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



The Government of Karnataka Represented by the Executive Engineer v/s M/s. Shetty Constructions Company Private Limited


Company & Directors' Information:- ENGINEER CONSTRUCTIONS PRIVATE LIMITED [Active] CIN = U70102PB2012PTC036147

Company & Directors' Information:- SHETTY CONSTRUCTIONS CO PRIVATE LIMITED [Active] CIN = U45201KA1983PTC005574

Company & Directors' Information:- EXECUTIVE CONSTRUCTIONS LIMITED [Strike Off] CIN = U45201MP1986PLC003483

    M.F.A. No.1042 of 1993 (AA)

    Decided On, 27 March 2006

    At, High Court of Karnataka

    By, THE HONOURABLE MR. JUSTICE B. PADMARAJ & THE HONOURABLE MR. JUSTICE S. ABDUL NAZEER

    For the Appellant: C.S. Patil, Additional Government Advocate. For the Respondent: G. Subba Rao, Advocate.



Judgment Text

S. Abdul Nazeer, J.


This appeal arises out of a Judgment and Decree passed by the Civil Judge, Yadgir in A.C.No.2/1991 dated 11-12-1992 whereby the award passed by the sole arbitrator dated 24-1-1991 was made rule of the Court.


2. Brief facts of the case are as follows:


The Government of Karnataka represented by the Executive Engineer I.D., U.K.P. NLBC Division No.4, Kembhavi, Shorapur Taluk, Gulbarga District (hereinafter referred to as department) invited tenders for construction of Shahapur branch canal (balance work) in Upper Krishna Project. M/s. Shetty Construction Company Private Limited, No.13, Adarsha Nagar, Hubli (hereinafter referred to as the 'Claimant') emerged as a successful bidder and the claimant was allowed for execution of the work in terms of the agreement dated 14-2-1985. Since certain disputes and differences arose between the parties, the matter was referred to the adjudication of the sole arbitrator appointed as per the provisions contained in Clause 52 of the Agreement.


3. Sri S. Puttappa, Superintending Engineer was appointed as the sole arbitrator. Pursuant to entering upon the reference by the arbitrator as per the notice dated 4-11-1989, the claimant filed its statement of claims before the arbitrator letter dated 20-11-1989 and the department filed the counter statement dated 24-1-1990. The arbitrator passed an award and published the same on 24-1-1991 and gave notice of the award to the parties. The claimant by its letter dated 16-1-1991 requested the arbitrator to file the said award into the Court. In pursuance of the same, the arbitrator submitted the award along with the connected records and documents to the Court. The arbitrator requested the Court to receive the award along with connected papers and issue Court notices to the respondents under Section 14(2) of the Arbitration Act, 1940 and thereafter pass the orders which the Court would deem fit in the circumstances of the case. After registering the petition, the Court issued notices to the claimant as also to the department. The department has filed a petition under Section 30 of the Arbitration Act disputing the award of the arbitrator. The Civil Court on consideration of the contentions of the parties has passed the aforementioned judgment and decree. The department has filed this appeal challenging the said judgment and decree.


4. We have heard Sri C.S. Patil, Learned Additional Government Advocate for the appellant-department and Sri G Subba Rao, Learned Counsel for the respondent-claimant.


5. Learned Counsel for the department has confines the challenge only in so far as claim Nos. 2, 6, 8 and award of future interest at 18% p.a. from the date of the award upto the date of payment. Learned Counsel would argue that the Court below is not justified in confirming the award of the arbitrator under claim No.2 in awarding a sum of Rs.11,29,590/- towards payment of compensation for excess excavation in hard rock due to over breakage in adverse geological strata or lamented rock. It is his contention that the arbitrator has misconduct himself in awarding the said claim, and that the said award is contrary to the terms of the agreement. It is further argued that no cogent and acceptable evidence was placed before the arbitrator for awarding the exaggerated amount of Rs.11,29,590/- in so far as claim No.6 is concerned. It is pointed out that the arbitrator has made a note in the award to the effect that the exact quantities may be taken from the measurement books. Without deciding the exact quantities, award has been passed which according to the Learned Counsel is bad in law. In so far as claim No.8 is concerned, it is contended that the arbitrator has misconducted himself in awarding the said claim and it was beyond his jurisdiction in view of the terms of agreement. He has taken us through various clauses of the agreement and argued that the argument did not provide for payment of revised rates as has been awarded. It is further contended that the said claim is barred under Order 2 Rule 2 of C.P.C. because even if the claimant was entitled for the said amount he ought to have claimed the same along with the previous claim which has culminated into an award dated 30-9-1998. In so far as the rate of interest in concerned, it is pointed out that award of interest at 18% is on a higher side. The Court having regard to Section 29 of the Arbitration Act ought to have awarded interest at a reasonable rate.


