The court upheld the arbitral award, affirming that contractual obligations prevail over departmental instructions, and emphasized the limited scope of appellate review under the Arbitration and Conciliation Act.

JUDGMENT :

Jyotsna Rewal Dua, J.

Arbitral award passed in favour of respondent No.1 on 15.10.2015 was upheld by the learned District Judge, Kangra at Dharamshala on 08.12.2023. Objections preferred against the award under Section of 34 of the Arbitration and Conciliation Act, 1996 (in short ‘the Act’) were dismissed. Feeling aggrieved, the appellants have now taken recourse to Section 37 of the Act and have assailed the order passed by the learned District Judge Kangra at Dharamshala dated08.12.2023 and Arbitral Award dated 15.10.2015, whereunder, claim preferred by respondent No.1 was allowed to the extent indicated therein.

2. The case

2(i) A Contract agreement was executed between the appellants and respondent No.1 for ‘Provision of OTM accommodation for Postal Unit at Palampur, District Kangra’ for an amount of Rs.3,94,96,923.36/-. Stipulated period of completion of work was 18 months with given date of completion as 16.07.2015. The work extended beyond the period of 18 months. Clause No.48 of the Contract Agreement provided mechanism of reimbursement/refund on variation in prices. Respondent No.1 claimed escalation amounting to Rs. 2,25,498.00/- in Running Account Receipt (RAR) dated 03.03.2014. Officials of the appellants submitted it to the Audit Branch. The concerned authority disallowed payment of escalation on the ground that stipulated period of completion of the contract was 18 months and as per the Government policy, provision for escalation is not to be included in the tenders having completion period of 24 months or less. The escalation was denied to respondent No.1. The dispute, ultimately reached the learned Arbitrator. Respondent No.1 submitted that both the parties were bound by the contract provisions and not by the departmental instructions; That it was obligatory on part of the appellants to make payment of escalation as per the provisions of the contract; That he had quoted rates considering contract provisions including provisions for escalation.

2(ii) Respondent No.1 also submitted that he had continued to claim escalation payment in subsequent RARs also. His legitimate payment of escalation was denied in the subsequent RARs as well. The Physical Date of Completion of the project was 36 months and hence, inclusion of escalation clause was in order. Despite respondent No.1’s representation, escalation was not paid to him. The claim filed by respondent No.1 gave details of different RARs for different amounts claimed by him, which were not paid to him on due dates on account of alleged departmental instructions.

2(iii) From the award, it appears that during hearing of the claim before the learned Arbitrator, appellants agreed to the contention of respondent No.1 that it was incumbent upon both the parties to abide by the contractual obligations and not the departmental instructions; That the departmental instructions would not override the contractual provisions agreed to between the parties. The appellants also furnished calculations in terms of Clause 48 for the escalation admissible to respondent No.1.

2(iv) Learned Arbitrator held that the contract had stipulated completion period of 18 months from the date of commencement. As per the contract, variations in price was to be reimbursed/refunded on quarterly bases, based on formula commencing from the date of receipt of quoted tenders and the claim preferred on account of work done by respondent No.1 at an interval of not less than 30 days. Condition No.64, pertaining to advances on account, was also considered, which stipulated that RARs payment so made shall be regarded as payments by way of advance for work done and material delivered at site. The advances were to be adjusted against the final bills submitted by respondent No.1 on completion of work.

2(v) Learned Arbitrator further held that contract is a legal document within the ambit of Indian Contract Act. It was obligatory on both the parties to follow it holistically without any deviation. Disallowanc