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PETITIONER: THE STATE OF J & K & ANR.

       Vs.

RESPONDENT: DEV DUTT PANDIT

DATE OF JUDGMENT:       27/08/1999

BENCH: D.P.Wadhwa, M.B.Shah

JUDGMENT:

D.P. Wadhwa, J.

     Both  the  parties  are aggrieved  by  judgment  dated February  6, 1989 of the Division Bench of the High Court of Jammu and Kashmir passed in an appeal against judgment dated May 10, 1986 by the learned single Judge of that High Court. While  the  learned single Judge made the award given  under the  Arbitration  Act,  1940 a rule of the  court  and  also granted  interest, the Division Bench in appeal deleted  two claims from the award and also reduced the rate of interest. The  award was in favour of Dev Dutt Pandit, the Contractor. He  is aggrieved by deletion of two claims and also lowering the  rate of interest and the State is aggrieved against the award itself.  Thus two separate appeals.

     Tender  of the contractor for earth work,  excavation, minor drainage crossing, overhead crossing, road bridges and cement concrete lining of Ravi Canal Project was accepted by the State Government and by order dated May 6, 1976 work was allotted  to  him.  The work was to be completed  within  18 months,  time being the essence of the contract.  On May 22, 1976  contractor commenced work.  He could not complete  the work within the stipulated time.  The contract was partially terminated  in the structural portion of the work on January 12,  1980.   On June 6, 1980 the whole of the  contract  was terminated  because of default committed by the  contractor. The  contractor  filed  a petition under Section 20  of  the Arbitration  Act  as  the  contract  stipulated  arbitration agreement  between  the parties.  Some of the terms  of  the contract  containing  the  arbitration   agreement,  we  may reproduce as under :

     "5.  CONTRACT RATES :

     The contractor shall be paid for the works executed by him  under this agreement at the rates specified in Annexure I  annexed  hereto  subject to other  terms  and  conditions embodied in this agreement.

     8.  VARIATION IN QUANTITIES AND EXTRA ITEMS

     The  quantities  shown  in the Annexure  III  to  this agreement  shall  not  be  taken  as  final.   The  Engineer in-charge  shall  be authorised to direct the contractor  to execute  extra items not shown in the aforesaid annexure III

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or  increase/ decrease the quantities beyond these described in  the said annexures as may be required to be executed and for  such increase/decrease quantities the contractor  shall be paid at the rates specified in the annexure I.

     The  quantities  shown  in  the Annexure  III  may  be decreased  in  detailed  drawings  to be  furnished  to  the contractor during execution and the contractor shall be paid only  for the work done or executed and shall have no  claim for  any compensation on account of any profit or  advantage that might have accrued or that may accrue to him otherwise.

     14.  FORCE MAJOURE

     A.    The  completion  schedule  is  subject  to   the operation  of the force Majour Clause which for the  purpose of  this  contract  is  defined  as  acts  of  God,   Civil, commotion,  sabotage, fires, floods, earthquakes  explosions or other catastrophes, epidemics, quarantines, restrictions, strikes,  and  other  labour troubles, embargoes,  or  other transportation  delays beyond the control of the  contractor for  which  only extension in time considered reasonable  by the  department  shall be granted and the  contractor  shall have no claim for compensation or increase in rates etc.  or charges  for  restoring  damages  to   the  works  plant  or material.

     17.  DAMAGE TO WORKS

     From  the commencement to the taking over of the works by  the  Department the contractor shall be responsible  for any  damage or loss to the works or part thereof caused  due to  any reason whatsoever.  The contractor shall at his  own cost  repair  and  make  good the loss or  damage  in  every respect   to   the  satisfaction  of  the   Engineer   whose certificate  in this behalf shall be conclusive proof of the defects etc.  having been removed.

     19.  SETTING OUT.

     The  contractor shall be responsible for the true  and proper  setting out of the works and for the correctness  of the positions, levels, bench marks alignments and dimensions in  works  and  for the provisions and  maintenance  of  all necessary instruments, appliances, bench marks and reference marks  and  labour etc.  in connection  therewith  including charges therefor shall be borne by him.