6. On the other hand, Learned Counsel appearing for the claimant broadly submits that the award does not suffer from any errors of law manifest on the face of records. The award has been passed on appreciation of materials on record. There is no illegality in the award, which requires interference by this Court. Learned Counsel has taken us through various clauses of agreement and submits that the award is in conformity with the terms of the agreement and does not call for interference.


7. We have carefully considered the arguments made by the Learned Counsel at the Bar and perused the judgment and decree of the Trial Court, the award of the arbitrator and the materials placed on record. With a view to avoid repetition, the specific contentions of the Learned Counsel for the parties will be considered when each of the disputed claim is taken up for consideration.


8. Before examining the points arising for decision in this case, it is necessary to bear in mind the principles relating to interference of awards of arbitrators by Court.


9. It is well settled that in a proceeding to set aside the award, a Court does not sit in appeal over the award of the arbitrator. The Court will not even reappreciate the evidence. An Arbitral Tribunal is a domestic Tribunal of the choice of the parties. It has been held by a Division Bench of this Court in Government of Karnataka and Another Vs. Messrs. Consolidated Engineering Enterprises MFA No.1169/1986 disposed of on 4-12-1986 that the decisions of the Arbitral Tribunal do not admit of any interference by Civil Court except on a very special grounds. The arbitrator's power is not taken away or the efficacy and finality of his award whittles down by reason of any error in the award. An erroneous decision of an arbitrator is as much binding as correct one. Courts do not sit in judgment over the awards as if in appeal. An award can be interfered with where it is vitiated by misconduct or suffers from errors of law manifests on the face of record. Misconduct in this context has no pejorative implication in that it has no connotation of any moral lapse. Legal misconduct can be said to arise if the arbitrator on the face of the award arrives at conclusion inconsistent with and unsupportable on his own reasoning and findings or arrives at a decision by ignoring material documents which have a bearing on the controversy. It is no misconduct on the part of the arbitrator to come to an erroneous decision whether his error is one of law or fact. There is no appeal from his verdict. The Court cannot review its award and correct any mistake in its adjudication unless illegality of the award is apparent on its face.


10. In Union of India Vs Kalinga Construction Company Private Limited (AIR 1971 SC 1646) the Hon'ble Supreme Court has held that in a proceeding to set aside an award, appellate Court cannot sit in appeal over the conclusion of the arbitrator by re-examining and re-appraising the evidence considered by the arbitrator and held that the conclusion reached by him is wrong. In K.P. Poulose Vs State Of Kerala the Apex Court has held that the misconduct under Section 30(1) comprises of legal misconduct which is complete if the arbitrator on the face of the award arrives at on inconsistent conclusion even on his own finding or arrives at a decision ignoring the very material documents which throws abundant light on the controversy to help a just and fair decision. In Food Corporation of India Vs Joginderpal Mohinderpal and Another (AIR 1989 SC 1263) it has been held that the arbitrator on interpretation of arbitration clause arrive at a conclusion and when such a construction was conceivable and possible, Court has no jurisdiction to modify the award.


11. In Rajasthan State Mines and Minerals Limited Vs Eastern Engineering Enterprises and Another (1999 (9) SCC 283), the Supreme Court has held that when the award made by the arbitrator is in excess of his jurisdiction or contrary to the express bar contained in the agreement is liable to be set aside. It has been further held that the arbitrator cannot ignore the law or can act arbitrarily or irrationally in making the award. It has been held as follows:


"To find out whether the arbitrator has travelled beyond his jurisdiction it would be necessary to consider the agreement between the parties containing Arbitration Clause. The arbitrator act beyond his jurisdiction is different ground from the error apparent on the face of the record.


