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The Chief Administrator, Dandakaranya Project, Koraput, Orissa and anr. Vs. Prabartak Commercial Corporation Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. (First) Appeal Nos. 146 of 1969 and 174 of 1970
Judge
Reported inAIR1975MP152
ActsArbitration Act, 1940 - Sections 2, 13, 17, 20, 39 and 39(1)
AppellantThe Chief Administrator, Dandakaranya Project, Koraput, Orissa and anr.
RespondentPrabartak Commercial Corporation Ltd.
Appellant AdvocateM.V. Tamaskar, Govt. Adv.
Respondent AdvocateR.K. Pandey, Adv.
Cases ReferredBhopal v. Pannalal Devchand Malviya
Excerpt:
- - if required, for this we have very clearly mentioned that what we accepted for the reaches 183/4 to 191/0 and 196/0 to 198/2 was on very special consideration and was for the particular reaches and was not definitely a general acceptance for all the reaches. further, it is clearly stated in the additional conditions attached to the agreement that the contractor should inspect the quarries before tendering. though the department could as well insist on you to supply only granite chips, you were however permitted to supply other than granite chips but payment can be made only for the type and quality of chips to be supplied and the actual lead involved as per clause 13-a of the agreement. the award was bad on the face of it for two reasons. secondly, the arbitrator clearly acted.....a.p. sen, j. 1. this judgment shall also govern the disposal of miscellaneous (first) appeal no. 174 of 1970 (the chief administrator, dandakaranya project v. m/s. prabartak commercial corporation ltd.). this appeal under section 39(1)(vi) of the arbitration act, 1940, is directed against an order of the additional district judge, jagdalpur, dated 25-7-1969 remitting the award of shri s. d. jha, advocate, jagdalpur, dated 16-12-1968 for reconsideration on certain issues, and the connected appeal is directed against the preliminary decree drawn by the district judge, jagdalpur, dated 2-7-1970 in conformity with the awards. 2. the facts, in brief, are as follows:-- the respondent, which is a firm of contractors, entered into a contract with the appellants, for the collection and supply of.....
Judgment:

A.P. Sen, J.

1. This judgment shall also govern the disposal of Miscellaneous (First) Appeal No. 174 of 1970 (The Chief Administrator, Dandakaranya Project v. M/s. Prabartak Commercial Corporation Ltd.).

This appeal under Section 39(1)(vi) of the Arbitration Act, 1940, is directed against an order of the Additional District Judge, Jagdalpur, dated 25-7-1969 remitting the award of Shri S. D. Jha, Advocate, Jagdalpur, dated 16-12-1968 for reconsideration on certain issues, and the connected appeal is directed against the preliminary decree drawn by the District Judge, Jagdalpur, dated 2-7-1970 in conformity with the awards.

2. The facts, in brief, are as follows:-- The respondent, which is a firm of contractors, entered into a contract with the appellants, for the collection and supply of 'hard granite chips', for the construction of NH/43, at four reaches, namely, (a) Mile 154/0 to Mile 166/0, (b) Mile 166/0 to Mile 179/4, (c) Mile 183/4 to Mile 191/0 and (d) Mile 196/0 to Mile 198/0. The respondent, however, experienced difficulty in supplying 'hard granite chips'. That was because the metal quarried was not of superior quality. The question of substituting 'hard stone chips' for ''hard granite chips' was, therefore, negotiated and the Superintending Engineer permitted the respondent in terms of Clause 13-A of the agreement, to deviate from the term of the contract and supply, instead, 'hard stone chips' at the following reaches, viz., (a) 166/0 to 179/4, (b) 183/4 to 191/0, and (c) 196/0 to 198/2. He held that the respondent would be entitled to payment for the substituted material according to the Schedule of Rates of the Dandakaranya Project, i.e., for 'hard stone chips' (other than granite), which was inclusive of carriage to site of work and stacking, complete.

3. The respondent unequivocally accepted payment with respect to two out of the three reaches, viz., 1,83/4 to 191/0 and 196/0 to 19.8/2, without any reservation whatever. That had to be so because it could no,t obviously claim payment for 'hard granite chips', when actually it supplied 'hard stone chips', which was altogether a different class of material. The rate quoted by the respondent for the supply of 'hard granite chips' was almost the double of the rate quoted in respect of 'hard stone chips'.

4. While making supply to reach 166/0 to 179/4, the respondent, however, claimed that payment for lead should be made according to the terms of the contract. This was contrary to the decision of the Superintending Engineer, conveyed by the Executive Engineer vide his letter No. 721/G-8 dated 4-2-1964 to the effect:--

'The rate for collection of stone materials not covered in your agreement will be paid at DNK Schedule of Rates... ......... The rate for carnage of such materials will be paid for actual lead ofcarriage of such materials at DNK Schedule of Rates less the percentage abatement of your tender.'

The principle on which the payment was to be made for the substituted material was the same in case of all the three reaches.

