FA/481/1995 1/50 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD FIRST APPEAL No. 481 of 1995 For Approval and Signature: HONOURABLE MR.JUSTICE K.M.MEHTA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? -Yes. 2 To be referred to the Reporter or not ? -Yes. 3 Whether their Lordships wish to see the fair copy of the judgment ? -No. 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? -No. 5 Whether it is to be circulated to the civil judge ? -No. ========================================================= UNION OF INDIA - Appellant(s) Versus VIRANI CONSTRUCTION CO. & 1 - Defendant(s) ========================================================= Appearance : MS MEGHA JANI for Appellant(s) : 1, MR MG NAGARKAR for Defendant(s) : 1, NOTICE SERVED for Defendant(s) : 2, ========================================================= CORAM : HONOURABLE MR.JUSTICE K.M.MEHTA Date : 27/06/2007 ORAL JUDGMENT 1. Union of India, through General Manager, appellant has filed this appeal under Section 39 of the FA/481/1995 2/50 JUDGMENT Arbitration Act, 1940 against the judgment, award and decree dated 18/2/1993 passed by the learned City Civil Court, Ahmedabad in Misc. Civil Application No.883 of 1988 and Misc. Civil Application No.957 of 1988. By the impugned judgment, the learned Judge was pleased to dismiss the Misc. Civil Application No.957 of 1988 and as regards Misc. Civil Application No.833 of 1988, the learned Judge has held that; the award filed by the Arbitrator, subject to the modification stated in the Judgment, is ordered to be made Rule of the Court. Railways shall pay to the contractor a sum of Rs.50,679/- with interest on Rs.33,390/- at the rate of 9% per annum from 27/5/1988 till the date of payment. The parties shall bear their own costs. 2. The learned Trial Judge has observed that the Arbitrator has erred in awarding Rs.1921/- as interest in the final bill amount although the said claim was not referred to him in the terms of reference. The said contentions appears to be well-founded, but as the award of the said amount is severable, the said amount can be deleted from the final amount awarded. Thus, the result is FA/481/1995 3/50 JUDGMENT that under the award, the contractor will be entitled to total amount of Rs.50,679/-. However, the amount awarded on claim no.1 and 2 comes to Rs.33,390/-, and rest of the amount is the amount of interest. The said amount of Rs.33,390/- shall carry further interest at the rate of 9% from the date of award till the date of payment. The learned Judge has further observed that in view of the above discussion, the challenge to the validity of the Award fails and the Award has to be made rule of the Court subject to the modification as stated above. 3. The facts giving rise to the petition are as under: 3.1) The Executive Engineer, Western Railway, Jamnagar has invited tenders for construction of approach road and circulating area for goods shed in Khambhalia Railway Station Yard in connection with V.O.P. Project. The contractor who is opponent no.1 in C.M.A.No.957 of 1988 submitted his tender along with other tenderers. His tender was accepted and the acceptance was conveyed to him by letter dated 19/11/1983. According to the FA/481/1995 4/50 JUDGMENT Railway Administration, the work was required to be completed within four months i.e. on or before 18/3/1984. It was alleged that it could not be completed within stipulated time due to failure on the part of the contractor and at his request, completion date was extended up to 30/6/1984 on three occasions. The work was completed on 27/4/1984. 3.2) The Contractor submitted his claims by notice dated 11/2/1985 under Clause 63 (new) of the General Conditions of Contract. The applicant replied to the said notice on 20/2/1985. The contractor sent another notice dated 12/3/1985 under Clause 64 and 64(3) of G.C.C. (General Conditions of Contract). He also addressed statutory notice under Section 80 of the C.P.C. on 8/4/1985. It appears that the opponent also addressed a notice dated 28/5/1985 under Section 8(1)(c) of the Arbitration Act. The applicant replied to the said notice on 18/6/1985. 3.3) Thereafter, the Contractor filed C.M.A. No.289 of 1985 under Section 8 of the Arbitration Act which provides for power of court to appoint FA/481/1995 5/50 JUDGMENT arbitrator or umpire and Section 9 of the Arbitration Act which provides for power to party to appoint New Arbitrator r in certain case a Sole Arbitrator. The learned City Civil Judge decided the said application by the dated 30/6/1986. The General Manager of the Western Railway was directed to appoint an Arbitrator to resolve the disputes and difference between the parties as per clause 63 and 64 of G.C.C. within three months from the date of the order. The said time was extended by the Court up to 15/12/1986. 