In order to determine whether the arbitrator has acted in excess of his jurisdiction, what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the la w 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 a particular claim, then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.


The award made by the arbitrator, disregarding the terms of reference or the arbitration agreement or terms of contract would be a jurisdictional error, which requires to be ultimately decided by the Court. He cannot award an amount, which is ruled out or prohibited by the terms of the agreement. Because of a 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 a wider arbitration clause, such claim amount can not be awarded as the agreement is binding between the parties and the arbitrator has to adjudicate as per the agreement". (Emphasis supplied)


12. In M/S. Shyam Charan Agarwala Sons Vs Union of India (AIR 2002 SC 2659) the Apex Court has held that award of a sum vis-a-vis item which are outside the contract is liable to be set aside. It has been held thus:


"As regards 3rd item, the arbitrator again ignored the relevant clauses in the agreement and came to the perverse conclusion that the site became restricted on account of certain security measures enforced in the area. The award of sum vis-a-vis this item is clearly out-side the terms of the contract. The High Court therefore rightly set aside the award on this aspect."


13. With this background, let us now consider the contentions of the parties with reference to the contested claims in this appeal.


Re.Claim No.2 and 8:


14. Claim No.2 and No.8 are inter-related, hence, they are taken up together for consideration. The award of the arbitrator in relation to claim No.2 is as follows:


Claim No.2:


Payment towards excess excavation for hard rock due to over breakage in adverse geological strata of laminated rock amount of claim: Rs. 19,10,034.00 extra lead charges involving mechanical lead amount of claim Rs.16,67,609.50 -- An amount of Rs.11,29,590.00 only is awarded towards this claim. (Rupees Eleven lakhs twenty nine thousand five hundred ninety only)


Similarly the award under claim No.8 is as under:


Claim No.8:


Payment towards extra lead charges involving mechanical lead amount of claim Rs.16,67,609.50 -- An amount of Rs.16,17,630.00 only is awarded towards this claim.



Clause 51 of the agreement provides settlement of disputes which is as under:


“SETTLEMENT OF DISPUTES


If the Contractor considers any work demanded on him to be outside the requirements of the contract, or considers any drawings, record or ruling of the Engineer-in-Charge on any matter in connection with or arising out of the contract or the carrying out of work to be unacceptable, he shall promptly ask the Engineer-in-Charge in writing for written instructions or decisions thereupon the Engineer-in-Charge shall give his written instructions or decision within a period of thirty days of such request.


Upon receipt of the written instructions or decision the Contractor shall promptly proceed without delay to comply with such instructions or decision.


If the Engineer-in-Charge fails to give his instructions or decision in writing within a period of thirty days after being requested, or if the Contractor is dissatisfied with the instructions or decision of the Engineer-in-Charge, the Contractor may within thirty days after receiving the instructions or decision appeal to the Chief Engineer who shall afford an opportunity to the Contractor to be heard and to offer evidence in support of his appeal. The Chief Engineer shall give a decision within a Period of thirty days after the Contractor has given the said evidence in support of his appeal.


If the Contractor is dissatisfied with this decision, the Contractor within a period of thirty days from receipt of the decision shall indicate his intention to refer the dispute to Arbitration, failing which the said decision shall be final and conclusive.


15. The agreement provides the manner of blasting. It states that blasting in a manner to produce over-breakage shall not be permitted. The blasting shall be done by using explosive best suited to the strata concerned so as to avoid undue over break. It further states that special care shall be taken to prevent over breakages or loosening of material on bottom, and side slopes of canal against which lining has to be placed. The agreement also provides for the method of measurement and payment for excavation. It states that excavation items will be measured for the payment to the line shown on the drawings or as described in these specifications. If any work is ordered to be done beyond the dimensions marked on the drawings, no extra rate other than the rate for unit of work quoted shall be paid. No payment shall be made for any work carried out beyond the specified lines of the excavation unless such works is done as per written instructions of the Executive Engineer.