5. The respondent, by its letter dated 19-4-1962, asserted--

'We accepted payment on actual lead for supply of stone materials in the reach 183/4 to 191/0 and 196/0 to 198/2 and, therefore, we are to accept the same principle for the other reaches also. If required, for this we have very clearly mentioned that what we accepted for the reaches 183/4 to 191/0 and 196/0 to 198/2 was on very special consideration and was for the particular reaches and was not definitely a general acceptance for all the reaches.'

The correspondence nowhere discloses what these very special considerations were.

6. The Superintending Engineer held that the rate quoted by the plaintiff for the reach in Mile 166/0 to Mile 179/4 had to be rejected, for the reasons--

'Since the class of material substituted, i.e. hard stone_is in the agreement, the contractor _is eligible only for theextra cost involved in breaking hard stone metal into hard stone chips.'

The respondent received payment for the material supplied, i.e. 'hard stone chips', in accordance therewith, as per clause 13-A of the contract

7. Thereafter, the respondent, by notice dated 6-9-1962, tried to raise a dispute with respect to lead, and claimed that the dispute be referred to arbitration In response to that notice, the Union of India, by its reply dated 30-11-1962, rejected the prayer, stating--

'In the agreement, there is no specific stipulation of the quarries from where the material has to be brought but your rates quoted are for collection and supply of hard granite chips including carriage to site of work and stacking complete, which indicates that you have to bring granite chips only whatever the lead may be.

Further, it is clearly stated in the additional conditions attached to the agreement that the contractor should inspect the quarries before tendering. As such, it is clear that you are fully aware of the quality of material available at the quarries and the leads involved thereon and quoted the rates accordingly taking into consideration the lead involved for collecting granite chips. But, however, as you were not able to supply the granite chips and your work was held up, you were permitted to collect hard stonechips other than granite to expedite the work for which payments have to be made under clause i3-A of the agreement. As the agreement rates were based on the lead for hard granite stone, which is more, it is not understood as to how the same leads can be paid for other than granite also.

Though the Department could as well insist on you to supply only granite chips, you were however permitted to supply other than granite chips but payment can be made only for the type and quality of chips to be supplied and the actual lead involved as per clause 13-A of the agreement.

As regards your request for referring the case of fixation of rates for arbitration, the Superintending Engineer is the final authority regarding the fixation of rates under Clause 13-A of the agreement, and, as such, this is not a case for reference to arbitration.'

8. On 7-10-1966, the respondent made an application to the Court under Section 20 of the Arbitration Act. The entire dispute, which the respondent wanted to be referred, was only with respect to the lead. That would be clear from the following averments:--

'In accordance with Clause 13-A of the agreement, your petitioner demanded that for the entire supply of hard stone for the reach 166/0 to 179/4, the opposite parties should pay the rate for hard stone instead of granite (plus or minus as the case may be) as per DNK Schedule of Rates, both in respect of class of materials and lead.

Clause 13-A of the agreement unequivocally provided that in the aforesaid contingency, your petitioners shall be paid for such class of substituted materials at the rate mentioned in the DNK Schedule, both in respect of the class of materials and lead element.

That accordingly your petitioners claim that for reaches 183/4 to 191/0 and 196/0 to 198/2 as hard stone chips of those specifications were supplied, in making payment, the opposite party shall find out the prices of the respective metals from the DNK Schedule of Rates and make additions or subtractions accordingly, and also must consider the extra or less lead whatsoever the case may be as per the DNK Schedule of Rates.'

9. In answer to the applicationof the respondent, praying that the agreement be filed and a reference be made to arbitration, the appellants pleaded that the matter could not, in law, be referred to arbitration. Their case was that the decision of the SuperintendingEngineer, rejecting the respondent's claim, was final in terms of Clause 13-A. In other words, the appellants raised a plea that the matter was outside the scope of the arbitration clause, i.e. Clause 14. That objection of theirs was, however, rejected by the Additional District Judge on 6-11-1965. By order dated 16-9-1966, the learned Additional District Judge appointed Shri S. D. Jha, Advocate, jagdalpur, to be the sole arbitrator.

10. The arbitrator entered upon the reference, and on 16-12-1968. rendered an award, by which he allowed the claim of the respondent. The award was bad on the face of it for two reasons. First of all, there was an error apparent on the face of the award. Secondly, the arbitrator clearly acted beyond the scope of reference, and thereby assumed powers which he did not possess, which was tantamount to legal misconduct on his part.

11. In making the award, the arbitrator directed--

'The petitioner supplied hard stone in place of granite of different sizes. The petitioner be paid quoted rate as per agreement for the respective sizes minus the difference between granite rate and hard stone rate for the respective size as per CSR. The decision is based on the theory adopted by Addl. Chief Engineer, CPWD, New Delhi, in another identical case'.

With respect to the other three items of claim, viz., (i) Rejection of 18692 Cft. of hard stone, (ii) Quarry site payment of 21877 Cft. of the material and (iii) Cost of bolders collected at Karanji, the arbitrator came to conclusions, and prescribed the mode of calculations, contrary to the decision of the Superintending Engineer under Clause 13-A.

12. The appellants filed an application under Section 33 of the Arbitration Act, on 17-1-1969, stating--

'That on perusal of the award, non-applicants find that learned Arbitrator has misconducted within the meaning of the Act. On certain matters, the award is imperfect and there are obvious errors and beyond his jurisdiction and even beyond the scope of arbitration.

