Continental Construction Co. (P) Ltd., v. State Of Madhya Pradesh .

C.P Sen, J.:— By this order Misc. First Appeal Nos. 252 of 1981 and 254 of 1981 between the same parties are also disposed of. These three appeals have been preferred under section 39(vi) of the Arbitration Act, 1940, by the contractor against the order of the District Judge setting aside the awards of the arbitrator under section 30 of the Act.

2. The appellant entered into contracts with the State of M.P for construction of Masonry Dam, Group No. II, Tawa Project, Tawanagar, M.P Dispute arose regarding the extra cost alleged to have been incurred by the appellant in completion of the work. Clause 3.3.29 of the contract provided that all questions, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract shall be decided by the Superintending. Engineer whose decision shall be final, provided that if the contractor is dissatisfied with the final decision of the Superintending Engineer, he may within 28 days after receiving notice of such decision, give notice in writing to the S.E requiring that the matter may be referred to the arbitration. The arbitrator has to be appointed by the State Government whose decision shall be final and binding on the parties. According to the appellant, since the S.E rejected all his claim as being barred by limitation under Clause 3.3.15 he filed applications under section 20 of the Act for filing the arbitration agreement and for appointing an arbitrator to decide the dispute. The applications were opposed by the State saying that no dispute attracting arbitration clause has arisen. The claim is barred under clause 3.3.15 and the appellant is not entitled to any extra payment over and above the rate-provided in the contract. The objection was overruled by the District Judge and the State preferred appeals before this Court which were dismissed by this Court. State of M.P v. Continental Construction [P] Ltd. 1978 M.P.L.J 474 The case of the appellant is that the State was guilty of gross delay in allotment of work and discharging other, obligations under the Act because of which the appellant could not complete the work within the stipulated period. Meanwhile, the cost of material, labour, masonry continued to rise due to various factors amongst them being depreciation of Indian rupee. Devaluation was so gross and so substantial Page: 58that the performance of the contract became impossible. These circumstances frustrated the contract in terms of section 56 of the Contract Act. The contract thus became void. The appellant pleaded that the prices have increased so violently that the contract became impossible of performance, but the State insisted, on the completion of the work and held out all sorts of threats. Therefore, the appellant was forced to complete the work at high cost and submitted claim towards increase in the cost of construction and rise in labour charges but the S.E unreasonably rejected the claim. The State on the other hand submitted that the claim for extra cost was barred by time under clause 3.3.15 Under the contract, the appellant was debarred from making additional claim towards the rise in prices and increase in labour charges. Under the terms of the contract, the appellant was bound to complete the work at the price and the rates stipulated therein.

3. The District Judge referred the following 9 issues which were answered by the arbitrator as follows. The arbitrator was a retired Engineer-in-chief of the Irrigation Department of the State of M.P

ISSUES.

(1) Whether the contractor had incurred extra costs towards wetting and washing of stones used in masonry of Group-II Tawa Masonry Dam?

(2) Was the petitioner entitled to payment of this extra costs of Rs. 1,20,355/-?

(3) Whether the petitioner contractor had to incur extra cost of material and labour to the tune of Rs. 14,72,456/- within the contract period for executing work assigned to it?

(4) Whether the contractor had incurred extra cost of Rs. 8,34,366/- for the work beyond the contract period due to unforeseen circumstances?

(5) Whether the petitioner's claim on both the counts was in whole or in part of it was barred by time, in terms of clause 3.3.15?

(6) Whether the contract was rendered ineffective in terms of section 56 of the Contract Act due to unexpected change in the market rate of material and labour charges?

(7) Was the claim not entertainable in accordance with the terms of the contract under clause 3.3.32, 3.3.33 & 3.3.34 during the extended period of contract?

(8) Was the work delayed because of the presence of shale-zone in the foundation which factor was not made known to the contract?

(9) Whether the contractor was entitled to extra costs of damages for the delay caused on account of shale-zone?

FINDINGS

(1) The contractor did incur expenditure on wetting and washing of stones in Masonry Group II, Tawa Masonry Dam but this was according to agreement.

