Chandigarh Construction Co. … vs State Of Punjab on 14 February, 2020


Supreme Court of India

Chandigarh Construction Co. … vs State Of Punjab on 14 February, 2020

Author: R. Banumathi

Bench: R. Banumathi, A.S. Bopanna

                                                                 REPORTABLE


                                   IN THE SUPREME COURT OF INDIA

                                     CIVIL APPELLATE JURISDICTION

                                   CIVIL APPEAL NOS.867­870 OF 2013


                         Chandigarh Construction Co. Pvt. Ltd.      .…Appellant(s)


                                                   Versus

                         State of Punjab & Anr.                  …. Respondent(s)



                                            JUDGMENT

A.S. Bopanna,J.

1. The appellant is before this Court assailing the

order dated 08.04.2011 passed by the High Court of

Punjab & Haryana at Chandigarh in Civil Revision

No.2958/2008 which was disposed of along with Civil

Revisions Nos. 2949, 2960 and 2961 of 2008. Through

the said order the High Court allowed the Revision in part
Signature Not Verified

Digitally signed by
MADHU BALA
to the extent of allowing the Claim No.1 of the appellant
Date: 2020.02.14
14:21:05 IST
Reason:

by modifying the judgment passed by the Trial Court and

Page 1 of 26
the First Appellate Court, but insofar as the remaining

claims the judgments passed by the First Appellate Court

was affirmed. Consequently, the Award passed by the

Arbitrator stood modified to that extent. The appellant,

therefore, is aggrieved to the extent, the remaining claim

of the appellant was rejected. In that view the

consideration in the instant appeal pertains to the Claim

Nos.2, 3, 8, 12 and 16 as put forth and also the issue

relating to the grant of interest which arose for

consideration under Claim No.19.

2. For the purpose of convenience and clarity the

parties would be referred to in the rank assigned to them

in the arbitration proceedings. Accordingly, the appellant

herein would be referred to as the claimant, while the

respondents would be referred to as the opposite party.

3. The proceedings in question arises relating to an

Award passed under the Arbitration Act, 1940 (‘Act 1940’

for short). The claimant and the opposite party had

entered into a contract agreement dated 05.02.1985 for

construction of Sutlej Yamuna Link Canal (Punjab) and

in that regard to carry out the earth work, drainage

Page 2 of 26
behind lining and cement concrete lining of Raech RD

71.50 to 72.50 kms. The estimated cost of the project

was at Rs.31 lakhs and the contract amount for the work

was fixed at Rs.59,86,732/­. The work concerned was to

be executed in eight months.

4. In respect of the said contract, the claimant

contended that during execution, the scope of work was

considerably increased on account of substantial

increase of earth work, sloughing of banks, rebuilding of

banks with self­draining material, various decisions by

the department regarding rebuilding of banks and

changes in the strata encountered during excavation due

to incorrect geological data observations by the

department prior to inviting tender. In that view, the

claimant had raised a demand for the additional payment

which was disputed by the opposite party, which led to

an arbitral dispute. Since the agreement provided for

resolution of disputes by arbitration the claimant took

recourse to the same. In that background the claimant

had sought for additional payment in the claim statement

filed before the Arbitrator. The opposite party filed their

Page 3 of 26
objections disputing the claim put forth by the claimant.

The learned Arbitrator on considering the rival

contentions passed the Award dated 31.08.1994 and

awarded the amount as claimed by the claimant to be

paid by the opposite party with interest at the rate of 18%

per annum as also the future interest at 18% per annum

from the date of the Award to the date of payment. As

required under Act, 1940 the said Award was to be made

a ‘Rule of Court’ for which purpose the Award was

presented before the Court of the Senior Sub­Judge,

Ropar. The opposite party filed objections in the said

proceedings and contended that the Award passed by the

Arbitrator is not sustainable as the Arbitrator had

misconducted himself by awarding the amounts which

were not payable as per the contract and the learned

Arbitrator had not indicated reasons for the decision.