There is definite clause 13-A in the agreement which specifies the procedure to be followed in case of any alterations/ omissions from the additions to or substitutions for the original specifications, drawings, designs and instructions and the rates to be adopted for these alterations, substitutions, are to be derived as per clause 13-A of the agreement.

Of course, the learned Arbitrator has decided correctly the rates under itemNo. 2 for the reaches from Mile 183/4 to 191/0 and Mile 19.6/0 to 198/2, but he has departed from this procedure in claim No. 1, that is from Mile 166/0 to 179/4. As per clauses of the agreement, the same method is to be followed for all the reaches, as they pertain to the same agreement. The learned Arbitrator has followed his own way in utter disregard to the clauses (sic) the agreement- As such, the learned arbitrator has followed his own way in utter disregard to the clauses (torn) the agreement. As such, the learned arbitrator is guilty and of legal misconduct. He has also been swayed away by the opinions of the other authorities, which are quite irrelevant and beyond the scope of this agreement. As such, it is prayed that the award may be set aside.'

13. While dealing with the objections, the Additional District Judge, in his order dated 25-7-1967, states--

'Both the parties argued at great length on the main objections, i.e. regarding paras 1, 3, 4 and 8 of the award. The plaintiff's objections are regarding paras 3, 4 and 8, objections of the opposite party are regarding paras 1 and 8 of the award.'

Then, without disclosing any reasons for upholding the award with respect to the rate of payment, observes--

'In so far as para. 1 of the award is concerned, the learned Arbitrator has given a very clear and definite finding and, therefore, none of the eventualities enumerated above arises in that case and, therefore, the award cannot be remitted on that ground.'

To say the least, the order is extremely laconic.

14. In dealing with the other three items of claim, set out above, the Additional District Judge purported to remit the award stating that the award was vague and indefinite.

15. In compliance with that direction, the arbitrator submitted his remitted award on 30-9-1969,

16. Thereupon, the appellants filed another application under Section 33 of the Arbitration Act on 29-10-69. In that application, they prayed that the awards be set aside on the grounds, inter alia, that--

'In the award dated 16-12-1968, the learned arbitrator had awarded payment for the chips at the CSR. There was no objection by the plaintiff regarding rate of payment. In awarding now a different rate, specially when the arbitrator did not intimate to the defendant of altering the rate of payment amounts to an act of misconduct. There is an apparent error of law on the face of the record.

The learned Arbitrator in the previous award dated 16-12-68 had given finding that out of quarry site collection 21877 cft., of chips 6371 cft. had been carted to road side and the balance 15506 cft. was not approved. The question for reconsideration was whether the quantity of 15506 cft. was justly disapproved? If not properly disapproved, the decision for payment of 15506 cft. was to be given. The learned arbitrator exceeded his power of authority and the award in excess of the power is liable to be set aside.

The learned arbitrator erred in deciding the rate of the materials at the quarry site on the basis of the tender. The materials collected at the quarry site had no bearing with the tendered rate. The payment could be made under clause 13-A of contract deed, i.e., if the rate could not be agreed, the payment should have been ordered on the CSR. The learned Arbitrator erred in law in not properly interpreting the clause 13-A of the contract deed.

The learned Arbitrator has based the quantity of boulders in Karanji quarry on his own surmise against no evidence led by the plaintiff. The plaintiff stated before the arbitrator when the matter was under reconsideration that he has got papers or accounts to prove the breaking charges at the head office in Calcutta. The plaintiff's prayer for grant of time was rejected and the arbitrator based his award on surmise. The arbitrator has acted in most unjudicial manner. To find out the correct statement of expenses required for breaking stones into boulders, the matter should be again referred back to the arbitrator or his award should be set aside altogether.'

17. The Additional District Judge, by order dated 7-11-1969, refused to enter into the aforesaid objections on the hypothesis that the objections were substantially the same as before, and, therefore, held that they could not be 'reagitated'. Upon that basis, he directed that a decree be drawn, in terms of both the awards. Meanwhile, the Additional District Judge, having been transferred, the matter came before the District Judge and, since the awards were not for all ascertained sums, he directed, by his order dated 24-6-1970, that a preliminary decree be drawn.

18. The respondents raised preliminary objections to the maintainability of the appeals, namely--

(i) The order of the Additional District Judge dated 16-12-1968, remitting a part of the award and confirming the rest of it, does not amount to 'an order setting aside or refusing to set aside the award' within the contemplation of Section 39(1)(vi) of the Act and, conse-quently, Misc. (F) Appeal No. 146 of 1969is not tenable;

(ii) No appeal lies against the preliminary decree because it is in conformity with the awards, by reason of Section 17 of the Act. Miscellaneous (F) Appeal No. 174 of 1970 is, therefore, not tenable.

19. The preliminary objection with respect to Miscellaneous (F) Appeal No. 146 of 1960 cannot be upheld, but that as regards Miscellaneous (F) Appeal No. 170 of 1970 must be sustained.