     Reference line and bench marks will be set upon at the site  of  works  by the site of works by the  department  at contractor’s cost.  The contractor shall at his own cost and responsibility  locate  and establish temporary bench  marks and  reference  lines  for  all the  structures  as  may  be required  for  the execution of the works according  to  the detailed  drawings and specifications and as required by the Engineer.   The contractor shall provide at his own cost all labour  and materials that may be required for checking  the works  during execution by the staff of Engineer  in-charge. Such  checks  shall  not  absolve   the  contractor  of  his responsibility   from  carrying  out   the  works   strictly according to the detailed drawings and specifications and as per  instructions  issued to him by the Engineer during  the execution of the works.

     23.  RESPONSIBILITY OF CONTRACTOR.

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     Time   being   the  essence  of  the   contract,   the responsibility  for execution of works within eighteen  (18) months  in  an  efficient  and workmen like  manner  and  in conformity with the department’s drawings and specifications shall be of the contractor.

     27.  DEVIATIONS ALTERATIONS ETC.  IN THE WORKS

     The contractor shall not in any way alter the works or any  part thereof in respect of designs, quality,  materials or specifications without the previous permission in writing of the Engineer.  The contractor shall not take advantage of any  error  or  discrepancies  occurring  in  the  drawings, designs  or specifications but shall report the same to  the Engineer  who  shall  make  or approve  the  corrections  if necessary.

     69.  CLAIMS NOT ENTERTAINABLE

     From the date of allotment of works and taking over on completion  by the department no claim shall be  entertained in  respect  of the works under this agreement  against  the department for,

     a) Increase in the cost of POL Railway or road freight b)  Taxes  duties  and octroi, etc.  c) Increased  wages  of labour skilled or unskilled and cost of materials d) Rise in cost of living index e) Business or any other losses, and f) Idle employees on any account whatsoever.

     74.  ARBITRATION

     If  at  any  time  any   doubt,  question  dispute  or difference  whatsoever,  shall arise between the  contractor and  the Government upon or in relation to or in  connection with  this  contract, either of the parties may give to  the other  notice  in  writing of the existence of  such  doubt, question,  dispute  or  difference  and the  same  shall  be referred  to  a person mutually agreed upon by  the  parties failing  such agreement by any officer of the Government  as the  minister In-charge, P.W.  Department Jammu and  Kashmir Government  may nominate for arbitration under the Jammu and Kashmir  Arbitration  Act and rules framed thereunder.   The decision  of  the Arbitrator shall be final, conclusive  and binding upon the parties.

     b)  The contractor shall not delay the carrying out of works  by  reason of any reference to Arbitration and  shall proceed  with the works with all one due diligence and shall until  the decision of the Arbitrator, abide by the decision of the engineer or his representative in-charge of the works duly conveyed by him."

     Petition  under  Section 20 of the Arbitration Act  by the contractor was filed on June 12, 1980.  On the following day when the petition was taken up without any notice to the State  the  Court  appointed   Local  Commissioner  to  take measurements of the work done at the site by the contractor. In the application for seeking interim relief the contractor prayed  that "a commissioner may be appointed to go on  spot and  record  the  measurements  of  the  work  done  by  the petitioner  in  presence of the parties" and till then  "the respondents  may be restrained from changing the status  quo

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at  site  or  disturbing the position of  the  work  already done".  Court passed the following order:-

     "An  application has also been moved on behalf of  the petitioner which is O.M.P.  No.  136 of 1980 with the prayer that  measurements  of  the  work done at site  may  be  got recorded  by  appointing a Commissioner as the work done  by him  is(?) obliterated.  The application is supported by  an affidavit.   Shri Bashir Ahmed Shah, Ex.  Engineer, R&B  C/o Chief  Engineer, P.W.D.  Jammu, is appointed as Commissioner to visit the spot and record the measurements and submit his report  within  a week.  Till the measurements are  recorded the  respondent  will  not  execute  any  fresh  work.   The Commissioner’s  fee is fixed at Rs.300/- to be borne by  the petitioner."

