Special Leave Petition Civil No 13180 of 1985
From the Judgment and order dated 1741985 of the Madhya Pradesh High Court in Misc
FA No 252 of 1981
SN Kacker and R Ramachandran for the Petitioner
The Judgment of the Court was delivered by SABYASACHI MUKHARJI J
This is an application under Article 136 of the Constitution for leave to appeal to this Court from the judgment and order of the High Court of Madhya Pradesh dated 17th April 1985
In order to appreciate the points involved it is neces 106 sary to state that the petitioner entered into a contract dated 31st March 1970 with respondent State of Madhya Pradesh for the construction of Rip Rap on right bund of Masonary Dam of Tawa Project
The contract could not be completed within the stipulated time because of alleged gross delay on the part of the State according to the petitioner in allotment of work and discharge of its obligations under the contract
The petitioner incurred unforeseen expenditure it is claimed to the tune of Rs529812 and approached the Superintending Engineer for payment
Upon refusal of the Superintending Engineer to pay the claim and his refusal to refer the matter to arbitration the petitioner moved the learned District Judge under section 20 of the hereinafter called the Act  for filing of the arbitration agreement and for reference of the disputes to the arbitration
On 24th April 1976 the learned District Judge allowed the petitioner s application and directed the respondent State of Madhya Pradesh to file the agreement in Court and made a reference for specific question to the arbitration
The High Court on 22nd September 1976 dismissed the State s appeal against the order of the District Judge
Thereafter in March 1977 Retired Engineer in Chief PWD Bhopal was appointed arbitrator
There was an award dated 29th October 1978 on all the issues referred partly allowing the petitioner s claim
The award was filed in the Court of the District Judge and the respondent filed objections to the award under sections 30 and 33 of the Act and the petitioner filed replies
The District Judge made the award a rule of the Court
The respondent appealed to the High Court
The High Court remanded the matter to the District Judge for fresh decision
The District Judge accepted the objections and set aside the award
The High Court by the impugned judgment dismissed the appeal of the petitioner
It is from this judgment of the High Court that the petitioner seeks leave to appeal to this Court
As mentioned hereinbefore by the impugned judgment and order of the High Court the award has been set aside
The agreement contained an arbitration clause
The work however could not be completed within the stipulated time the period of contract was extended
The contractor attributed delay on the part of the State Government whereas the State Government blamed the contractor
This was a disputed question
While the work was in progress the contractor was required to meet extra expenditure on labour charges and materials due to revision in wage scales and escalation of prices
Alterations and substitutions of works also led to extra expenses
There were certain items for which rates were not provided but all the same work had to be done
The contractor therefore advanced claims 107 for compensation
The Superintending Engineer dismissed the claims on the ground that the claims were barred under clause 3315
He also held that some of the claims were not covered by the contract
The contractor sought to invoke the arbitration clause but the State sought to oppose on the ground that the dispute attracting the arbitration clause had not arisen
It was contended that the claim was barred by clause 33 15 and it had not been made within the time
It was contended further that there was only one contract and there being no separate agreement for extension of period of the contract the rate as provided in the original contract alone was permissible
As there was no separate contract and no reference under clause 3329 could be made for the enhanced period beyond the period of the contract
Relevant clauses of the contract were as follow 3315 Clause 15
Time limit for unforseen claims Under no circumstances whatever shall the contractor be entitled to any compensation from Government on any account unless the contractor shall have submitted claim in writing
to the Engineer in Charge within one month of the cause of such claim occurring
3329 Clause 29
Decision of Superintending Engineer to be final except where otherwise specified in the contract
The decision of the Superintending Engineer of the Circle for the time being shall be final conclusive and binding on all parties to the contract upon all question relating to the meaning of the specification design drawings and instructions hereinbefore mentioned and as to the quality of workmanship or material used on the work or as to any other question claim right matter or thing whatsoever in any way arising out of or relating to the contract designs drawings specifications estimates instructions orders or those conditions or otherwise concerning the work of execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof
