Citation Codes

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Case Number

A.P.O No. 18 of 1991

Attorney(S)

S. Roychowdhury
learned Advocate appears and submits A. Mukherjee
learned Advocate appears and submits.

Judges

Kalyan Jyoti Sengupta
Asim Kumar Mondal, JJ.

Acts

Clauses 24, 25(a) and 26(a) of the General Condition of Contract;
Clauses 24, 25(a) and 26(a) of General Condition of Contract
sections 30 and 33 of the Arbitration Act, 1940
Clause 48(b) of General Conditions of Contract
Clause 48(b) of General Condition of Contract;
SECTION 70 CONTRACT ACT
(Regulation Act, 1970

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Smart Summary

Summary of Opinion delivered by K.J. Sengupta, J.

Factual and Procedural Background

The appeal challenges the judgment and order of the learned Trial Judge dated 22nd November, 1990, by which the award of the learned sole Arbitrator was made rule of the Court and decree passed. The respondent had been awarded 60% of the total annual road maintenance works at a residential area of the Haldia Dock Complex by the appellant. The appellant was the successful tenderer for the entire works at Rs. 8,83,362.12. Completion was not achieved within the original time; extensions were granted. The respondent executed the works, a final bill of payment was signed and a "no claim certificate" was issued. Subsequently the respondent claimed Rs. 3,91,052.35 on various heads; payment was not made and the matter was referred to a sole arbitrator (Mr. D.P. Roy Chowdhury). The respondent filed a statement of claim; the appellant filed a counter-statement. The arbitrator awarded a lump sum of Rs. 2,53,000 and allowed arbitration costs of Rs. 26,720 (no pendente lite interest was allowed). The appellant applied under sections 30 and 33 of the Arbitration Act, 1940 to set aside the award; the Trial Judge upheld the award and passed decree. The present appeal seeks to challenge that decision.

Legal Issues Presented

Whether the learned Arbitrator committed legal misconduct by making a lump sum (non-speaking) award without reasons in circumstances where many claimed heads were allegedly prohibited by clauses of the contract.
Whether prohibitory contractual clauses (specifically clauses barring escalation or certain claims) remain applicable beyond the stipulated contract completion time when extensions are granted or delay is attributable to the employer.
Whether the Trial Judge erred in upholding and enforcing the arbitral award despite the appellant's contention that contractual prohibitions made most claims legally inadmissible.
Whether the principle in section 70 of the Contract Act (unjust enrichment / restitution) could be invoked to support allowance of certain claims despite contractual prohibitions.

Arguments of the Parties

Appellant's Arguments (as presented by Mr. Shurit Roy Chowdhury, Barrister-at-Law)

On plain reading many claimed heads are absolutely barred by express terms in the Special Conditions or General Conditions of Contract; the arbitrator should not have allowed them.
Specific claims (with amounts) were identified as prohibited under particular contract clauses (e.g., Claim No.1 under Clause 7 of Special Conditions; Claim No.2 under Clause 65 of General Conditions; Claim No.3 under Clause 10 of Special Conditions; Claims Nos.4 & 5 under Clauses 24, 25(a), 26(a) etc.; Claim No.6 under Clause 48(b); Claim No.7 under Clause 7; Claim No.8 under Clause 33; Claim Nos.9 & 10 under Clause 65; Claim No.11 interest under Clause 13(g)).
The arbitrator's lump sum award without reasons constitutes legal misconduct because a proper application of the prohibitory clauses would have disallowed most claimed amounts.
The Trial Judge performed "guess work" in upholding the award and failed to apply the contractual clauses; the award should be set aside under sections 30 and 33 of the Arbitration Act, 1940.
With reference to Supreme Court authorities (including Continental Construction Co. Ltd.), it was argued it is impermissible for an arbitrator or court to ignore express prohibitions (for example, a price escalation bar) in awarding relief.
If contractual terms are properly applied, only the refund of wrongful recovery (Rs. 30,087) might be allowable and not the interest, and in any event the awarded lump sum (Rs. 2,53,000) could not be justified.

