Versus: Efore Udhir Arain AND Nkareshwar Hatt

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2001 SCC OnLine All 625 : (2002) 46 ALR 73 : 2002 All LJ 304 : (2001) 4 AWC
2809 : (2002) 1 Civ LT 230
(Allahabad High Court)

BEFORE SUDHIR NARAIN AND ONKARESHWAR BHATT, JJ.
Between
Allahabad Development Authority, Allahabad and another
Versus
M/s. Vidyawati Construction Company, Allahabad
F.A.F.O. No. 1072 of 1999
Decided on September 20, 2001
Page: 74
JUDGMENT
SUDHIR NARAIN, J.:— The appeal is directed against the judgment dated 24.5.1999
and decree dated 14.7.1999 making the award of the arbitrator dated 23.5.1997 as
rule of Court and rejecting the objection of the appellants under Section 30/33 of the
Arbitration Act, 1940 (in short the ‘Act’).
2. The Allahabad Development Authority, Allahabad, appellant, framed a project for
construction of multi-storied commercial complex at Clock Tower, Chowk, Allahabad. It
invited tenders for constructing the commercial complex as framed by it. M/s
Vidyawati Construction Company, the respondent (hereinafter called the respondent-
company) submitted the tender. The cost of the project was quantified approximately
at Rs. 57,00,000/-. The company submitted its tender which was accepted by the
appellant, Allahabad Development Authority (in short the A.D.A). As per terms of the
agreement the construction was to be completed within a period of six months. The
period was, however, extended. It was completed on 31.8.1987. The respondent-
company had submitted twelve running bills for an amount of 1,14,43,922.01. The
respondent company was paid Rs. 1,14,00,000/-. The respondent-company submitted
final bill on 9.12.1989 before the appellant.
3. As the appellant did not apply the amount, the respondent filed writ petition No.
9086 of 1993 in this Court for a mandamus commanding the appellant to release the
amount of the bill as prepared by the appellant itself and further sought relief to direct
the appellant to release F.D.Rs. of the respondent-company deposited by way of
security deposits, totalling Rs. 5,79,690/- and interest etc. The writ petition was
disposed of by this Court on 21.1.1994 directing the Vice-Chairman, A.D.A. to decide
the claim of the respondent company within a period of one month from the date on
which a certified copy of the order is produced before him. The Vice-Chairman, A.D.A.,
by his order dated 17.6.1994 rejected the claim petition of the respondent-company.
4. The respondent-company on 11th February 1995 sent a letter to the Vice-
Chairman, A.D.A. appointing Sri R.C. Jain, fellow of Indian Institute of Architect as
Arbitrator and requested the appellant to appoint another Arbitrator in terms of
Arbitration clause and in case he fails to appoint Arbitrator within 15 days of the
receipt of the letter, Sri R.C. Jain shall adjudicate as the sole arbitrator for adjudication
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of the dispute between the parties. The Vice-Chairman of the A.D.A. wrote a letter on
6th February 1995
Page: 75
that as the matter has been decided by the Vice-Chairman rejecting the claim of the
respondent-company on 17.6.1994 the question of appointing Arbitrator does not
arise. The respondent-company submitted 18 claims before the Arbitrator on 7th
February 1996 as Under:—
Claim No. 1. Balance amount of work 51,83,639.00

done
Claim No. 2 Refund of security deposit 6,94,067.00
Claim No. 3 Reimbursement of loss of 4,75,180.00
interest
Claim No. 4 Additional cost incurred for 4,71,718.00
procurement of steel and
cement.
Claim No. 5 Enhanced rate over and 18,73,121.00
above tender rates for
quantum of work executed
beyond stipulated date of
completion.
Claim No. 6 For additional 8,09,100.00
uncontemplated
expenditure over
establishment
Claim No. 7 Cost of material wastage 6,64,783.00
Claim No. 8 Interest at 24% per 42,04,789.00
annum for the period
running bills and final bill
were not paid in time
Claim No. 9 Items for which the 5,14,700.00
amount was paid at lesser
rate.
Claim No. 10. Extra expenditure on 6,97,500.00
Watch and Ward
Claim No. 11 Loss of profit at 15% due 14,86,772.00
to prolongation of work
Claim No. 12 Additional cost incurred on 4,31,826.00
account of failure on the
part of Department to
secure permit for plying
vehicles.
Claim No. 13 Additional cost and 15,000,00.00
damages on shifting of
R.C.C. columns
Claim No. 14 Damages incurred on the 5,78,400.00
idleness of Labour,
establishment and
machinery
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Interest payable on the 2,35,858.00

cost of material purchased
Page: 76 at 24%
Claim No. 15
Claim No. 16 Claim for returning trucks 20,000.00