Provided that if the contractor is dissatisfied with the final decision of the Superintending Engineer in respect of any matter he may within 28 days after receiving notice of such decision give notice in writing to the Superintending 108 Engineer requiring that the matter may be referred to the arbitration and furnishing detailed particulars of the dispute or difference specifying clearly the point at issue
If the contractor fails to give such notice within the period of 28 days as stipulated above the decision of the Superintending Engineer already given shall be conclusive and binding on the contractor
In case an arbitration is to be held it shall be effected by an arbitrator to be appointed by the State Government whose decision shall be final conclusive and binding
If the work under the contract has not been completed when a dispute is referred to arbitration work shall continue during arbitration proceedings if it is reasonably possible and no payment due to contractor should be with held on account of arbitration proceedings unless it is required by the arbitrator 3332 Clause 32
Action where no specification In case of any class of work for which there is no such specification as is mentioned in Rules such work shall be carried out in accordance with the specification approved by Superintending EngineerChief Engineer or application to works in the district and the event of there being no such specification then in such case the work shall be carried out in all respect in accordance with the instructions and requirements of the Engineer in Charge
3333 Clause 33
Definition of work The expression works or work where used in these conditions shall unless there by something either in the subject or context repugnant to such construction be constructed and taken to mean the works by or by virtue of the contract contracted to be executed whether temporary or permanent and whether original altered substituted or additional
3334 Clause 34
Claim for quantities entered in the tender or estimate 109 Quantities shown in the tender are approximate and no claim shall be entertained or work executed being either more or less than those entered in the tender estimate
 The learned single Judge as mentioned hereinbefore of the High Court after exhaustive discussion dismissed the appeal and upheld the order
Being aggrieved the petitioner went up in appeal before the Division Bench and the Division Bench on consideration of the matter dismissed the appeal
The Division Bench considered the following issues raised before the District Judge 1
Whether the contractor had incurred extra costs towards wetting and washing of stones used in masonry of Group II Tawa Masonry Dam 2
Was the petitioner entitled to payment of this extra costs of Rs 120355 3
Whether the petitioner contractor had to incur extra cost of material and labour to the tune of Rs 1472456 within the contract period for executing work assigned to it 4
Whether the contractor had incurred extra cost of Rs884336 for the work beyond the contract period due to unforeseen circumstances 5
Whether the petitioner s claim on both the counts was in whole or in part of it was barred by time in terms of clause 33
15 6
Whether the contract was rendered ineffective in terms of section 56 of the Contract Act due to unexpected change in the market rate of material and labour charges 7
Was the claim not entertainable in accordance with the terms  of the contract under clause 3332 3333 and 3334 during the extended period of contract 8
Was the work delayed because of the presence of shale zone in the foundation which factor was not made known to the contract 9
Whether the contractor was entitled to extra costs of damages 110 for the delay caused on account of shale zone The Division Bench came to the findings as follows 1
The contractor did incur expenditure on wetting and washing of stones in Masonry Group II Tawa Masonry Dam but this was according to agreement
The petitioner is not entitled to the payment of the extra costs of Rs120355 3
The petitionercontractor did incur an extra cost of Rs1472456 within the contract period for executing the assigned work
The petitionercontractor did incur an extra cost of Rs681796 for the work done beyond the contract period due to unforseen circumstances
The petitioner is entitled to the claim to the extent of Rs265000 against Issue No 3 and Rs681796 against Issue No 4 above and the same is not barred by time in terms of clause 3315
The contract was not rendered ineffective in terms of section 56 of the Contract Act due to abnormal rise in the market rates of materials and labour 7
The claim under reference cannot be ruled out merely be cause of the provisions of clause 3332 3333 and 3334
Yes the work was delaved due to the presence of shale zone in the foundations a factor which was unforeseen and was not made known to the contractor
The contractor is entitled to claim extra cost due to the delay caused on account of the shale zone in foundations
The Division Bench felt that the four factual issues decided by the District Judge were more or less by the agreement and therefore the Division Bench did not deal with these
