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CASE NO.: Appeal (civil)  3167-3168 of 2005

PETITIONER: Ramnath International Construction Pvt. Ltd

RESPONDENT: Union of India

DATE OF JUDGMENT: 11/12/2006

BENCH: H. K. SEMA & R. V. RAVEENDRAN

JUDGMENT: J U D G M E N T

H.K.SEMA,J.

              The validity and legality of the judgment dated  31.10.2002 of the Division Bench of the High Court of Madras in  OSA. No. 27/1995 and 25/1996 is assailed in these appeals.  

2.              The appellant was awarded two contracts  - the first for  construction of LRMR Aircraft Hangar and Airtech Hangar and  connected works; and the second for construction of roads and  allied works at NAS Arakonam. In respect of the two contracts,  hereinafter referred to as the Hangar Contract and Road  Contract, the tenders submitted by appellant were accepted on  10.10.1988 and 3/5.1.1989 respectively. The necessary  agreements were executed between the parties. Disputes arose  between the parties in respect of those contracts and the matter  was referred to Arbitration. The Arbitrator after examining the  oral and documentary evidence made his Awards dated  20.7.1993 and 5.3.1994. Applications were filed before the  learned Single Judge by the respondent herein for setting aside  the Awards. The learned Single Judge by orders dated 24.8.1994  and 22.9.1995 rejected the applications and in each case made a  rule of the court in terms of the award. Being aggrieved the  respondent filed OSA Nos. 27/1995 and 25/1996, which were  partly allowed by the Division Bench of the High Court. Hence,  the present appeals by the claimant contractor.  

3.              It may not be necessary for us to refer to the entire facts  leading to the filing of the present appeals as the substantial  question of law posed requires reference to limited facts. Suffice  it to say that awards of the learned Arbitrator related to claims  under several heads. The controversy in these appeals relate to  award in respect of item no. 24 in the Hangar contract and items  13 to 16 in respect of the road contract. The particulars thereof  are extracted below :  

Item No. Description of work Amount claimed Amount awarded

Hanger Contract

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24 Amount due on account of  escalation in materials and  labour  Rs.2,77,41,692 Rs.51,36,015/98

Road Contract

13 Loss of profit due to turnover  loss for staying beyond  contract period Rs.2,34,78,404

Rs.41,51,847/50 14. Additional compensation for  work done beyond original  contract period Rs.22,89,200

15 Loss of profit on balance  work due to termination of  contract Rs.26,00,000

16. Escalation payable for the  period 5.3.1992 to date of  termination Rs.3,50,000

4.        In regard to Hangar Contract, undisputedly, the contract  work had to be completed in two phases, the first phase by  31.10.1989 and the second phase by 30.4.1990.  However, the  contract work could not be completed within the stipulated  time, partly due to the default on the part of respondent.  It is  also undisputed that on the request of the contractor, the  employer gave several extensions \026 by a letter dated 28.2.1990  the period of completion of work was extended up to  30.6.1990; by a letter dated 10.5.1991 it was extended up to  31.5.1991; by a letter dated 27.8.1991 it was extended up to  30.9.1991; by a letter dated 23.1.1992 the time was extended  up to 15.4.1992;  by a letter dated 15.5.1992 it was extended  up to 28.5.1992 and by a letter dated 4.6.1992, it was further  extended up to 22.6.1992.  The contract was subsequently  terminated by the employer on 1.7.1992.  

5.     In respect of the road contract, the date of  commencement of work was 3.1.1989.  The due date of  completion was 2.11.1990 (21 months).  The employer granted  extensions from time to time on the request of the contractor  up to 31.5.1992.  Subsequently, the contract was terminated  by the employer on 14.7.1992.

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6.           The basis of the disputed claims is that the execution  of work was delayed on account of breaches on the part of the  employer and the employer is liable to compensate the  contractor for all losses and extra cost on account of such  delay and extended execution.    

