Case: Rustees Of The Port Of Madras Vs. Engineering Constructions Corporation Limited

2. The facts speak for themselves.3. The Board of Trustees, Madras port Trust, invited tenders in the year 1957 for certain works at the port. Clause (4) of the Instructions for tender stipulated that the tenderer is required to indicate clearly in the letter forwarding the tender any deviation from the conditions and specifications mentioned in the Instructions. Clause (7) provided that until a formal agreement was entered into, the tender together with the Boards acceptance thereof shall constitute the binding contract between the parties. The respondent submitted its tender on November 11, 1957 along with a letter specifying certain deviations. The main deviation suggested was that the thirty months period specified for completing the work shall be subject to such delays as are due to causes beyond their control. In case of such delays, the respondent claimed to be entitled to not only extension of time but also to compensation. It further specified that the Board should make available to it the requisite foreign exchange for importing the plant and machinery required for executing the work. Soon thereafter, it was realised by both the parties that foreign exchange would not be released to the respondent for purchasing machinery on its own account. The parties then agreed that the Board should import the said machinery on its own account and should hire it out to the respondent for execution of the said work. The respondents tender was accepted by the Board on October 6, 1958. A formal contract was sent by the Board to the respondent for its signature. The respondent suggested several modifications and alterations which according to it were necessary to truly reflect the consensus arrived at between them. The modifications and alterations pertained mainly to the supply of imported plant and machinery and the spares. Certain correspondence passed between the parties but the Board refused to agree to any change in the draft agreement. On April 9, 1960 the respondent signed the agreement without incorporating the modifications suggested by it.4. There were delays in importing the machinery. As against a period of about six months envisaged by the parties, it took about twelve months for importing the entire machinery. It was hired out to the respondent and it completed the work within the extended period, asked by it and granted by the Board. The total contract value was Rupees one crore and sixty three lakhs. After the work was completed, the respondent raised a dispute claiming additional amount on account of the delay in supplying the machinery and on certain other counts. It claimed a total amount of Rs. 14,93,654.78p. In terms of the arbitration clause contained in the contract, the respondent nominated Sri W. S. Krishnaswamy Naidu, a retired Judge of the Madras High Court as its arbitrator. The Board nominated another retired Judge of the Madras High Court, Sri Somasundaram, as its nominee. Since the arbitrators could not agree among themselves, they designated Dr. P. V. Rajamannar, retired Chief justice of the Madras High Court, as the umpire. The learned umpire heard both the parties, took the material adduced by them and made a speaking award on October 30, 1965.5. Though the amount claimed by the respondent was under several heads, the main head, and with which alone we are concerned in these appeals, is the delay on the part of the Board in importing the machinery which according to the respondent has caused loss to and for which, it says, the Board is bound to compensate. The Board denies that it undertook an obligation to import machinery within a particular period. According to them, the period of six months was only a rough estimate or an expectation, as it may be called. They submitted that the extra payment of nine percent of the contract price agreed upon by the Board and the contractor was not only intended to cover delays caused due to causes such as suspension of work, failure to give possession of site, failure to supply in time primary material and services etc. but also the delays if any, caused in supplying the imported machinery and spares. They denied their liability to compensate the contractor on any of the grounds claimed by it.6. In view of the statements of claim filed by the parties, the arbitrators settled as many as fourteen issues. When the matter was referred to the learned umpire, he adopted the said issues and recorded the following findingsIssues 1 and 2 : The offer of the Board to import the equipment and spares was not by way of gratuitous service to the contractor as contended by the Board.(b) Issues 3 and 7 : There was no undertaking by the Board to supply to the respondent the imported machinery within a period of six months from the date of acceptance of the tender (from October 6, 1958). The Board was not responsible for the delay in the supply of plant and machinery.(c) Issues Nos. 8 and 12 : The reservations made by the contractor in respect of the disputed claims were unilateral but even so the said claims fall within the ambit of matters in dispute for arbitration. The contractors were not precluded from putting forward their claim for compensation on the ground of delayed supply of imported plant and machinery.(d) Issue No. 13 : The matters in dispute under reference fell within the scope of the arbitration clause contained in the agreement between the parties.(e) Issue No. 9 : The grant of extension of time by the Board was only to relieve the contractor from payment of penalty under the contract and to enable it to draw its bills and obtain payments without audit objections.