Respondent's Arguments (as presented by Mr. Mukherjee)

Non-speaking awards and lump sum awards can be legally permissible and courts should not probe into the arbitrator's mind to substitute their own view of how the arbitrator may have apportioned the award.
The prohibitory contractual clause against price escalation applies during the period when the contract subsists; it cannot be applied to periods beyond the stipulated contractual time, particularly where extension of time has been granted or delay is attributable to the employer.
The arbitrator had jurisdiction to examine the terms of the contract and adjudicate the dispute; the award reached is a possible fact-finding and not arbitrary or absurd requiring interference.
Relied on Associated Construction v. Pawanhans Helicopters Ltd. (2008) 16 SCC 128 : AIR 2008 SC 2911 and an authority reported in 1989 Supp (1) SCC 368 to support these contentions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Union of India v. Sita Ram Jaiswal, (1976) 4 SCC 505 : AIR 1977 SC 329	Principles relating to restitution / unjust enrichment and preconditions for applying section 70 of the Contract Act.	The court accepted that the Trial Judge correctly applied the principle in section 70 (as explained in this authority) when inferring that, because extra work was done and accepted, relief could be given; the court found those preconditions satisfied on the record and therefore approved reliance on section 70.
Associated Construction v. Pawanhans Helicopters Limited, (2008) 16 SCC 128 : AIR 2008 SC 2911	That a contractual embargo on price escalation does not necessarily extend beyond the contractual period and that a contractor may be compensated where delay is attributable to the employer.	The court relied on paragraphs 7 and 10 of this decision to support the Trial Judge's conclusion that the prohibitory escalation clause could not be applied beyond the contractual period where delay was attributable to the employer; this supported allowing certain claims despite an escalation bar.
Continental Construction Co. Ltd. (referenced by appellant)	Cited by the appellant to argue it is impermissible for an arbitrator or court to ignore an express contractual prohibition (e.g., against price escalation).	The court noted the appellant's reliance on this authority but concluded that, on the facts (extension of time/grant of extra work and employer-attributable delay), the strict prohibition could not be applied to defeat justice in the circumstances; accordingly the appellant's argument based on this authority was not accepted for the facts before the court.
1989 Supp (1) SCC 368 (cited by respondent)	Used by respondent to support the proposition that a non-speaking or lump sum award may be permissible and that courts should not probe the arbitrator's mental process.	The court acknowledged this principle but also observed that the Trial Judge had examined records and the award; the High Court ultimately found the Trial Judge's fact-finding and conclusion about what amounts could permissibly be awarded to be supportable and declined to set the award aside.

Court's Reasoning and Analysis

The court proceeded through a layered analysis focused on (i) the form of the award, (ii) the contractual prohibitions relied upon by the appellant, and (iii) the applicability of restitutionary principles under section 70 of the Contract Act in the factual matrix.

First, the court observed that the learned Arbitrator had made a lump sum award of Rs. 2,53,000 without providing reasons (a non‑speaking award). Ordinarily, the Trial Judge and courts should not attempt to probe the arbitrator's mind to justify how a lump sum was apportioned. Nevertheless, the Trial Judge had meticulously examined the record and the award to determine whether the award could stand. The High Court accepted that appellate scrutiny is permissible where it is contended that the award is impossible on the terms of the contract.

Second, the court examined the appellant's contention that most claimed heads were barred by express clauses of the contract (various Clauses of the Special and General Conditions). The court undertook a textual and contextual reading of those contractual provisions in light of the factual finding that the work was not completed within time and that extensions of time had been granted, with no evidence contradicting that extension.

Third, the court considered the legal effect of enforcing prohibitory clauses (for example, against price escalation) when delay is attributable to the employer. Relying on Associated Construction v. Pawanhans (2008) and earlier authorities (including Union of India v. Sita Ram Jaiswal on section 70), the court held that a strict embargo on escalation cannot be applied in all circumstances beyond the contractual period where employer‑attributable delay has occurred and where fairness and prevention of undue hardship demand relief. The court explained the policy: parties may have contemplated reasonable escalation during the contractual period, but to apply a prohibition when the employer's lapse causes delay would impose hardship on the contractor and frustrate justice.

Fourth, applying section 70 of the Contract Act (unjust enrichment) as interpreted in the cited Supreme Court authority, the court found that some extra work had been done and accepted by the appellant without protest; an inference of implied permission and benefit to the appellant could be drawn. On that basis, the Trial Judge's allowance of certain heads was considered legally supportable.