     Subsequently  Local  Commissioner was changed.   Local Commissioner  submitted his report on December 9, 1980 which formed part of the record.  In his petition under Section 20 of  the  Arbitration  Act the contractor claimed  a  sum  of Rs.39,47,000/-  under  various  heads.   This  petition  was allowed  by  order  dated  April  9,  1982.   We  quote  the operative portion of the order as under:-

     "The  disputes mentioned in the application u/s 20  of the  Arbitration Act as well as the objections filed thereto by  the other side are, therefore, referred to the aforesaid Arbitrator  with  a direction that he shall enter  upon  the reference  and make his award within four months  thereafter in  accordance with law.  The parties shall be at liberty to raise  any  further disputes before him provided it  is  not against  the  term of the agreement.  The parties,  however, shall  be  in  possession of the original  agreement,  shall produce  the  same  before  the  Arbitrator.   Copy  of  the application, the objections filed thereto and a copy of this order  shall  be  provided to the  arbitrator.   Arbitration petition No.  72 of 1980 stands finally disposed of."

     Before  arbitrator the contractor now claimed a sum of Rs.63,61,000/-.   On  the basis of the report of  the  Local Commissioner  giving details of the measurements of the work done  by  the  contractor a final bill was prepared  by  the contractor  which  amounted to Rs.14,32,436.62.  He  claimed this bill to be based on the terms of the contract.

     The arbitrator gave his Award on February 2, 1983.  It is a non-speaking Award.  He awarded a sum of Rs.20,08,000/- to the contractor with interest at the rate of 10% per annum from  the  date  of  application   for  appointment  of  the arbitrator  upto the date of payment.  It was also  provided that  the "interest on the amount awarded against claim Nos. 16  and 18 shall start and will be computed from the date of the   publication  of  the  Award".    Claims  16   and   18 respectively  were claims of interest at the rate of 24% per annum  by the contractor respectively on recoveries made and delay  in  release of illegally deducted amounts for  excess consumption  of  cement.   Awards on claims 16 and  18  were restricted  to  Rs.20,400/- and Rs.9,524/-.  Lastly, it  was directed  that  if  the amount awarded was not  paid  within three  months  from the date of the Award  interest  payable shall  be  18% per annum on the amount so awarded  upto  the date of realisation.

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     As  noted  above, the contract was for a total sum  of Rs.12,23,500/-.   The contractor allegedly committed  breach of the contract.  It was partially terminated on January 12, 1980  in  respect of structural portion of the work and  the contract  was  finally terminated on June 6, 1980.  By  this time  the contractor had executed less than 50% of the  work and had been paid a sum of Rs.5,71,900/-.

     The matter now again came to the court.  This time for making  the Award rule of the court.  State filed objections to the Award under Sections 30 and 33 of the Arbitration Act and  alleged  misconduct by the arbitrator.  It was  on  the grounds that the Award was against the terms of the contract and  the arbitrator travelled beyond the order of reference. It  was submitted that new claims were introduced before the arbitrator which were not made in the petition under Section 20 of the Arbitration Act and, therefore, could not be taken cognizance  of  by  the  arbitrator.   What  the  contractor claimed  in  Section 20 petition was given in  the  annexure thereto and this is how the claims were advanced:-

     "Similarly   numerous  other  items   in   which   the petitioner  either was not paid at all or was not paid  have been  comprehensively  indicated  in the  Annexure  to  this petition which may kindly be treated as a part and parcel of the  present  petition.   The   petitioner  has  tentatively assessed  the various claims on various accounts which he is entitled  to from the said department which may be  referred to for the purpose of convenience."

     Annexure  contained  summary of claims which  included claims  on  account  of earth work cutting as  the  original alignment   was  later  abandoned,   idle  labour,   illegal recoveries, interest on illegal recoveries, etc.

     It  was  submitted by the State that the  order  dated April  9, 1982 referring the disputes to arbitration did not allow  the  contractor  to  advance  additional  claims  not mentioned  in the summary of claims annexed to the petition. The  objection  was to the claim made by the  contractor  of Rs.14,32,436/-  which was based on the measurements recorded by the Local Commissioner of the work done by the contractor under  the contract.  This amount is reflected in claims  13 and 14 before the arbitrator.

