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MADHYA PRADESH HIGH COURT
S.R. Waghmare, J; Arun Mishra, J
STATE OF M.P. AND ANOTHER – Appellant
Versus
RAJENDRA KUMAR BHALLA – Respondent
C.R. No. 1834 of 1998
Decided on : 28-06-2005
P.N. Dubey, Dy. A.G, for the Appellant; V.R. Rao, for the Respondent
The absence of a specific provision for escalated costs in the agreement precludes the claim for such escalation, and the agreement is conclusive and binding once entered into.
Headnote:
Escalation - Contractual Dispute - M.P. Works Department Manual - Appendix 2.40 para 2.40.1 - State of Orissa v. Sudhakar Das (Dead) By LRs. - Ramachandra Reddy and Co. Vs. State of Andhra Pradesh and Others
Fact of the Case:
The dispute centered around the claim for escalated costs in a construction contract where the agreement did not contain a provision for such escalation. The petitioner sought escalation based on the M.P. Works Department Manual, while the respondents argued that the absence of a specific provision in the agreement precluded the claim for escalated costs.
Finding of the Court:
The court found that in the absence of a stipulation for escalation in the agreement, the claim for escalated costs could not be sustained. It held that the M.P. Works Department Manual's provisions could not be read into the agreement by implication, and the absence of a specific provision in the agreement precluded the claim for escalated costs.
Issues: The key issue was whether the absence of a specific provision for escalated costs in the agreement precluded the claim for such escalation, and whether the M.P. Works Department Manual's provisions could be read into the agreement by implication.
Ratio Decidendi: The court held that in the absence of a stipulation for escalation in the agreement, the claim for escalated costs could not be sustained. It emphasized that the agreement is conclusive and binding once entered into, and the absence of a specific provision precludes the claim for escalated costs.
Final Decision: The court dismissed the revision, set aside the award with respect to payment of escalated costs, and directed the parties to bear their own costs.
Arun Mishra, J.
The only question raised by Learned Counsel for the parties is about escalation. Admittedly, there is no provision in the agreement with respect to payment of escalated costs. In the absence of provision provided for the escalation, it is not open for the contractor to claim the amount. We have considered various decisions in C.R. No. 1205/1994, Jhamandas Lalwani v. Government of M.P. and Ors., decided today i.e. 28-6-2005 :
Shri V. R. Rao has submitted that the escalation charges ought to have been awarded by the learned Arbitration Tribunal. He has submitted that the contract is subject to M.P. Works Department Manual. He has placed implicit reliance on Appendix 2.40 para 2.40.1 where price adjustment has been provided. He has submitted that as per the Appendix 2.10.A which has been made applicable to all the departments including the Public Works Department, Public Health Engineering Department and Irrigation Department, escalation is admissible. Thus in the absence of specific term entered in the agreement between parties, with respect to the contract in question, the escalation is admissible as per the aforesaid provision. Hence, the Tribunal erred in law in rejecting the claim on the ground that there is no clause in the agreement providing for payment of escalated costs.
Shri O. P. Namdeo, learned Standing Counsel, appearing on behalf of the respondents has submitted that in view of the specific agreement entered between the parties for which there is no provision made for payment of escalated costs, it is not admissible. He has placed reliance on the Apex Court decisions in State of Orissa v. Sudhakar Das (Dead) By LRs., (2000) 3 SCC 21 and Ramachandra Reddy and Co. Vs. State of Andhra Pradesh and Others, .
A perusal of the agreement indicates that there is no provision made in the agreement for payment of escalated costs. What is provided under clause 4.3.13.3 (b) of the agreement is that in case quantity exceeds 10% of the agreemented quantity, in that case it enables to determine the rate of the extra work. However, aforesaid clause does not deal with escalation. Escalation is prayed for by the petitioner on account of increase in costs of labour and Petroleum, Oil, Lubricants etc (POL). The clause 2.40.1 of M.P. Works Department Manual which has been relied upon by Shri Rao reads thus :
Price Adjustment 2.40.1. No claim for price adjustment on account of any reason whatsoever shall be entertained if construction period as per Notice Inviting Tenders is not more than 12 months. If construction period is more than 12 months the amount paid to the contractor for work shall be adjusted quarterly for increase or decrease in the rate of labour, material and P.O.L. Excepting those materials supplied by the government (as per Annexure L). For this purpose quarters would be January to March, April to June, July to September and October to December and the month/date of opening tenders the month/date prescribed in N.I.T. for opening the tender.
M.P. Public Works Department Manual only provides that it is permissible to give escalation. Whenever an agreement is entered into either there is provision made for escalation or it is open to the parties, to agree otherwise. In our opinion, in the absence of escalation clause in agreement entered in to, it is not open to award any sum on account of escalation. We find support in our conclusion from decision of the Apex Court rendered in State of Orissa v. Sudhakar Das (Dead) By L.Rs.. (supra), that where there was no escalation clause in the arbitration agreement, there was no jurisdiction to award any amount towards escalation. The grant of escalation was held to be a patent error. Apex Court held :
2. It is not disputed that the arbitration agreement contained no escalation clause. In the absence of any escalation clause, an arbitrator cannot assume any jurisdiction to award any amount towards escalation. That part of the award which grants escalation charges is clea
