IMPORTANT POINT
High Court was right in allowing the appeal against award in part. It has done it within the limits prescribed under Section within the limits prescribed under Section 39 of Arbitration Act, 1940 r/w Section 30 of the Act.

Headnote:(i) Arbitration Act, 1940-Sections 30 and 39-Objections to award-Dismissed by Court-Appeal against to High Court-Regarding first item of stone aggregate to be procured locally -Arbitrator allowed higher rate due to scarcity-High Court declined to interfere with this item-Whether correct? (Yes)-Case law discussed-Appeal by Contractor allowed in part.
       Held : Testing the case on hand on the touchstone of well settled principles laid down by Courts, we are unable to hold that the High Court exceeded its jurisdiction in interfering with the award or failed to exercise the jurisdiction vested in it to set aside the award. The approach of the High Court cannot be said to be contrary to the well settled principles governing the scope of interference with an award of the Arbitrator under the old Act. As regards the first item, the question was whether the contract contemplates the use of stone aggregate and stone metal from the local sources only, the source of supply being silent in the relevant clause. The Arbitrator was of the view that the unprecedented situation of the contractor being put to the necessity of procuring the stone material from far off places was not visualized and the parties proceeded on the basis that such material was available locally. He further noted that the sample kept in the office of the concerned Engineer admittedly pertained to the material procured from local sources. A letter addressed by the Chief Engineer in support of contractor s claim was also relied on in this context. Hence, in these circumstances, the Arbitrator can be said to have taken a reasonably possible view and therefore the High Court rightly declined to set aside the award in so far as the quantity of stone aggregate/stone metal brought to site up to 24.1.1994 is concerned. The Arbitrator acted within the confines of his jurisdiction in making the award on this part of the claim. (Para 19)
       (ii) Arbitration Act, 1940-Sections 30 and 39-Award filed for making rule of the Court-Objections by UOI-Dismissed-Appeal to High Court-High Court allowed appeal in part, regarding claims which did not form part of reference and the future claim in regard to stone aggregate-Appeal against to Supreme Court-Whether High Court was right in its approach in the appeal under Section 39? (Yes)-Appeal by UOI dismissed-Case law referred.
       Held : As already noted, the award in so far as the future period is concerned, i.e. subsequent to 24.1.1994 which is the date of filing of claim statement, the High Court set aside the award on two grounds : (i) Such a claim did not form part of terms of reference, though the contractor had filed claim in respect of stone aggregate to be brought in future and (ii) the future claim in respect of stone aggregate would be subject to various factors including market conditions and whether the shortage continued. In our view the view taken by the High Court cannot be sustained. It is clear from the arbitration clause viz. clause 70 that all disputes between the parties to the contract (other than excepted matters) can be referred to arbitration. The contractor did make a claim in respect of future period also. The document appointing the Arbitrator would show that the Arbitrator was required to decide the disputes arising between the parties. It is not possible to hold that the claim No. 1 in so far as it relates to future period during which the contract work continued is beyond the scope of reference or outside the ambit of arbitration clause. The aim of arbitration is to settle all the disputes between the parties and to avoid further litigation. There is no legal justification in restricting the scope of arbitration in the manner in which the High Court did. In the list of disputes which is annexed to the letter of appointment of the Arbitrator, it is mentioned without any qualification or restriction as follows :
       "Reimbursement of additional cost in procurement of stone aggregate from crusher of Belgaum, Hubli, etc. in lieu of local sources of Goa."
       The claim amount is mentioned as 36 lakhs and 8 lakhs. This figure is over and above the amount claimed upto 24.1.1994 and is based on an estimate. It is also relevant to mention that Union of India did not take the stand before the Arbitrator that the claim in respect of future was beyond the scope of reference. However, in order to obviate any controversy, it is made clear that the payment at the rates specified in the award should be made only in respect of stone aggregate actually brought to the site from Belgaum, Hubli and other distant places. It is open to the Engineer concerned to be satisfied on this aspect before satisfying the award. Obviously, if any part of the stone aggregate was brought subsequent to 24.1.1994 from local sources the directions in the award will be ineffective. The observations of the High Court that conditions may not be the same for the future and therefore the Arbitrator was incompetent to make an award for the future period cannot be supported for the simple reason that the extra rate will become applicable only in respect of quantities brought from sources other than local. It has never been the case of Union of India either before the Arbitrator or the High Court or even this Court that the situation had changed after 24.1.1994 and that the stone aggregate could be secured at lesser rates from local sources or otherwise. For all these reasons, we are of the view that the High Court ought not to have interfered with the award in so far as claim No. 1 is concerned in any respect. To this extent, the appeals filed by the Contractor i.e. arising out of SLP (C) Nos. 10526-10527 of 2000 are partly allowed. As regards the other two items viz. 2 and 3, on a perusal of the judgment of the High Court on consideration of the relevant clauses, we are of the view that the judgment does not suffer from any serious error in the approach to the matter. In regard to item No. 2, though the High Court may not be justified in observing that the Arbitrator took undue interest in trying to ascertain the classification of strata, the High Court is well justified in holding that the view taken by the Arbitrator is not at all a reasonably possible view and in fact he ignored one of the relevant clauses, namely 3.3.4. The Arbitrator was carried away by the fact that chiselling had to be done in view of the hardness of rock. The Arbitrator at the same time did not choose to give a finding that what was encountered by the contractor was something other than laterite rock which is mentioned in the Agreement. As regards the 3rd item, the Arbitrator again ignored the relevant clauses in the agreement and came to the perverse conclusion that the site became restricted on account of certain security measures enforced in the area. The award of sum vis-a-vis this item is clearly outside the terms of contract. The High Court, therefore, rightly set aside the award on this aspect. (Paras 20, 21, 22 and 23)
       Held finally : On the discussions in the foregoing paragraphs the appeals arising from SLP (C) Nos. 10526-27 of 2000 filed by the contractor are allowed in part to the extent noted earlier and the appeals arising from SLP (C) Nos. 880-881 of 2001 filed by Union of India & another are dismissed. There will, however, be no order for costs. (Para 24)