     Learned  single Judge of the High Court by order dated May  10,  1986 dismissed the objections raised by the  State and  made the Award rule of the court.  He, however, reduced the rate of interest and now the interest was payable at the rate  of  6%  per  annum from the date  of  the  Award  till payment.   Award  of penal interest at the rate of  18%  was deleted.   Matter  was then taken to the appellate Bench  of the High Court in appeal.  Same objections to the Award were repeated  by the State.  Contractor objected to that part of the  order of learned single Judge by which interest awarded by  the  arbitrator was reduced.  The Division Bench  upheld the  order  of the learned single Judge except  that  claims under  items  13  and  14 were  deleted  which  amounted  to Rs.8,08,250/-.   The appeal of the State was thus allowed in part.   Plea of the contractor against reducing the interest by  the  learned single Judge was rejected.  While  deleting the claims under items 13 and 14 the Division Bench observed as under:-

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     "The work done by the contractor was duly measured and the  final  bill  prepared in accordance with  paragraph  40 (measurements  and  terms  of   payment)  of  the  Agreement enclosed  by the contractor with his statement of facts  and claim  before  the arbitrator amounting  to  Rs.14,32,436.62 paise  out  of which deducting the amount of  Rs.5,71,915.60 paise  paid  to  the  contractor   leaves  the  balance   of Rs.8,60,521.02  paise  only over and above this  amount  any measurement  subsequently  done by the  commissioner  cannot form  part  of the agreement and could not be allowed to  be multiplied  to an unlimited extent beyond the rates and work prescribed  in  the agreement.  Even the summary  of  claims submitted  before the court for reference do not include the amount  claimed  under this head.  The other heads of  claim overlap  the claim No.  20 on which item 13 is awarded.   In consideration  of  the  foregoing circumstances we  have  no doubt  in  our mind to hold, that the arbitrator made  these items  of  the award No.  13 granting Rs.95,400.00 based  on claim  No.   20  (due to escalation  Rs.2,86,487/-  -  claim rejected by arbitrator) of the subsequent statement of facts and  claim,  exceeded his jurisdiction which is against  the terms  of  the  agreement and thus invalid in  view  of  the reference.   The  items  No.  13 and 14 of the  Award  being independent  of the entire award are separable, there can be no legal impediment in deleting the two items based on claim No.   20 from the Award.  The appeal to this extent, in  our opinion,  deserves  to be allowed to disallow the claims  of Rs.7,12,850.00  and Rs.95,500.00 totalling to Rs.8,08,250.00 (Eight  lacs, eight thousand two hundred and fifty only) and the award to that extent is set aside."

     State  still  felt aggrieved.  Contractor became  more aggrieved  because  of  deletion  of   his  two  claims  and rejection  of  his plea for enhancement of the  interest  as awarded by the Arbitrator.

     We  have noted the relevant terms of the contract.  It is  not  necessary for us to set out the claims made by  the contractor  in  detail except to note that out of 23  claims under  different  heads claims 2, 6, 19, 20, 21 and 22  were rejected  by  the arbitrator;  claims 1 and 3 relate to  the alteration  of  the work being excavation done  at  original site  abandoned, refilling of the original excavation, fresh excavation  on new alignment and shifting of centre line and consequent  refilling  compacting and lean concrete  lining; claims  4,  5,  10 (in part) and 11 are for  damage  due  to monsoon;  claims 8, 9, 10 (in part) and 12 are on account of idle labour;  claims 7, 13, 14 and 17 are by and large under the  terms  of the contract;  claims 15, 16 and 18  are  for interest  which were not mentioned in the summary of  claims annexed  with  Section 20 petition and claim 23 is  for  the cost of arbitration.

     Before  the  learned  single Judge  four  issues  were framed  arising out of the pleadings of the parties.   These are:

     "1)  Whether any fresh claims were entertained by  the Arbitrator during the course of arbitration proceedings?

     2)  In  case  issue No.  1 is  proved  in  affirmative whether  any  such claim was beyond the scope  of  reference made to the arbitrator by the court, if so how?