20. In support of the first objection, reliance is placed on Zaralbibi v. Shamsuddin Khan, AIR 1946 Sind 141; Vengu Ayyar v. Yegyam Ayyar, AIR 1951 Mad 414; R. T. Perumal v. John Deavin, AIR 1960 Mad 43 and Mehta Teja Singh and Co. v. Fertilizer Corporation of India, AIR 1968 Delhi 188. In support of the second, the decisions referred to are Sheoramprasad v. Gopal, AIR 1959 Madh Pra 102; Beniprasad S. Dixit (Firm) v. Krishna Murari, 1961 MPLJ (N) 258 and Union of India v. Krishna Rao, 1969 MPLJ 834 = (AIR 1970 Madh Pra 49).

21. The principles are not in doubt, and the question really is about their applicability. In AIR 1946 Sind 141 (supra), the view taken was that an order remitting the award was not a case decided within the meaning of Section 115 of the Code of Civil Procedure, and, therefore, no revision lies. In dealing with the question, it was observed that such an order, being of an interlocutory nature, may be a ground of an appeal against the final order under Section 30, setting aside or refusing to set aside the award. That is to say, the order could only be challenged in an appeal under Section 39(1)(vi) of the Act. The preliminary objection to the maintainability of the revision was, accordingly, upheld. To the same effect is the decision in AIR 1951 Mad 414 (supra). The decision in R. T. Perumal v. John Deavin, AIR 1960 Mad 43 (supra), proceeded on a concession at the bar that there was no right of appeal against the order of the Court remitting the award to the arbitrator.

22. In our opinion, the decision in Jayantilal v. Surendra, AIR 1956 Nag 245 really concludes the matter. In dealing with the question, R. Kaushalendra Rao, J. observed--

'The contention of the learned counsel for the respondent would have been well founded had the award in its entirety been remitted by the learned Judge for reconsideration. But the contention loses its force when, as in the instant case, the award is accepted in part and is remitted for reconsideration for the remaining part...............

When an award is accepted on certain points and is remitted for reconsideration only on the remaining points, then, in our opinion, the order would amount to a refusal to set aside an award on the points the award is accepted and, as such, will be appealable. The term 'setting aside or refusing to set aside' occurring in Section 39(1)(vi) of the Act, in our opinion, will include setting aside or refusing to set aside an award in part as well.

Where the Court accepts the award in part and in effect the Court refuses to set aside the award in its entirety which according to the contention of the appellant the Court should have done, the appeal is covered by Section 39(1)(vi).' That view has throughout been followed in this Court, and we see no reason to take a different view in this case.

23. No doubt, the decision in AIR 1968 Delhi 188 (supra), supports the respondent. In that case, Dua J. stated--

'Looking at the scheme of the Act, we are also inclined to think that Section 16 of the Act dealing with the power of the Court to remit the award, should be construed independently and the remission of the award or any matter contemplated by this section is not intended to include within its fold setting aside of the award or a part of it as contemplated by Section 30, which is apparently an exhaustive provision specifically dealing with setting aside of the award. We are also aware of a decision of the Supreme Court in B. S. Madhava and Co. v. Kapila Textile Mills Ltd., Civil Appeal No. 1094 of 1963 decided by Subba Rao, J. (as he then was) and J. C. Shah, J., on 9-9-1964 (SC) in which it was observed that an order under Section 16(1)(c) of the Act refusing to remit an award to the arbitrators or the umpire is not appealable under the Act. Now, if refusing to remit an award cannot be construed as a refusal to set aside an award and, therefore, not appealable, the remission of an award or any matter would also seem to us, on parity of reasoning, not to amount to setting aside the award or a part of it......'

With due respect, we prefer to differ. It appears that the decision in AIR 1956 Nag 245 (supra) was not brought to the notice of the learned Judge.

24. We have not before us the full text of the judgment of their Lordships in Civil Appeal No. 1094 of 1963, D/- 9-9-1964 (SC). But, from the passage quoted above, it seems that their Lordships were dealing with a case, where there was an order under Section 16(1)(c) of the Act refusing to remit the award. We do not see, how, by parity of reasoning, the converse must necessarily follow. For the same reason, we find some difficulty in accepting the recent decision ofTrivedi, J., in State v. Reshma Devi, AIR 1974 All 257.

25. In view of the decision of this Court in AIR 1956 Nag 245 (supra), the preliminary objection to the maintainability of Misc. (F) Appeal No. 146 of 1969 has to be rejected. Even if the contrary view be correct, the contention does not arise. Indeed, in the present case, the appellants, in their application dated 17-1-1969, specifically raised objections under Section 30 of the Act for setting aside the award. That application of theirs was rejected by the Additional District Judge by his order dated 25-7-1967. That being so, the appeal clearly lay under' Section 39(1)(vi) of the Act. Miscellaneous (F) Appeal No. 146 of 1969 must, therefore, be held to be maintainable.

26. It is not suggested that the preliminary decree was in excess of, or not otherwise in ' accordance with the awards. In view of the clear Language of Section 17 of the Act, Miscellaneous (F) Appeal No. 174 of 1970 must, however, be as it ought to be, dismissed.