(2) The petitioner is not entitled to the payment of the extra costs of Rs. 1,20,355/-

(3) The petitioner/contractor did incur an extra cost of Rs. 14,72,456/- within the contract period for executing the assigned work.

(4) The petitioner/contractor did incur on extra cost of Rs. 6,81,796/- for the work done beyond the contract period due to unforeseen circumstances.

(5) The petitioner is entitled to the claim to the extent of Rs. 2,65,000/- against Issue No. 3 and Rs. 6,81,796/- against Issue No. 4 above and the same is not barred by time in terms of clause 3.3.15

(6) The contract was not rendered ineffective in terms of section 56 of the Contract Act due to abnormal rise in the market rates of materials and labour.

(7) The claim under reference cannot be ruled out merely because of the provisions of clause 3.3.32, 3.3.33 & 3.3.34

(8) Yes, the work was delayed due to the presence of shale-zone in the foundations, a factor which was unforeseen and was not made known to the contractor.

(9) The contractor is entitled to claim extra cost due to the delay caused on account of the shale-zone in foundation.

4. Almost identical claims were awarded in M.P.A No. 253 & 254 of 1981. These related to the claims towards extra cost incurred within the contract period and beyond the contract period. In M.P.A No. 253/81 the arbitrator found that the appellant had incurred an extra cost of Rs. 14,72,456/- within the contract period and Rs. 6,81,796/- for the work beyond the contract period, but he awarded Rs. 2,65,000/- towards extra cost within the contract period and Rs. 6,81,796- beyond the contract period i.e in all Rs. 9,46,796/-. In M.P.A No. 254/81 the arbitrator found that the appellant had incurred extra cost of Rs. 14,86,976/- within the contract period and Rs. 6,44,370/- beyond the contract period, but he awarded Rs. 2,91,700/- for the extra cost within the contract period and Rs. 6,44,370/- beyond the contract period i.e in all Rs. 9,36,070/-. The only difference in claim in MPA No. 252/81 is that though the arbitrator found that the appellant had incurred extra cost of Rs. 44,728/- within the contract period and Rs. 4,12,322/- beyond the contract period but he has awarded only Rs. 4,12,322/- i.e towards the extra cost incurred beyond the contract period. Now it may be mentioned that the appellant did not challenge the decision of the arbitrator on issue nos. 1 & 2 and the parties agreed before the District Judge that issue nos. 8 & 9 do notaries out of the pleadings of the parties. So we are not concerned with the decision of the arbitrator on those 4 issues. The arbitrator decided 3 legal issues which were specifically referred to him i.e claim is not barred under clause 3.3.15 and the contract was not rendered ineffective in terms of section 56 of the Contract Act due to abnormal rise in market rates of material and labour and that the claim can be entertained in spite of clauses 3.3.32, 3.3.33 & 3.3.34 So the only other issue that remained was whether the appellant was entitled to extra cost towards rise in prices of materials and labour within & beyond the contract period.

5. The learned District Judge held that since 3 legal issues were specifically referred to the arbitrator, his decision thereon has become final and binding on the parties and cannot be re-agitated before the Court. Regarding the remaining issues, the State had taken objection while opposing the application u/s 20 that the appellant is not entitled to extra cost for material and labour in terms of the contract but the Court directed that this matter has to be agitated before the arbitrator and the application under section 20 cannot be dismissed on the ground that the claim would not ultimately succeed, while the appellant tried to Page: 60urge that since it was a non-speaking award, the same cannot be challenged on the ground that the appellant was not legally entitled for the claim. The District Judge found that the question regarding extra-cost was a general question and not a specific legal question and the decision of the arbitrator was not final. The arbitrator misconducted himself in allowing the claim without deciding the objection of the State, Clause 2.36 of the contract provided that the prices quoted in the tenders for various items of work will not be altered by the contractor during the term of the contract. Similarly, under clause 2.4, the appellant accepted the liability to pay wages to the laborers as notified by the Public Works Department. Therefore, in view of the specific clauses, the appellant was not legally entitled to claim for extra cost. He relied on a decision of the Supreme Court in Seth Thawardas Pherumal v. Union Of India A.I.R 1955 S.C 468 that if no specific question of law is referred, the decision of the arbitrator on that question is not final however much it may be within his jurisdiction and indeed essential for him to decide the question incidentally. An arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he think, is just and reasonable. He is a tribunal selected by the parties to decide their disputes according to law and so is bound to follow and apply the law, and if he does not, he can be set right by the Court provided his error appears on the face of the award. The contractor having contracted, he cannot go back to the agreement simply because it does not suit him to abide by it. He also relied on another decision of the Supreme Court in Aloni Parshad v. Union of India A.I.R 1960 S.C 588 wherein it has been held as follows:—

“A contract is not frustrated merely because the circumstances in which the contract was made, are altered: The Contract Act does not enable a party to contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity.

