A mutual agreement is essential for amending contract terms regarding currency proportions; without it, claims for additional costs due to currency changes are not enforceable.

J U D G M E N T

C.S.Sudha, J.

This appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 ('the Act', for short) is against the order dated 05/02/2015 in O.P.(Arbitration) No.418/2011 of the Additional District Judge–II, District Court, Ernakulam.

2. The appellant is the petitioner in the aforesaid O.P.

(Arbitration) and the claimant/contractor in the arbitral proceedings. The respondent herein is the respondent in the said proceedings. The parties in this appeal will be referred to as described in the arbitral proceedings.

3. The claimant/contractor was awarded the contract for the work of "KSTP–Phase I – Upgradation of State Highway from Muvattupuzha – Thodupuzha and Muvattupuzha – Angamali”, relating to which the parties entered into a contract agreement dated 07/11/2002. The letter of acceptance was issued on 01/10/2002. The work was agreed to be completed within a period of 24 months, which period was thereafter extended. The work was completed on 31/01/2007. Clause 67 of the Conditions of Particular Application (CoPA) of the contract agreement sets out the procedure to be followed in case, disputes arose between the parties during the course of execution of the works. Several disputes arose between the parties. Disputes no.11 and 12 pertain to refund of deduction of 1% of the value of work effected towards Workers’ Labour Welfare Fund Dispute and compensation for not effecting the change in foreign currency proportion respectively. The disputes were referred to the Dispute Review Board (DRB) as per Clause 67.1 of CoPA. However, the DRB could not make its recommendation within the period of 56 days provided for in CoPA and hence arbitration was initiated by the claimant. Pursuant to Clause 67.3 of CoPA, the claimant and the respondent appointed one Arbitrator each. The said two Arbitrators appointed a third Arbitrator as the Presiding Arbitrator.

4. In the present appeal we are concerned with dispute no.12 alone. Dispute No.12 is pertaining to payment of additional costs stated to have been incurred by the claimant on account of continued delay on the part of the respondent/Employer in changing the currency proportion for payment in accordance with the provisions of Sub-Clause 72.4 of the General Conditions of Contract (GCC). The claimant put up a claim for reimbursement of additional cost of ₹ 83,98,228/- towards loss stated to have been sustained due to the failure of the respondent/Employer to change the proportion of foreign currency from 24% to 2% as recommended by the Engineer for the period from 01/04/2004 to 31/02/2005 and also pay further amount in the changed proportion for all payments effected after 01/01/2006.

4.1. According to the claimant, the currency requirement was estimated based on the situation at the time of Tender on 14/06/2002. Thereafter the foreign currency requirement got reduced and it was assessed as 2% as against the 24% quoted in the Tender. Clause 36.1 of CoPA encourages the claimant to use as far as possible materials produced in India so that foreign currency requirement is reduced to the minimum.

Therefore, while organizing the procurement during the course of execution of works, the claimant was guided by the encouragement contained in Clause 36.1 in minimizing imports. As a result, the requirement of foreign currency came down drastically to 2% in the place of 24%. The Engineer recommended to the respondent/Employer to accept this change as per the agreement reached on 02/11/2004. In order to effect this change, it was necessary to execute a Supplementary Agreement and so as directed, the claimant submitted a draft of the same. The respondent did not agree to the change as the same would cause financial loss to them and hence change in foreign currency proportion was not effected.

4.2. As per Clause 72.4 of CoPA, it was obligatory on the part of the respondent/Employer to agree to the change in proportion of the currency. Due to refusal by the respondent to change the c