JUDGMENT

D.P. Mohapatra, J.-Leave is granted in all the SLPs.

2. These appeals are directed against the judgment of the High Court of Bombay at Goa, dated 29th February, 2000. Indeed both the parties to the dispute have filed appeals assailing the judgment of the High Court.

3. M/s. Shyama Charana Agarwala & Sons (hereinafter referred to as the Contractor ) were entrusted with the work of construction of married accommodation for 80MCPOs/CPOs/80Pos and 16 sailors at Gao Naval Area, Varunapuri, Mangor Hill, Vasco-da-Gama, by the Union of India (for short the UOI ) through the Chief Engineer (Navy), Cochin Naval Base under the agreement No. CECZ/GOA-12 of 1990-91. The work order was placed vide letter No. 8319/43/E-8, dated 20.7.1990 for Rs. 2,62,33,057-94. The date of commencement of the work was 16.8.1990 and the work was to be completed by 15.11.1991.

4. The same contractor by another agreement No. CECZ/GOA/40 of 1991-92 was entrusted with the work of construction of married accommodation for MCOs/CPOs and JCOs at Gao. The work order was placed vide letter No. 8305/88/E-8, dated 5.2.1992. The date of commencement of the work was 24.2.1992 and the work was to be completed by 23.2.1994.

5. Before the work could be completed certain differences/disputes arose between the parties. Under Clause 70 of the General Conditions of the Contract all disputes [(other than those for which the decision of the CWE (Commander Works Engineer) or any other person is by the contract expressed to be final and binding)] shall, after written notice by either party to the contract to the other of them, be referred to sole arbitration of an Engineer Officer to be appointed by the Authority mentioned in the tender document. In the said clause it was further provided that unless both the parties agree in writing, such reference shall not take place until and unless after completion or alleged completion of the work or termination or determination of the contract under Conditions 5, 56 and 57 thereof. The contractor gave notice for appointment of arbitrator specifying the items of dispute for adjudication. The UOI agreed for appointment of arbitrator. Accordingly Shri M.V.S. Rao, Chief Engineer (Air Force), Bangalore was appointed as the Sole Arbitrator vide the Engineer-in-Chief s letter dated 30th December, 1993. The nature of disputes raised in both the cases are similar though the amounts claimed against them differ. The disputes referred for arbitration were enumerated at Appendix A to the said letter. In the contract agreement No.CECZ/GOA-12/1990-91 the items of claim were as follows :

5 Costs of reference 50,000-00

8,00,000-00 stone aggregate from crushers of Belgaum, Hubli, etc. in lieu of local sources of Gao

2 Reimbursement of additional costs in excavation encountering 14,00,000-00 rock other than soft/disintegrated rock/laterite rock

6. In respect of the contract agreement No. CECZ/GOA/40/1991-92 the following

claims were made by the contractor :

Sr. No Brief description of Claims/Items Amount in Rupees (Approx.)

1 Reimbursement of additional costs in the procurement of stone aggregate from crushers of Belgaum, Hubli, etc.in lieu of local sources of Gao 36,00,000-00

2 Reimbursement of additional costs in excavation encountering rock other than soft/disintegrated rock/laterite rock 12,00,000-00

3 Reimbursement of additional costs due to working in restricted area in lieu of unrestricted area 30,00,000-00

4 Interest on Serial Nos. 1, 2, 3 above Not indicated

5 Costs of reference 50,000-00

7. The arbitrator by his Award dated 28th February, 1994 accepted the claims raised by t

Click Here to Read the rest of this document

2002 Supreme(SC) 685

IMPORTANT POINTHigh Court was right in allowing the appeal against award in part. It has done it within the limits prescribed under Section within the limits prescribed under Section 39 of Arbitration Act, 1940 r/w Section 30 of the Act.

Cases Referred (9)

IMPORTANT POINT
High Court was right in allowing the appeal against award in part. It has done it within the limits prescribed under Section within the limits prescribed under Section 39 of Arbitration Act, 1940 r/w Section 30 of the Act.