w w w . L a w y e r S e r v i c e s . i n



M/s. Bhagat Ram Sahani and Sons v/s Delhi State Industrial Development Corpn.


Company & Directors' Information:- BHAGAT INDUSTRIAL CORPORATION LTD [Active] CIN = U15520DL1945PLC162518

Company & Directors' Information:- RAM INDUSTRIAL CORPORATION LIMITED [Strike Off] CIN = U74900DL1946PTC001081

Company & Directors' Information:- B B BHAGAT & SONS PVT LTD [Amalgamated] CIN = U63090WB1955PTC022203

Company & Directors' Information:- BHAGAT RAM AND SONS PRIVATE LIMITED [Active] CIN = U74899DL1987PTC027480

Company & Directors' Information:- RAM SONS PVT LTD [Strike Off] CIN = U74899DL1980PTC010529

Company & Directors' Information:- BHAGAT AND SONS PRIVATE LIMITED [Strike Off] CIN = U99999MH1943PTC003949

Company & Directors' Information:- M G BHAGAT & SONS PVT LTD [Strike Off] CIN = U51109WB1954PTC021458

    FAO (OS) No.182 of 1998 & CM No.4271 of 1998 (cross-objections)

    Decided On, 29 August 2006

    At, High Court of Delhi

    By, THE HONOURABLE DR. JUSTICE MUKUNDAKAM SHARMA & THE HONOURABLE MS. JUSTICE HIMA KOHLI

    For the Appellant: Harish Malhotra, Sr. Advocate, Anupama, Advocate. For the Respondent: Anusuya Salwan, Advocate.



Judgment Text

Hima Kohli, J.


The present appeal has arisen from the judgment/decree dated 17th April, 1998 passed by the learned Single Judge in Suit No.1392A/1987 entitled ‘M/s Bhagat Ram Sahni and Sons Vs. Delhi State Industrial Development Corpn.Ltd.’ whereunder, the learned Single Judge made the award published on 26th June, 1987, as a rule of the court, subject to certain modifications therein.


2. The brief facts of the case are that on 25th February, 1982, the tenders were invited by the respondent, Delhi State Industrial Development Corporation Ltd.(for short `DSIDC') for executing the work of levelling and dressing of Blocks A, C and E at Narela Industrial Complex, Delhi. Pursuant to the said tender, the contract was awarded to the appellant and an agreement dated 12th March, 1982 was executed between the parties whereunder, the work was to be completed by the appellant within a period of six months but was actually completed on 30th March, 1983.


3. It was claimed by the appellant that it had executed not only the works specified in the agreement, but also some extra items of work for which it was entitled to payment. The said claim of the appellant was refuted by the DSIDC who did not agree to pay for the extra items of work in excess of the agreed quantities and also claimed that the work done by the appellant was defective for which penalty had been imposed. As a result of the above differences and disputes that arose between the parties about the quality and quantity of the work done and the amounts payable to the appellant, in terms of clause 25 contained in the agreement between the parties, being the arbitration clause, a petition under Section 20 of the Arbitration Act, 1940 (hereinafter referred to as ‘the Act') was filed by the appellant and registered as Suit No.1097-A/1983.


4. Pursuant to the filing of the aforementioned petition, the Managing Director of DSIDC appointed an arbitrator to whom all the claims of the appellant as well as the counter claims of DSIDC were referred for adjudication. It is pertinent to mention herein that during the course of the proceedings in the aforementioned petition, on an application of the appellant, the learned Single Judge appointed a local commissioner who was directed to take measurements of the work pertaining to filling of earth and compaction of earth in a ditch and also for work of excavation done in excess of the agreed quantities alleged to have been done by the appellant in the presence of the parties. It is also pertinent to state that the local commissioner visited the site, took the measurements in the presence of the parties and obtained the signatures of both the parties before submitting his report in court which was also forwarded to the arbitrator while referring the disputes of the parties to him.