7.            These claims were resisted by the employer on the  ground that the contractor himself was liable for delays; that  the employer had granted extension for the delays; and that  the contract prohibits the contractor from making any claim  for compensation or otherwise, howsoever, arising as a result  of extension of time granted in terms of the contract.  

8.                The Arbitrator held that where the work was  delayed on account of delays attributable to the employer,  grant of extension of time by the employer for completing of  work does not exonerate the employer from the liability to pay  damages for breach on account of the delay caused by the  employer unless the employer establishes that the contractor  has consented to accept the extension of time alone, in  satisfaction of his claims for the delay. The Arbitrator held that  in these two contracts, the employer was not released of his  liability for damages on account of the delays, by granting  extension of time. He, therefore, proceeded to quantify the loss  and awarded the amounts as aforesaid. The awards of the  Arbitrator on these items were affirmed by the learned Single  Judge by making the awards a rule of the court, by judgments  dated 24.8.1994 and 22.9.1995.  

9.             The Division Bench of the High Court after  considering the threadbare submissions on the question of law  arrived at a conclusion that the Arbitrator has exceeded its  jurisdiction in making an award towards claim no. 24 in the  Hangar Contract and an award towards claim nos. 13 to 16 in  the Road Contract, as they were made in derogation of clause  11(C) of the contract, which prohibited the contractor from  making any claim for compensation or otherwise, howsoever,  arising, as a result of extension of time granted under the  contract.  

10.              The core questions which arise for our consideration  are these :  

(a)     Whether claim no. 24 of Hangar Contract  and claim nos. 13 to 16 of road contract are  unsustainable being in derogation of clause  11(C) of the contract, which prohibits any  compensation as a result of extension of time  granted by the department?

(b)     Whether the Arbitrator committed a legal  misconduct for not acting in terms of clause  11(C) of the contract though pleaded and  submitted before him?  

Re : Question (i)  

11.     Section 11 of the General Conditions of Contract relates  to time, delay and extension. We extract below the portions of  section 11 relevant for our purpose:

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           "Section 11 : Time, Delay and Extension  

(A)     Time is of the essence of the contract and  is specified in the contract documents or in  each individual works order.   As soon as possible after contract is let or any  substantial work order is placed and before  work under it is begun, the G.E. and the  contractor shall agree upon the time and  progress chart. The chart shall be prepared in  direct relation to the time stated in the  contract documents or the works order for  completion of the individual items thereof  and/or the contract or works order as a whole.  It shall include the forecast of the dates for  commencement and completion of the various  trades processes or sections of the work, and  shall be amended as may be required by  agreement between the G.E. and the  contractor within the limitation of time  imposed in the contract documents or works  order. If the work be delayed :  

(i)     by force majeure, or  (ii)    by reason of abnormally bad weather, or  (iii)   by reason of serious loss or damage by  fire, or  (iv)    by reason of civil commotion, local  combination of workmen, strike or lockout,  affecting any of the trades employed on the  work, or (v)     by reason of delay on part of nominated  subcontractors, or nominated suppliers which  the contractor has, in the opinion of G.E.,  taken all practicable steps to avoid, or reduce,  or (vi)    by reason of delay on the part of  contractors or tradesmen engaged by  government in executing work not forming part  of the contract, or  (viii)  by reason of any other cause, which in  the absolute discretion of the accepting officer  is beyond the contractors control;  

then in any such case the officer herein after  mentioned may make fair and reasonable  extension in the completion dates of individual  items or groups of items of works for which  separate periods of completion are mentioned  in the contract documents or works order, as  applicable.                                                                 x x x x x

(B)     If the works be delayed :  

      (a)      by reason of non-availability of  government stores in schedule B or         (b)      by reason of non-availability or  breakdown of government tools and plant  listed in schedule C;

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then, in any such event, notwithstanding the  provisions hereinbefore contained, the  accepting officer may in his discretion, grant  such extension of time as may appear  reasonable to him and the same shall be  communicated to the contractor by the G.E. in  writing. The decision so communicated shall  be final and binding and the contractor shall  be bound to complete the works within such  extended time.  