27. Realising the difficulty, the appellants, during the course of the hearing, moved an application to the effect that the appeal should be treated as one under Section 39(1)(vi), as it was also directed against the order. It is stated that the appeal was stamped as such, and it was accompanied by a certified copy of the order. To say the least, the application is an afterthought, and wholly lacking in bona fides. If the appeal were treated as an appeal against the order of the Additional District Judge dated 7-11-1969, it was barred by 242 days. It is strange that the appellants shoud have filed an appeal against the preliminary decree, when no such appeal lay and with full knowledge that the appeal under Section 39(1)(vi) of the Act was barred by limitation. The act of enclosing a certified copy of the order was a mere contrivance to defeat the bar of limitation. The application for amendment of the memorandum of appeal cannot, therefore, be allowed.

28. The decision in 1969 MPLJ 834 = (AIR 1970 Madh Pra 49) (supra) is distinguishable. There, the Court was dealing with a composite order, by which it refused to set aside the award, after rejecting objections under Section 30, and directed that a decree be drawn in terms of the award. The matter, therefore, squarely fell within the four-corners of Section 39(1)(vi). That is not the case here. Nothing prevented the appellants from filing an appeal under Section 39(1)(vi) against the order of the Additional District Judge dated 7-11-1969, but theyhave allowed that remedy to lapse. When the remedy was lost, they preferred an appeal against the preliminary decree, though such an appeal was expressly barred by Section 17 of the Act. In view of the section, Miscellaneous (F) Appeal No. 174 of 1970 is dismissed as not tenable.

29. The question, in substance, is whether in view of Clause 13-A, there could be any 'dispute' which could be remitted to arbitration under Clause 14. That is to say, the question is, whether the finality which is otherwise attached to the decision of the Superintending Engineer in respect to any of the matters referred to in Clause 13-A, could be avoided by the operation of the arbitration clause, Clause 14.

30. The contract was in a printedform, and contained the usual terms to be found in a Central P.W.D. Works or building contract. It is not necessary for our judgment to go into minute details. It would be sufficient if we refer only to its salient features. Clause 5 provides for the giving of a notice to the Engineer-in-charge by the contractor of his intention of making delivery of materials, and for the issue of a receipt by the Engineer-in-charge to the contractor, on the materials being approved. Without such approval by the Engineer-in-charge, no materials were to be considered as delivered. Clause 6 provides that on the completion of the delivery of materials, the contractor was to be furnished with a certificate by the Engineer-in-charge, but the delivery was not to be considered as complete, until the contractor removed all rejected materials, and had the approved material stacked or placed in such positions, as might be pointed out to him. Clause 8 further provides that the materials supplied should be of the best description, and in strict accordance with the specifications, and that the contractor would be entitled to payment for such materials only as were approved or passed by the Engineer-in-charge. Then appear the two material clauses.

31. Clause 13-A of the agreement, reads--

'Clause 13-A: The Engineer-in-charge shall have power to make any alterations in, omissions from, additions to, or substitutions for, the original specifications, drawings, designs and instructions, that may appear to him to be necessary or advisable during the course of supply of the materials and the contractor shall be bound to supply the materials in accordance with any instructions which may be given to him in writing signed by the Engineer-in-charge, and such alterations, omissions, additions or substitutions shall not invalidate the contract;and any altered, additional or substituted materials which the contractor may be directed to supply in the manner above specified as part of the work shall be supplied by the contractor on the same conditions in all respect on which he agreed to do the main work, and at the same rates as are specified in the tender for the main work. The time for the completion of the supply shall be extended in the proportion that the altered, additional or substituted quantity of materials bears to the original quantity and the certificate of the Engineer-in-charge shall be conclusive as to such proportion. And if the altered, additional or substituted materials include any class of materials, for which no rate is specified in this contract, then such class of materials shall be supplied at the rates entered in the schedule of rates of the D. N. K. Project on which the estimated cost shown on page 2 of the tender is based; and if such class of materials are not entered in the said schedule of rates, then the contractor shall within seven days of the date of his receipt of the order to supply the materials inform the Engineer-in-charge of the rate which it is his intention to charge for such class of materials, and if the Engineer-in-charge does not agree to this rate, he shall, by notice in writing be at liberty to cancel his order to supply thereof in such manner as he may consider advisable, provided always that if the contractor shall commence supply or incur any expenditure in regard thereto before the rates shall have been determined as lastly hereinbefore mentioned, then in such case, he shall only be entitled to be paid in respect of the supply made or expenditure incurred by him prior to the date of the determination of the rate as aforesaid according to such rate or rates as shall be fixed by the Engineer-in-charge. In the event of a dispute the decision of the Superintending Engineer of the circle shall be final.'

