M.Y. Eqbal, J.
1. These appeals under Section 37 of the Arbitration and Conciliation Act, 1996 is directed against the judgments and orders dated 8.1.02 passed by Sub-Judge, Hazaribagh in Miscellaneous (Arbitration) Case No. 2/2001. 3/2001 and 4/2001 whereby he had dismissed the objections filed by the appellant under Section 34 of the said Act and refused to set aside the awards.
2. The brief facts of the case in MA 4 of 2002 are that in response to a notice inviting tender by the appellant the respondent claimant submitted tender for the work of construction of residuary work under Bhairwa Reservoirs scheme and the work was awarded to the respondent and an agreement was drawn on 3.7.1991. Although the construction works started but it could not be completed within the extended period because of various reasons. The parties inter alia alleged their failure in performing their reciprocal obligations. Ultimately dispute arose between the parties and the claimant respondent moved this Court in Request Case No. 4 of 1996 and the dispute was finally referred to the arbitrator for adjudication pursuant to the order passed by the High Court.
3. The salient features of the work assigned are as follows :
(i)Agreement valueRs. 3,18,98,949.73(ii)Stipulated date of commencement3/7/1991(iii)Stipulated date of completion (12 months)2/7/1992(iv)Extended date of completion30/6/1995
4. The learned arbitrator after considering the case of the parties gave the following award.
Sl. No.Description of itemAmount Awarded
1.Amount payable as per 6th onaccount bill dated 4/8/1993
Rs. 17,12,384/-2.Damages and losses suffered due to various breaches and defaults on the part of department
Rs. 36,30,600/- (i)Idle plant and machinery : (a)Idle and/or under utilized during the period between 3rd July, 1991 to 6th August 1993 (total 25 months-effective utilization of plantsand equipment 4 months)
Rs. 72,61,200/- (b)Fully idle plants and equipments from 7th August, 1993 to 31st August 1995 say 24 months
Rs. 2,59,8007- (ii)Idle/Additional over head charges:Rs. 6.49.500/- (a)(a) During the period from 3.7.1991 to 6.8.1993 (b)Fully idle overhead expenses from 7th August, 1993 to 31st August
3.Increased cost of works executed after expiry of original date of completion i.e. works execute between 3.7.1992 to 6.8.1993
Rs. 7.90.481/-4.Loss of profit earning capacity and/or abnormally low turn over 1,66 lakhs per months between the period from 3.7.1991 to 31.8.1995 i.e. 50 months with loss turn over of Rs. 19.6 lakhs/months loss.
Rs. 23,35,984/-5.Interest @ 18% p.a. on the amount payable under the 6th on A/c bill 4.8.1993 till payment
Rs. 14.55.526/-6.Interest @ Rs. 18% p.a. as due amount (except claim No. 4 from 1st September, 1995 till payment)Rs. 91.05.814/-
5. In this way the arbitrator awarded a total sum of Rs. 2,72,26,289/-. The only claim rejected by the arbitrator is with regard to the alleged extra work done up to 1993 but not included in the 6th A/c bill.
6. The case of the claimant respondent was that immediately on receipt of the work order they organize itself and mobilized all resources, plants tools, labourers, finance etc. to carry out its contractual obligations by completing the entire works within fixed time but the appellant was not at all ready and willing to perform their obligations regarding the execution of work in as much as the appellant failed to deliver full site of work fund etc. which was essential for timely completion of work. According to the claimants-respondents the performance of the work was prevented due to various breaches and default on the part of appellant i.e.
(i) Failure to arrange necessary fund for completion of work.
(ii) Failure to issue necessary drawings in right time.
(iii) Failure to issue explosive materials and or cement in right time.
(iv) Failure to complete land acquisition process and to prevent objection by erstwhile landowners and/or villagers who prevented the claimant to execute the work.
(v) Failure to provide approach road and/or right of way to quarry site and/ or provide the same through borrow area.