(C)     No claim in respect of compensation or  otherwise, howsoever arising, as a result of  extensions granted under condition (A) and (B)  above shall be admitted."  

Clause (C) provides that where extensions have been granted  by reason of the delays enumerated in Clause (A) which were  beyond the control of the contractor, or on account of the  delays on the part of the employer specified in Clause (B), the  contractor is not entitled to make any claim either for  compensation or otherwise, arising in whatsoever manner, as  a result of such extensions. After enumerating certain delays,  sub-clause (viii) of Clause (A) specifically mentions delay on  account of any other cause beyond the control of the  contractor. The causes for delays specified in clause A, thus,   encompass all delays over which the contractor has no  control. This will necessarily include any delays attributable to  the employer or any delay for which both the employer and the  contractor are responsible. The contract thus provides that if  there is any delay, attributable either to the contractor or the  employer or to both, and the contractor seeks and obtains  extension of time for execution on that account, he will not be  entitled to claim compensation of any nature, on the ground of  such delay, in addition to the extension of time obtained by  him. Therefore, the claims for compensation as a consequence  of delays, that is claim 24 of Hangar Contract and claims 13 to  16 of Road Contract are barred by clause 11(C).  

12.     We are fortified in this view by several decision of this  Court. We may refer to two of them. In Associated Engineering  Co. vs. Government of Andhra Pradesh [1991 (4) SCC 93], this  Court was concerned with an appeal which related to similar  claims based on delays in execution. The High Court had held  (reported in AIR 1990 AP 294) thus :

Applying the principle of the above decision to  the facts of the case before us, it must be held  that clause 59 bars a claim for compensation  on account of any delays or hindrances caused  by the department. In such a case, the  contractor is entitled only to extension of the  period of contract. Indeed, such an extension  was asked for, and granted on more than one  occasion. (The penalty levied for completing  the work beyond the extended period of  contract has been waived in this case). The  contract was not avoided by the contractor,  but he chose to complete the work within the  extended time. In such a case, the claim for  compensation is clearly barred by clause 59 -of  the APDSS which is admittedly, a term of the  agreement between the parties.

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This Court noticed that the claims were set aside by the High  Court on the ground that those claims were not supported by  any agreement between the parties, and that the arbitrator  had travelled outside the contract in awarding those claims.  This Court held that the said claims were not payable under  the contract and  that the contract does not postulate, in fact  prohibits, payment of any escalation under those heads. It  affirmed the decision of the High Court setting aside the award  of those claims.

In Ch. Ramalinga Reddy vs. Superintending Engineer [1999 (9)  SCC 610], while considering the similar claim, this Court  observed thus :  

"Claim 8 was for ’payment of extra rates for  work done beyond agreement time at schedule  of rate prevailing at the time of execution’. The  arbitrator awarded the sum of Rs.39,540.  Clause 59 of the A.P. Standard Specifications,  which applied to the contract between the  parties, stated that no claim for compensation  on account of delays or hindrances to the work  from any cause would lie except as therein  defined. The claim falls outside the defined  exceptions. When extensions of time, were  granted to the appellant to complete the work,  the respondents made it clear that no claim for  compensation would lie. On both counts,  therefore, claim 8 was impermissible and the  High Court was right in so holding."

We, therefore, answer the first question in the affirmative.  

Re : Question (ii) :

13.     The arbitrator in his two speaking Awards recorded the  following finding regarding delay :   

"From the facts and evidence placed before me,  I find that the department cannot absolve itself  of partial breaches committed which are of  fundamental nature and had snow-ball effect.  The department alone is not fully responsible,  the contractor also has contributed to certain  delays." (in the Hangar Contract).