32. Clause 14, which is the arbitration clause, provides--

'Clause 14.-- Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship, or materials used on the work, or as to any other question, claim, right, matter or thing whatsoever, in any way arising out of, or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions, or otherwise concerning the work, or the execution, or failure to execute the same, whether arising during the progress of the work, or after the completion or abandonment thereof shall be re-ferred to the sole arbitration of the Chief Engineer/Additional Chief Engineer, Central Public Works Department, and if the Chief Engineer/Additional Chief Engineer, is unable or unwilling to act, to the sole arbitration or some other person appointed by the Chief Engineer/Additional Chief Engineer willing to act as such arbitrator. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant, that he had to deal with the matters to which this agreement relates and that in the course of his duties as such Government servant, he had expressed views on all (or) any of the matters in dispute or difference. The award of the Arbitrator so appointed shall be final, conclusive and binding on all parties to this contract.'

33. It is necessary to consider the precise terms of the finality clause in Clause 13-A and the arbitration clause in Clause 14, and to decide whether the matter falling within the purview of the finality clause are outside the arbitration clauses. Now, the opening words in Clause 14 'Except where otherwise provided in the contract', clearly limit or control the operative part of Clause 14 which otherwise is in comprehensive terms.

34. The general rule that the grammatical and ordinary sense of the words in a contract is to be adhered to unless such adherence would lead to some manifest absurdity or some repugnance or inconsistency, applies to building and construction contracts. The meaning and intention of the parties have to be gathered from the language used. The question, over what subject-matters the arbitrator is to exercise his powers, must be answered, by a reference to the particular words of the arbitration agreement. (Rus-sel on Arbitration; 17th Edition, Page 43). That meaning is clear enough. Clause 13-A is a provision to the contrary. Therefore, all matters covered by the finality clause in Clause 13-A are outside the arbitration clause, Clause 14, and, therefore, cannot be referred to arbitration.

35. The law is succinctly stated in Halsbury's Laws of England, 4th Edition, Vol. 4, para 1215, Page 619, thus:--

'Effect of arbitration clauses. Where a contract contains an arbitration clause in sufficiently wide terms, the decisions of the certifier may be reviewed. In such a case, the contractor can recover without a certificate, the employer can claim for defective work despite the existence of a certificate expressing the architect's satisfaction, amounts certified can be reviewed and the contractor can recover for extra work despite the earlier refu-sal of an architect or engineer to give a written order to do the work. A clause giving an arbitrator power to open up, review and revise the certificate, opinion or decision of the certifier and to determine all disputes and matters submitted to him as if no such certificate, decision or opinion had been given will certainly be wide enough. Current standard form contracts give such powers to the arbitrator.

In certain cases, despite an arbitration clause, on the proper construction of the contract some decisions of a certifier will not be subject to review. Thus where matters left by the contract to the decision or determination of the engineer were excepted from the arbitration clause, it was held that an engineer's certificate of completion and satisfaction was binding.'

That takes us to the finality clause.

36. Clause. 13-A confers, in specific terms, power to the Engineer-in-charge to deviate from the terms of the contract, i.e., to make any alterations in, omissions from, additions to, or substitutions for, the original specifications, etc., that may appear to him to be necessary or advisable, during the course of supply of the materials, and the contractor shall be bound to supply the materials, in accordance with any instructions that the Engineer-in-charge gives to him in writing.

37. It envisages three categories of work, viz., (i) any altered, additional, or substituted materials, which he may be directed to supply, in the manner specified, shall be supplied by the contractor, on the same conditions in all respect on which he agreed to do the main work, and at the rates specified in the contract, (ii) if the altered, additional or substituted materials include any class of materials, for which no rate is specified in the contract, then such class of materials shall be paid for at the rate provided in the Dandakaranya Schedule of Rates, and (iii) work for which rates are neither specified in the contract nor do they appear within the Schedule of Rates.

38. In regard to the first two categories, there is not much scope of dispute. But it is in regard to the third category which presents difficulty and may create dispute as to the determination of the rates. The manner in which the dispute can be raised is also indicated. In the event of a dispute, the decision of the Superintending Engineer shall be final. The present work was, however, of the 2nd category, viz., there was supply of substituted material, i.e., hard stone chips, the rate of which was not specified in the contract, but appears in the Schedule of Rates.

39. Reading the agreement as a whole, we are inclined to the view that Clause 13-A does not contemplate a submission of disputes covered therein to arbitration.

One of the essential ingredients of & submission to arbitration is that the parties should agree that the dispute, intended to be referred, should be determined in a quasi-judicial manner. Hudson's Building and Engineering Contracts, 8th Edition, page 222. If it is not to be so determined, the agreement does not amount to a submission to arbitration and the person, who decides the dispute, is not an arbitrator. Therein, lies the distinction between an agreement for submission to an arbitration and an agreement to accept the decision of a valuer or appraiser.

40. The rule is well settled that where parties to building or construction designate a person who is authorised to determine questions relating to its execution, and stipulate that his determination shall be final and conclusive, such parties are bound by his determination of those matters which he is authorised to determine, except in cases of fraud or such gross mistake on his part as would necessarily imply bad faith, or a failure to exercise an honest judgment, i.e., on grounds of collusion or misconduct.