So far as three legal issues which were referred to him namely whether the claim was barred under clause 33 15 the contract was rendered ineffective in terms of 111 section 56 of the Contract Act due to abnormal rise in the market rate of material and labour and the claim not entertainable under clause 3332 3333 and 3334
The High Court considered whether the appellant was entitled to extra cost towards rise in prices of materials and labour within and beyond the contract period
The Division Bench noted that the learned District Judge held that since three legal issues were specifically referred to the arbitrator and therefore his decision had become final and binding on the parties and cannot be re agitated before the Court
Regarding the remaining issues the State had taken objection while opposing the application under section 20 that the appellant was not entitled to extra cost for material and labour in terms of the contract but the Court directed that this matter had to be agitated before the arbitrator and the application under section 20 could not be dismissed on the ground that the claim would not ultimately succeed
The District Judge found and in our opinion rightly that the question regarding extra cost was a general question and not a specific legal question and the decision of the arbitrator was not final one
The arbitrator misconducted himself in allowing the claim without deciding the objection of the State
In view of the specific clauses the appellant was not legally entitled to claim for extra cost
The decision of this Court in Seth Thawardas vs Union of India 1955 2 SCR 18 is of no avail on this point
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
The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks is just and reasonable
The arbitrator is a tribunal selected by the parties to decide their disputes according to law and so is bound to follow and apply the law and if he does not he can be set right by the Court provided his error appears on the face of the award
In this case the contractor having contracted he cannot go back to the agreement simply because he does not suit him to abide by it
The decision of this Court in Ms Alopi Parshad vs Union of India  may be examined
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 a contract 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 not at all anticipate a wholly abnormal rise or fall in prices a sudden depreciation of currency an unexpected obstacle to execution or the like
There is no general 112 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
It was argued on behalf of the appellant that since specific issues 13 were framed and referred by the District Judge to the arbitrator the same had been answered by a non speaking award there is no mistake of law apparent on the face of record and the District Judge erred in setting aside the award by looking into the terms of the contract which it was submitted neither formed part of the award nor appended to it
We are unable to agree
This being a general question in our opinion the District Judge rightly examined the question and found that the appellant was not entitled to claim for extra cost in view of the terms of the contract and the arbitrator misdirected himself by not considering this objection of the State before giving the award
In Kapoor Nilokheri Co operative Dairy Farm Society Ltd vs Union of India  it was held that where an arbitrator is called upon to decide the effect of the agreement he has really to decide a question of law ie Of interpreting the agreement and hence his decision is not open to challenge
This was also a decision against a reasoned award but since the reference was to a specific question of law the decision of the arbitrator it was held was not open to challenge
The limits of the jurisdiction of the Court to challenge the award are well settled
While considering objection under section 30 of the Act the Court does not act as an appellate court it can only interfere with the award if the arbitrator misconducts himself or the proceedings or if the award has been made after the issue of an order by the Court superseding the arbitration or if the arbitration proceedings have become invalid under section 35c of the Act or the award has been improperly procured or is otherwise invalid
The Judicial Committee in Champsey Bhara  Co vs Jivraj Balloo Spinning  Weaving Co Ltd AIR 1923 PC 66 has laid down the extent of the jurisdiction of the Court to set aside an award on the ground of an error in making the award
It has been reiterated that the award of the arbitrator may be set aside on the ground of an error on the face thereof only when in the award or in any document incorporated with it as for instance a note appended by the arbitrator stating the reason for his decision there is found some legal proposition which is the basis of the award and which is erroneous
See also in this connection Re