The learned Sub­Judge through the judgment and decree

dated 21.10.1995 accepted the objections to the extent of

rejection of Claim No.1 and reduction of interest to 12%

Page 4 of 26
per annum and in other respects the Award was made

the ‘Rule of Court’.

5. The opposite party however continued to remain

aggrieved insofar as the non­interference with regard to

other claims and, therefore, filed an appeal before the

District Judge, Ropar in Civil Appeal No.9/3110 of 2006.

The claimant preferred the cross appeal insofar as the

rejection of Claim No.1 by the learned Sub­Judge and

reduction of interest. The learned District Judge through

judgment dated 06.11.2007 rejected the cross appeal

filed by the claimant and allowed the appeal filed by the

opposite party (State of Punjab) and set aside the amount

awarded under Claim Nos.2, 3, 8, 12 and 16. The

claimant, therefore, contending to be aggrieved preferred

the Revision Petitions before the High Court. It is in the

said proceedings the High Court has rejected the

remaining claim except Claim No.1 as indicated above. It

is in that circumstance the claimant is before this Court

in this appeal.

6. Shri Nakul Dewan, learned senior advocate

appearing for the claimant would contend that the First

Page 5 of 26
Appellate Court and the High Court were not justified in

their conclusion to reject the Award passed by the

learned Arbitrator. It is contended that the basis on

which the Claim No.2 would arise for consideration will

be the same basis for the Award of the amount under

Claim Nos. 3 and 12. Even insofar as the Claim No.8 the

additional amount will have to be calculated on that

basis for the extra items used. In that background, it is

contended that under Note 6 to the schedule of work

which forms a part of the contract, it provides that extra

or other items of work shall be paid at the rate worked

out on the basis of relevant Punjab Common Schedule of

Rates Basis Plus Sanctioned Premium at the time of

tendering, which is to be worked out. In that light it is

contended that the estimated cost of the present contract

is at Rs.31 lakhs while the contract amount has been

worked out at Rs.59,86,732/­. The difference between

the estimated cost and the contract amount is the

sanctioned premium which corresponds to the overall

premium of 93.12% on the work for the purpose of

Page 6 of 26
computing the rates of extra items/quantity or work

done. Insofar as the remaining claims the said 93.12%

would become applicable. In that circumstance when the

learned Arbitrator has taken note of this aspect and

decided the Claim No.2, the same would be sustainable.

It is contended that when the contract agreement is

explicit insofar as the value and the difference being the

sanctioned premium and the percentage being evident at

93.12% the decision of the learned Arbitrator not

indicating any further reasons in the Award would not be

fatal. When the obvious had been concluded by the

learned Arbitrator, the amount ultimately awarded is

sustainable and the claim put forth by the claimant is

justified.

7. Ms. Uttara Babbar, the learned counsel for the

opposite party (State of Punjab), would on the other hand

contend that the learned Arbitrator has not indicated any

reason whatsoever to arrive at the conclusion that the

claim made at 93.12% is admissible. The learned

counsel would in that regard refer to Clause 63 of the

contract which provides for reference of the disputes to

Page 7 of 26
arbitration. The said clause after referring to the manner

in which the learned Arbitrator is to be appointed, has

further specified the requirement that all Awards shall be

in writing and in case of awards amounting to Rs.1 lakh

and above, such Award shall state the reason for the

amount awarded. In that circumstance it is contended

that when the contract between the parties is explicit

with regard to the manner in which an Award is to be

passed by the learned Arbitrator, the Award passed in

such manner alone would be sustainable. In that light it

is contended that in the instant case the Award does not

indicate the reasons while answering Claim No.2, wherein

it is only stated that as per agreement the premium

works out to 93.12% and has awarded the same without

specifying the reasons for such conclusion. In that view

it is contended that such Award would not be

sustainable. The learned counsel refers to the schedule

of through rate items for construction, in the tender form

(Annexure P2) wherein Note 6 specifies that the Punjab

Common Schedule of Rates would be applicable. It is

Page 8 of 26
contended that as per the communication dated

05.01.1987 addressed by the Executive Engineer to the

claimant, it indicates that the percentage above the

departmental rates has been approved at 35.02%. In

that light it is contended that the calculation towards the

claim in any event could not have exceeded the same. In

that view it is contended that the learned Arbitrator had

not considered these aspects nor does the Award indicate

his mind. On the other hand, the learned First Appellate

Court and the High Court having taken note of these

aspects has arrived at the conclusion which does not call

for interference. With regard to the Claim No.8 relating to

extra payment for DALDAL (SWAMPY Area) the First

Appellate Court and the High Court has taken into

consideration that the claim had not been made within

the time provided and has accordingly rejected the claim.