5. As per the records, the appellant had filed seven claims before the learned arbitrator whereas the DSIDC had filed one counter claim along with claims for interest and costs. Vide award dated 26th June, 1987 published by the learned arbitrator, claims No.1 and 2 of the appellant were fully allowed; claims No.3 and 4 were partly allowed, claim No.5 was disallowed as not pressed and claim No.6 relating to payment of interest was allowed while claim No.7 was disallowed. In so far as the three counter claims of the DSIDC were concerned, all of them were disallowed.


6. Pursuant to the aforementioned award published on 26th June, 1987, the appellant filed an application under Section 14 of the Act and on the award being filed in the court and notices being issued to DSIDC, the latter filed an application, being IA No.62/88 raising, inter alia, various objections against the award. After hearing the parties, by the impugned judgment/decree dated 17th April, 1998, the learned Single Judge upheld the objections of DSIDC in respect of claim No.3 which related to a claim of Rs.9,92,906.54 paise for the work of filling and compaction of earth in a ditch as extra item of work in respect of which the arbitrator had awarded a sum of Rs.9,16,966/- to the appellant. As a consequence of rejecting claim No.3, the learned Single Judge also modified claim No.4 relating to claim on account of escalation in labour wages under clause 10C of the agreement thereby reducing the awarded amount of Rs.3,78,691.44 paise to Rs.2,60,331.72 paise.


7. Aggrieved by the aforesaid order and judgment dated 17th April, 1998, the appellant has preferred the present appeal. The DSIDC has also filed cross objections (CM No.4271/1998) inasmuch as its counter claim of Rs.1,93,922.80 paise on account of penalty imposed under clause 14 of the contract was not upheld and the award of the arbitrator disallowing the said counter claim was not set aside by the learned Single Judge.


8. It is stated before us by the parties that during the pendency of the present proceedings, the DSIDC has deposited the undisputed amounts of the award in Court which have been released to the appellant on furnishing security to the satisfaction of the Registrar of the Court on furnishing an undertaking, in terms of the order dated 10.2.1999, thus leaving only the issues pertaining to claims No.3 and 4 of the appellant and the counter claims of the DSIDC open for consideration in the present appeal.


9. We have perused the impugned judgment dated 17th April, 1998 and also the award dated 26th July, 1987 passed by the learned arbitrator. We have gone through the relevant records including the correspondence with respect to the issue at hand. We have also perused the written submissions made by the parties, apart from arguments addressed by the parties.


10. The main contention of Mr.Harish Malhotra, learned senior counsel for the appellant is that the learned Single Judge erred in setting aside claim No.3 and consequently modifying claim No.4. Reliance has been placed by the counsel for the appellant on clause 12 of the agreement as well as clause 25 thereof which is the arbitration clause, to state that the claim regarding extra work was not beyond the scope of agreement and ought not to have been interfered with and that the interpretation given by the arbitrator to the said contract was binding on the learned Single Judge and consequently, the amounts awarded under the claims No.3 and 4 were also liable to be upheld. In this regard, we would like to refer to the clauses 12 and 25 of the agreement which read as follows:


“12. The Engineer-in-Charge shall have power to make any alterations in, omissions from, additions to or substitutions for the original specifications, drawings, designs and instructions that may appear to him, be necessary during the progress of the work and the Contractor shall carry out the work in accordance with any instructions which may be given to him, in writing signed by the Engineer-in-Charge, and such alterations, omissions, additions or substitutions shall not invalidate the contract and any altered, additional or substituted work which the contractor may be directed to do in the manner above specified as part of the work shall be carried out by the contractor on the same condition in all respects on which he agreed to the main work...”


Clause 25. Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawing and instructions hereinbefore mentioned and as to the quality of workmanship or materials used on the work or as to any other question claim, right matter or thing whatsoever in any way arising out or relating to the contract, designs, drawing, specifications, estimates instructions orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment, thereof shall be referred to the sole arbitration of the person appointed by the Engineer Adviser of DSIDC in Charge of the work at the time of dispute....”


11. It is admitted by both the parties that the claim No.3 pertained to extra item of work which was not provided for under the contract between the parties. It is also undisputed by the appellant that written instructions under the signatures of the Engineer-in- charge, as envisaged under clause 12 of the agreement, were not issued for the work claimed to have been done by the appellant.


