Case: M/S.Rashtriya Chemicals &amp; Ferts. Ltd Vs. M/S.Chowgule Brothers

1. This appeal by special leave is directed against an order dated 5th April 2006 passed by the High Court of Bombay whereby Appeal No.884 of 1997 has been allowed, the order passed by a learned Single Judge of that Court set aside and the majority award passed by the arbitrators restored.2. The appellant, a Government of India undertaking invited tenders for allotment of clearing, forwarding, handling and stevedoring jobs at Mormugao Port initially for a period of one year commencing from 15th January 1983 upto 14th January 1984 but extendable at the option of the appellant for a further period of one year on the same terms and conditions except statutory increases in the wages of Dock labourers referred to in Clause 2.03 of tender notice. In response, the respondent submitted a tender which was accepted culminating in the issue of a work order dated 10th January 1983 in its favour. It is common ground that the appellant by its communication dated 13th October 1983 exercised the option available to it in terms of Clause 2.03 of the NIT and extended the contract for a further period of one year ending 14th January 1985.3. The extension aforementioned was accepted by the respondent in terms of its communication dated 7th December 1983 in which it was inter-alia pointed out that statutory revisions in the wages of Mormugao Dock Labour Board (for short M.D.L.B.) that had come about during the period of one year need be considered while extending the contractual period. In response, the company by its letter dated 27th January 1984 pointed out that Clause 2.03 of Schedule II of N.I.T. provided for increases on account of statutory revisions made upto 15th January 1984 alone to be considered for purposes of granting rate escalation. Increases in wages that may have been under negotiations or those granted on a later date with retrospective effect could not consequently be considered, said the appellant. The respondent-Company was on that basis called upon to furnish documentary evidence regarding increase if any in wages allowed by the M.D.L.B. upto 15th January 1984 without waiting for issuance of any fresh circulars.4. It is not the case of the respondents that any revision in wages effective as on 15th January, 1984 was demonstrated before the appellant at any time before the commencement of the extended contractual period. What was alleged by the respondent was that pursuant to a settlement between the M.D.L.B. and the Dock workers the respondent had incurred an additional amount of Rs.24.74 lakhs towards the increase in the wages payable to such workers. A claim for reimbursement of the said amount was accordingly made by the respondent-company in terms of a legal notice served upon the appellant on its behalf, which claim was refuted by the appellant on the strength of Clause 2.03 of Schedule II to the notice inviting tenders forming part of the contract between the parties. The appellant asserted that the rates at which the contract was initially awarded had to remain firm throughout the period of one year from the date of award and were not subject to any escalation whatsoever. Rates for the extended period were also similarly to remain firm throughout the extended period subject to any statutory revision upto 15th January, 1984 being taken into consideration. Any subsequent increase in the wages payable to the Dock labourers granted retrospectively by the M.D.L.B. was according to the appellant wholly inconsequential.5. Denial of the claim made by the respondent thus gave rise to a dispute which was in terms of the contract referred to a panel of three Arbitrators for adjudication. Before the Arbitrators, the appellant disputed the claim on merits as also on the ground that the same was barred by limitation. The Arbitrators examined rival contentions urged before them but failed to arrive at a unanimous decision on the true and correct interpretation of Clause 2.03. Two awards, therefore, came to be made, one by Shri R.P. Bhatt who dismissed the claim and the other by M/s R.C. Cooper and N.A. Modi who held the respondents entitled to recover from the appellant a lump sum amount of Rs.61,73,067.90. It is noteworthy that while the award made by Shri R.P. Bhatt was a reasoned Award that made by the other two Arbitrators was not.6. Aggrieved by the majority Award, the appellant filed Arbitration Petition No. 19 of 1993 before the High Court of Bombay for setting aside the same. A Single Judge of the High Court of Bombay (S.N. Variava, J. as His Lordship then was) allowed that prayer and set aside the award holding that the same was contrary to clause 2.03 of the NIT forming part of the contract executed between the parties. Even the plea of limitation succeeded before the learned Single Judge who held that the claim made by the respondents was barred by time. Undeterred the respondents assailed the said order before a Division Bench of the High Court in Appeal No.884 of 1997 which allowed the appeal, set aside the order passed by the Single Judge and restored the majority Award made by the two Arbitrators. The High Court took the view that the interpretation placed upon Clause 2.03 of the contract between the parties by the majority of the arbitrators was a logical interpretation which could provide a sound basis for the Award made by them.