16. It also provides for payment for excavation in soil. It states that in case of excavation in hard rock, the payments for over break of rock beyond the seating of bed and side lining will be limited to a maximum depth of 5 Cms. limit to an average of 2.50 Cm. Excavation done in excess of the above either due to in-advertence of the contractor or due to his convenience shall not be measured and paid for and contractor shall fill up the extra excavation at his own cost as directed by the Executive Engineer.


17. Thus, the agreement is clear and categorical in so far as blasting and excavation are concerned.


18. Clause 51 clearly lays down that in case any work demanded of him to be decided the requirements of the contract, the Contractor has to ask the Engineer-in-Charge in writing for written instructions or decisions thereupon, the Engineer-in-Charge shall give his written instructions or decisions within a period of thirty days of such request. Upon receipt of written infractions or decisions, the contractor shall promptly proceed without delay to comply with such instructions or decision. It is also clear that if the Engineer-in-charge fails to give his instructions or decision in writing within a period of thirty days after being requested, or if the Contractor is dissatisfied with the instructions or decision of the Engineer-in-charge, the Contractor may within thirty days after receiving the instructions or decision appeal to the Chief Engineer who shall afford an opportunity to the Contractor to be heard and to offer evidence in support of his appeal. The Chief Engineer hall give a decision within a period of thirty days after the Contractor has given the said evidence in support of his appeal. If the Contractor is dissatisfied with this decision, the Contractor within a period of thirty days from receipt of the decision shall indicate his intention to refer the dispute to Arbitration, failing which the said decision shall be final and conclusive.


19. Claim No.2 pertains to payment towards extra excavation in hard rock due to over breakage, the claimant contends that there has been unavoidable over breakage, which should be made good by the department. It is his case that he has taken all the possible precautionary measures in blasting and there is no fault on his part and over breakage is on account of geological fault of the strata. The department has contended that if the over breakage is due to geological infirmity, then the contractor will not be eligible for payment for the labour which would have been spent on effecting the breakage. The contractor is not entitled for cost of labour carelessly employed. The contractor is entitled for the cost of removal of excavated muck if over breakage is due to geological defects. Clause 1.7.1 of detailed specifications is specific that the contractor should obtain written instructions before filling. There is no documentary evidence to show that the claimant has obtained prior written instructions.


20. Claim No.8 pertains to payment of mechanical lead charges for disposing of the excavated materials. The claimant has requested for payment of extra lead charges towards the disposal of 38,515 cu.mtrs. of excavated materials with leads up to 2 Kms as against the lead of 100 Mts. as per the agreement. The department has opposed the said claim on the ground that the specification under Schedule-B stipulates all lead and life. Objection is also raised on the ground that the respondents claim is hit by Order 2 Rule 2 of CPC. It is further contended that the item under Schedule-B is inclusive of all leads and lifts and hence the claim is not tenable. The arbitrator has come to a' conclusion that since the question of lead has not been seriously contested as against the initial leads, the lead involved in 1.5 to 2 Kms and that the claimant has put forth extra efforts in conveyance of the excavated materials and that having regard to Clause-35 of the agreement the claim is tenable. The department has mainly contended that having regard to Clause-51 of the agreement the claimant is not entitled for payment of extra lead charges towards the disposal of 38,515 cu.mtrs. of the excavated materials. Schedule to the agreement provides the schedule of quantities and bid rate. The description of the items in so far as excavation with all leads and lifts is as follows;


"Excavation for canal to the required section including seating to the bed and sidelining and/or key trenches, drains and/or the seating of embankment in ALI KINDS OF SOILS including soft murum, hard murum, Rocky murrum soft shale and boulders of size not exceeding 0.14 cum, (5 Cft), in volume using only pick or crow bars and without resorting to blasting including dewatering and desilting, if any, and disposing off excavated stuff on spoil banks as directed or lay in the same in the canal embankment in layers for Zone 'A’ or ‘B’ to the prescribed profile with all leads and all leads and all incidental charges etc. complete.” (Emphasis supplied)