King  Duveen and Government of Kelantan vs Duff Development Co Ltd  if how 113 ever a specific question is submitted to the arbitrator and he answers it the fact that the answer involves an erroneous decision in point of law does not make the award bad on its face so as to permit of it being set aside
See also the observations of this Court in Bungo Steel Furniture vs
Union of India  It is well settled that the contract remained part of the award
The Judicial Committee in Saleh Mohd vs Nathoo Mal 54 IA 427 considered an award in which the arbitrator recited a contract made between the parties and the dispute arising under it
It was contended that the contract was incorporated in the award by its reference and so the award disclosed an error of law in construing the terms of the contract
But that contention was negatived
It was held that the reference to the contract in the award was to earmark the disputes between the parties and was not incorporated into the award
In Abosalom Ltd vs Creat Western  it was held that if an award referred to the terms of a clause in the contract the clause though not set out in full must be taken to be incorporated in it
This Court has reiterated in Allen Berry  Co vs Union of India 119711 3 SCR 282 that mere reference to the contract in the award is not to be held as incorporating it
In the aforesaid light we are of the opinion the High Court was right that the District Judge was entitled to examine the contract in order to find out the legality of the claim of the appellant regarding extra cost towards rise in prices of material and labour
As was pointed out by the learned District Judge clauses 216 and 24 stipulated that the contractor had to complete the work inspite of rise in prices of materials and also rise in labour charges at the rates stipulated in the contract
There was a clear finding of the arbitrator that the contract was not rendered ineffective in terms of section 56 of the Act due to abnormal rise in prices of material and labour
This being so and the contractor having completed the work it was not open to him to claim extra cost towards rise in prices of material and labour
The arbitrator misconducted himself in not deciding this specific objection raised by the State regarding the legality of extra claim of the appellant
In that view of the matter the award in our opinion was properly set aside by the learned District Judge and the High Court was right in not interfering with it
The question about specific reference on a question of law was examined by this Court recently in the case of Tarapore and Comapny vs Cochin Shipyard Ltd Cochin and another  There it was observed that if the agreed fact situation on the basis of 114 which agreement was entered into ceases to exist the agreement to that extent would become otiose
If rate initially quoted by the contractor became irrelevant due to subsequent price escalation it was held in that case that contractor s claim for compensation for the 
excess expenditure incurred due to the price rise could not be turned down on ground of absence of price escalation clause in that regard in the contract
Agreement as a whole has to be read
Reliance was placed very heavily on this decision on behalf of the appellant before us
It has to be borne in mind that in the instant case there are specific clauses referred to hereinbefore which barred consideration of extra claims in the event of price escalation
That was not so in Tarapore and Company s case
That made all the difference
The basis of bargain between the parties in both these two cases were entirely different
In the aforesaid view of the matter we are of the opinion that the High Court was right in the view it took and there is no ground to interfere
The petition for special leave fails and is accordingly dismissed
SL Petition dismissed


Summary:
 The first respondent was appointed a Sub Charge Cantonment General Hospital Lucknow by the Cantonment Board by an appointment letter dated 2341969 and was confirmed in that post on 1121969
The conditions of service of the employees of the Cantonment Board a statutory board were governed by the provisions of the Cantonment Funds Servants Rules 1937
At the time of appointment the services of the respondent were not transferable as per the provisions of the Rules as then prevailing
His appointment letter also did not include any condition for transfer from one Board to another
By a notification dated 16121972 the Rules were amended and a new rule being rule 5 C was added to provide for the transfer of the services of the employees of the Cantonment Boards from one post in one Board to another post in another Board within the same State
The GOC in Chief Central Command by his order dated October 27 1986 transferred the first respondent from the Cantonment General Hospital Lucknow to the Cantonment General Hospital Varanasi and the incumbent at Varanasi in turn being transferred to the Cantonment General Hospital Bareilly
Being aggrieved by the order of transfer passed under rule 5 C of the Rules the first respondent filed a writ petition in the High Court challenging the validity of the order of transfer on the ground that rule 5 C was ultra vires the provisions of the and as such void