(vi) Failure to make proper and timely on account payment.
7. The claimant's further case was that the stipulated date of commencement of work was 3rd July, 1991 and the approved drawings were issued to the claimant in May. 1992. The work was suspended by order dated 30.9.1992 on account of paucity of fund and thereafter the work was resumed in a restricted area and continued upto 10th January, 1993. It is alleged that the work was again suspended from 1st July, 1993 to 9th July, 1993 for non-availability of cement, paucity of fund and the violation and obstructions created by the villagers. The claimant's further case was that cement was issued on 9th July, 1993 and the work was resumed from 20th July, 1993 and continued till 5th August, 1993 and again the work was stopped by the appellant on account of non-availability of departmental materials and paucity of fund. The claimants alleged that due to abnormal delay in the execution of the work along with suspension of work it has suffered diverse losses for which it is entitled to damages.
8. The admitted case of the claimants is that the value of the work allowed to be executed till 6th August, 1993 which was included in the 6th A/c bill was of Rs. 68,27,610/-.
9. The case of the appellant Department on the other hand, is that the work could not be completed on account of fault of the claimants who has become guilty of breaches of terms and conditions of the contract. It is alleged that none of the claims are arbitrable under the arbitration proceedings. The claims are absolutely barred by the binding terms and conditions of the tender notice and the special terms and conditions of the agreement. The total value of the work allotted to the claimants was Rs. 3,51,68,621.70 and the said work was not at all completed. The appellants' case is that full site of spill way was provided before the commencement of the work to the predecessor contractor i.e. Bihar State Construction. The claimant was awarded further residual work of spill way which was left by the predecessor contractor. Similarly the approved drawing was provided to the claimants within time and therefore, it was obligatory on the part of the claimant to submit the running bill each month or before the date fixed by the Engineer in charge. But the claimant failed to present the bill in each month. On the failure of the claimant the work was measured in their presence. It is contended that the claimant contractor was responsible to arrange for their own quarry and transport equipment and all other arrangements for working the quarry including approach road, explosives and detonators etc. The appellants' further case is that inspite of availability of the approved drawing there was unsatisfactory progress of work and for that a letter dated 25.4.1992 was issued by the department. Similarly there were available sufficient cement supplied as and when needed and therefore the plea that the work was suspended on account of non-issuance of cement and drawing are false. The entire allegations regarding the suspension of work due to non- availability of cement, paucity of fund and obstruction by villagers are false.
10. As noticed above the arbitrator gave his award on all the claims except one as quoted hereinabove. The appellant challenged the said award before the Court below by filing objection under Section 34 of the said Act. The Court below after hearing the parties dismissed the said objection and refused to set aside the award.
11. In addition to the original work two other works were also awarded to the claimant for Earthen Dam by two supplementary agreements. The claimant-respondent also raised dispute and claimed loss and damages which matters were also referred to the arbitrator. The arbitrator also gave two separate awards which are the subject matter of MA 3 of 2002 and MA 5 of 2002. I will deal with both the appeals separately.
12. MA 3 of 2002.--This appeal arose out of the order confirming the award given by the arbitrator in respect of the agreement for the construction of Earthen Dam on river portion under Bhairwa reservoir scheme. The total value of the agreement was Rs. 2,23,33,395/- and as against the said agreement the claimant contractor claimed by way of loss and damages, Rs. 4,47,85,509/-. The arbitrator awarded Rs. 2,23,70.268/-. The details of the amount awarded by the arbitrator are as follows :
Details of ClaimsAmount Awarded
(i)Amount payable for the work done but not included In the 3rd bill
Rs. 2,88,955.00(ii}Damages and loss suffered due to the breach and default
(a)Idle and unutilized plant and machinery from March 1991 to October 1992
Rs. 29.88,250.00 (b)For Idle, plant and equipments from October 1992 to August 1995
Rs. 81,28,040.00(iii)(a)For additional overheads charge of idle machineries from March 1991 to October 1992Rs. 60,000.00 (b)Overhead charges from October 1992 to August 1995Rs. 2,04,000.00(iv)For loss of profit earning capacity and low turnoverRs. 22,33,339.00(v)Interest on the aforesaid amountRs. 2,74,507.00(vi)Further interest on the due amount & 18%
In this way arbitrator award a total sum of Rs. 2,23,70,268/- when the value of the agreement was Rs. 2,23,33,395/- admittedly the work could not be executed and the claim for loss and damages was expressly bared under the special terms and conditions of the agreement.