The above description does not provide for payment of extra lead charges. As noticed above clause-51 provides for settlement of disputes. It is clear from the said clause that if the claimant considers any work demanded of him to be out side the requirement of the contact or the carrying out of the work to be unacceptable, he shall ask the Engineer-in-Chief writing for written instructions or decisions 'and thereupon the Engineer-in-Chief shall give written instructions or decisions within a period of 30 days of such a request. It is not the case of the claimant that the Engineer-in-Chief has given written instructions accordingly. Clause-32 makes it clear that the contractor shall be bound to execute extra item of work as directed by the Engineer-in-Chief and the rates for extra items are to be mutually agreed.


21. Learned Counsel for the claimant points out that under Clause-32, extra item of work shall not vitiate the contract and that the contractor was bound to execute extra item of work. He has also placed reliance on Clause-31 of the agreement for the said purpose. Clause-31 states that for variation in the quantity of work in the Bill of quantities shall not vitiate the contract. The rates quoted for the individual item shall apply for the quantities of work increased or decreased by not more than 30% for each of the items. It further provides that should the quantities of the work actually involved under any item exceed quantities provided in the tender by more than 30% of quantity provided in the tender the rate of such excess over 30% of the bid unit price for the affected may be revised in accordance with the procedure indicated under clause "Extra Items". The claimant has not taken recourse to Clause-31 for the said purpose. Thus, the claim No.8 made by the claimant cannot be entertainable under the agreement. Thus, the arbitrator has travelled beyond his jurisdiction in awarding compensation.


22. At this stage, Learned Counsel for the claimant submits that the claimant has written letter dated 20.5.1987 informing the department that excavations have been made and that the Engineers of the department have refused to associate with the measurement of the excavations and that the measurements taken by the Engineers of the claimant will be binding on the department. Again by a letter dated 31-3-1987, it has been informed that during the course of the excavation of hard rock it is found that geological strata of laminated rock, there is lossening of adjacent layer pockets beyond the canal section resulting in excess excavation of pockets beyond the excavation of canal section and that the excavation is not negligible quantity which has not occurred due to any convenience for the claimant nor due to any advertent action on their part. The department has not replied for the same. Therefore, it should be treated as a permission granted. The fact remains that the claimant has not secured any written permission either for excess excavation or for payment for extra lead charges towards disposal of 38,515 cu.mtrs. of excavated materials which leads to 2 kms. Thus, as held by the Apex Court in Rajasthan State Mines And Minerals limiteds Case (Supra) the award of the arbitrator is clearly exceeds his jurisdiction. In M/S. Shyam Charan Agarwala's Case (Supra) the Apex Court has upheld the judgment of the High Court, whereby the High Court had interfered with the award of the arbitrator on item No.3 on the ground that the award is outside the terms of contract. We have also considered the various decisions cited by the Learned Counsel for the claimant which have been rendered in the special facts of each case.


23. An arbitrator is a creature of contract between the parties and hence if he ignores the specific terms of the contract, it would be a question of jurisdictional error. It has been held that where fundamental terms of agreement between the parties are ignored by the arbitrator, such arbitrator exceeds his jurisdiction. This is not a case of interpretation of an arbitration clause and arriving at a conclusion. This is a clear case of arbitrator exceeding his jurisdiction while passing the award. It is settled that an arbitrator can act only within the four comers of the agreement and not beyond thereto. Therefore, the findings of the Court below in so far as claim Nos.2 and 8 are clearly unsustainable.