In that view it is contended that the order passed by the

High Court does not call for interference.

8. In the light of the above, a perusal of the appeal

papers would indicate that there is no serious dispute

between the parties with regard to the contract entered

Page 9 of 26
into for construction, the work performed and certain

additional work having been carried out by the claimant.

The issue is however as to whether the learned Arbitrator

had appropriately considered the matter in its correct

perspective and in that light whether the Award of the

amount at the premium of 93.12% would be justified and

the manner of consideration by the learned Arbitrator

without assigning reasons for his Award is sustainable.

In that view the issue would be as to whether the First

Appellate Court as also the High Court were justified in

rejecting the claim raised by the claimant.

9. While considering these aspects it is noticed that

as pointed out by the learned counsel for the opposite

party, Clause 63 of the contract which provides for

arbitration of all disputes or differences between the

parties also indicates the requirement of the Award to be

as follows:

“All awards shall, be in writing and in case
of awards amounting to Rs.1 lakh and
above, such awards shall state the reasons
for the amount awarded.”

Keeping this in view, if the Award passed in the instant

case by the learned Arbitrator (Annexure P6) insofar as

Page 10 of 26
Claim No.2 is perused, all that the learned Arbitrator has

stated is as follows:

“As per agreement premium works out to
93.12% which is awarded.”

10. The said conclusion on Claim No.2 without

appropriate consideration is the basis of reckoning the

premium at 93.12% in respect of the Claims No.3 and 12

as well. The learned senior advocate for the claimant

while seeking to contend that the Award would still be

sustainable even in that circumstance has relied on the

decision of this Court in the case of Indian Oil

Corporation vs. Indian Carbon Ltd. (1988) 3 SCC 36 to

contend that it has been indicated therein that if the

reason as to how the Arbitrator has drawn the inference

is apparent the same would be sufficient. The decision in

the case of Ispat Engineering and Foundry Works,

B.S. City, Bokaro vs. Steel Authority of India Ltd.

B.S. City Bokaro (2001) 6 SCC 347 is relied, wherein it

is held that in the event, however, there are reasons,

interference would still not be available unless of course,

there exist a total perversity in the Award or the

Page 11 of 26
judgment is based on wrong proposition of law. In

addition, the decision in the case of D.C.M Ltd. vs.

Municipal Corporation of Delhi & Anr. (1997) 7 SCC

123 is relied upon to contend that even in case of a non­

speaking Award if the Arbitrator has proceeded without

overlooking any term of the contract, the same cannot be

considered as an error apparent on the face of the Award.

In an attempt to persuade us the learned senior counsel

has with leave referred to the decision of the High Court

of Delhi in the case of M/s Naraindas R. Israni vs.

Union of India DRJ (1993) 25 to point out that in

respect of an agreement containing a similar clause the

learned Judge had held that the learned Arbitrator is not

required to give detailed reasons like a Civil Court but

what is expected of the Arbitrator is that he must give out

the trend of his thought process and it is not necessary

for the Arbitrator to give any arithmetic computation.

11. The learned advocate for the opposite party would

however point out from the very decision in the case of

Indian Oil Corporation Ltd. (supra) relied upon by the

Page 12 of 26
learned senior counsel for the claimant that this Court in

the said decision has also held that where an authority

makes an order in exercise of a quasi­judicial function it

must record its reasons in support of the order it makes.