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     3)  Whether  the  award  made by  the  Arbitrator  was against the terms of the agreement?  If so, whether the same amounts to misconduct?

     4)  Whether the arbitrator committed misconduct  legal or otherwise in making of the Award?  If so, how?"

     The  court allowed the parties to lead evidence on the issues so framed.

     The  contract  has been entered into on the  basis  of measurable  item  rate contract and the rates of each  items were  quoted accordingly.  According to the measurements, as quoted,   the   contract   was  for   a   total   value   of Rs.12,23,500/-.

     Mr.   Mahanti, senior advocate for the State of  Jammu and  Kashmir  reaffirmed the arguments advanced in the  High Court that the Award travelled beyond the terms of reference and  was  also against the terms of the contract.   He  said claims  13  and 14 could not have been advanced  before  the arbitrator as these claims were not mentioned in the summary of  claims filed with the Section 20 petition.  He said High Court  was  right in deleting these two claims.   The  order referring the disputes to arbitration allows those claims to be  raised before the arbitrator which fell within the terms of the contract.

     The  contractor  has  to  be  paid  on  the  basis  of measurement  of  the work done by him.   Local  Commissioner measured the work done by the contractor in presence of both the  parties and thereafter he submitted his report.  On the basis  of measurement so recorded by the Local  Commissioner the  contractor  prepared  the  final   bill  of  claim  for Rs.14,32,436/-  and after taking out the amount already paid to  him, made claim for the balance.  It is difficult to see how  claims  made under items 13 and 14 could be said to  be either  new  claims  or outside the terms of  the  contract. Under clause 5 of the contract, contractor is to be paid for the  work  executed by him under the contract at  the  rates specified therein.

     Under  clause 17 of the contract it is the contractor, who  is  responsible for any damage or loss to the works  or part  thereof caused due to any reason whatsoever and he  at his  own cost is required to repair and to make good of loss or  damage.  Contractor, therefore, could not claim any loss done  to  him  on  account  of early  onset  of  monsoon  or otherwise.   Similarly  under the terms of the  contract  he cannot  claim any amounts towards idle labour.  As a  matter of  fact under clause 69 these claims are not  entertainable at  all.   Mr.   Thakur for the contractor said  that  "idle employees"  as mentioned in clause 69 of the contract is not the same thing as "idle labour".  According to him, the term "idle employees" would mean regular employees on the roll of the  contractor like engineers etc.  We do not think such  a restricted  construction  can  be  put  on  the  term  "idle employees"  as  not include idle labour as well.  Read as  a whole  skilled and unskilled labour are all employees of the contractor under the contract.

     Any  work  done on account of deviation or  alteration could  not be undertaken without the previous permission  in writing  of  the  engineer.   It is  admitted  case  of  the

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contractor  himself  that there is no writing though it  was promised  to  him  orally.   In view of  clause  27  of  the contract  claims 1 and 3 could not have been accepted.  When the  principal  claims  were  wrongly awarded  there  is  no question  of  any award of interest on the  amounts  claimed under those heads.

     It  was submitted before us that it is a  non-speaking Award  and  this Court cannot go into the mental process  of the arbitrator in making the award on various claims.  Court has certain limitations while examining a non-speaking award but there is no complete bar in examining if the award is in terms  of  the  reference  or the  terms  of  the  contract. Regarding  the claims made before the arbitrator in  respect of  items 1 and 3 evidence was also recorded by the  learned single  Judge.  Admittedly when there is no writing for  any alteration  or  deviation no claim could be allowed  by  the arbitrator.  To accept the claim of the contractor on claims 1  and 3 without examining the pre-condition of there  being any  writing  of  any alteration or deviation would  not  be legal.

     Now it does appear to us that the final bill amounting to  Rs.14,32,436.62  encompasses all the works done  by  the contractor  which were measured by the Local Commissioner in presence of both the parties and which perhaps also includes the  work  for  which contractor could not raise  any  claim under  the  contract.   In the evidence which has  been  led there  is no objection to measurements recorded by the Local Commissioner  and  the  final bill prepared on  that  basis. That  is  all  the  amount contractor is  entitled  to.   By raising other claims he is merely trying to create confusion with  the  hope  that  he may be able to  get  some  payment outside  the contract for which he unfortunately  succeeded. Out  of the final bill of Rs.14,32,436.62 the contractor has been   paid  Rs.5,71,915.60  thus   leaving  a  balance   of Rs.8,60,521.02  to  which  in all the  contractor  would  be entitled to under the Award.