24. Further, the excavated material according to the contractor is 38,515 cu.mtrs. and the extra lead charges are claimed for the disposal of the said excavated material, which leads to 2 Kms as against the lead of 100 Mtrs. as per the contract. Admittedly, the claimant has raised a dispute earlier and an award was passed by the arbitrator on 30th September 1988. In the said award the claimant has sought for award of extra payment towards dressing of the site slopes, hand cutting and embankment for the portion of the work excavated by the previous agency. It was the specific contention of the arbitrator that while the tendered quantity is 22,442 cu.mtrs. he has excavated in all 83,151 cu.mtrs. for which 38,515. cu.mtrs. has been excavated upto 14.2.1986. The excavated quantity upto 14.2.1986 exceeds the tendered quantity by more than 30% as such the revised rate should be worked out for excess quantity as per Clause 32 of the agreement. Though the claimant has sought for award of extra payment towards dressing of the side slopes, he has failed to claim the amount towards mechanical lead charges for disposal of the said 38,515 cu.mtrs. of excavated material with lead upto 2 Kms. The said order of the arbitrator has become the rule of the Court is Miscellaneous Case No.52/1988 dated 3-4-1989. The Apex Court in K.V. George Vs The Secretary to Government, Water and Power Department, Trivandrum and Another (AIR 1990 SC 53) has held that all issues arose out of a contract which could have been raised in the first claim petition filed before the arbitrator. This having not been done, the second claim petition before the arbitrator raising the remaining disputes is clearly barred. Learned Counsel for the claimant submits that having regard to Clause-35 of the agreement, opportunity is provided to the claimant to put up all his claims before the release of the contract. This argument of the claimant is clearly not acceptable. Clause-35 of the agreement states that after completion of the work and prior to final payment, the contractor shall furnish to the concerned Executive Engineer a release of the claims against the Government arising out of the contract other than claims specifically identified, evaluated and excepted from the operation of the release by the contractor. But the question is whether the claimant could have raised claim No.8 along with the previous claim. According to the contractor he had excavated in all 83,151 cu.mtrs, out of which 38,515 cu.mtrs. have been excavated upto 14.2.1986. Therefore he could have made this claim along with the previous claim. Therefore, claim No.8 could have been raised along with the first claim filed before the ar

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bitrator. This having not been done, the present claim is clearly barred. Therefore, the arbitrator is not justified in entertaining claim No.8. Re.Claim No.6: 25. Claim No.6 provides payment of revised rates in respect of items executed after 1.7.1987. The contention of the claimant is that when the tender was invited and agreement executed, there was not even a hint that water for irrigation would be allowed in the canal and that he would be required to carry out the working that situation. The circumstances of working has totally changed since the department allowed the water in the canal for almost ten months in a year drastically reduced the work period from 12 months to two months in a year. The claimant has worked out at the revised rate with a detailed rates analysis. In fact, in the minor irrigation project, the department allows 33 1/3% extra over the normal rate for the items of in terms of excavation work is executed in watery situation. It is not in dispute that water has been allowed in the canal as contended by the claimant. The claimant has worked out the revised rates in detail, the rate analysis based on proper standards. The arbitrator on appreciation of relevant documents has observed that water to the extent of 600 to 700 cu.mtrs. was allowed in the canal for irrigation for nearly 9 to 10 months in a year curtailing drastically the period available for execution besides entailing problems of dewatering and desilting. The arbitrator has allowed this claim on appreciation of the materials on record. In our view the said finding does not call for interference. Re.Award of interest: 26. The claimant has claimed interest at 18% p.a. on the ground that the Government itself is charging and recovering interest at 18% on the mobilization advance given by it while the Contractors is required to borrow at higher rates of interest. In the circumstances, the arbitrator has granted interest at 18% per annum, which has been accepted by the Court below. In identical circumstances, a Division Bench of this Court in the case of Government of Karnataka Vs K. Sudhakar Rao (ILR 1992 Kar 3276) has held that if the State wants to recover 18% interest on the mobilization advance given to the contractor, there 'could hardly be any justification in its grievance that the arbitrator could not have awarded interest at that rate. Therefore, we are of the view that the award of interest at 18% p.a. is just and reasonable and the said finding does not call for interference. 27. In the result, the appeal is allowed in part in regard to award of claim Nos.2 and 8 and the appeal is dismissed in regard to award of other matters. As a consequence, award of the arbitrator on claim Nos.2 and 8 is set aside and the award is upheld in regard to all other items as awarded by the arbitrator. On the facts and in the circumstances of the case, we direct the parties to bear their respective costs.
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