41. In Hudson's Building and Engineering Contracts, (8th Edition, Page 210), the law is stated thus--

'The great majority of building contracts contain a provision that the work generally shall be done to the satisfaction of a third person, usually of course, the employer's architect, and in many cases that payment shall be dependent upon a certificate. The contract may or may not contain express provisions that the satisfaction or certificate are to be a condition precedent to the builder's right to sue. In other cases, a particular matter under the contract may be stipulated to depend upon the approval, certificate, or decision of the architect -- for example the valuation of and determination of liability for additions or variations to the work, or extensions of time and the consequential liability to pay liquidated damages. In all cases, as previously indicated, the binding effect of such approval certificate or decision depends upon the sense of the contract. An indication of the various legal implications that can be drawn from this kind of provision may be seen from the following extracts from the judgment of Devlin J. in Minister Trust Ltd. v. Traps Tractors Ltd.. (1954) 1 WLR 963 at p. 973.

'There is, after all, nothing to prevent a party from requiring that workshall be done to his own satisfaction. He might then choose to act on the recommendation of an agent. If an agent is named in the contract, it may be plain that he is to function only as the alter ego of his master, and then his master can tell him what to do.........'

42. In William Kennedy Ltd. v. Barrow-in-Furuess Corporation, (1909) Hudson's Building Contracts, Vol. 2, 4th Edition, Page 411, Buckley, L. J observed--

'It is quite true that the architect is to be an impartial person, no doubt; he is to determine the construction of the contract, and he must not seek to construe it in favour of the Corporation as distinguished in favour of the Contractors; he must act fairly between the parties. Therefore, he owes a duty to the contractors as well as to the Corporation, but he, I think, does not hold any judicial duty to one or the other.'

'He is the person whose determination is required by the parties. It is not a judicial act, but it is an administrative act in the interests of the Corporation who is going to pay, and he is to be the Judge, or a person whose decision is to be final in the matter of the execution of the works. I do not think that he is an arbitrator or acting in a judicial capacity at all.'

See also, Sharpe v. San Paulo R. Co., (1873) 8 Ch 597; Llyod Bros. v. Milward, (1895) Hudson's Building Contracts, Vol. 2, 4th Edition, page 262; Wadsworth v. Smith LR, (1871) 6 QB 113; Scott v. Liverpool Corporation, (1858) 28 LJCh 230; In Re Cams Wilson & Greene, (1886) 18 QB 7; Robins v. Goddard L. R., (1905) 1 KB 294; Firm Hormusji & Daruwalla v. District Local Board, AIR 1934 Sind 200; Secretary of State v. Saran Bros. & Co., ILR (1932) 8 Luck 98 = (AIR 1932 Oudh 265) and Motilal Tejsi & Co. v. Ramchandra, AIR 1942 Bom 334.

43. In (1886) 18 QBD 7 (supra), Lord Esher, M. R., stated--

'If it appears from the terms of the agreement, by which a matter is submitted to any person, that that which he is to do is to be in the nature of a judicial inquiry and that the object is that he should hear the parties and decide the matter upon evidence to be led before him, there the person is an arbitrator. But if it appears that the object of appointing the person was not to settle differences after they had arisen, but to preclude difference from arising, there the person appointed is not an arbitrator. There is an intermediate class of cases in which a person is appointed to determine dis-putes after they have arisen, but is not bound to hear evidence or argument. In those cases it may be more difficult to say whether the person is a valuer or an arbitrator. They must be determined according to the circumstances in each particular instance by the intention of the parties.'

44. Where the contract provides, as here, that the work shall be done to the satisfaction, approval, or acceptance of an architect or engineer, such architect or engineer is thereby constituted sole arbiter between the parties, and the parties are bound by his decision, the absence of fraud or mistake. More so, where there is a stipulation that his certificate made or approval is a condition of the contractor's right to receive payment, such certificate or approval must be, as it is, conclusive as to all matters within his authority.

45. Counsel for the respondent drew our attention to Heavy Electricals (India) Ltd., Bhopal v. Pannalal Devchand Malviya, 1973 MPLJ 26 = (AIR 1973 Madh Pra 7). That decision, instead of supporting the respondent, is rather against him. There, the agreement in question, i.e., the agreement between the Heavy Electricals (India) Ltd., and a contractor, contained not only the usual arbitration clause, similar to Clause 14, but also a finality clause like Clause 13-A in the instant case. A Division Bench of this Court had to consider the impact of such finality clause on the arbitration clause and held that the matters falling within the purview of the finality clause were outside the ambit of the arbitration clause.

46. The fact that the Superintending Engineer had rejected the claim of the respondents for payment for the substituted material, i.e., 'hard stone chips', at the rate for 'hard granite chips', as also for 'extra lead', under clause 13-A of the agreement, can hardly be disputed. The respondents had preferred an appeal, but the appeal was rejected vide the Chief Administrator's letter dated 3-12-1963, to the effect:--

''GOVERNMENT OF INDIA Ministry of Works, Housing & Rehabilitation, Dandakaranya Project, Koraput.No. 36 (80)/CA/Pol. I/63Dated the December 3, 1963.From:Shri L. J. Johnson, I.C.S., Chief Administrator,'To: ;Shri M. Singh,Advocate, Jagdalpur,Dear Sir,

