Case: M/s. Chahal Engineering and Construction Company Vs. Irrigation Department, Punjab Sirsa

31, 80, 663.00 which has been granted by the arbitrator on the basis that the Department had not denied the said amount which, as is shown above, is factually incorrect.Claim No. 4 34. As regards Claim No. 4, there does not appear to be any dispute if on the quantum of work executed, the rates as recommended by Shri Avtar Singh are awarded. 35. In addition to the errors apparent on record pointed out in respect of Claim No. 2 as above, we also notice further errors as follows : Escalation : 36. Clause 44 of the Agreement between the parties provided, among other things as follows : "The amounts paid to the Contractor for the work done shall be adjusted for increase or decrease in the rates of labour and material excepting these materials supplied by the Government as per Annexure II." * 37. The increase or decrease in the costs on account of labour and material was to be calculated in accordance with the formulae laid down in the Agreement. The price adjustment further was applicable only to the work carried out within the stipulated time or within the extensions granted which extentions were not on account of the contractors default and no claims for price adjustment other than those provided in the contract were to be entertained. As regards the increase or decrease in the rate of wages, it was the average consumer price index for industrial workers at the town nearest to the site of the work which was to be taken as the basis, the index being that released by the Labour Bureau of the Government of India and published in the Reserve Bank of India Bulletin. The price index for the material was to be obtained from the competent authority. In terms of this agreement, the escalation was to be given to the contractor as per the price indices both for labour and material prevailing during the quarters from July 1984 to March 1988, the contract having been terminated on 4th April of 1988. The arbitrator, however, committed a patent error by granting escalation based on the price index of December 1991. The respondents have produced the comparative price indices of both labour and material which show that the price indices for December 1991 - January 1992 were almost double those averaging during the period from July 1984 to March 1988. As the respondent have pointed out, this itself has made a difference of Rs. 49, 23, 263/-.Interest : 38. In addition to the escalation, the arbitrator has also awarded interest on the entire amount payable inclusive of the escalated amount and, as stated above, the wrongly calculated escalated amount. Although under the contract, the interest on the dues of the contractor is payable w.e.f. 1.4.1988 since the escalation is to be paid during the currency of the execution of the work, i.e., upto March 1988, the arbitrator has awarded both escalation and interest from 14.8.1987 to 31.3.1992. The interest payable on the amount of escalation calculated on the wrong indices itself runs into an amount of Rs. 35, 36, 129/- as shown by the respondent. 39. The arbitrator has also not taken into account the amount due from the contractor to the respondent as on 1.4.1988. The total amount of interest on that amount itself comes to Rs. 1, 84, 51, 665/-. Counter-claims and recoveries 40. We agree with the appellant that the arbitrator was supposed to take into consideration the entire work of the substructure of the aqueduct executed by them and hence the scope of reference of arbitration was not confined to the work which was completed when Shri Avtar Singh gave his award. It extended also to the work executed thereafter. The respondent-Government has not in its contention stated that the scope of the reference before the arbitrator did not include the work executed after Shri Avtar Singhs award. However, on account of the said extended scope of the reference, the arbitrator had also to take into consideration the counter-claims of the Department which arose out of the entire said work. Secondly, since the whole basis of the contract was changed, the consequences thereof having bearing on the original contract and all that was done on the said basis earlier, had also to be worked out for the benefit of the parties. It was, therefore, necessary to consider the claims of the respondent in particular with regard to the (i) wastage and pilferage of materials supplied by them to the contractor and (ii) advance of Rs. 24.40 lakhs made to the contractor towards the provisions for the construction of the hutment and setting up of a field office, since the contract was original a lump sum contract, and (iii) the fact that the new rates of contract were complete and inclusive of all expenses incurred on the items and no separate claim for such expenses was to be entertained. The arbitrator did not consider the said aspect. 41. The arbitrator has refused to entertain any counter-claim on the erroneous assumption that the counter-claim did not form part of the reference. The counter-claim of the respondents is itself of the amount of Rs. 7.94 crores. What is further, the arbitrator also disallowed the recovery statement submitted by the State Government which was to the tune of Rs. 1.91 crores which included a sum of Rs. 32, 38, 542.00 on account of wastage of material and Rs. 24.40 lakhs paid to the contractor for construction of field offices and colonies etc. as a part of the lump sum contract which was originally granted. Since the rates given in the CSR Volume II are inclusive of the expenses incurred by the contractor on account of the establishment of field offices and colonies etc. and since the lump sum basis of the contract, was later on changed to the item rate basis, the contractor was clearly not entitled to an additional sum of Rs. 24.40 lakhs. The arbitrator failed to notice this obvious fact.