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Satyanarayana Construction Company v. Union Of India And Others
Factual and Procedural Background
M/s Satyanarayana Construction Co. (“the contractor”) entered into a contract with the respondents for earthwork between Dharur and Rukmapur Stations. The contractual rate for earth-cutting and related works was fixed at Rs 110 per cubic metre, with completion originally due on 21-5-1997 and later extended to 31-3-1998. The contractor claimed it substantially completed the work but the final bill was not passed.
Disputes arose and, after the respondents failed to appoint an arbitrator, the contractor obtained an appointment order under Section 11 of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”). The sole arbitrator awarded the contractor Rs 95,00,000 on 31-12-2000, including a compound interest clause.
The respondents challenged the award under Section 34. The First Additional Chief Judge, City Civil Court, Secunderabad dismissed their objections on 4-7-2002. On appeal under Section 37, a Division Bench of the Andhra Pradesh High Court set aside or modified the award in respect of Claims 4, 6, 8 and 11 on 8-4-2005.
The present appeal before the Supreme Court is directed against that High Court judgment, the contractor contending chiefly that Claim 4 was wrongly interfered with.
Legal Issues Presented
- Whether the arbitrator exceeded his authority by awarding a higher rate (Rs 210 per cubic metre) for earth-cutting under Claim 4 when the contract expressly fixed the rate at Rs 110 per cubic metre.
- Consequently, whether the High Court erred in modifying the arbitral award in respect of Claim 4 (and related claims) under its appellate jurisdiction under Section 37 of the 1996 Act.
Arguments of the Parties
Appellant (Contractor)
- The arbitrator’s award on Claim 4 was a “well-reasoned” determination that considered the extensive rock blasting actually undertaken, justifying a higher rate of Rs 210 per cubic metre.
- The High Court transgressed its limited jurisdiction under Section 37 by re-appreciating evidence and substituting its own view for that of the arbitrator.
Respondents
- The contractual rate was fixed and binding; the arbitrator had no power to rewrite the bargain and grant an enhanced rate.
- The High Court correctly intervened because the arbitrator acted beyond the scope of the contract, constituting jurisdictional error.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Supreme Court held that Schedule A of the contract explicitly fixed the rate for “earthwork in cutting … including … sectioning to profile” at Rs 110 per cubic metre. Any higher remuneration based on alleged additional expenditure, such as rock blasting, cannot override the contractual stipulation.
Accordingly, the Court concluded that:
- The arbitrator’s substitution of Rs 210 per cubic metre amounted to rewriting the contract, an act beyond his authority.
- Because the arbitrator exceeded his jurisdiction, the High Court’s interference was justified and free from error.
The appellant did not challenge the High Court’s rulings on Claims 8 and 11. On Claim 6, the Supreme Court merely reiterated the High Court’s directive that the respondents compute and pay the amount, with 12% p.a. interest, when settling the final bill, and required that this be done within eight weeks of receiving the Court’s order.
Holding and Implications
APPEAL DISMISSED. No order as to costs.
Immediate effect: The modifications made by the Andhra Pradesh High Court to Claims 4, 6, 8 and 11 stand affirmed. The respondents must settle the contractor’s final bill in accordance with the High Court’s directions within eight weeks, including interest on Claim 6 if unpaid. Broader implication: The decision reaffirms that an arbitrator cannot alter explicit contractual rates; exceeding such authority will invite judicial correction under Sections 34 and 37 of the 1996 Act.
Order
1. This is an appeal from the judgment passed by the Division Bench of the Andhra Pradesh High Court on 8-4-2005 (2005) 3 An LT 460, (2005) 2 Arb LR 496 (AP).
2. The appellant, M/s Satyanarayana Construction Co. (for short “the contractor”) was awarded a contract for earthwork in formation and miscellaneous works from Ch. 24,150 m to Ch. 27,700 m between Dharur and Rukmapur Stations. The work was to be completed by the contractor by 21-5-1997 but it was extended from time to time and the last date for completion of the work, as per extended time, was 31-3-1998. According to the contractor, except for few minor works that remained to be verified, it completed the work by 31-3-1998 but the respondents did not pass the final bill.
3. For resolution of the disputes in relation to the above contract, the contractor sought appointment of an arbitrator but the arbitrator was not appointed by the respondents. The contractor, then, approached the Chief Justice of the Andhra Pradesh High Court by filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 (for short “the 1996 Act”). After hearing the parties, the Chief Justice allowed the application made by the contractor under Section 11 of the 1996 Act and appointed Justice Shri T.N.C Rangarajan, retired Judge of the High Court, as an arbitrator.