It was further observed that every quasi­judicial order

must be supported by reasons. It is therefore contended

that the bar would raise higher for a judicial order which

should indicate reasons for the conclusion. The learned

advocate would further refer to the decision in the case of

Raipur Development Authority & Ors. vs. M/s

Chokhamal Contractors & Ors. (1989) 2 SCC 721

wherein it is held that though it is well settled that an

Award can neither be remitted nor set aside merely on

the ground that it does not contain reasons in support of

the conclusion or decision reached in it except where the

arbitration agreement or the deed of submission requires

it to give reasons. In that light the learned advocate

would point out that in the instant case the agreement

between the parties would require that the learned

Arbitrator has to assign reasons for the Award and when

Page 13 of 26
such requirement is stipulated the Award passed without

reasons would not be sustainable being contrary to the

explicit requirement in the contract between the parties.

The learned advocate for the opposite party has further

referred to the decision in the case of Gora Lal vs. Union

of India (2003) 12 SCC 459 wherein it is held as

hereunder:

“6. A perusal of the aforesaid clause would
show that the arbitrator is required to
indicate a finding along with the sum
awarded separately on each individual
item of the dispute. While giving a finding,
the arbitrator necessarily has to take into
consideration the disputes, claims and
counterclaims of the parties and after
considering the evidence on such claims
and the legal position, has to record his
finding on each disputed item. In the
present case what we find is that on each
item the arbitrator has awarded a sum
which according to us is not a finding but
is merely a conclusion.”

12. In the background of contentions put forth and

from the legal position enunciated in the decisions relied

upon, the position is clear that in the instant facts the

agreement between the parties required the learned

Arbitrator to pass the Award in a particular manner

Page 14 of 26
whereunder the reasons were required to be assigned

since that was the explicit requirement under the

contract. If in that background the Award impugned in

the instant proceedings is taken note the learned

Arbitrator has not assigned any reasons for the

conclusion reached on Claim No.2 which was also

relevant for considering the Claim Nos.3 and 12 as well.

If that be the position the only explanation that is sought

to be put forth by the learned senior advocate for the

claimant that the basis for such conclusion is the

difference of the value between the estimated amount at

Rs.31 lakhs and the contract amount at Rs.59,86,732/­

to work out the premium would not be justified. The

quantum of the contract amount as against the estimated

cost by itself could not have formed the basis to conclude

the claim as made by the claimant towards premium of

extra items, extra items for supply and laying of self­

draining materials and towards re­handling of earth

work. In that regard the contention to the contrary put

forth by the opposite party was that the tender form

Page 15 of 26
provided for that aspect under Note 6, which reads as

hereunder:

“Extra other items shall be paid for each
such items of work at thorough rate
worked out on the basis of relevant Punjab
Common Schedule of Rates basis plus
sanctioned premium (at the time of
tendering), plus or minus percentage above
or below worked out by the department by
reference to department’s estimated cost of
tender.”

13. The said provision would indicate that the rate as

prescribed under the Punjab Common Schedule of Rates

would be applicable. In that light it is noticed that the

letter dated 05.01.1987 relied upon by the learned

advocate for the opposite party which was addressed to

the claimant indicates that the premium as agreed under

the schedule is at 35.02%. The said contention had been

urged by the opposite party in their pleadings. In fact, as

pointed out by the learned advocate for the opposite

party, the First Appellate Court has taken note of this

aspect and has arrived at its conclusion to disapprove the

Award of premium at 93.12% for extra work.

14. In the above backdrop, we fully concur with the

manner in which the consideration was made by the First

Page 16 of 26
Appellate Court as also the High Court to arrive at the

conclusion that the claim as put forth by the claimant in

respect of Claims No.2, 3 and 12 at the premium of

93.12% worked out only on the basis of difference of the

amount between the estimated cost and the contract

amount is not justified. However, in that circumstance

when the learned Arbitrator has not assigned any

reasons but had unilaterally in a cryptic fashion

awarded the claim at the premium of 93.12% and when

the same was disapproved as not sustainable, the

appropriate course in the normal circumstance ought to

have been to set aside the Award and remit the matter to

the learned Arbitrator to make a fresh consideration to

determine the percentage of premium at which the claim

for the extra items would be sustainable, more

particularly in a circumstance where the additional work

carried out was not in serious dispute but the premium

for rate of payment was to be determined.