I am writing with reference to yourdiscussion with me on the 9th of October,1963. Your point of view was duly considered but I am afraid it is not possible to accept it. I have passed a detailed order which has been conveyed to the Superintending Engineer, Construction, DNK Project, Jagdalpur. This order may be seen in the S. E. (C)'s office. I have held that the rate for hard stone chips cannot be derived from the rates quoted by your client for hard granite chips since hard stone is a different class of material and according to Clause 13-A, since the material substituted, namely, hard stone is in the agreement, your client is eligible only for the extra cost involved in breaking hard stone metal into hard stone chips. Since there is already an item of hard stone metal in the agreement, the rate for hard stone chips can be deduced by adding the difference between the metal and the chips, i.e , Rs. 10 per Cft. When I went through the agreement and the papers I found that the quarry chart which was signed by your client merely mentioned 5 metal quarries and there was no mention of granite quarries from which granite chips could have been collected. Your client, therefore, could not have based his rates for granite chips for these quarries. It is obvious that he had different quarries in mind for the supply of the 2 classes of materials because he has quoted almost double the rates for granite chips as he has quoted for the supply of stone metal. It is obvious, therefore, that he must have had different quarries in mind.

The orders of the Superintending Engineer, therefore, in regard to this matter are upheld and payment will be made on the basis of the department's interpretation of Clause 13-A of the agreement.

Yours faithfully,

(L. J. Johnson).

Chief Administrator.'

The respondent, indeed, admitted this fact in his application dated 6-1-1966, paragraph 2 (b) of which reads--

'Shri Udayachalam. S. E., has given his adverse finding in the case and the Chief Administrator has maintained the same.'

The matler, therefore, stood concluded by the decision of the Superintending Engineer, under Clause 13-A of the contract.

47. The parties, by their contract, bound themselves, by the terms of Clause 13-A, as to the rate of payment for the substituted materials supplied, which was in deviation from the original contract. Here, the contract was for supply of 'bard granite chips'. The respondent supplied instead 'hard stone chips'. In fact, the rates quoted by the respondent were inclusive of all lead, i.e., the cost ofcarriage to the site of work and stacking, complete. The element of 'lead', therefore, was included in the cost-structure. The contract did not provide for any rate for 'hard stone chips'. That being so, the work fell within the second catagory enumerated above, and the 'hard stone chips' had to be paid for at the rate entered in the Schedule of Rates of the Dandakaranya Project. That was, accordingly, made by the appellants, the Superintending Engineer having rejected the respondent's claim for 'hard granite chips' as also for 'extra lead'.

48. The appellants' main contention was, and is, that the decision of the Superintending Engineer, under Clause 13-A of the contract was final and conclusive, and the matter could not, therefore, be referred to arbitration under Clause 14. That contention of theirs must, from the views already expressed, prevail. On the proper construction of the contract, the matters left to the decision of the Superintending Engineer under Clause 13-A, were not subject to review, despite the arbitration clause, Clause 14. The matters left by the contract to the decision or determination of the Superintending Engineer were expressly except-ed from the arbitration clause. The reference of the alleged dispute, when there was none, to the arbitrator under Section 20 of the Arbitration Act, was, therefore, clearly invalid. Consequently, the entire proceedings before the arbitrator, including the resultant awards and the preliminary decree based thereon, were null and void.

49. That takes us to the other aspect. There can be no doubt whatever that the awards suffer from a serious infirmity in that the arbitrator has, in this case, exceeded his authority, by adjudicating upon the matters not included within the submission, if any. It is well settled that arbitrators have no authority to arbitrate that which is not submitted to them; hence an award which is outside the submission is void. The pre-requisite of a valid award, must always be, as it is, is that it must conform to the submission. That test is not fulfilled in the instant case.

50. In the present case, in its application under Section 20 of the Arbitration Act, the respondent sought a reference with respect to 'extra lead': it never, as it could not, raise any claim with respect to the 'rate of payment' for the substituted materials supplied. The arbitrator, while rendering the award dated 16-12-1968. surprisingly enough, directed--

'Rate of payment for substituted material for the reach 166/0 to 179/4.The petitioner supplied hard stone in place of granite of different sizes. The petitioner be paid quoted rate as per agreement for the respective sizes minus the difference between granite rate and hard stone rate for the respective size as per CSR. The decision is based on the theory adopted by Addl. Chief Engineer, CPWD., New Delhi in another identical case.'

The award is, therefore, bad on the face of it.

51. Furthermore, the respondent, in its application under Section 20 of the Act, never laid any claim with respect to the other three items, viz., (i) rejection of 13692 Cft. of hard stone, (a) quarry site payment of 21877 Cft. of the material, and (iii) cost of holders collected at Karanji. The arbitrator, therefore, in entertaining these claims, went beyond the terms of reference. The awards must, accordingly, have to be set aside on both these grounds as well.

52. In the result, Miscellaneous (First) Appeal No. 174 of 1970 fails and is dismissed with costs, but Miscellaneous (First) Appeal No. 146 of 1969 must succeed and is allowed with costs throughout. Both the awards of the arbitrator dated 16-12-1968 and 30-9-1969, and the consequential preliminary decree of the District Judge, Jagdalpur, dated 2-7-1970, must be, and are set aside.


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