Court's reasoning:
10. A careful reading of the above especially the Note appended to Clause 2.03 (supra) leaves no manner of doubt that the rate at which the contract was initially awarded was to remain firm throughout the period of one year from the date of the award of the contract. What is significant is that for the first year the said rate was unalterable regardless of any escalation, revision or other statutory increases made during that period. Shri Ganesh, learned counsel for the respondents also fairly conceded that insofar as the first year of the contract was concerned the rates were not subject to any revision and were to remain firm. If that be so, the question is how far is that principle altered by the later half of the Note which deals with the rates applicable during the extended period of the contract. There are three different aspects which stand out from a reading of that part of the Note to Clause 2.03. Firstly, the second part of the Note dealing with the rates applicable to the extended period starts with the word `Similarly. By using that expression the Note draws an analogy between the firmness of the rates applicable during the first year and those applicable for the extended period of second year. The sentiment underlying the Note is that the parties intend to keep the applicable rates firm not only for the first year but also for the second year.11. The second aspect which emerges from a plain reading of the Note is that the rates for the second year had to be fixed by taking into consideration the statutory increases, if any, in the wages payable to the Dock labourers which rate once fixed was also to remain firm and impervious to any escalation. The only difference between the first and the second year rates thus is that the rates were firm even for the second year but the same had to be fixed taking into consideration the statutory increases in the wages of the dock labourers.12. The third aspect which in our opinion puts all doubts about the true intention of the parties to rest is that any subsequent increase in the wages of the dock labourers would not result in any escalation of the rates even when such revision is allowed retrospectively by the M.D.L.B. What the Note in our opinion envisages is that on the completion of the first year and at the beginning of the extended contract period, the rates applicable shall have to be determined by reference to the revisions that have already come into effect as on the date of the commencement of the extended period. It is manifest from a reading of the Note that once an option is exercised the rate applicable to the extended period shall stand revised taking into consideration the revision of wages if any. Any such revision must of necessity be made as on the date of the commencement of the extended period. Once that is done the said rate would remain firm till the end of the second year. The contract does not, in our opinion, envisage settlement or revision of the rate by reference to any stage post commencement of the extended period. Even otherwise a contract for the extended period could become effective only if rates applicable to that period are settled or are capable of being ascertained. Rates actually determined or determinable by reference to 15th January, 1984 the date when the extended period commenced, could include revision in wages made upto that date. Any revision in the wages of the dock labourers which the M.D.L.B. may have ordered subsequent to 15th January, 1984 would have no relevance even if such revision was made retrospectively from the date of the commencement of the extended period. The Note makes it abundantly clear that revision granted retrospectively would be of no consequence whatsoever.13. There is another angle from which the matter can be viewed. As to how the parties understood Clause 2.03 is also an important factor that needs to be kept in mind. While accepting the extension of the contract, thehad simply referred to the statutory revision in the wages by M.D.L.B. during the `last year. Since the letter of acceptance is of 7th December, 1983 the statutory revision which the contractor wanted to be taken into consideration were revisions before 1983 and not those made at any time after the extended period of contract.The learned Single Judge of the High Court was, in the light of the above, correct in holding that the award made by the Arbitrators to the extent it directed payment of the additional amount was unsustainable. The Division Bench, however, fell in error in taking a contrary view and holding that the interpretation placed by the Arbitrators was a plausible interpretation.16. That brings us to the question whetheran Arbitrator can make an award contrary to the terms of the contract executed between theparties. That question is no longer res integra having been settled by a long line of decisions of this Court. While it is true that the Courts show deference to the findings of fact recorded by the Arbitrators and even opinions, if any, expressed on questions of law referred to them for determination, yet it is equally true that the Arbitrators have no jurisdiction to make an award against the specific terms of the contract executed between thethe Arbitrators thehad quantified the claim at Rs.27,91,984.29 on account of escalation of the rates consequent upon statutory increases in the wages of M.D.L.B. during the extended period ofcontract. A further sum of Rs.9,88,713.20 on account of escalation in the wages of other categories of workers such as Tally Clerks, Stichers, Foreman, Asst. Foremen, Supervisors etc. was also made on the same basis. In addition, a claim for the recovery of Rs.8,63,953/towards the final payment due and payable to the claimant with interest @ 18% p.a. on the same was also made.23. In the light of the discussions in the earlier part of this order the entitlement of the respondent to claim any amount on account of escalation consequent upon the increase in the wages of M.D.L.B. workers is not established. The first two claims mentioned above on account of escalation could not, therefore, have been allowed by the Arbitrators nor could the incidental claim for payment of interest on that claim be granted. The question then is whetherthere is any lawful justification for disallowing the only other claim made by the respondents representing the balance amount due to the claimant towards its finalbill. The only defence which the appellant had offered to that claim was based on the law of limitation. That defence having been withdrawn by Mr. Divan, we see no real justification for disallowing the said claim especially when themade by the appellant has been rejected and the said rejection was not questioned before the High Court. In fairness to Mr. Divan we must record that he did not seriously oppose the severance of the award made by the Arbitrators so as to separate the inadmissible part of the claim based on an interpretation of Clause 2.03 from the admissible part.