13. MA 5/2002.--This appeal arose out of Misc. Case No. 4/2001 which relates to the award passed in Arbitration Proceeding No. 5/98. The Arbitration proceeding was in respect of agreement for construction of residuary Earthen Dam under Bhairwa Reservoir Scheme. The total value of the agreement F-2-8 was Rs. 97,88,147.00. Admittedly the work could not be completed and ultimately the contract was closed. The claimant submitted list of its dues and also claimed loss and damages. Under this agreement the claimant claimed a sum of Rs. 3,53,116.00 payable as per the bill. The rest of the claims amounting to Rs. 1,85,383.00 is by way of loss and damages. The claimant claimed loss and damages for idle plant and machineries, additional over head charges, increased cost of work, loss of profit earning capacity and interest on the said amount which was claimed by way of damages. The arbitrator awarded Rs. 1,00,87,570.00 under different heads as under :
Sl. No.Description of itemAmount awarded
1.Amount payable as per 1st on a/c bill dated 29.5.1993 prepared by the department.
Rs. 3,00148/-2.Damages and tosses suffered to various Breaches defaults on the part of the department :
(i)Idle Plant and Machinery. (a)Idle and/or under utilized during the period during 10th October, 1992 to 16th May, 1993 (Total 7 months effective utilization of plants and equipments 0.4 months) 6.6. months @ Rs. 4,31,100
Rs. 2,58,660.00 (b)Fully idle plants and equipments from 17th May, 1993 to 31st August, 1995 say 27 months, 27 months 8 4,31,100/p.m. (details of idle plants and equipments enclosed marked Annexure-A)
Rs. 44,83,440.00 (ii)Idle/Additional overhead charges (a)Idie and/or under utilized during the period from 10.10.1992 to 16.5.1993 6 months 9 Rs. 9,0007/- p.m.
Rs. 54,000.00 (b)Fully idle over head expensesfrom 17,5.1993 to 31.8.1995 27 months @ Rs. 9,000/- p.m.
Rs. 1,17,000.00 (iii)Increase cost of works executed after expiry of original date of completion i.e. works executed between 8,11.1992 to 16.5.1993 (Recorded) from 1st on a/c bill) due to rise in prices of labour and materials 20% of Rs. 3,53,116
Rs. 45,022.00 (iv)Loss of profit earning capacity and/or abnormally low turnover of Rs. 10,385 per months in average in place of contemplated average turnover Rs. 10,87,349 per month between trie period from 10.10.1992 to31 .8.1995 i.e. 34 months with loss turnover of Rs. 10.76 lakhs per month @ 10% for 34 months Rs. 1.076 lakhs per month
Rs. 9,43,303.003.Interest @ 18% on the amount payable under 1st on a/c bill 29.5.1993 from 1.7.1993 till payment
Rs. 2,81,128.004.Interest on the due amount (except Claim No. 3) 18% p.a. from 1.9.1996 till paymentRs. 35,99,869.005.CostRs. 25,000/-
14. It is therefore, evident that the total value of the work was Rs. 97,88,147.00 and only a portion of work was executed and a bill was submitted for Rs. 3,53,116.00 and arbitrator awarded a sum of Rs. 3,00,148.00. The balance amount of Rs. 97,87,570/- has been awarded by way of loss, damages, interest and cost. In other words against the total value of the work being Rs. 97,86,147,00/-only a sum of Rs. 1,00,87,570,00/- has been awarded by way of loss, damages and interest on account of idle machineries, labourers and overhead charges. Admittedly the claimant did not execute the work but the arbitrator allowed damages by applying principle of fundamental breach of agreement.