Finally, the court evaluated which claims were properly disallowed by the Trial Judge and which were allowable. It noted the Trial Judge had excluded Claim Nos. 2, 3, 8 and 11 as contrary to contract terms, while upholding awards as to Claim Nos. 1, 4, 5, 6, 7, 9 and 10. Given these determinations and the legal principles relied upon, the High Court concluded there was no merit in the appeal.

Holding and Implications

Holding: The appeal is dismissed and the judgment and order of the learned Trial Judge dated 22nd November, 1990—by which the arbitral award was made rule of the Court and decree passed—is affirmed. APPEAL DISMISSED; TRIAL JUDGE'S ORDER AFFIRMED.

Implications:

The arbitral award (lump sum of Rs. 2,53,000 and arbitration costs of Rs. 26,720) remains enforced as made rule of the Court; the decree passed by the Trial Judge stands.
The High Court accepted the Trial Judge's selective application of contractual prohibitions: certain claims were held contrary to contract and rejected (Claim Nos. 2, 3, 8 and 11), while other claims were held permissible in the circumstances (Claim Nos. 1, 4, 5, 6, 7, 9 and 10) in light of employer‑attributable delay, implied acceptance of extra work and section 70 considerations.
The decision applies established Supreme Court authorities (notably Associated Construction v. Pawanhans and Union of India v. Sita Ram Jaiswal) to the facts; the court did not purport to lay down a novel principle of law or to overrule existing precedent. The outcome is a fact‑specific affirmation of the Trial Judge's balancing of contract terms, arbitration deference, and restitutionary principles.

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Board Of Trustees For The Port Of Calcutta v. Royal Constructions

The Judgment of the Court was delivered by

K.J Sengupta, J.:— The appeal has been preferred by the above named appellants being aggrieved by and dissatisfied with the judgment and order of the learned Trial Judge dated 22nd November, 1990 whereby and whereunder the award of the learned sole Arbitrator has been made rule of the Court, and decree has been passed.

2. The short fact of the case leading to bringing action by the appellant is summarized as follows:—

The respondent above named was awarded contract for 60% of the total works of annual maintenance of road at residential area of the Haldia Dock Complex by the appellant. The appellant was successful tenderer for the entire tender works agreeing to execute the works at a sum of Rs. 8,83,362.12. But the same could not be completed within the time stipulated for various reasons. Accordingly extension of time was granted for completion of the same. The payment was made for the works done and the respondent is said to have signed the final bill of payment and “no claim certificate” was issued by the respondent. Thereafter the respondent demanded of the appellant for making payment of a sum of Rs. 3,91,052.35 on various heads. Obviously such payment was not made by the appellant, and hence dispute arose. In terms of the agreement the dispute was referred to Sole Arbitration of one Mr. D.P Roy Chowdhury. The statement of claim was filed by the respondent naturally counter statement was also filed by the appellant to contest the claim made by the respondent before the learned Arbitrator.

3. In the statement of claim aforesaid aggregate amount of Rs. 3,25,768.37p on account of principal under various heads, and interest at the rate of 18.5% calculated from 1st June to 30th June, 1986 amounting to Rs. 65,283.98p, thus aggregating to Rs. 3,91,052.35p. was made. Break up of the head of the claim are as follows:—

Claim No. 1. Amount Reimbursement of additional cost of execution or added expenses of the work due to increase in prices of materials in respect of all works done after expiry of original date of completion Rs. 96,557.15p Claim No. 2. Reimbursement of losses on account of idle labour during the Port and Dock Strike for 29 days (i.e from 15.03.84 to 13.04.84) Rs. 17,374.34p Claim No. 3. Reimbursement of losses on account of idle labour dust department's failure to issue Road Roller. Rs. 12,000/- Claim No. 4. Reimbursement of additional cost of execution in respect of extra quantities of work ordered after expiry of original date of completion. i) Extra work for surface dressing beyond tendered quantity ii) Do for sand cost Rs. 30,658.51p Claim No. 5. Extra item for remaking old bitumen surface as per direction of the department before consolidation of new stone metal over the existing bituminous road surface. Rs. 9,000/-