     Under the Interest Act, 1978, which came into force on August 19, 1981, court includes arbitrator.  Under Section 5 of  the  Interest Act Section 34 of Code of Civil  Procedure would,   therefore,  apply  to   the  arbitrator  as   well. Arbitrator  is thus entitled to award interest pendente lite and  future  interest at the rate not exceeding the  current rate  of interest which has also been defined in clause  (b) of Section 2 of the Interest Act.

     In the present case arbitrator awarded interest at the rate  of  10%  per annum which was reduced  by  the  learned single  Judge  to  6% per annum and upheld by  the  Division Bench.  Under Section 34 of Code of Civil Procedure interest at  the  higher  rate  than  6% can  be  awarded  where  the liability  in relation to the sum so adjudged had arisen out of  commercial transaction.  There is nothing on the  record to  show that interest awarded by the arbitrator at the rate of  10%  is in contravention of Section 34 of Code of  Civil Procedure.  That being so we do not think either the learned single  Judge or Division Bench were correct in reducing the rate  of  interest as granted by the arbitrator.  We  would, therefore,  restore the award of interest at the rate of 10% per  annum  as granted by the arbitrator from the  date  the arbitrator  entered  into reference till realisation of  the amount under the award.

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     When  the  appeal  filed  by the State  of  Jammu  and Kashmir  came  up  for admission before this  Court  it  was ordered  on May 1, 1989 that the State Government shall "pay 1/2  of  the decretal amount payable under the order of  the High  Court  against bank guarantee to the respondent.   The bank  guarantee  shall be given to the satisfaction  of  the Deputy  Registrar of the High Court.  Issue stay of  further execution  proceedings".  If by the order dated May 1,  1989 excess  amount has been paid by the State to the  contractor the  same  shall be refunded to the State by the  contractor with interest at the rate of 10% per annum from the date the contractor  got the excess amount till it is refunded to the State Government.

     Arbitration   is  considered  to   be   an   important Alternative  Disputes  Redressal  process  which  is  to  be encouraged  because of high pendency of cases in the  courts and  cost of litigation.  Arbitration has to be looked up to with  all  earnest so that litigant public has faith in  the speedy  process of resolving their disputes by this process. What happened in the present case is certainly a paradoxical situation  which  should be avoided.  Total contract is  for Rs.12,23,500/-.   When the contractor has done less than 50% of  the  work the contract is terminated.  He has been  paid Rs.5,71,900/-.   In Section 20 petition he makes a claim  of Rs.39,47,000/-  and  before  the  arbitrator  the  claim  is inflated   to   Rs.63,61,000/-.    He    gets   away    with Rs.20,08,000/-  with  interest at the rate of 10% per  annum and  penal interest at the rate of 18% per annum.  Such type of  arbitration become subject of witticism and do not  help the  institution of arbitration.  Rather it brings bad  name to  the  arbitration  process as a whole.  When  claims  are inflated  out  of all proportions not only that  heavy  cost should  be  awarded to the other party but the party  making such  inflated  claim should be deprived of the  cost.   We, therefore,  set aside the award of cost of Rs.7,500/-  given in  favour of the contractor and against the State of  Jammu and Kashmir.

     Both  the  appeals are partly allowed.   Judgment  and decree  passed by the learned single Judge making the  Award dated  February 9, 1983 Rule of the court and as modified by the  impugned  judgment is further modified.  Now  Award  is made  Rule of the court to the extent of Rs.8,60,521/-  with interest  at  the  rate of 10% per annum from  the  date  of reference  till payment is made.  There shall be no order as to  costs in both the appeals.  The exact amount payable/due to  any of the parties shall be worked out while drawing  up the  decree  keeping in view the order dated May 1, 1989  of this Court.