3.4) The General Manager, Railway has appointed one Shri H.G.Patel, Senior Division Engineer, Western Railway, Rajkot as the sole arbitrator on 10/12/1986 pursuant to the order of the City Civil Court. 3.5) Before the Arbitrator, the contractor filed his statement of Claims. He presented four claims. Claim No.1 was for the value of the work done, but not paid permissible at tendered rate and at at new rates for the quantities of work carried out in excess. This claim was in two parts. Claim 1 (a) was for the work done at FA/481/1995 6/50 JUDGMENT tendered rate and after giving details he made claim for Rs.1,12,850.73 paisa and Claim 1 (b) was for additional and extra work done and he made a claim for Rs.67,503.06. He had already received Rs.1,46,737.67 from the Railway and hence he made claim for the balance amount of Rs.33,616.06. He had already received Rs.1,46,737.67 from the Railway and hence he made claim for the balance amount of Rs.33,616.12. On Claim No.2, his case was that he was not able to utilize his full force of establishment, labour and machineries as the Railways failed and neglect to hand over uninterrupted and exclusive possession of the site and failed to supply the road Roller. The break up of the claim is as follows: Sr. No. Particulars Amount 1 Expenses ideal establishment 14,000/- 2 Expenses of idle payment of labour both skilled and unskilled 40,000/- 3 Staff's lodging and boarding 5,000/- 4 Idle machineries charges, truck, etc. 84,000/- 5 Additional traveling and Misc. expenses 2,000/- TOTAL 1,45,000/- 3.5.1) Claim No.3 was for interest as follows: FA/481/1995 7/50 JUDGMENT (a) 18% running interest on Rs.21,297/- the amount of final bill form due date of payment till realization. (b) 18% running interest on Rs.13,505/- the amount of security deposit from due date of payment till realization. (c) 18% running interest on the amount of claim Nos.1 and 2 from 11/2/1985 till realization. 3.5.2) In Claim No.4, he claimed for costs for arbitration proceedings. 3.6) The Railways filed their reply to the said statement of claim. It was contended that it was the contractor who had committed breach of the terms of the contract and he was not entitled to any of the claims. On Claim No.1, their reply was as follows: 3.6.1) “The payment of work executed by the claimant has been paid as per measurements recorded in presence of the claimant. In token of having accepted the measurement, claimant had signed the measurement book as well as variation FA/481/1995 8/50 JUDGMENT statement. For the quantity of works done by claimant has also been accepted vide his letter dated 10/8/1984. The averments made by the claimant is after though and baseless. It is submitted that in the original contract, the work was to be carried out with Railway's Road Roller, but the roller was out of order which had taken some time, in the mean time the claimant has mutually agreed to complete the work with his own Road Roller and given his willingness vide his letter dated 8/3/1984 and hence to avoid delay in completion of works. SOR (Schedule of Rate) items provided in the original work order have been deleted and SOR items with contractor's Road Roller were operated although respondent Railway had to pay higher rate than originally provided in the work order and the claimant was paid as mutually agreed by claimant in this contract as well as through Quotation No.XEN © II/JAM/58-A and hence nothing is outstanding to be paid.” 3.6.2) In this contract, the quantity provided in the Work Order and quantity executed as mutually agreed by the claimant are as under: FA/481/1995 9/50 JUDGMENT Sr. No. SOR item No. Qty. provided in W.O. Qty. executed by the claimant Qty. paid by the Respondent Remarks 1 1405(b) 6500 5530.27 5530.27 Separate payment for Road Roller given in Quotation No.XEN(C)II/J AM/58-A. 2 1409(a) 6500 6740.02 6740.02 -do- 3 1411(a) 6500 7412.52 7412.52 This item operated as per mutual agreement deleting Item No.1411(b). 4 1416(a) 6500 7256.21 7256.21 This item operated as per mutual agreement deleting Item No.1416(b). 5 2429 165 177.11 177.11 - 6 1413(a) - 330.00 330.00 - 7 1/NS - 355.00 355.00 - 3.6.3) The quantity of works carried out by the claimant has been paid as per the measurement recorded by the Inspector of Works in presence of the claimant which has also been accepted by the claimant himself by recording certificate in the measurement book No.CEN(C)I/JAM/1774/99 at page 177320. The claimant has agreed to execute the work of goods/passenger platform at Khambhalia. NO tender for the similar work was accepted at FA/481/1995 10/50 JUDGMENT 800% above SOR. However, the rates received for similar type of work carried out against the following tender are as under from which it is clear that the claimant's contention for demanding 800% above SOR (Schedule of Rate) is not correct because he himself agreed mutually to complete the work at accepted tendered rate and also signed the variation statement without any protest. Sr. No. Tender No. & brief description of work Rate accepted Date of acceptance 1 XEN(C)II/JAM/162-Raising of passenger platform and goods platform at Khambhalia. 