Claim No. 6. i) Refund or wrongful recovery made from 2 R/A bill and 3rd R/A bill (Rs. 30,087.37) ii) Interest on the above amount of Rs. 30,087.37p for wrongful detention @ 18.5% p.a from May, 1985 till 30 June, 1986 (Rs. 1017.00) Rs. 39,558.37p Claim No. 7. Extra expense incurred due to increase of Labour rate (Regulation Act, 1970 for revised Rates of Central Govt. Circular) Rs. 18,120/- Claim No. 8. Extra expenses incurred due to provision of night & day signal for moving vehicles as safety as 50% of the road width was allowed to excavate at a time, keeping the other half open to vehicular traffic. Rs. 4,500/- Claim No. 9 Reimbursement of prolonged on site off-site expenses during the enlarged period i.e after expiry of original date of completion. Rs. 32,000/- Claim No. 10. Extra expenditure for payment to labour for prolongation of the work by months beyond the original period of completion without any extra turnover. Rs. 60,000/- Claim No. 11. Additional interest on total amount @ 18.5% per annum from 1 June, to June 30, 1986. Rs. 65,283.98p

4. The defence taken that most of the claims are not admissible under the Special Condition of Contract or General Conditions of Contract. It was contended that the claim No. 1 was not permissible under Clause 7 of the Special Condition of Contract; Claim No. 2 is also prohibited under Clause 65 of General Condition of Contract; Claim No. 3 is not allowable under Clause 10 of the Special Condition of Contract; Claim No. 4 is also disallowable under Clauses 24, 25(a) and 26(a) of the General Condition of Contract; Claim No. 5 is prohibited by Clause 26(a) of General Condition of Contract; Claim No. 6 is not allowable under Clause 48(b) of General Condition of Contract; Claim No. 7 cannot be allowed under Clause 7 of the Special Condition of Contract; Claim No. 8 is hit by Clause 33 of the General Condition of Contract; Claim No. 9 is also the same position under Clause 65 as Claim No. 8 is; Claim No. 10 is also barred by Clause 65 of General Condition of Contract; Claim No. 11 being the amount of interest is prohibited under Clause 13(g) as quoted above. After several sittings the learned Sole Arbitrator has awarded a lumpsum amount of Rs. 2,5300/- without spelling out his mind, out of total claim as above. In addition thereto cost of the arbitration of a sum of Rs. 26,720/- has been allowed no pendente lite interest has been allowed in the awarded sum.

5. The appellant thus filed an application under sections 30 and 33 of the Arbitration Act, 1940 (since repealed) for setting aside the same principally on the ground of legal misconduct committed by the learned Arbitrator having awarded the lump sum amount and most of which are covered by prohibitory clause of the agreement. The learned Trial Judge however did not accept the challenge and upheld the award substantially and decree was passed accordingly.

6. Before us Mr. Shurit Roy Chowdhury, Barrister-at-Law contends that on plain reading of the claims under different heads it would appear that same are absolutely barred under various terms and conditions of the General Condition of Contract or Special Condition of Contract. Therefore, the learned Arbitrator having passed lumpsum award without assigning reason has committed misconduct as the amount of the award if properly read and considered would cover all the claims, which are not permissible under the terms of the contract. He has drawn our attention to Clauses 7 and 10 to contend that by virtue thereof the Claim No. 1 amounting to Rs. 96,557.15p and a sum of Rs. 12000/- on account of reimbursement of losses on account of idle labour due to department's failure to place road roller, and sum of Rs. 18,120/- under the head Claim No. 7 for extra expense incurred due to increase of labour rate are not at all awardable, as such claims were contrary to the aforesaid clauses. Similarly he has cited the Clause 65 of General Condition of Contract to resist the Claim No. 2 on account of reimbursement of loss on account of idle labour during the Port and Dock strike. He wants us to read Clauses 24, 25(a) and 26(a) of General Condition of Contract that the same do not permit to support claim of Rs. 30,658.51p on account of reimbursement of additional cost of execution in respect of extra quantities of work order after expiry of original date of completion. Similarly he contends that Claim No. 5 is absolutely hit by Clause 26(a) of General Condition of Contract so also the interest on the wrongfully withheld amount of second running account bill and third running account bill under Clause 48(b) of General Conditions of Contract has been placed before us to say that claim of Rs. 4,500/- on account of extra expenses incurred is not allowable. Claim No. 9 on account of reimbursement of prolonged on site expenses of Rs. 32,000/- is absolutely hit by Clause 65. Similarly extra expenditure for payment to labour for prolongation of the work by months beyond the original period of completion under claim No. 10 is also excepted under Clause 65 of the General Condition of Contract. Additional interest on total amount @ 18.5% per annum from first June under General Condition of Contract is hit by Clause 13(g) are above.

