly differentreason, discarded such award.25. Claim No.4 is also based on such extra work. Thefinal measurement/bill to which we have adverted to in the earlierparagraphs had made certain provisions for the extra work claimedand, therefore, the reasonings already given above are equallyapplicable to this claim. Apart from the above, it is found thateven in the notice dated 15.4.1994, no specific assertion has beenmade by the contractor and the only assertion relating to extra workis obviously relatable to Claim No.3. Apart from the above, it isfound that initially in the original claim petition, the contractorhad claimed a sum of Rs.2 lakhs on a quantity of 4000m2 and longthereafter, he filed an additional statement stating that the amountpayable was Rs.12 lakhs on a total quantity of 24,000m2. It isobvious that such claim was outcome of an after thought. As rightlyobserved by the learned singe Judge, there was nothing on record toindicate that there was any direction by the Corporation for such socalled extra work. The decision of the learned single Judge on thisscore is therefore affirmed.26. It is of course true that while considering anobjection under Section 34 of the Act, the Court does not sit as anappellate authority over the award of the arbitrator. The scope ofinterference in such matters has been considered in great detail inthe decision of the Supreme Court reported in OIL & NATURAL GASCORPORATION LTD. v. SAW PIPES LTD. [(2003) 5 SCC 705]. The ultimateconclusion has been summarised by the Supreme Court in paragraph 74(A). https://hcservices.ecourts.gov.in/hcservices/

27. It is worthwhile to extract the relevantobservation :-"74. In the result, it is held that:(A)(1) The court can set aside the arbitral award underSection 34(2) of the Act if the party making theapplication furnishes proof that:(i) a party was under some incapacity, or(ii) the arbitration agreement is not valid under thelaw to which the parties have subjected it or, failing anyindication thereon, under the law for the time being inforce; or(iii) the party making the application was not givenproper notice of the appointment of an arbitrator or ofthe arbitral proceedings or was otherwise unable topresent his case; or(iv) the arbitral award deals with a dispute notcontemplated by or not falling within the terms of thesubmission to arbitration, or it contains decisions onmatters beyond the scope of the submission to arbitration. (2) The court may set aside the award:(i)(a) if the composition of the Arbitral Tribunal wasnot in accordance with the agreement of the parties.(b) failing such agreement, the composition of theArbitral Tribunal was not in accordance with Part I of theAct.(ii) if the arbitral procedure was not in accordancewith:(a) the agreement of the parties, or(b) failing such agreement, the arbitral procedure wasnot in accordance with Part I of the Act. https://hcservices.ecourts.gov.in/hcservices/ However, exception for setting aside the award on theground of composition of Arbitral Tribunal or illegalityof arbitral procedure is that the agreement should not bein conflict with the provisions of Part I of the Act fromwhich parties cannot derogate.(c) If the award passed by the Arbitral Tribunal is incontravention of the provisions of the Act or any othersubstantive law governing the parties or is against theterms of the contract.(3) The award could be set aside if it is against thepublic policy of India, that is to say, if it is contraryto:(a) fundamental policy of Indian law; or(b) the interest of India; or(c) justice or morality; or(d) if it is patently illegal.(4) It could be challenged:(a) as provided under Section 13(5); and(b) Section 16(6) of the Act." 28. In the present case, the arbitrator can be said tohave committed a patent illegality to the extent that the arbitratorhas proceeded on the footing as if VII & Final bill did not containany endorsement that such payment was in full and final satisfactionof the contractor. This basic error committed by the arbitrator hasthe effect of vitiating the conclusion of the arbitrator so far asthey relate to Claim Nos.3 and 4. Moreover, the award under ClaimNos.3 and 4 are clearly beyond the stipulated contract inasmuch asthe so called extra work claimed by the contractor was not on thebasis of any written instruction of the engineer in charge asspecifically contemplated in the contract. On the other hand,whatever extra work had been done on the basis of the instruction ofthe engineer in charge has been measured and accounted for in thefinal bill. https://hcservices.ecourts.gov.in/hcservices/

29. The amount relating to escalation has been upheld byus in view of the peculiar facts and circumstances and particularlybecause of the finding to the effect that delay in completion of thework was on account of failure on the part of the Corporation andthe amount awarded by the arbitrator was more or less on account ofrevision of wages payable. 30. Claim No.2, which has been discarded by the learnedsingle Judge, has been affirmed by us on account of the fact thatthe contract itself had envisaged that the materials were to bebrought from particular quarry, which was very much known to thecontractor at the time of the contract, and even the subsequentcorrespondence clearly indicate that even for bringing any materialfrom any other quarry, the contractor shall not be entitled to anyfurther amount and the arbitrator committed patent illegality inignoring the provisions of the contract as well as suchcorrespondence.31. So far as the question of interest is concerned, thelearned single Judge has considered the relevant aspects by takinginto account the fluctuating rate of interest and we see no reasonto interfere with this part of the judgment, which is essentiallydiscretionary in nature. However, so far as costs is concerned,such amount was assessed by the arbitrator in his discretion and thereason given by the learned single Judge for refusing such costs,which was essentially a matter of discretion for the arbitrator,cannot be accepted.32. For the aforesaid reasons, the appeal filed by theCorporation, namely, OSA.No.66 of 2004, is dismissed and the appealfiled by the contractor, namely, OSA.No.428 of 2003, is allowed onlyin respect of Claim No.6 relating to costs. In other words, it isdirected that a sum of Rs.3,25,500/- shall be the costs of thearbitrator instead of Rs.1,25,000/- as indicated by learned singleJudge. So far as the present appeals are concerned, both theparties are required to bear their own costs.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.dpk https://hcservices.ecourts.gov.in/hcservices/ To1. The Sub-Asst. Registrar,Original Side, High Court, Madras.2. The Section Officer V.R. Section, High Court, Madras.2 ccs to Mr.V.Anantha Natarajan, Sr. 5435, 5436OSA.Nos.428/2003 & 66/2004HPR (CO)kk 24/3