363% above old SOR and Rs.29.43 for N.S.Ite.. 2/1/1985 2 XEN(C)I/JAN/328- Providing soling & metaling in circulating area and approach road at JAM Station. 467% above old SOR 3 21/5/1984 3 XEN(C)IJAM/341- Providing asphaltic carpet with contractor's own soling and metaling at L.C. No.191 Jamnagar. 480% above old SOR Rs.14/- per Sq.m. For NS Item 26/7/1984 3.6.4) Thus the claim no.1 is outside the scope of contract agreement”. 3.6.5) On Claim No.2, their reply was as follows: “The site was already handed over in the month of FA/481/1995 11/50 JUDGMENT November, 1983 and the work was started by the claimant on 30/12/1983. The plan was also handed over vide Respondent's letter No.VOP/JAM/W/565/5 dated 23/11/1983 (R/13) Railway's Road Roller was not in working condition and it would have taken some time up to 15 days to put the same in working condition. In the mean time, claimant mutually agreed to complete the work with his Road Roller and hence same was permitted and payment arranged accordingly. There was no delay on account of respondent. However, completion date was extended up to 30/6/1984 without penalty with a clear understanding that the contractor is not entitled to claim damaged nor any increase in the rate/s on this account. This contract is governed under the General Conditions of contract and the extensions were granted under Clause 17 of GCC (General Conditions of Contract) which does not provide any compensation of this nature as such all the Claims Nos.2(a), (b), (C) and (d) are outside the scope of Agreement, for which claim wise remarks are as under: 2(a) As already stated above, there was no delay on the part of the respondent. The FA/481/1995 12/50 JUDGMENT extension of time limit were given without penalty on the request of the claimant with the clear understanding that he will not be entitled to claim any extra payment for the extended period. Hence, the claim for idle establishment for Rs.14,000/- is refunded. 2(b) This is a repetition of claim no.2(a). This claim is already included in claim no.2(a). 2(c) This claim is also repetition of claim no.2(a). This expenditure is to be included in the establishment charges. 2(d) There was no delay on the part of respondent. The extensions were granted on the request of the claimant. Moreover, there was no machinery lying idle on the site of work. The truck is required for carting of materials like building materials etc., which will be stacked at site and could have been used as and when required for the work and as such the claim as put forth by the claimant is not acceptable. FA/481/1995 13/50 JUDGMENT 2(e) The rates include all such expenses and the claimant have submitted the tender after consideration of all these facts. The claim is therefore, refuted. 3.6.6) On Claims Nos.3(A), (B) and (C), the reply was as follows: “Claim No.3(A): This claim is not in terms of reference and hence outside the preview of arbitration. It is however, stated that the payment of final bill has already been made to the claimant, hence no amount if due to be paid. Moreover, no interest is payable on any sum due as per Clause 16(3) of GCC. The claim is outside the scope of agreement. The sum up, this claim is not arbitrable as it does neither from part of reference nor of the plaint (CMA No.289/85). Claim No.3(B): The security deposit of Rs.13,505/- has already been refunded to the contractor after maintenance period is over and hence no due is outstanding to be paid to FA/481/1995 14/50 JUDGMENT contractor. Moreover, no interest is payable on any sum due as per clause 16 (3) of GCC. The claim is outside the scope of agreement. Claim No.3(C): As there is no dues outstanding to be paid to the claimant as stated in claim no.1 and 2, question of interest does not arise. Moreover, no interest is payable on any sum dues as per Clause 16(3) of GCC. The claim is outside scope of contract agreement.” 4. The contractor filed his rejoinder and reiterated his claims. 