12. The learned counsel for the appellant submitted that the word ‘writing’ is no doubt mentioned in clause 12 but it is with the rider ‘may' which clearly suggests that it was not obligatory or mandatory on the Engineer-in-Charge to give instruction in writing alone and that he could have even given oral instructions to the appellant to get the extra work done from it and that executing the work of filling of the ditch was carried out by the appellant under the specific instructions issued by the Engineer-in- charge of the DSIDC and the same was duly notified by the appellant to the DSIDC on various occasions and thus it can be safely inferred that the extra work had been done by the appellant under the instructions of the Engineer-in-charge and hence the claim could have been safely referred to arbitration. In this regard, the appellant has referred to the correspondence placed on the record of the arbitration proceedings to state that the inference arrived at by the learned arbitrator that although there was no written orders given to the appellant to carry out the extra item but there was no denial on the part of the DSIDC at the appropriate time despite repeated assertions of the appellant in their correspondence with the DSIDC and thus the appellant was entitled to receive the payment of Rs.9,16,966/- for filling in the ditch and the compaction work carried out by the appellant.


13. Per contra, the contention of the counsel for the DSIDC is that the claim No.3 is beyond and contrary to the specific agreement between the parties. As the mandate of clause 12 of the agreement required that extra work could be executed by the appellant only upon written instructions issued and signed by the Engineer-in-charge and no such written instructions were given by the DSIDC to carry out the work, therefore, the work was not within the scope of arbitration and that the arbitrator by awarding amounts under the said claim proceeded beyond his jurisdiction.


14. On going through the records, we find that the appellant has placed reliance on the letter dated 15th April, 1982 marked as Ex.C-1, letter dated 20th May, 1982 marked as Ex.C-2, letter dated 4th September, 1982, marked as Ex.C-3 stated to have been issued by the appellant to the DSIDC. We have also perused the reply dated 7th October, 1982 given by the DSIDC to the appellant and marked as Ex.R-4 and the rejoinder dated 11th October, 1982 issued by the appellant to the DSIDC, marked as C-6.


15. Vide letter dated 15th April, 1982, the appellant intimated the DSIDC that it was filling in the ditch and carrying out necessary compaction at site. In the letter dated 20th May, 1982 the appellant had sought approval from DSIDC of the extra payment for filling the excavated earth and for dressing and compaction. In the letter dated 4th September, 1982 the appellant repeated its request for release of dues on account of filling work. In reply to the aforesaid letter dated 4th September, 1982, DSIDC issued a letter dated 7th October, 1982 stating, inter alia, as below:


“...The item of filling as per the specifications clearly stipulates that the filling shall be done in layers not exceeding 20cm in depth and consolidating each deposited layer by ramming and watering but I am sorry to state none of these operations have ever been entrusted to you nor same have been executed at the site and accordingly no claims of yours is tenable on this account.”


16. In the rejoinder by the appellant to the DSIDC by way of letter dated 11th October, 1982, the appellant pointed out to the DSIDC that the complaint by them pertaining to extra work was belated inasmuch as the item had already been executed.


17. In support of his arguments that no formal order or document is required to be necessarily executed for carrying out extra work, and that Section 70 of the Contract Act provides for unjust enrichment and it applies with the same force to Governments, as it does to individuals, the learned counsel for the appellant has relied upon the following judgments:


(i) State of West Bengal Vs., M/s B.K.Mondal and Sons, AIR 1962 SC 779.


(ii) State of U.P. Vs. Chandra Gupta and Co. AIR 1977 Allahabad 28.


(iii) State of Orissa Vs. Gokulchandra Kanungo, AIR 1981 Orissa 160.