63 The High Court struck down rule 5 C as being ultra vires the provisions of the and held that the services of the employees of the Cantonment Board are neither centralised nor is there a common State level service and that rule 5 C having provided for the transfer of the employees of one Board to another Board by the GOC in Chief Central Command is beyond the rule making power of the Central Government as contained in clause c of sub section 2 of section 280 of the as it stood before it was amended
It accordingly quashed the order of transfer dated October 27 1988 passed by the GOC in Chief Central Command
In the appeal to this Court it was contended on behalf of the appellants 1 that after the amendment of clause c of sub section 2 of Section 280 of the conferring on the Central Government the power to lay down the conditions of service of the employees of the Boards which include the power to make rules for transfer rule 5 C is valid being in conformity with the provisions of the rule making power under section 7802c of the Act and 2 that the respondent would not be in the least prejudiced by the transfer inasmuch as full safeguard has been provided for in rule 5 C
On behalf of the respondent it was contended that 1 service under the Cantonment Board is not a centralised service or a service at the State level and 2 the transfer of an employee from one Cantonment Board to another would mean the termination of the appointment of the employees in the Cantonment Board from which he is transferred and a fresh appointment in the Board where he is so transferred
Dismissing the Appeal  HELD 1
The High Court was justified in striking down rule 5 C of the Rules and in quashing the order of transfer of the respondent
172G 2
Rules framed under the provisions of a statute form part of the statute
Rules have statutory force
But before a rule can have the effect of a statutory provision two conditions must be fulfilled namely 1 it must conform to the provisions of the statute under which it is framed and 2 it must also come within the scope and purview of the rule making power of the authority framing the rule
If either of these two conditions is not fulfilled the rule so framed would be void
69F G 3
When Rule 5 C was inserted in the Rules it was void as being 64 contrary to and in excess of the rule making power of the Central Government as contained in the unamended clause c of sub section 2 of Section 280 of the Act
It does not become valid merely because of the amendment of clause c conferring power on the Central Government to frame rules relating to conditions of service69C 4
The position remains the same even though sub section 2 of Section 281 of the Act has specifically provided that after the rules are framed and published they shall have effect as if enacted in the Act
In spite of the provision of sub section 2 of Section 281 any rule framed under the has to fulfil the aforementioned two conditions regarding their validity
69G H Jestamani vs Scindia Steam Navigation Company   distinguished
The Cantonment Board are statutory and autonomous bodies controlled entirely by the 
Each Cantonment Board is an independent body functioning within its limited jurisdiction
The Board is the appointing authority of its employees
The services under the Cantonment Board is not a centralised service nor is it a service at the State level
70C 6
One autonomous body cannot transfer its employee to another autonomous body even within the same State unless the services of the employees of these two bodies are under a centralised or State level service
70E F In the instant case the GOC in Chief Central Command is not the appointing authority of the respondent or the employees of the Cantonment Board and so transfer of the respondent by the GOC in Chief is not permissible
70E Om Prakash Rana vs Swarup Singh Tomar   referred to
Even in spite of substituted clause c of sub section 2 of Section 280 the Central Government will not be entitled to frame rules for transfer of an employee from one Cantonment Board to another within the State for the reasons t the Cantonment Boards are autonomous bodies 2 the service under the Cantonment Board is neither a centralised service nor is it a service at the State level and 3 any such transfer of an employee will mean termination of service of the 65 employee in the Cantonment Board from where he is transferred and a fresh appointment by the Cantonment Board which he joins on such transfer
72B C 8
The Central Government however has power to frame rules about transfer of servants of the Board in exercise of its powers under clause c of subsection 2 of Section 280 of the Act within the region in respect of which it has jurisdiction
For example the respondent in the instant case could be transferred from one hospital of the Cantonment Board Lucknow to another hospital under the same Board
72E F 9
The Central Government had better consider the question of making the Cantonment Board Service a centralised service so 85 to enable one Cantonment Board to transfer its employees to another Cantonment Board
72D