7. The learned Trial Judge, according to him has, made a total guess work and if those clauses are really read and applied which have not been done either by the learned Arbitrator or by the learned Trial Judge the interest of the claim is admissible and thereby both the authorities has committed error in allowing legally inadmissible claim.

8. It appears that the learned Trial Judge has made guess work without any least to find which amount could be awarded by the learned Arbitrator, and while doing so by necessary implication principle of unjust enrichment as provided under section 70 of the Contract Act has been applied. According to him with the support of a judgment of the Supreme Court in case of Union Of India v. Sita Ram Jaiswal. reported in (1976) 4 SCC 505 : AIR 1977 SC 329 contends that in order to apply this principle of section 70 of this Act the pre conditions contained in section 70 has to be fulfilled. If those conditions are not fulfilled and any relief is granted under that section, this would be legally flawed decision, and the same is not supportable. He then with the support of the judgment of the Supreme Court in case of Continental Construction Co. Ltd. submits that it is not permissible either by the Arbitrator or by the Court ignoring the total prohibition in awarding price escalation clause in the contract. According to him those prohibitory clause should have been applied not only by the Arbitrator who does not appear to have done it but also by the learned Trial Judge. Hence non-application of the contractual terms which is mandatory in nature constitute legal misconduct and vitiates the award. According to him, if all the heads of claim are examined and it would appear that only one claim namely refund of wrongful recovery of Rs. 30,087/- is allowable but not the interest thereof if this claim is set apart then under no circumstances a sum of Rs. 2 lakh and odd could be awarded.

9. Learned counsel for the respondent Mr. Mukherjee on the other hand submits that when legally awarding of non speaking award and lump sum amount is permissible it is not for the Court to probe into the mind of the learned Arbitrator. As far as the alleged prohibitory terms as against the escalation of prices etc is concerned, he submits while supporting the judgment of the learned Trial Judge reported in (2008) 16 SCC 128 : AIR 2008 SC 2911 that the aforesaid clause is applicable during the period when the contract subsists. The said prohibitory clause cannot be applied after expiry of the time stipulated in the contract. In other words, if the time of completion of work is extended prohibitory clause against escalation price will have no manner of application. It is not in dispute that the learned Arbitrator had jurisdiction to examine the terms of contract and to adjudicate the dispute raised by both the parties. It is incorrect to allege that the learned Arbitrator has wrongfully applied the provision of the terms of contract. He submits that the amount awarded by the learned Arbitrator is possible under the given facts and circumstances of this case or not. This fact-finding of the learned Arbitrator is not an absurd one and the Appeal Court will not substitute the same with its own findings. In support of his contention he has relied on the decision of the Supreme Court reported in 1989 Supp (1) SCC 368.

10. After hearing the learned counsel for the parties and also having read the judgment it appears that the learned Arbitrator without any reason passed a lump sum award of Rs. 2,53,000/- out of claim amount of Rs. 3,91,052.35p. Obviously, the learned Arbitrator has not awarded for the amount claimed. In ordinary course of event learned Trial Judge should not and could not explore the possibility of awarding this amount by the learned Arbitrator entering into the mental faculty of the learned Arbitrator. In this case the learned Trial Judge has meticulously examined the records and read the award and in the process the learned Trial Judge as it appears from the plain reading of the impugned judgment, it is found that it is possible to award the claim on account of Claim No. 1, Claim No. 4, Claim No. 5, Claim No. 6, Claim No. 7, Claim No. 9 and Claim No. 10. The rest of the claim could be disallowed if the case and counter case is considered and the terms and conditions of the contract are read.