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]We do not find any application filed by the appellant on record for making the award the rule of the court.Instead, we find that the arbitrator had filed the award in this court and a notice of the same was issued by the Registry of this court on 25th April, 1992 to the parties. The learned arbitrator had filed the award in this court in view of the decision of this court in Guru Nanak Foundation v. Rattan SinghSons 1982 (1) SCR 842 ), where a view has been taken that when an arbitrator is appointed by this court, the arbitrator has to file the award in this court to the exclusion of any other court and to that extent, the general law relating to the jurisdiction of this court is excepted. We also find that the opinion expressed by this court in the said decision has been referred for further consideration to a bench of five judges and the same is pending in this court at present. We have, therefore, to proceed on the basis of the law as it stands today which is binding on usSince as held below, we have come to the conclusion that the award suffers from several patent errors, it will have to be held that the objections raised by the respondent are within the scope of Section 30 of the Act. Since the proposition is obvious and is based upon the law settled by a series of decisions, it is not necessary to discuss the decisions here in detail. We, therefore, reject the preliminary contention17. The main point of controversy between the parties relates to the scope of the reference before the arbitrator. It is, therefore, necessary to understand both the background of the order dated 13th August, 1991 passed by this court referring the dispute to arbitration and the content of the same in the light of the said background. As has been explained earlier in detail, the contract given was ony lump sum basis. The designs and drawings of the work viz., construction of the aqueduct was to be supplied by ther with the tender itself. This design had to be approved by the respondent and could be modified by the respondent. Either the tenderer could accept such modification and proceed with the work or he could withdraw from the contract if the modification made necessitated an increase in the value of the contract. Admittedly, there was a change in the design of the contract but the appellant neither withdrew from the contract nor did it at the time of the change in the design, ask for a change in the total value of the contract. When the dispute arose while the work was still in progress, the matter was referred to Shri Avtar Singh. In his award he proceeded on the footing that the contract on the lump sum basis had come to an end and was replaced by a contract on the item rate basis. He then proceeded to prescribe rates to the various items as mentioned in the Common Schedule of Rates Volume II (P.W.D. Manual). Where the said Manual did not prescribe rates for the items, he gave his own rates. The respondent had challenged his award mainly on this ground and the High Court had also accepted the said challenge and set aside the award. It is against the order of the High Court quashing the award on the ground that Shri Avtar Singh had changed the very basis of the contract that the appellant had preferred the appeal before this court in which the court made the order of 13th August, 1991. We have, therefore, to understand the said order of reference in the context of this background of facts. The order of reference first states that although the contract was divisible into two broad heads, viz.,substructureand, the work relating to thee was not a matter of dispute to be referred to the arbitrator since the contract relating to the same had been terminated. However, the contractor had completed the work relating to the. It is the dues of contractor relating to the completed work of thesubstructurewhich alone was ther of dispute to be referred to the arbitrator. Secondly, the admitted position was that Shri Avtar Singh could not quantify the amount due in the award because, at that time the work of thesubstructurewas still in progress. Although, therefore, he had changed the basis of the contract from the lump sum to the item rate contract, the actual quantum of work doneandits qualitative evaluation could not be done by him. His award had, therefore, remained incomplete. He only prescribed the rates for the items as per the Manualandwhere no rates were prescribed for the items, he gave his own rates. Probably, he expected that the parties should work out the actual value of the work, after ascertaining the work doneandevaluating it in terms of the rates awarded by him. However, whether the work done was of the agreed quality or not, had also to be decided by the new arbitrator before he could quantify the rate of the itemsandthe total value of the work done. It is in this context that we have to read the crucial second last paragraph in the order beginning with the expression "In this background" which alone is material to find out the scope of the reference before the arbitrator. The order clearly says that it is in this background of factsandwith the consent of the parties that the court was directing that "there should be a fresh arbitration". This direction is followed by the statements, that "the arbitrator should take note of the fact that the matter had once been arbitrated uponandsome conclusions have been reached which were not seriously disputed by either side." The arbitrator, therefore, should "in this backdrop, after looking into the background" proceed "to complete the unfinished part of the award "by hearing parties to the extent "he in his discretion considers necessary". It does, therefore, appear from the aforesaid language of the order that while directing fresh arbitration, the arbitrator was also required to start where the earlier arbitrator Shri Avtar Singh had left. It is also to be noted that the order does not refer to the change of the basis of the contract viz., from the lump sum to the item rate contract, or to the High Courts comment uponit.Nor does it direct the new arbitrator to proceed on the lump sum basis of the contract. The absence of a reference to the change in the basis of the contract made by Shri Avtar Singhandthe statement that "the arbitrator should take note of the fact that the matter had once been arbitrated upon the some conclusions have been reached which were not seriously disputed by either side" coupled with a direction to the new arbitrator to complete the "unfinished part" of the awardandthat too by hearing parties to the extent "he in his discretion considered necessary" would suggest that the new arbitrator had to proceed on the footing that the lump sum basis of the contract no longer survivedandthe items of work had to be evaluated according to the rates either prescribed by the Manual or such rates that the arbitrator chose to grant. It cannot also be disputed that the arbitrator while evaluating the work had also to examine the evidence with regard to the quality of the work done. No fault, therefore, could be found with the arbitrator if he had proceeded to evaluate the work accordingly. We cannot therefore, accept the contention on behalf of the respondent that the arbitrator had to proceed on the original lump sum basis of the contractandnot on the30. The statement shows that what was agreed to was Rs. 47, 46, 863.40 which was included in item 4 which mentions a total sum of Rs. 59, 94,. This is an omnibus item inclusive of the payments against sinking through the rocksandthe boulders. Thus, the arbitrators award of Rs. 31, 80, 663/on the basis that the Department had not denied the quantities is prima facie wrong. The arbitrator has also granted not only the said amount of Rs. 31, 80, 663/but in addition, Rs. 9, 88, 749/andRs. 