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PETITIONER: THE NEW INDIA CIVIL ERECTORS(P) LTD.

       Vs.

RESPONDENT: OIL & NATURAL GAS CORPORATION

DATE OF JUDGMENT:       17/02/1997

BENCH: B.P. JEEVAN REDDY, SUJATA V. MANOHAR

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      B.P. JEEVAN REDDY, J.      Leave granted. Heard Shri F.S. Nariman, learned counsel for the  appellant and  the learned Attorney General for the respondent-corporation.      A contract  was entered  into between the appellant and the Oil  & Natural Gas Corporation (O.N.G.C), whereunder the appellant undertook the construct 304 pre-fabricated housing units  at  Panvel,  Phase-I.  The  appellant  commenced  the construction  but  did  not  complete  it  even  within  the extended period.  The respondent  thereupon  terminated  the contract and  got the said work done through another agency. Disputes arose between parties in the above connection, each party raising  claims against the other, which were referred for decision  to two  arbitrators  (joint  Arbitrators).  By their award  dated 18th  June ,1991. the arbitrators decided that while  the O.N.G.C. shall pay to the appellant a sum of Rs. 1,09,04,789/-, the appellant shall pay to the O.N.G.C. a sum of  Rs.41,22,178/-. In the other words the appellant was held entitled  to a  net amount  of Rs.67,82,620/-  with the interest at  the rate of 18 per cent per annum from the date of award till the date of payment or till the date of decree whichever was  earlier.  While  the  appellant  applied  for making the  said award  a Rule of the Court, the respondent- corporation filed  objections seeking  to have the award set aside. The  learned Single Judge overruled the objections of the respondent-corporation  and made the award a Rule of the Court. Corporation appealed against the same, which has been partly allowed by the Division Bench.      The appellant had claimed various amounts under as many as  19   heads,  while  the  respondent-corporation  claimed certain amounts  under three heads. The arbitrators rejected the appellant‘s  claim under  heads 3,5,7,8,10,11,12 and 18. They awarded  various amounts  under the  other  heads,  the total of  which came  to Rs.1,09,04,789/-.  So  far  as  the respondent‘s claims  are concerned, the arbitrators rejected claim No.2  but accepted  claim No.1  (partly)  and  awarded various amounts totalling Rs. 41,22,178/-.      In the appeal before the Division Bench the respondent- corporation confined  its attack  only to claims 1,4,6,9 and

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13. The Division Bench rejected the respondent‘s contentions with respect  to claims  1 and  13 but  upheld the same with respect to  claims 4,6 and 9. Only the appellant has come to this Court  challenging the  Judgment of the Division Bench. We shall deal with these three claims in their proper order. Claim No.4:  Appellant‘s claim No.4 arises on account of the shortage of  cement in  the bags supplied by the respondent. The appellant‘s case was that the corporation had undertaken to supply  cement to  it in bags, each bag containing 50 kg. of cement,  but as  a matter  of fact,  the cement  actually found in the bags fabricated housing units at Panvel, Phase- I. The  appellant   commenced the  construction but  did not complete it  even within the extended period. The respondent thereupon terminated the contract and got the said work done through other  agency. Disputes arose between the parties in the above  connection, each party raising claims against the other,   which    was   referred   for   decision   to   two arbitrators(joint arbitrators).  By their  award dated  18th June, 1991,  the arbitrators decided that while the O.N.G.C. a sum  of Rs.41,22,178/-.  In other  words the appellant was held entitled  to a  net amount  of Rs.67,82,620/-  with the interest at  the rate of 18 per cent per annum from the date of award  till the  date of  payment or  till  the  date  of decree whichever  was earlier.  While the  appellant applied for  making  the  said  award  a  Rule  of  the  court,  the respondent-corporation filed  objections seeking to have the award set  aside. The  learned Single  Judge  overruled  the objections of  the respondent-corporation and made the award a Rule  of the Court. Corporation appealed against the same, which have been partly allowed by the Division Bench.      The appellant had claimed various amounts under as many as  19   heads,  while  the  respondent-corporation  claimed certain amounts  under three heads. The arbitrators rejected the appellant‘s  claim under  heads 3,5,7,8,10,11,12 and 18. They awarded  various amounts  under the  other  heads,  the total of  which   came to  Rs.1,09,04,789/-. So  far as  the respondent‘s claims  are concerned, the arbitrators rejected claim No.2  but accepted  claim No.1 (partly) and claim No.3 (partly)   and    awarded    various    amounts    totalling Rs.41,22,178/-.      In the appeal before the Division Bench the respondent- corporation confined  its attack  only to claims 1,4,6,9 and 13. The Division Bench rejected the respondent‘s contentions with respect  to claims  1 and  13 but  upheld the same with respect to  claims 4,6 and 9. Only the appellant has come to this Court  challenging the  Judgment of the Division Bench. We shall deal with these three claims in their proper order.      Claim No.  4| Appellant‘s  claim NO.4 arises on account of the  shortage of   cement  in the  bags supplied  by  the respondent. The  appellant‘s case  was that  the corporation had undertaken  to supply  cement to  it in  bags, each  bag containing 50  kg. of  cement, but  a matter  of  fact,  the cement actually  found in  the bags  was less. The appellant complained of  the same  to the  officers of the corporation from time  to time  and a record of the shortages has indeed been kept  by the  parties. On  this  count,  the  appellant claimed  a   sum  of  Rs.3,96,984.50p.,  against  which  the arbitrators awarded  an amount  of Rs.3,70,221.50 paise. The defence  of  the  corporation  was  that  according  to  the stipulation contained  in Schedule - A to the Tender notice, the corporation  was   not to  be held  responsible for  any variation in  the weight  of the cement in the bags supplied by them. The relevant stipulation read as follows |      "Ordinary port-land      construction cement M.T. 830/- Ex