15. Mr. Shamim Akhtar, learned Standing Counsel No. II assailed the impugned awards of the Arbitrator as being illegal and wholly without jurisdiction. Learned counsel at the very outset submitted that admittedly no work was done by the respondents on the ground that the essentials for the execution of the work had not been provided by the appellant and in spite of that the Arbitrator has awarded exorbitant amount under different heads which were not even arbitrable in terms of the agreement. It is contended that there was no hurdle in starting the work inasmuch as land was provided, materials were supplied and other facilities were also provided to the claimant for the completion of work but the claimant deliberately did not complete the work. Learned counsel submitted that Arbitrator has committed grave error of law in awarding very exorbitant amount although the claim itself was not entertainable under various clause of the special terms and conditions of the agreement. Learned counsel lastly submitted that in any view of the matter, the impugned award given by the Arbitrator is against the public interest and against the public policy and therefore, it is liable to be set aside. Learned counsel relied upon the decisions of the Supreme Court in the case of Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan, AIR 1999 SC 2102, in the case of Food Corporation of India v. Surendra, Devendra and Mahendra Transport Co., (2003) AIR SCW 845, in the case of Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (2003) 2 Civil Law Times 242. Learned counsel also relied upon the decision of the Supreme Court in the case of Sikkim Subha Associates v. State of Sikkim, AIR 2001 SC 2062.
16. On the other hand Mr. S. Pal, Senior Advocate and Mr. S.J. Roy, advocate argued on behalf of the respondent/claimant in support of the Award. Learned counsel contended that the Arbitrator rightly gave the Award on the ground of fundamental breach of the terms of the agreement as a result of which claimant sustained serious loss and damages. Learned counsel submitted that claimant had mobilized heavy machinery, both skilled and unskilled labourers, staff, financial planning and investing heavy amount and thereby incurred great expenses. In any view of the matter Clause 1.2.1.1 to 1.2.1.4. cannot be a bar for awarding compensation/damages.
17. Before going into the merit of the contention made by the learned counsel, I would first like to discuss the decisions relied upon by the learned Standing Counsel.
18. In the case of Olympus Superstructures Pvt. Ltd. (supra), the Supreme Court while considering the provisions of Section 16 and 34 of the Arbitration and Conciliation Act, 1996 (in short the Act) held that the plea that the Arbitral Tribunal does not have jurisdiction shall be raised as soon as the matter is raised during the arbitral proceeding. Under Sub-clause 2(a)(iv) Section 34 arbitral award may be set aside by the Court if the award deals with the dispute not contemplated by of not falling within the terms of the submission to arbitrator.
19. In the case of Food Corporation of India (supra), the Supreme Court held that raising of claim before the Arbitrator regarding transit loss, demurrage and war-fage charges is barred under the agreement and, adjudication of such claim by the Arbitrator amount of exceeding jurisdiction. Their Lordships observed :
'High Court issued a direction by order dated 16th June, 1988 referring the disputes for arbitrator in terms of Clause XX. The matters which were excluded from the reference to the arbitrator therefore could not be referred to or decided by the arbitrator. Entrance of reference by the arbitrator on disputes which were excluded from reference and the adjudication thereupon would amount to exceeding in the exercise of the Jurisdiction as held by this Court in Rajasthan State Mines and Minerals Ltd. case (supra). Since there was a specific bar to the raising of a claim regarding transit, demurrage and warfage charges, the award made by the arbitrator in respect thereof would be in excess of the jurisdiction.'