5. Both the parties produced documentary evidence in support of their respective cases. Arbitrator's Award: 6. The arbitrator declared his Award on 27/5/1988. He has recited in the Award that he had heard the parties to the dispute and differences and had considered the documents produced by the parties before him. After considering the documentary evidence produced by the parties and considering FA/481/1995 15/50 JUDGMENT all the claims made by the contractor and defences made by the Railways, he made an Award of Rs.65,520/- in favour of the contractor and directed the Railways to pay the said amount within one month failing which the amount was to carry simple interest at the rate of 18%. he gave break up of the award as follows: Claim No. Amount claimed in Rs. Amount awarded in Rs. Remarks 1 33,616.12 19,465.00 For passenger platform work against item no.1411(a), 1416(a) Metaling work. 2(a) 14,000.00 2,800.00 2(b) 40,000.00 7,800.00 2(c) 5,000.00 900.00 2(d) 84,000.00 11,100.00 2(e) 2,000.00 Nil 3(a) 18% interest on final bill amount of Rs.21,297/- 1,921.00 15% simple interest on final bill amount of Rs.19077/- from 1/9/1984 to 4/5/1985. 3(b) 18% interest on S. Deposit. Rs.13,505/- 755.00 15% simple interest on Security deposit of Rs.11,505/- from 1/1/1985 to 16/5/1985. 3(c) 18% interest on amount of claim no.1 and 2 from 11/2/1985 till realization 20,779.00 15%simple interest on Rs.42,605 awarded for claim no.1 and 2 above from 11/2/1985 to 27/5/1988. 4 Full cost of arbitration proceedings Nil Total 1,78,616.12 65,520.00 FA/481/1995 16/50 JUDGMENT 6.1) As regards cost of arbitration incurred by the parties, he directed each parties to bear its own costs. 7. As stated earlier, the Arbitrator filed the Award in Court on 5/9/1988. at that time he also filed an amendment which reads as follows: 7.1) This is a part of Award declared on 27/5/1988. Amendment in Award: 7.2) As per the Arbitration Act, hereby issue amendment to the Award declared by me on 27/5/1988 as under due to calculation error in the item No.1 and 3 (c) i.e. interest thereon. The calculation error was due to the rates adopted as per new SOR instead of old SOR of the work done on passenger platform: Claim No. Amount awarded originally in Rs. Amount now to be read in Rs. 1 19,465.00 10,790.00 3(c) 20,779.00 16,494.00 FA/481/1995 17/50 JUDGMENT 7.3) As a result of the above amendment due to calculation error, total amount of Award payable is Rs.52,560/- instead of Rs.65,520/-. 7.4) Therefore, amended Award of Rs.52,560/- (Rupees fifty two thousand five hundred and sixty only) shall require to be paid to the claimants by the respondents up to 1/10/1988, failing which, it shall carry simple interest at the rate of 18% per annum.” 7.5) The result, is, therefore, that the arbitrator had passed an award of Rs.52,560/- in favour of the contractor with interest at 18% per annum if the railways failed and neglect to pay the said amount on or before 31/10/1988. Proceedings after the Arbitration Award: 8. After the arbitrator filed his Award, the applicant has filed application under Section 14 of the Arbitration Act which provides for award to be signed and award to be made Rule of the Court. The said proceedings has been numbered as C.M.A.No.833 of 1988. FA/481/1995 18/50 JUDGMENT 9. When the application was filed, the Court has issued notice to the Union of India. At that time, the Union of India filed an application under Section 30 which provides ground for setting aside the award read with Section 33 of the Act which provides that arbitration agreement or award to be contested by the application. The said application has been numbered as C.M.A. No.957 of 1988. In the said application, the contractor has filed his written reply opposing the prayer for setting aside the award. 10.Before the Trial Court, both the C.M.A. Nos.833 of 1988 ans 957 of 1988 were heard together. Trial Court's Finding: 11.The learned City Civil Judge has considered the award of the Arbitrator and the contentions raised by the Contractor and Railway and after going through the same, made following observations and findings: 11.1) Finding of the learned Judge regarding non- FA/481/1995 19/50 JUDGMENT speaking award: Though in the application, it is contended that he had erred in giving a non- speaking award and that he was required to give reasons in support of his Award having regard to the facts and circumstances of the case, no provisions of the agreement was pointed out under which he was bound to give reasons in support of his award. The award cannot be challenged on the ground that it is a non-speaking award. 