28, 32, 916/for escalationandinterest respectively; against the said amount31. What is further necessary to note with regard to the aforesaid amount of Rs. 31, 80, 663/is that the Government was disputing the said amount on two grounds, viz., the measure of the depth to be bored through rocksandboulders,andthe rate at which the cost of boring the same was to be calculated. The Government had calculated the depth on the basis of thee data which was earlier accepted to be correct, (Annexed to the supplementary affidavit of respondent is thee chart). Thate data showed that the total depth of rock to be bored for all the wells was not more than 10 mtrs. However, the contractor produced what he called the sinking register showing depth to be bored as 27.85 mtrs. The arbitrator allowed the quantities on the basis of the depth claimed by the contractor although the sinking register was held to be unproved by him in the proceedings of 5th February, 1992. The relevant observations of the arbitrator on that date are as follows :"The Register filed by Sh. Chopra along with his application for additional evidence on 9.1.1992 remains unprovedandits authenticity is denied by Shri Sohal. Shri Chopra says that he will not lead any evidence to prove the register which is therefore, not admitted in evidenceandis being returned to him. He has concluded his argument." *32. In spite of this, the arbitrator took the said depth of 27.85 mtrs. as the correct oneandawarded the total cost of boring on the said basis33. What is more, the rate, viz. Rs. 322.65 as claimed by the contractor was also disputed by the Government which contended that it is not more than Rs.. It is not disputed that the rate for boring through rock is five times more than the rate for boring through the boulder. The costs of boring through rockandthrough the boulder have to be calculated separately on the basis of the depth to which they were so bored. It is wrong to take the average of both the rates for calculating the cost of boring the two. The Company took, the average of both the rates given in CSRd thatrate is Rs. 47.80andapplied the premium of 575%. Even with the said average rateandthe said premium, the rate comes to Rs. 274.85. It is, therefore, difficult tohow the rate of Rs. 322.65 was at all arrived at. According to the Government, the rate is not more than Rs. 292/as stated above. Even if we discard the rate of Rs. 274.85 which will be the correct calculation on the basis of the Companys rate the difference would come to Rs. 7, 53, 032.00. Further, the difference on account of the increase in the depth of the rock to be bored as shown by the Company is Rs. 24, 27, 631.00. Thus together, the difference comes to Rs. 31, 80, 663.00 which has been granted by the arbitrator on the basis that the Department had not denied the said amount which, as is shown above, is factually incorrect.Claim No. 434. As regards Claim No. 4, there does not appear to be any dispute if on the quantum of work executed, the rates as recommended by Shri Avtar Singh are awarded35. In addition to the errors apparent on record pointed out in respect of Claim No. 2 as above, we also notice further errors as follows :36. Clause 44 of the Agreement between the parties provided, among other things as follows :"The amounts paid to the Contractor for the work done shall be adjusted for increase or decrease in the rates of labourandmaterial excepting these materials supplied by the Government as per Annexure II." *37. The increase or decrease in the costs on account of labourandmaterial was to be calculated in accordance with the formulae laid down in the Agreement. The price adjustment further was applicable only to the work carried out within the stipulated time or within the extensions granted which extentions were not on account of the contractors defaultandno claims for price adjustment other than those provided in the contract were to be entertained. As regards the increase or decrease in the rate of wages, it was the average consumer price index for industrial workers at the town nearest to the site of the work which was to be taken as the basis, the index being that released by the Labour Bureau of the Government of Indiaandpublished in the Reserve Bank of India Bulletin. The price index for the material was to be obtained from the competent authority. In terms of this agreement, the escalation was to be given to the contractor as per the price indices both for labourandmaterial prevailing during the quarters from July 1984 to March 1988, the contract having been terminated on 4th April of 1988. The arbitrator, however, committed a patent error by granting escalation based on the price index of December 1991. The respondents have produced the comparative price indices of both labourandmaterial which show that the price indices for December 1991January 1992 were almost double those averaging during the period from July 1984 to March 1988. As the respondent have pointed out, this itself has made a difference of Rs. 49, 23,38. In addition to the escalation, the arbitrator has also awarded interest on the entire amount payable inclusive of the escalated amount, as stated above, the wrongly calculated escalated amount. Although under the contract, the interest on the dues of the contractor is payable w.e.f. 1.4.1988 since the escalation is to be paid during the currency of the execution of the work, i.e., upto March 1988, the arbitrator has awarded both escalation