15. The said course would be open even at this stage,

but in the instant case we however take note that the

claim was under the Act, 1940 in respect of an agreement

Page 17 of 26
dated 05.12.1985 and the claim before the Arbitrator

itself was of the year 1994. In that background a perusal

of the consideration as made by the First Appellate Court

would indicate that it does not refer to the claim that was

admissible after working out the percentage of premium

that is applicable. It has only arrived at the conclusion

that the working out of the premium at 93.12% in respect

of the extra items on Claim Nos.2, 3 and 12 are set aside.

The learned First Appellate Judge ought to have arrived

at the conclusion of the admissible claim and in that

regard a conclusion ought to have been reached instead

of rejecting the claim outright since the course to remand

the matter to the Arbitrator was not adopted.

16. In that background since we have referred to the

communication dated 05.01.1987 which is produced at

Annexure R3 with the additional documents and also on

taking note of the contention urged by the opposite party

regarding the premium rates to be worked out at 35.02%,

we are of the opinion that instead of rejecting the entire

claim as made by the claimants, premium for the extra

items is to be determined at 35.02% and the claim based

Page 18 of 26
on the same is required to be awarded. To that extent,

the calculation is to be made by the opposite party and

the amount be paid to the claimant. The said calculation

with the premium at 35.02% shall be made in respect of

the extra items indicated under Claim Nos.2, 3 and 12.

17. Insofar as the Claim No.8, it relates to the work

carried out on DALDAL land wherein the soil was marshy

and extra construction material was required to complete

the work. The learned Arbitrator through the impugned

Award had taken note of the same and awarded the sum

of Rs.19,15,143/­ after indicting the amount for the said

work on the same basis and deducting the agreed rate.

Though the learned Sub­Judge had accepted the same

for making it the ‘Rule of Court’, the learned First

Appellate Judge on taking note of the claim had arrived

at the conclusion that the learned Arbitrator was not

justified in granting the claim. In that regard, the First

Appellate Court had taken note of Clause 39 of the

Contract Agreement wherein a provision was made for

extra items. The second paragraph therein which

provides for the manner in which the contractor is

Page 19 of 26
required to submit the returns of the work claimed for

extra items was referred to. The said requirement

indicated that the contractor shall deliver in the office of

the Executive Engineer on or before the 10 th day of every

month during continuance of the work, the return

showing details of any work claimed for extra, and such

return shall also contain the value of such work as

claimed by the contractor. If the details are not

indicated, the Clause indicates that it shall be deemed

that the contractor has waived all claims not included in

such returns and will have no right to enforce any such

claim not so included. In that light since the claim was

ultimately found as not included in the monthly

statement, the First Appellate Court was of the opinion

that the requirement of the conditions of the contract was

not adhered to and, therefore, set aside the Award of the

said amount by the learned Arbitrator and the same

claim being made ‘Rule of Court’ by the learned Sub­

Judge was also set aside. The High Court while adverting

to this aspect of the matter has held that insofar as the

Page 20 of 26
amount sought under Claim No.8 the question is not

whether the petitioner undertook this work but whether

the petitioner raised any claim for this extra amount in

terms with the contract. The High Court has also taken

note of Clause 39 of the contract and has declined the

claim.

18. In that background having taken note of Clause 39

of the Contract Agreement, it cannot be considered as a

statutory limitation or bar for the claim in all

circumstances. The said Clause no doubt prescribes a

method by which the claim is to be put forth in the

statement every month. The said requirement will have

to be construed as being put in the agreement so as to

ensure that the additional work has actually been done,

the claim is put forth along with details so that baseless

claim is not made at a distant point in time when it will

not be possible to determine. Though the Clause also

indicates that if such claim is not made, it would

amount to waiver, in a circumstance where the claim is

ultimately put forth in the forum where an adjudication

is made and based on the material if the adjudicating

Page 21 of 26
authority is satisfied that the actual work had been done

and the contractor being entitled to the extra amount

spent by him to carry out the work in an appropriate

manner, it would not be just and proper to deny such

claim only on the ground that it had not been indicated

strictly in the manner as provided in the contract

specially keeping in view the nature of work undertaken.