"The documents, the evidence and the  arguments clearly indicate that the delay for  completing has been a joint responsibility of  both the Department and Contractor" (in Road  Contract).  

Inspite of having held that both were responsible for the delay  and having noticed the arguments based on clause 11(C) of  the General Conditions of contract, the Arbitrator proceeded to  award damages on the ground of delay on the reasoning that  the contractor is entitled to compensation, unless the  employer establishes that the contractor has consented to  accept the extension of time alone in satisfaction of his claim

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for delay. As rightly held by the High Court, which decision we  have affirmed while considering questions no. (i), clause 11 (C)  of the General Conditions of Contract is a clear bar to any  claim for compensation for delays, in respect of which  extensions have been sought and obtained. Clause 11(C)  amounts to a specific consent by the contractor to accept  extension of time alone in satisfaction of his claims for delay  and not claim any compensation. In view of the clear bar  against award of damages on account of delay, the arbitrator  clearly exceeded his jurisdiction, in awarding damages,  ignoring clause 11(C). In Associated Engineering Co. (supra)  this Court held :

"The arbitrator cannot act arbitrarily,  irrationally, capriciously or independently of  the contract. His sole function is to arbitrate in  terms of the contract. He has no power apart  from what the parties have given him under  the contract. If he has travelled outside the  bounds of the contract, he has acted without  jurisdiction\005\005\005..."

        x x x x

A dispute as to the jurisdiction of the  arbitrator is not a dispute within the award,  but one which has to be decided outside the  award. An umpire or arbitrator cannot widen  his jurisdiction by deciding a question not  referred to him by the parties or by deciding a  question otherwise than in accordance with  the contract. He cannot say that he does not  care what the contract says. He is bound by it.  It must bear his decision. He cannot travel  outside its bounds. If he exceeded his  jurisdiction by so doing, his award would be  liable to be set aside\005\005 In the instant case,  the umpire decided matters strikingly outside  his jurisdiction. He outstepped the confines of  the contract. He wandered far outside the  designated area. He digressed far away from  the allotted task. His error arose not by  misreading or misconstruing or  misunderstanding the contract, but by acting  in excess of what was agreed. It was an error  going to the root of his jurisdiction because he  asked himself the wrong question, disregarded  the contract and awarded in excess of his  authority. In many respects, the award flew in  the face of the provisions of the contract to the  contrary."

In Rajasthan State Mines & Minerals Ltd. v. Eastern  Engineering Enterprises & Anr. [1999 (9) SCC 283], this Court  held thus :

"The rates agreed were firm, fixed and binding  irrespective of any fall or rise in the cost of the  work covered by the contract or for any other  reason or any ground whatsoever. It is  specifically agreed that the contractor will not  be entitled or justified in raising any claim or

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dispute because of increase in cost of expenses  on any ground whatsoever. By ignoring the  said terms, the arbitrator has travelled beyond  his jurisdiction as his existence depends upon  the agreement and his function is to act within  the limits of the said agreement. This  deliberate departure from the contract  amounts not only to manifest disregard of the  authority or misconduct on his part but it may  be tantamount to mala fide action\005\005\005\005\005.It  is settled law that the arbitrator is the creature  of the contract between the parties and hence  if he ignores the specific terms of the contract,  it would be a question of jurisdictional error  which would be corrected by the court and for  that limited purpose the agreement is required  to be considered\005\005\005. He cannot award an  amount which is ruled out or prohibited by the  terms of the agreement."

14.     In the view that we have taken the Arbitrator clearly  misconducted himself in awarding compensation under claim  no. 24 under Hangar Contract and claim nos. 13 to 16 under  the Road Contract which was rightly set aside by the High  Court in the order impugned herein, on the ground that the  Arbitrator had acted in excess of his jurisdiction.  

15.     There is no infirmity in the impugned order of the High   Court. These appeals being devoid of merits are, accordingly,  dismissed. Parties are asked to bear their own costs.