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    commission‘s Godown, Greater      Bombay.      NOTE|- 20  (Twenty  bags)  bags  if      cement shall  mean one metric tonne      for   the   purpose   of   recovery      irrespective   of    variation   in      standard weight of cement filled in      bags."      The appellant‘s  case, however,  was  that  though  the Schedule to  the  Tender    notice  did  contain  the  above stipulation, the  appellant had,  in its  letter  dated  5th March, 1984,  which was  in the  nature of  a counter-offer, clearly stipulated  that "ordinary portland cement", Rs 8.30 per metric  tonne,[each 50 kg. bag]" will be supplied by the corporation "at  site", The  appellant had stipulated in the said letter that the terms set out by it therein "shall take precedence over.....  tender conditions".  It is pointed out by Shri  Nariman that  the said  letter forms  part  of  the contract between  the parties  and that  indeed it  is  this letter which  contains the arbitration clause whereunder the disputes between the parties adjudicated by the arbitrators. It is further submitted by the learned counsel that in their acceptance letter  dated 10th January, 1985, the respondent- corporation merely  stated that  the cement will be supplied only at Bombay and not at the site, but did not say anything with respect  to the  stipulation in  the appellant‘s letter dated 5th March 1984 (counter-offer) that each bag of cement supplied to it shall contain 50.kg of cement.      The Division Bench has not referred to the letter dated 5th  March,  1984  nor  the  acceptance  letter  dated  10th January, 1985,  but has  rejected the appellant’s claim only and exclusively  with reference  to the  stipulation in  the schedule to the Tender notice. Mr. F.S. Nariman submits that the  Division  Bench  was  in  error  in  holding  that  the arbitrators exceeded  their authority  in awarding  the said amount. According  to him,  the arbitrators merely construed the relevant stipulation as contained in the schedule to the Tender notice  read with  the appellant‘s  letter dated  5th March, 1984 (counter offer) and the corporation’s acceptance letter dated  10th January,  1985 - which they were entitled to do.  It is  submitted that  since the  award  is  a  non- speaking award [though it has awarded separate amounts under each head  of claim]  no interference  is permissible on the ground that  the arbitrators  have misconstrued the terms of the agreement.  On the  other hand,  the learned    Attorney General submitted  that the  modified or  qualified  in  any manner by  the appellant’s  letter dated 10th January, 1985, and, therefore,  the Division  Bench was  right in rejecting this claim  as  prohibited  by  the  agreement  between  the parties. We are of the opinion that it appears to be border- line case.  It is  possible to  take either view. It must be remembered that in this case there is no formal contract and the terms  of the  agreement have  to be  inferred  from the Tender notice  and the  correspondence between  the parties. Since the  attempt of  the Court should always be to support the award  within the  letter of  law, we  are  inclined  to uphold the award on this count [claim No.4]. Accordingly, we reverse the  judgment of  the Division  Bench to  the  above extent. The  amount awarded  by the  arbitrators under  this claim is affirmed.      Claim No.6:  The claim of the appellant under this head is  in   a  sum   of  Rs.53,11,735.60p,  against  which  the Arbitrators have  awarded an  amount of Rs. 49,91,327/-. The dispute  between   the  parties   is  with  respect  to  the method/mode of  measuring the  constructed area. The case of