20. In the case of Oil and Natural Gas Corporation Ltd. (supra), their Lordships of Supreme Court interpreted the provisions of Section 34(2)(b) and observed ;
'Therefore in our view, the phrase public policy of India used in Section 34 in text is required to be given a wider meaning. It can be stated that the concept of public policy denotes some matter which concerns public and the public interest. What is for public or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the fact of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar's case (supra), it is required to be held that the award could be set aside, if it is patently illegal. Result would be award could be set aside if it is contrary to :
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void.'
21. In the case of M/s. Sikkim Subha Associates (supra), the Supreme Court observed :
'It is also, by now, well settled that an arbitrator is not a conciliator and his duty is to decide the disputes submitted to him according to the legal rights of the parties and not according to what he may consider it to be fair and reasonable. Arbitrator was held not entitled to ignore the law or misapply it and cannot also act arbitrally, irrationally, capriciously or independently of the contract (See 1999 (9) SCC 283 : 1999 AIR SCW 3644 : AIR 1999 SC 3627) Rajasthan State Mines and Minerals Ltd. v. Eastern Engineering Enterprises. If there are two equally possible or plausible views or, interpretations it was considered to be legitimate for the arbitrator to accept one or the other of the available interpretations. It would be difficult for the Courts to either exhaustively define the word 'misconduct' or likewise enumerate the line of cases in which alone interference either could or could not be made. Courts of law have a duty and obligation order to maintain purity or standards and preserve fully faith and credit as well as to in spite confidence in alternate dispute redressal method of arbitration, when on the face of the award it is shown to be based upon a proposition of law which is unsound or findings recorded which are absurd or so unreasonable and irrational that no reasonable or right thinking person or authority could have reasonably come to such a conclusion on the basis of the materials on record or the governing position of law to interfere. So far as the case before us is concerned, the reference to the arbitrator is found to be a general reference to adjudicate upon the disputes relating to the alleged termination of the agreement by the State and not a specific reference on any particular question and consequently, if it is shown or substantiated to be erroneous on the fact of, it, the award must be set aside.'
22. Coming back to the instant cases,as noticed above, the claimant besides theclaim for extra work also claimed damagesand losses suffered due to various breachand default of the department namely,damages for idle plant and machinery,idle/additional overhead charges, loss ofprofit earning capacity and interest. It wasthe specific case of the appellant that suchclaims are barred under different clause ofthe special terms and conditions of the contract. Those clause of the special terms andconditions of the contract reads as under :
'1.21 CLAIMS
1.21.1 Payments for any additional items of work shall be given by Clause 11 (Eleven) of PWD form F-2 of the contract.
1.21.2 No claim for idle labour, idle machinery etc. on any account will be entertained.
1.21.3 No claim shall be entertain for business loss or any such loss.
1.21.4 No claim shall be entertained for delays in communicating decision, drawing or specifications by the department. The department may however consider the grant of extension of time in completion of work. If there is any such genuine reason for it.
In case it is not possible for, the department to make the entire site available on the award of the work the contractor has to arrange his working programme accordingly. No claim whatsoever for not giving the site on award of work for giving the site gradually will be entertained however, suitable extension of time may be given at the discretion of the Engineer-in-Charge considering the merits of the case.
23. From perusal of the record of the arbitration proceedings, it appears that the question of jurisdiction of the arbitrator to adjudicate these claims was taken by the department at the very initial stage inasmuch as it was the specific case of the appellant in their statement of claim that these claims are barred under the aforementioned clauses of the contract. Surprisingly, the arbitrator made out a new case of fundamental breach of the contract by the department. The arbitrator held that the appellants are guilty of the fundamental breach of contract and therefore the above-mentioned clauses will not operate as a bar against the claim for payment of idle time charges. It is therefore, clear that despite bar created under the aforementioned clauses the arbitrator proceeded with those claims on the basis of fundamental breach of contract and awarded exorbitant amount on those claims.