11. It is trite as urged by the learned counsel for the respondent that fact finding of the learned Trial Judge should not be upset or scrutinized just on mere asking, but when it is urged before the Appeal Court being the last Court of the fact that it is not possible at all while reading the terms of the contract to award the amount made by the learned Arbitrator, the Appeal Court obviously is obliged to examine this aspect. The learned Trial Judge on the question of prohibitory clause against the claim for escalation as mentioned in Special Condition of Contract, is of the opinion that aforesaid clause is not applicable beyond the stipulated period of the contract and this legal conclusion is also based upon the high authorities as noted by the learned Trial Judge. In course of hearing fairly recent pronouncement of Supreme Court on this subject in case of Associated Construction v. Pawanhans Helicopters Limited. reported in (2008) 16 SCC 128 : AIR 2008 SC 2911 was brought to the attention of this Court by the learned counsel for the respondent very appropriately. In paragraph 10 of the said report in our view supports what has been found by the learned Trial Judge. Portion of paragraphs 7 and 10 of the said report are required to be reiterated here:

“7. ……….. We, are, further of the opinion that even assuming for a moment that there could be no price escalation during the period of 4 months i.e, during pendency of the contract such embargo would not be carried beyond that period as time was the essence that of the contract…..”

“10. We are, therefore, of the opinion in the light of the aforesaid judgments, that it was open to the contractor to contend that it was liable to be compensated on account of the fact that delay had been occasioned on account of reasons attributable to Pawanhans”

12. While reading the aforesaid judgment of the Supreme Court and also those relied on by the learned Trial Judge we are of the view that at the time of execution of the contract the parties agreed not to claim nor to pay any extra price on account of escalation or otherwise. When this agreement was entered into both the parties thereto were in contemplation of the reasonable escalation of price during the contractual period. But if the completion of the work is delayed on account of lapses on the part of the employer, here appellant, and owing to such delay if there is escalation of price in respect of the cost for the works obviously such a prohibitory clause of escalation would be absolutely hardship and it cannot be mitigated under any circumstances. The object of justice delivery system is not to put any of the contracting parties in undue hardship so much so their survival would be at stake.

13. It is an admitted position that works could not be completed within the time and extension was applied for and granted without any reservation at least there is no evidence contrary to this effect in record, the original price fixed in the contract with the prohibitory clause as against escalation could not be applied during the period of extension. What the learned Arbitrator did not do the learned Trial Judge is to do and in our view very reasonably and appropriately His Lordship has done so. Had it not been done, gross injustice would have been meted out to the contractor. In view of this discussion the contention raised by Mr. Roy Chowdhury is not acceptable to the Court, if accepted prohibitory clause against escalation of price as contained in form of contract would be applicable in all the situations, even in a case where due to serious lapse of the employer the work is prolonged the contractor will be retrievably suffering loss and injury.

14. In our view the learned Trial Judge keeping in view of the principle of section 70 of the Contract Act has correctly applied this principle as laid down in the said Supreme Court decision ((1976) 4 SCC 505 : AIR 1977 SC 329 cited by Mr. Roy Chowdhury). Admittedly extra work has been done and accepted by the appellant without raising any dispute, when it has been accepted presumption is implied.

15. No witness has come forward to state before the learned Arbitrator nor does it appear from the record placed before us that permission was not granted. When extra work has been done and the appellant enjoyed the benefit thereof implied permission could be inferred. We find force in the submission of the learned counsel for the respondent that the amount awarded by the learned Arbitrator as accepted by the learned Trial Judge is not an impermissible figure, and this could be awarded. Moreover, we notice that the learned Trial Judge has carefully excluded the other claims with reasons, namely Claim No. 2, Claim No. 3, Claim No. 8, Claim No. 11 which were found contrary to the terms of the contract, and the same were rejected. Under these circumstances we are of the view that there was no merit in the appeal and so the same is dismissed. The judgment and order of the learned Trial Judge is hereby affirmed.

16. Asim Kumar Mondal, J.: I agree.

17. BD

Board Of Trustees For The Port Of Calcutta v. Royal Constructions

Summary of Opinion delivered by K.J. Sengupta, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments (as presented by Mr. Shurit Roy Chowdhury, Barrister-at-Law)

Respondent's Arguments (as presented by Mr. Mukherjee)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Board Of Trustees For The Port Of Calcutta v. Royal Constructions

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