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the respondent  is that  according to the tender conditions, as well  as clause  (10) of  the aforesaid  letter dated 5th March, 1984  (written by  the appellant to the corporation), the area  covered by balconies is liable to be excluded from the  measurements.   We  may  refer  to  clause(10)  of  the appellant’s own  letter dated 5th March, 1984 which reads as follows:      "Mode  of   measurement|-  We  have      based our price on the total build-      up area  of one  floor [four flats]      including  stair-case   and  common      corridor  but  excluding  balconies      only. Hence work should be measured      on  the  build-up  area,  excluding      balcony areas."      The tender condition is to the same      effect.      The above  stipulation clearly says that total build up area of a floor shall include stair case and common corridor but shall  exclude balconies.  It  expressly  provides  that "work should  be measured  on the  build-up area   excluding balcony area".  It is  undisputed that  in the  plan of  the flats  attached   to  the   Tender  notice,  balconies  were provided. Shri  Nariman contended  that the  said plans were modified later  and that  the flats  as finally constructed, did not  have any  balconies  and,  hence,  no  question  of excluding the  balconies area  can arise. Shri Nariman could not, however,  bring to  our notice any agreed or sanctioned plan modifying  the plan  attached to the Tender notice. The appellant  could   not  have  constructed  flats  except  in accordance with  the plans  attached  to  the Tender notice, unless of course there was a later mutually agreed  modified plan - and there is none in this case. We cannot, therefore, entertain the  contention at  this stage  that there  are no balconies  at   all  in  the  flats  constructed  and  that, therefore, the  aforesaid stipulation  has no  relevance. We must proceed  on the  assumption that  the plans attached to the Tender notice are the agreed plans and that construction has been made according to them and that in the light of the agreed stipulation  referred to  above, the areas covered by balconies should  be excluded. In this view of the matter we agree with  the Division  Bench that  the arbitrators  over- stepped  their   authority  by  including  in  area  of  the balconies in  the measurement  of the  build-up area.  It is axiomatic that  the  arbitrator  being  a  creature  of  the agreement, must  operate within  the  four  corners  of  the agreement and cannot travel beyond it. More particularly, he cannot award  any amount which is ruled out or prohibited by the terms  of the  agreement. In  this case,  the  agreement between the  parties clearly  says  that  in  measuring  the build-up area,  the balcony  area should  be  excluded.  The arbitrators could  not  have  acted  contrary  to  the  said stipulation and  awarded  any  awarded  any  amount  to  the appellant on the account. We, therefore, affirm the decision of the Division Bench on this score [Claim No.6]      Claim  No.9:   The  appellant   claimed  an  amount  of Rs.32,21,099.89p.  Under   this  head,   against  which  the arbitrators have  awarded a sum of Rs.16,31,425/-. The above claim was  made on  account of  escalation in  the  cost  of construction during  the period  subsequent to the expiry of the original  contract period. The appellant’s claim on this account was  resisted  by  the  respondent-corporation  with reference to  and on  the basis  of the  stipulation in  the corporations’ acceptance  letters dated  10th January,  1985 which stated  clearly that  "the above  price is firm and is

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not subject  to any  escalation under whatsoever ground till the completion of the work". The Division Bench held, and in our opinion  rightly, that  in the  face of the said express stipulation between  the parties,  the appellant  could  not have claimed any amount on account of escalation in the cost of construction carried on by him the expiry of the original contract period.  The aforesaid stipulation provides clearly that there  shall be  no escalation on any ground whatsoever and the said prohibition is effective till the completion of the work.  The learned arbitrators, could not therefore have awarded any  amount on  the ground  that the  appellant must have incurred extra expense in carrying out the construction after the  expiry  of  the  original  contract  period.  The aforesaid stipulation  between the  parties is  binding upon them both  and the  arbitrators. We  are of the opinion that the learned  single Judge  was not right in holding that the said prohibition  is  confirmed  to  the  original  contract period and  does not operate thereafter. Merely, because the time was  made the  essence of the contract and the work was completed within  15 months,  it does  not follow  that  the aforesaid stipulation was confirmed to the original contract period this  is not a case of the arbitrators construing the agreement. It  is a  clear case  of the  arbitrators  acting contrary  to  the  stipulation/condition  contained  in  the agreement between  the parties.  We  therefore,  affirm  the decision of  the Division Bench on this Count as well [claim No.9].      So far  as the  position of  the law  on the subject is concerned, there  is hardly any dispute between the parties. It is sufficient to refer to the well considered decision of this Court  in Sudarshan  Trading Company  V. Government  of Kerala [A.I.R.[1989]  S.C. 890],  within it  has been held | ".....  if   the  parties   set  limits  to  action  by  the arbitrator, then the arbitrator had to follow the limits set for him  and  the  court  can  find  that  he  exceeded  his jurisdiction on  proof  of  such  excess.....  Therefore  it appears to  us that  there are  two different  and  distinct grounds involved  in many  of the  cases. One  is the  error apparent on  the face  of the  award, and  the other is that arbitrator exceeded  his jurisdiction.  In the  latter case, the courts  can look  into the  arbitration agreement but in the former, it cannot, unless the agreement was incorporated or recited in the award".      For the  above reasons,  the appeal is allowed in part, i.e.,  to   the  extent   of  claim  No.  4  (in  a  sum  of Rs.3,70,221.50p.).  In   other  respects,   the  appeal   is dismissed. There shall be no order as to costs.