(f) Issues 10,11 and 14 : The contractor was not entitled to payment of anylearned umpire did not record any findings on Issues 4 to 6.)7. The learned umpire further held that in case the respondent was found entitled to any compensation, a sum of Rupees five lakhs would represent a fair compensation for the delays in the supply of imported plant and machinery and that another sum of Rupees one lakh would be the reasonable compensation for the delay on other grounds like inclement weather, break-down etc.8. O. P. No. 276 of 1965 was filed by the appellant-Board for making the award a rule of the Court. The respondent-contractor filed O.P.No.213 of 1966 for setting aside the award under Sections 16,30 and 33 of the Arbitration Act. The objections raised by the respondent fell under two heads, viz., (i) misconduct of the umpire in conducting the proceedings and (ii) error apparent on the face of the award. Both the O.Ps. were considered by a learned Single Judge of the Madras High Court, Palaniswamy, J., who substantially agreed with the reasoning contained in the award and made it a rule of the Court over-ruling the objections raised by the respondent. The respondent carried the matter in Letters Patent Appeal to the Division Bench of the High Court which allowed the appeal, set aside the award and remitted the matter to the learned umpire for fresh consideration of the matter in the light of their judgment. Since the judgment of the Division Bench is questioned herein, it is necessary to notice first the several findings recorded by the Division Benchthe learned umpire was right in holding that the respondent-contractor was entitled to and was well within its rights in seeking a decision on their claim for compensation under the disputed heads by reference to arbitration.(ii) the learned umpire was equally right in holding that the undertaking by the appellant-Board to import the machinery and parts was not a gratuitous one but an undertaking which had the effect of creating rights and obligations.(iii) the learned umpire was also right in holding that the supply of imported machinery did not fall within the ambit of services contemplated by the contract, though it is true that the learned umpire did not record a finding on the question whether the extra payment of nine percent over the contract price was relatable to the respondents claim for compensation on account of the delay in supplying the imported machinery.(iv) it is true that the claim of the respondent contractor did not arise from the contract but only from other correspondence that passed between the parties. Even so, "the undertaking by the Board to secure the plant and equipment from abroad was undoubtedly an obligation in the nature of a promise and was an event which had a material bearing on the completion of the project and the time-factor relating to the contract. So much depended upon the making available of the plant to the contractors, as without such machinery, some of the items of the contract work could never have been executed by the contractors. In such circumstances, the undertaking given by the Board to import and supply the plant cannot be left out of reckoning when the rights and obligations of the contracting parties in terms of the contract arise for determination. Even so, it would be futile for the Board to contend that its undertaking was not related to any time-stipulation and its obligation was an unfettered one." The letter written by the Chief Engineer (Exh.33) did state "that it would take about six months from the date of intimation of order for procurement of .. machinery." In view of this letter, the Board cannot now contend that its undertaking "was an unfettered one and free of all time limit. Even if the time stipulation of six months is not to be rigidly construed, yet the rule in Section 46, of the Contract Act would govern the situation and the Board must be held obliged to make available the machinery within a reasonable time. A delay of 12-1/2 months in the supply of the machinery which, as already stated above, has been certified by the Chief Engineer of the Board, can never be construed as due compliance with the obligations within a reasonable time."(v) "on an analysis of the situation, we are of the opinion that the undertaking given by the Board to import the plant and equipment and make them available to the contractors was in the nature of an implied undertaking and though, in the very nature of things, the Board could not have supplied the machinery within a precise and accurate time limit, yet the Board was under a bounden duty to have supplied the machinery within a reasonable time. When the Board failed to supply the machinery within a reasonable time, the contractors were left with no other alternative but to complete the work and then call upon the Board to compensate them for the loss occasioned by it."(vi) the respondent-contractor was in error in contending that the failure of the Board to supply the machinery within the prescribed time was a breach of an express provision of the terms of contract between the parties. It is really a breach of an implied promise which is indeed the stand taken by the counsel for the respondent-contractor before them (Division Bench). On the basis of implied contract theory, the stand of the respondent "is unassailable and the Board has necessarily to face the situation which developed on account of its inability to supply the machinery in time and the resultant loss to the Contractors.On the basis of the above finding, the judgment of the learned Single Judge was set aside and the matter was remitted to the learned umpire for a fresh consideration in the light of the said judgment.