18. We have carefully perused the award dated 26th June, 1987 and judgment dated 17th April 1998. It is apparent from the perusal of the clause 12 reproduced hereinabove, that for any extra work to be carried out by the contractor, the Engineer-in-charge was required to issue instructions in writing duly signed by him for alterations/omissions/additions or substitutions in the contract. In our opinion, the argument of the learned counsel for the appellant that as the word `may' was used in clause 12, hence it was not mandatory/obligatory for the Engineer-in-charge to issue instructions in writing, holds no water. Once a clause governing the parties to the agreement envisages that a particular action is to be taken in a particular manner alone, the same has to be done in the manner provided and in no other manner. In such a case it cannot be concluded that even an oral instruction without being followed by any written instructions would suffice for entitling the appellant to receive payment of claim No.3 for the extra items. Our opinion is also fortified by the records, particularly letter dated 7th October, 1982 issued by the DSIDC wherein the said claim of the appellant was categorically refuted by the DSIDC who stated that the work in question had not been entrusted to it and nor was the same executed at site and, therefore, the claim in question was not tenable.


19. On a perusal of clause 12 reproduced hereinabove, it is apparent that the award passed by the arbitrator is against the stipulations and prohibitions contained in the contract governing the parties. There is also no question of interpretation of the said clause, as the language of the same is crystal clear and unambiguous. In our opinion, by ignoring the said clause, the arbitrator has travelled beyond his jurisdiction and the same amounts to deliberate departure from the contract.


20. In the aforesaid context, we may advert to the judgments cited by the learned counsel for the DSIDC to the effect that an arbitrator cannot widen his jurisdiction by deciding a question otherwise than in accordance with the contract and that if an arbitrator travels outside the bounds of the contract, he acts without jurisdiction.


(i) Associated Engineering Co. Vs. Government of Andhra Pradesh and another (1991) 4 SCC 93.


(ii) Steel Authority of India Limited Vs. J.C.Budhiraja, Government and Mining Contractor (1999) 8 SCC 122.


(iii) Rajasthan State Mines and Minerals Ltd. Vs. Eastern Engineering Enterprises and another 1999 (3) Arb.LR 350 (SC).


21. In the above judgments, the Supreme Court has held that the arbitrator is a creature of the contract between the parties and hence if he ignores the specific terms of the contract, it would be a question of jurisdictional error which could be corrected by the court. For that limited purpose, the agreement is required to be considered and for deciding as to whether the arbitrator has exceeded his jurisdiction, reference to the terms of the contract is a must. In Rajasthan State Mines and Minerals (supra), the Supreme Court has referred to a number of judgments on the aforesaid issue and has ultimately summarized the said decisions in para 42 as below:


“From the resume of the aforesaid decisions, it can be stated that:


(a) It is not open to the Court to speculate, where no reasons are given by the Arbitrator, as to what impelled Arbitrator to arrive at his conclusion.


(b) It is not open to the Court to admit to probe the mental process by which the Arbitrator has reached his conclusion where it is not disclosed by the terms of the award.


(c) If the Arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the Court cannot interfere.


(d) If no specific question of law is referred, the decision of the Arbitrator on that question is not final, however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. In a case where specific question of law touching upon the jurisdiction of the Arbitrator was referred for the decision of the Arbitrator by the parties, then the finding of the Arbitrator on the said question between the parties may be binding.


(e) In a case of non-speaking award, the jurisdiction of the Court is limited. The award can be set aside if the Arbitrator acts beyond his jurisdiction.


(f) To find out whether the Arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. Arbitrator acting beyond his jurisdiction-is a different ground from the error apparent on the face of the award.


(g) In order to determine whether Arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could arise a particular claim before the Arbitrator. If there is a specific terms in the contract or the law which does not permit or give the Arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the Arbitrator in respect thereof would be in excess of jurisdiction.


(h) The award made by the Arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a jurisdictional error which requires ultimately to be decided by the Court. He cannot award an amount which is ruled out or prohibited by the terms of the agreement. Because of specific bar stipulated by the parties in the agreement, that claim could not be raised. Even if it is raised and referred to arbitration because of wider arbitration clause such claim amount cannot be awarded as agreement is binding between the parties and the Arbitrator has to adjudicate as per the agreement. This aspect is absolutely made clear in Continental Construction Co.Ltd. (supra) by relying upon the following passage from M/s Alopi Parshad vs. Union of India, (supra), which is to the following effect.