11.2) Finding of the learned Judge in connection with legality and validity of the award of the Arbitrator: The learned City Civil Judge has observed that the said contention was raised before the arbitrator and when the arbitrator in his award said that he had made the Award after hearing the parties and considering all the claims made by the contractor and defence made by the Railway, it follows that he had considered the contentions of the Railways that the claims fall outside the scope of the agreement and he had rejected the same. In the circumstances, it must be held that the arbitrator had considered and rejected the contentions of the Railways that the FA/481/1995 20/50 JUDGMENT claims fall outside the scope of agreement. The question whether the disputes are covered by the agreement was specifically referred to him and his decision cannot be interfered with on the ground of error of law apparent on the fact of the Award. 11.3) Finding of the learned Judge claims made by the Contractor: 11.3.1) Regarding merits of the claim nos.1 and 2, the learned advocate for the Union of India raised the same contentions on merits. The learned Judge has observed that the said contentions were also raised before the Arbitrator. The Arbitrator has considered all the defences raised by the Railways and the evidence produced by the parties and arrived at his decision. His award on both fact and law is final and there is no appeal from his verdict and the court cannot review his award and correct any mistake in his adjudication. When the arbitrator has given no reason for the Award and there is no legal proposition as basis of the Award, the contention that there are errors of law on the face of the Award cannot be accepted. FA/481/1995 21/50 JUDGMENT 11.3.2) As regards claim no.3 which pertains to interest, it was submitted that no interest was payable under clause 16(3) under General conditions of contract. However, the learned advocate for the contractor cited the judgment of Calcutta High Court in the case of Union of India vs. Abhoy Sarkar and another, reported in AIR 1992 Calcutta 242 and drew the attention to para 13 of the judgment in which it is said that no doubt Clause 16(2) prohibits contractor in getting interest on the Security Deposit or other amount due from Railways, but the Railway Board had issued a Circular dated 25/10/1979 in which with reference to clause 16(2), it is observed that in view of the Interest Act, 1978, said Clause does not survive. It was not contended before the learned Trial Court that no such circular was issued by the Railway Board. It cannot be said that the agreement prohibits payment of interest. In the absence of any Clause in the agreement prohibiting payment of interest, the Arbitrator would be entitled to award interest on the amount awarded. In was contended that the Arbitrator has erred in awarding Rs.1921/- as interest in the FA/481/1995 22/50 JUDGMENT final bill amount although the said claim was not referred to him in the terms of reference. The said contention appears to be well-founded, but as the award of the said amount is severable, the said amount can be deleted from the final amount awarded. In the result, under the Award, the contractor will be entitled to total amount of Rs.50,679/-. However, the amount awarded on claim no.1 and 2 comes to Rs.33,390/-, and rest of the amount is the amount of interest. The said amount of Rs.33,390/- shall carry further interest at the rate of 9% from the date of Award till the date of payment. 11.3.3) In view of the above stated facts, the learned Judge has rejected the application and held that the Award be made Rule of the Court, subject to the modification as observed by him. 12.Being aggrieved and dissatisfied with the said order of the learned Trial Judge, this appeal has been filed. Contentions on behalf of Railway in the Present Appeal: FA/481/1995 23/50 JUDGMENT 13.Ms.Megha Jani, learned advocate with Ms.Anushri Kapadia, learned advocate appears for the appellant. The learned advocate has made following submissions. 13.1) Finding of the learned Judge that the arbitrator was required to be given reasons in support of the award having regard to the facts and circumstances of the case, no provisions of the agreement was pointed out under which he was bound to give reasons in support of his award and the award cannot be challenged on the ground that it is non-speaking award, is erroneous both on facts of the case and law and therefore, the award of the learned Judge is liable to be quashed and set aside. 13.2) The learned Judge has erred in upholding the award of the arbitrator because according to them, the arbitrator has acted beyond his jurisdiction and as certain schemes were not to be arbitrable and the arbitrator has given award and therefore, to that extent the arbitrator has acted beyond his jurisdiction. FA/481/1995 24/50 JUDGMENT 13.2.A) In support of the same, the learned advocate has relied upon the some of the judgments of the Hon'ble Apex Court in the case of (A) Rajasthan State Mines and Minerals Ltd. vs. Eastern Engineering enterprises, reported in (1999)