24. So far the award under MA 4 of 2002 on account of idle time charges of plant and equipment the arbitrator awarded damages of Rs. 85,39,608/- (rupees eighty five lacs thirty-nine thousand six hundred and eight) under the head claim for time charges of plant and machineries in respect of the period August, 1993 to August 1995 the arbitrator awarded sum of Rs. 72,61,200/-(rupees seventy-two lacs sixty-one thousand two hundred). Similarly, against the claim of idle/additional over-head charges between July 1991 and August 1993, the arbitrator awarded Rs. 2,59,800/-(rupces two lacs fifty nine thousand eight hundred only). Further, for idle over-head charges between August 1993 and August 1995 the arbitrator awarded Rs. 6,49,500/-(rupees six lacs forty nine thousand five hundred). The arbitrator further awarded Rs. 7,90,481/- (rupees seven lacs ninety thousand four hundred eighty-one) being the increased cost of work executed by the claimant. The arbitrator further awarded Rs. 23,35,948/- (rupees twenty three lacs thirty five thousand nine hundred forty eight) for the loss of profit earning capacity. Not only that on this amount the arbitrator awarded a sum of Rs. 1,05,61,340/- (rupees one crore five lacs sixty one thousand three hundred forty) by way of interest at the rate of 18% per annum.
25. Claim No. 1, which relates to amount payable as per 6th account bill against which the arbitrator, has awarded Rs. 17,12,384/- (rupees seventeen lacs twelve thousand three hundred eighty four), I do not find, any reason to interfere with the same.
26. So far Claim No. 2 regarding extra work done beyond the works included upto the 6th bill the arbitrator has rejected the said claim.
27. So far Claim No. 3(i)(a). 3(b), 3(ii)(a), 3(ii)(b), 3(iii), 3(iv) and Claim Nos. 4 and 5 are concerned relating to idle machinery labourer etc. as discussed above were de hors agreement and those claims are not arbitrable by the arbitrator. The arbitrator has awarded more than about 1,50,00,000/- (rupees one crore fifty lacs) by way of damages for the breach of the contract and further awarded Rs. 1,05,61,000/- (rupees one crore five lacs sixty one thousand) by way of interest on the said amount of damages. On the fact of it therefore, the award given by the arbitrator except the award under Claim No. 1 is so unfair and unreasonable that is shocks the conscious of the Court. It must therefore be held that such award is opposed to public policy and it must be declared void. The impugned award except the Claim No. 1 is therefore, bound to be set aside.
28. Similarly in the award which is the subject matter of MA 3 of 2002, against the total value of the work i.e. Rs. 2,23,33,395/- the arbitrator awarded Rs. 2,23,70,268/- (rupees two crore twenty three lacs seventy thousand two hundred and sixty eight) by way of loss and damages. Similarly for the award which is the subject matter of MA 5 of 2002 as against the total value of the wok of Rs. 97,86,147/- the arbitrator awarded a sum of Rs. 1,00,87,570/- (one crore eighty seven thousand five hundred seventy) by way of loss and damages. In the awards the arbitrator further awarded 18% interest on the said amount till the date of payment.
29. As discussed above all these claims were barred under different clauses of the special terms and conditions of the agreement. Admittedly all the three works given under different agreements were not completed and only a portion of the work was done for which bills were submitted by the claimant and the same was paid by the department. Instead of appreciating the case of department that specific bar created under the agreement the arbitrator proceeded on the basis that there has been a fundamental breach of agreement from the side of the appellant and, therefore, the claimant is entitled to such an exorbitant amount by way of loss and damages. On the face of the award therefore, the arbitrator committed serious error of law in applying the principle of fundamental breach of agreement. Such an exorbitant award given by the arbitrator by way of damages not only shocks the conscious of the Court but also appears to be totally unfair and unreasonable and against the public policy. The impugned awards are therefore, bound to be set aside.
30. For the aforesaid reasons, these appeals are allowed in part and the impugned awards far Claim No. 1 amounting to Rs. 17,12,384/- (rupees seventeen lacs twelve thousand three hundred eighty four) is concerned, the same is affirmed and the rest of the awards are set aside.