To that limited extent a perusal of the Award passed by

the learned Arbitrator would indicate that the learned

Arbitrator had taken into consideration the letter dated

14.11.1986 wherein the identification of soil which was

agreed to. The letter dated 09.03.1987 submitting the

test results identifying the strata encountered as DALDAL

is referred therein. The work having been completed

during the March, 1988 was also taken note. In that

circumstance when the fact remains that the DALDAL

land was situated in the area, work was carried out and

extra material was used, the claim in our opinion cannot

be rejected outright adopting a technical view of the

matter. However, the claim for the extra item in that

Page 22 of 26
regard for the work of 1,33,181.00/­ ‘Cum’ will have to be

calculated with premium at the same rate of 35.02% over

and above the agreed rate and not at 93.12% as has been

taken into consideration by the learned Arbitrator for

awarding the amount. The appropriate calculation in

that regard shall however be worked out in such manner

so as to award the amount under the said Claim No.8.

19. Insofar as Claim No.16 we see no reason to

interfere with the orders passed by the High Court or by

the First Appellate Court. Further with regard to the

interest sought under Claim No.18 we are of the opinion

that in the absence of agreement with regard to the rate

of interest, the interest as awarded by the learned

Arbitrator was on the higher side and the First Appellate

Court was justified in reducing the same to 12% per

annum and the High Court was also justified in not

interfering with the same.

20. As already indicated above the unreasoned award

on being set aside by the First Appellate Court, the

matter in a normal circumstance ought to have been

remitted to the learned Arbitrator to redo the proceedings

Page 23 of 26
afresh in accordance with law. Such course ought to have

been adopted by us as well. We had proceeded to

examine the matter with regard to the validity of the

claim keeping in view the time lapse and since the

validity of the claim was to be taken note at the

appropriate premium if not at the percentage of premium

at 93.12% as determined by the learned Arbitrator. In

view of our conclusion relating to the claim being

sustainable to the extent as indicated by us above at the

premium of 35.02%, under Claim Nos.2, 3, and 12 the

calculation based on the extent and measurement of the

extra items is an exercise which cannot be undertaken

herein and as such the opposite party keeping in view the

directions herein shall work out the actual amount

payable in respect of the extent, measurement, quantity

and price based on which the claim is made. In that

regard we hold that the claimant is entitled to the claim

for extra items as put forth under Claim Nos. 2, 3, 8 and

12 by working out the difference of cost on the tender

premium at 35.02%. On arriving at the quantum of the

Page 24 of 26
amount, the same shall be payable with interest at 12%

per annum in the manner as ordered by the First

Appellate Court. The claim No.1 ordered by the High

Court is sustained. The said exercise for calculating and

paying the amount to the claimants on claim Nos.1, 2, 3,

8 and 12 shall be completed by the opposite party within

the period of six weeks from this date. In the event of

there being delay in payment beyond the said period, the

same shall carry interest at the rate of 18% per annum

till the date of payment.

21. In the result we pass the following:

ORDER

(i) The order dated 06.11.2007 of First Appellate

Court and the order dated 08.04.2011 by the High

Court in Rev. No.2958/2008 are modified.

(ii) It is ordered that in addition to the Claim

No.1 allowed by the High Court, the claimant is

also entitled to the amount under Claim Nos.2, 3,

8 and 12, however, to be calculated at the

premium of 35.02%. The same shall be calculated

with interest at 12% per annum and paid in six

Page 25 of 26
weeks from this date failing which the same will

carry interest at 18% per annum.

(iii) The appeals are, accordingly, allowed in part

with costs.

(iv) The Registry is directed to draw up the

decree/award in terms of the directions contained

hereinabove.

(v) Pending applications if any, shall also stand

disposed of.

………….…………….J.

(R. BANUMATHI)

.……………………….J.

(A.S. BOPANNA)

New Delhi,
February 14, 2020

Page 26 of 26



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