4. The sole arbitrator entered upon the reference. The contractor submitted his statement of claim. The claim of the contractor was under diverse heads; the principal claim being Claim 4 for a sum of Rs 1,89,99,999 (Rupees one crore eighty-nine lakhs ninety-nine thousand nine hundred ninety-nine only) as additional remuneration relating to cutting the earth and sectioning to profile. The claim was contested by the respondents. They set up a plea that the contractor unduly delayed the execution of the work and was not entitled to any further claim.
5. Before the arbitrator, the parties relied upon the documentary evidence. No oral evidence was let in by any of the parties. The arbitrator, by his award dated 31-12-2000, awarded a total sum of Rs 95,00,000 (Rupees ninety-five lakhs only) in favour of the contractor payable by the respondents on or before 31-3-2001 failing which it was directed that the due amount shall carry compound interest @ 12% p.a with quarterly rests until payment.
6. The respondents challenged the award by filing objections under Section 34 of the 1996 Act through a petition being OP No. 77 of 2001. The First Additional Chief Judge, City Civil Court, Secunderabad heard the parties and by his order dated 4-7-2002 dismissed the respondents' petition.
7. Not satisfied with the order of the First Additional Chief Judge, City Civil Court, Secunderabad, the respondents preferred an appeal under Section 37 of the 1996 Act before the Andhra Pradesh High Court. The Division Bench of the High Court, after hearing the parties, allowed the appeal, set aside the order of the First Additional Chief Judge, City Civil Court, Secunderabad passed on 4-7-2002 and modified the award dated 31-12-2000 passed by the arbitrator with regard to Claims 4, 6, 8 and 11.
8. Mr Anil Kumar Tandale, learned counsel for the contractor assailed the judgment of the High Court mainly with regard to Claim 4. He extensively referred to the reasons given by the arbitrator in awarding rate of Rs 210 per cubic metre for the work relating to “cutting the earth and sectioning to profile”. Mr Tandale submitted that the arbitrator took into consideration the relevant aspects in awarding higher rate for that work than the rate agreed to between the parties under the contract. Mr Tandale further submitted that the High Court exceeded its jurisdiction in setting aside the well-reasoned award passed by the arbitrator.
9. Mr Harish Chandra, learned Senior Counsel for the respondents, on the other hand, justified the judgment of the High Court.
10. In Schedule A appended to the contract, rates of the items not covered by SSR 96 are provided. At Serial No. 3 of Schedule A, the rate and amount of earthwork in cutting all types of soils is provided. It reads as follows:
Sl. No. Description Quantity Unit Rate Amount 3 Earthwork in cutting in all types of soils including soft disintegrated rock and with boulders of any size or continuous rock with blasting as required at site including side drains trolley refuges catchwater drains, etc., including excavation, sectioning to profile, dressing of slopes surface and leading of cut spoil into spoil dumps or into embankment up to maximum lead of 150 m and all lifts and dressing slopes and surfaces of spoils dumps with all contractor's tools, plant and machinery and labour complete as directed by the engineer. 60,000 1 cu. m 110 66,00,000.00
11. Thus, as per the contract, the contractor was to be paid for cutting the earth and sectioning to profile, etc. @ Rs 110 per cubic metre. There may be some merit in the contention of Mr Tandale that the contractor was required to spend huge amount on the rock blasting work but, in our view, once the rate had been fixed in the contract for a particular work, the contractor was not entitled to claim additional amount merely because he had to spend more for carrying out such work. The whole exercise undertaken by the arbitrator in determining the rate for the work at Serial No. 3 of Schedule A was beyond his competence and authority. It was not open to the arbitrator to rewrite the terms of the contract and award the contractor a higher rate for the work for which rate was already fixed in the contract. The arbitrator having exceeded his authority and power, the High Court cannot be said to have committed any error in upsetting the award passed by the arbitrator with regard to Claim 4.
12. We, thus, find that the High Court did not commit any error in upsetting the award of the arbitrator with regard to Claim 4 in the statement of claim.
13. Mr Tandale did not assail the judgment of the High Court with regard to other claims upset by the High Court, namely, Claims 8 and 11. With regard to Claim 6, the High Court has already directed the respondents to calculate the amount under this head at the time of settling the final bill and also directed the respondents to pay interest @ 12% p.a on the due amount, if not paid. Obviously, in view of the directions given by the High Court in para 26 of its judgment, the respondents will have to calculate the amount as regards the contractor's Claim 6 at the time of settling the final bill. If the final bill has not been settled so far, we direct the respondents to settle the final bill expeditiously and, in any case, not later than eight weeks from the date of receipt of copy of this order. The respondents shall have to pay interest as directed by the High Court on the due amount, if not paid so far.
14. Consequently, the appeal is dismissed with no order as to costs.
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