“There it was observed that a contract is not frustrated merely because the circumstances in which the contract was made, altered. The Contract Act does not enable a party to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of event which they did at all anticipate, a wholly abnormal obstacle to execution, or the like. There is no general liberty reserved to the Courts to absolve a party from liability to perform his part of the contract merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous.”


(i) The Arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract. A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action.


(ii) The Arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the Arbitrator is a tribunal selected by the parties to decide the disputes according to law.”


22. The Supreme court has emphasized the principle that the scope of interference by the court with an award passed by the arbitrator is limited, in Indu Engineering and Textiles Ltd. Vs. Delhi Development Authority reported as (2001) 5 SCC 691 also reiterated in Shyama Charan Agarwala and Sons Vs. Union of India reported as (2002) 6 SCC 201. In para 5 of the aforesaid judgment in Indu Engineering and Textiles Ltd.(supra), it has been held as below:


“...Interpreting the statutory provision courts had laid stress on the limitations on exercise of jurisdiction by the court for setting aside or interfering with an award in umpteen cases. Some of the well-recognised grounds on which interference is permissible are:


(1) violation of the principle of natural justice in passing the award;


(2) error apparent on the face of the award;


(3) the arbitrator has ignored or deliberately violated a clause in the agreement prohibiting dispute of the nature entertained;


(4) the award on the face of it is based on a proposition of law which is erroneous etc.”


23. By applying the yardstick as contained in the aforesaid judgments to the facts of the present case, it is apparent that the arbitrator has travelled beyond his jurisdiction and in view of the stipulation contained in clause 12 of the contract, the claim No.3 raised by the appellant could not have been awarded by the arbitrator as the same was in excess of his jurisdiction. In our opinion, the learned Single Judge was well justified in holding that no amount whatsoever could be awarded under claim No.3 in view of the specific provisions of clause 12 of the agreement. The amounts claimed by the appellant under claim No.3 were beyond the scope of arbitration and the award was rightly set aside by the learned Single Judge to the said extent, being in excess of the jurisdiction of the learned arbitrator and clearly outside the terms of the contract.


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24. In view of the fact that we have upheld the judgment of the learned Single Judge in respect of claim No.3, consequently the modification of claim No.4 is also upheld for the reason that under claim No.4, the learned Single Judge has disallowed the amount awarded by the learned arbitrator in respect of the work for filling in the earth in the ditch. The reasons which form the basis on which the claim No.3 has been rejected, automatically extend to claim No.4 in so far as it relates to the amount claimed by the appellant to the extent of Rs.1,18,359.72 paise in respect of the work of filling in earth in the ditch. Thus, the learned Single Judge cannot be faulted with in partly setting aside the claim No.4 to the extent of Rs.1,18,359.72 paise and confining the award under the said claim No.4 to the balance amount of Rs.2,60,331.72 paise. 25. In so far as the counter claims of the DSIDC are concerned, which are three in number, namely, counter claim No.1 for Rs.1,93,922.80 paise raised under clause 14 of the agreement, stated to be on account of work being defective and not according to specification and counter claim No.2 with regard to payment of interest on the amount awarded under counter claim No.1 and counter claim No.3 with regard to payment of costs, we do not propose to interfere in the impugned judgment/decree upholding the award of the learned arbitrator under which the aforesaid counter claims of the DSIDC were rejected on the ground that the court cannot go into the reasonableness of the reasons given by the learned arbitrator for rejecting the said claims and that it cannot be stated that the reasons given are not germane and relevant. We agree with the learned Single Judge that there is no error in the award which requires interference in so far as counter claims of the DSIDC are concerned. 26. In this view of the matter, we are unable to hold that the learned Single Judge exceeded his jurisdiction in interfering with the award or failed to exercise the jurisdiction vested in him. The approach of the learned Single Judge is in consonance with the well settled principles governing the scope of interference in an award of the arbitrator under the Arbitration Act, 1940. We, therefore, uphold the judgment/decree dated 17th April, 1998 passed by the learned Single Judge and dismiss the appeal preferred by the appellant as also the cross-objections filed by the DSIDC. 27. The parties are left to bear their own costs.
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