The parties to an executory contract are often faced, in the course of carrying it out, with turn of event which they did not at all anticipate a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this does pot in itself affect the bargain they have made.

There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous.

When the contract expressly stipulated for payment of charges at rates specified therein, we fail to appreciate, on what ground, the arbitrators could ignore the expenses covenants between the parties, and award to the agents amounts which the Union of India had not agreed to pay to the agents. The award of the arbitrators, awarding additional expenses under the head of establishment and contingencies, together with interest thereon, is on the face of it erroneous.”

6. The learned counsel for the appellant contended that since specific issues were framed and referred by the District Judge to the arbitrator, the same have been answered by a non-speaking award, there is no mistake of law apparent on the face of record and the District Judge erred in setting aside the award by looking into the terms of the contract which neither formed part of the Page: 61award nor is appended to it. According to the learned counsel for the State after leaving aside the specific legal issues which have been answered by the arbitrator and which are not open to challenge, the only issue that survived was whether the appellant was entitled to extra cost towards rise in prices of material & labour. This being a general question, the District Judge rightly exemined the question and found that the appellant is not entitled to claim for extra cost in view of the terms of the contract and the arbitrator misdirected himself by not considering this objection of the State before giving the award. The appellant's counsel tried to distinguish two decisions of the Supreme Court relied by the District Judge by saying that those observations were in respect of reasoned awards and not about non-speaking awards. He also relied on a decision of the Supreme Court in K.N Co-op. D.F Socy. v. Union of India A.I.R 1973 S.C 1339 in which it has been held that where an arbitrator is called upon to decide the effect of the agreement, he has really to decide a question of law, i.e of interpreting the agreement, and hence, his decision is not open to challenge. This was also a decision against a reasoned award but the Supreme Court held that since the reference was to specific question of law, the decision of the arbitrator is not open to challenge.

7. Before going into the merits of the case, it is necessary to examine the jurisdiction of the Court in interfering with the award given by the arbitrator chosen by the parties. While considering the objection raised under section 30 of the Act, the Court does not sit as an appellate Court, it can only interfere with the award on any of the grounds specified in section 30: (a) that the arbitrator has misconducted himself or the proceedings; (b) that the award has been made after the issue of an order by the Court superseding the arbitration or after the arbitration proceedings have become invalid under section 35; (c) that the award has been improperly procured or is otherwise invalid. The Privy Council in Champney Bhara & Co. v. Jivraj Baloo Spinning Weaving Co. Ltd. A.I.R 1923 PC 66 has held that the extent of the jurisdiction of the Court to set aside an award on the ground of an error in making the award is well-defined. The award of an arbitrator may be set aside on the ground of an error on the face thereof only when in the award or in any document incorporated with it, as for instance, a note appended by the arbitrators, stating the reasons for his decision, there is found some legal proposition which is the basis of the award and which is erroneous. Further. In re Kind & Duveen 1913 KB 32 & Govt. of Kelenten v. Duff Development Co. Ltd. 1923 A.C 395 it has been further held that if, however, a specific question is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law, does not make the award bad on its face so as to permit of its being set aside. The Supreme Court in Bungo Steel Furniture v. Union of India A.I.R 1967 S.C 378 has held that if an arbitrator, in deciding dispute before him, does not indicate the principles of law on which he has proceeded, the award is not on that account vitiated. It is only when the arbitrator proceeds to give his reasons or to lay down principles on which he has arrived at his decisions that the Court is competent to examine whether he has proceeded contrary to law and is entitled to interfere if such error in law is apparent on the face of the award itself.