Court's reasoning:
22. The proposition that emerges from the above decisions in this : in the case of a reasoned award, the Court can interfere if the award is based upon a proposition of law which is unsound in law. The erroneous proposition of law must be established to have vitiated the decision. The error of law must appear from the award itself or from any document or note incorporated in it or appended to it. It is not permissible to travel beyond and consider material not incorporated in or appended to the award. Now let us examine the award concerned herein from the above point of view and see whether it suffers from any error of law apparent on the face of the award. We have gone through the award of the learned umpire, a man of great learning and eminence, Dr. P. V. Rajamannar - very carefully. All that the learned umpire has done is to refer extensively to the correspondence that passed between the parties and the other material placed before him and infer therefrom that the appellant-Board did never make a firm commitment nor did it ever undertake to import and supply the machinery within a particular period much less within a period of six months. The learned umpire remarkedis no mention of this period of six months in the relevant minutes of the meetings of the Tender Committee; but it is fairly clear that this period was mentioned during the discussions. The Boards case which we find set out in some of their letters is that the period of six months was only an approximate time within which they expected the plant and machinery might be available. But the Board would not and did not undertake definitely to supply the plant and machinery not later than six months from 6-10-1958, the date of the order to commence work. There is no oral evidence relating to this matter and there is no sufficient material in the correspondence to warrant the conclusion that there was a term of the contract which bound the Port Trust to deliver to the contractors the plant and machinery within six months. Even at the time when the two alternative proposals were placed before the contractors, it was impressed on them that the proposals for the Board itself to import the plant and machinery would involve delay. Obviously, it was not for the Board to be certain of the extent of the delay. The Board might have though that it would not take longer than six months for the arrival of the equipment. I am unable to find any default or remissness on the part of the Board in taking steps to get the equipment. It was as much to their interest as to the contractors that the plant should be available as early as possible. Otherwise, the completion of the work would be delayed. There is no suggestion of any mala fide act or negligence on the part of the Board in the procurement of the equipment. It should also be mentioned that the Contractors themselves took some time before they could give detailed specifications. Taking all the circumstances into consideration. I hold that there has been no breach of any term of the contract committed by the Board because of the late arrival of the plant and machinery.The finding of the learned umpire is thus based upon the material placed before him by both the parties and was a pure finding of fact. Now, the Division Bench does not say that the correspondence that passed between the parties or that the materials placed before the arbitrator and referred to in the award establishes that the Board undertook a firm commitment to supply the machinery within six months from the date of acceptance of the tender (October 6, 1958) - assuming that it could say so. (We are, of course, of the firm opinion that it was not open to the Division Bench to re-appraise the evidence / material before the learned umpire and come to a different finding of fact.) What the Division Bench says is that even though there was no such firm commitment, "the Board was under a bounden duty to have supplied the machinery within a reasonable time" applying the principle of Section 46 of the Contract Act. The Bench finds that the delay that has occurred in supplying the machinery is unreasonable and on that basis holds that the contractor is entitled to compensation. With great respect, we are unable to agree with this approach. Apart from the fact that this theory of duty to supply within a reasonable time was not put forward before the learned umpire, it is neither referred to by the learned umpire, nor does it constitute the basis of his award - the finding recorded by the learned umpire (viz., that the period of six months was only a rough estimate, an expectation, within which the Board thought it could import the machinery) is inconsistent with the theory of obligation to import within a reasonable time. The learned umpire has also found that the contractors themselves took some time before they could give detailed specifications of the machinery and parts required for carrying out the work. The Bench did not also find - it was not even suggested by anyone - that the Board was guilty of any deliberate delay or of any negligence or that it was remiss in taking steps required for importing and/or supplying the machinery. The matter did not lay in its hands. In such a situation, there was no room for importing the theory of reasonable time and for punishing the Board for something of which it was not guilty. Secondly, the explanation to Section 46 makes it abundantly clear that "the question what is a reasonable time is, in each particular case, a question of fact." The question whether the machinery was imported and supplied to the contractor within a reasonable time or not was thus a question of fact and not a question of law. No such contention was raised before the learned umpire nor did he record a finding on the said aspect. It was not open to the Division Bench to record the said finding of fact, for the first time, at the stage of letters patent appeal and hold on that basis that the Board is guilty of not performing its obligation within a reasonable time. In short, this is not a case where the Division Bench has interfered on the ground that the award suffers from an error of law apparent on the face of award. This is a case where a new ground - and that too factual in nature - was made out for the first time at the Letters Patent appeal stage for setting aside the award. Indeed, a reading of the judgment of the Division Bench shows that the Bench approached the matter as if it was sitting in first appeal over the award. The judgment does not even indicate on which recognised ground is it setting aside the award. It does not say either that the award is vitiated by an error of law apparent on the face of it nor does it say that the learned umpire was guilty of any misconduct in conducting the proceedings or otherwise. We are of the firm opinion that this could not have been done.