8. Now the question remains whether the contract formed part of the award and it was open to the District Judge to look into the terms of the contract Page: 62in setting aside the award. The Privy Council in Saleh Mohd. v. Nsthoo Mal8 considered the award in which the arbitrator recited a contract made between the parties and the dispute arising under it. It was contended that the contract was incorporated in the award by its reference and so the award disclosed an error of law in construing the terms of the contract. But that contention was negatived. It was observed that the reference to the contract in the award was to earmark the disputes between the parties and was not incorporated into the award. In Abosalom Ltd. v. Great Western 1933 A.C 592 it has been held that if an award refers to the terms of a clause in the contract, the clause though not set out in full must be taken to be incorporated in it. Similarly, in Mutchius v. British Coal Refining Process 1936 2 All E.R 191 it has further been held that if the award refers to the paras of pleadings, these are incorporated. The Supreme Court in Allen Berry & Co. v. Union of India (1971) 1 SCC 295 , A.I.R 1971 S.C 696 has held that mere reference to the contract in the award is not to be held as incorporating it. The test is does the arbitrator come to a finding on the working of the contract. If he does, he can be said to have impliedly incorporated the contract of a clause in it, whichever be the case. In Nils Heime Akt. v. G. Meral & Co. Ltd. 19592 Lloyd's Reporter 292 it has been held that the mere fact that the contract is referred to in the award, especially if it is referred to in a recital to the award, does not make that contract a document which is incorporated in the award so that the Court can look at that for the purposes of seeing whether there is an error of law. But if the arbitrator goes further and sets out one at least of the material clauses it becomes permissible to look at the contract. Relying on this decision, recently a Division Bench of the Delhi High Court in A.I.I of Medical Sciences v. American Refgn. Co. Ltd. A.I.R 1982 Delhi 275 has held as under:—

“The Court is entitled, while examining an award, to look at documents ‘accompanying and forming part of’ the award. Thus, in an arbitration arising out of a contract if the arbitrator refers a specifically to any term of the contract in the award then it can be said that he has incorporated the contract into the award. Then the Court will be entitled to look at the contract. The mere fact that the contract is referred to in the award, especially if it is referred to in a recital to the award, does not make that contract a document which is incorporated in the award so that the Court can look at that for the purposes of seeing whether there is an error of law. But if the arbitrator goes further and sets out one at least of the material clauses it becomes permissible to look at the contract.”

Therefore, in view of these decisions, we are of the opinion that the District Judge was entitled to examine the contract in order to find the legality of the claim of the appellant regarding extra cost towards rise in prices of material and labour. The arbitrator found on specific legal questions that the claim of the appellant is not barred under clauses 3.3.15, 3.3.33 and 3.3.34 and besides the contract was not rendered ineffective in terms of section 56 of the Contract Act due to abnormal rise in market rates of material & labour. In view of reference to these clauses of the contract and also his finding that the contract was not rendered ineffective in terms of S. 56 of the Act, it can be said that the contract was impliedly incorporated in the award and so it was permissible-to go into the terms of the contract to find out the legality of the claim of the appellant for the Page: 63extra cost incurred towards rise in prices of material & labour. As has been pointed out by the District Judge, clauses 2.16 and 2.4 stipulated that the contractor has to complete the work in spite of rise in prices of materials and also rise in labour charges at the rates stipulated in the contract and the wages fixed by the P.W.D from time to time. There is a clear finding by the arbitrator that the contract was not rendered ineffective in terms of S. 56 of the Act due to abnormal rise in prices of material and labour. This being the position and the contractor having completed the work, it is now not open to him to claim extra cost towards rise in prices of material and labour. The arbitrator misconducted himself in not deciding this specific objection raised by the State regarding the legality of extra claim of the appellant. In view of the decision taken in this appeal, it is not required for us to consider the further question that in view of the recent trends in decisions of various High Courts that the earlier view that the arbitrator need not give reasons while giving award requires revision as the arbitrator acts as quasi judicial authority and the party must know the ground on which his case has been rejected by the arbitrator, so he must give reasons.

9. With the result, the appeals fail and they are dismissed. Parties to bear their own costs.

Appeals dismissed.