empty from Store
Claim No. 17 Sales tax on work contract 22,24,555.00
2,06,41,008.00
Claim No. 18 24% interest present and
pendentelite and future
interest.
5. The Arbitrator entered into reference on 14th June 1996. The notices were issued
to the appellant. On behalf of the appellant neither any person appeared nor filed
objection. He fixed 14.2.1997, 12.4.97, 23.4.1997 and 24.4.1997 for hearing the
matter.
6. As the award could not be given within the statutory period, an application was
filed for extension of the time before the Court under Section 28 of the Arbitration Act,
1940. The Court extended the period with the condition that the award be given by
3rd June 1997.
7. The Arbitrator fixed 19th May 1997 for hearing and the award was given on 23rd
May 1997 for a sum of Rs. 1,17,91,714.00 as principal and interest on Rs.
88,12,763.00 at the rate of 18% from the date of award till decree or payment
whichever is earlier. The award was submitted before the Civil Judge, Senior Division,
Allahabad for making the award rule of the Court. The application was registered as
Suit No. 327 of 1997. The appellant filed objection to the said application under
Section 30/33 of the Arbitration Act, 1940. It was registered as Case No. 395 of 1997.
The learned Civil Judge made the award rule of the Court and rejected the objection of
the appellant by judgment and order dated 24.5.1999. This order is under appeal.
8. We have heard Sri S.N. Verma, learned senior counsel for the appellant Sri R.N.
Singh, learned senior counsel for respondent at length.
9. The first contention raised in the appeal is that the Vice-Chairman of the A.D.A.
having rejected the claim of the respondent-company vide order dated 17.6.1994 the
arbitration proceedings were not maintainable. As noted above respondent-company
had filed Writ Petition No. 9086 of 1993 making the following prayers:—
“(i) issue a writ, order or direction in the nature of writ of Mandamus
commanding the respondent Authority to release the balance amount of the bill
prepared by the Authority itself;
(ii) a writ, order or direction in the nature of writ of Mandamus directing the
respondent Authority to release the Fixed Deposits of the petitioner, deposited by
way of security totalling Rs. 5,79,690;
(iii) a writ, order or direction in the nature of writ of Mandamus directing the
respondent Authority to pay interest on the whole amount of the petitioner withheld
by it at the rate of 24 per cent per annum from the date of final bill submitted by
the petitioner to the Authority;
(iv) Any other writ, order or direction as may be deemed fit and proper on the
facts and in the circumstances of the case; and
(v) Award costs of the writ petition to the petitioner.”
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Page: 77
10. The allegation of the respondent-company was that A.D.A. had calculated the
amount of Rs. 1,35,75,921.70 as the amount payable to respondent-company but it
has paid only 1,25,43,942.00 still the amount of Rs. 10,31,099.70 is payable to the
petitioner.
11. In paragraph 20 of the writ petition it was made clear that in respect of other
amount the petitioner reserved his right to take appropriate action. Paragraphs 20 and
22 read as under:—
“20. That although the aforesaid amount, as determined by the Department, is
not acceptable to the petitioner and the petitioner has already raised protest in this
regard, and therefore, the petitioner reserves rights to take appropriate action
against the illegal retention of the amount. However, for the purpose of this writ
petition, the aforesaid illegal retention of the disputed amount is not being raised
and the present writ petition is confined to the amount of the final bill as has been
prepared by the Authority itself.
22. That assuming but without admitting that the bill worked out by the
Authority to an amount of Rs. 1,35,75,921.70 is correct and the Authority has made
payment of Rs. 1,25,43,922.00, still the amount of Rs. 10,31,999.70 is payable to
the petitioner.”
12. The writ petition was disposed of with the direction that the petitioner can
submit its claim before the Vice-Chairman of the A.D.A. and on such claim being
submitted he shall decide within a period of one month from the date on which a
certified copy of the order is produced before him. The respondent-company submitted
its claim before the Vice-Chairman A.D.A. He rejected it on 17.6.1994. The decision of
the Vice-Chairman was not as an Arbitrator appointed by the parties. It was only
administrative decision taken on a claim petition submitted before him and decided in
pursuance of the order of the High Court. The arbitration clause contemplates
reference to an arbitrator as appointed by the parties. Clause 46 of the Arbitration
Agreement reads as under:—
“All disputes and differences of any kind whatever arising out of or in connection
with the contract or the carrying out of works (whether during the progress of the
work or after the completion and whether before or after the determination
abandoment or breach of the contract) shall be referred to and settled by the
Executive Engineer who shall state their decision in writing. Such decision may be
in the form of a final certificate or otherwise. The decision of the Executive Engineer
with respect to any of the excepted matter shall be final and without appeal as
stated in Clause No. 41. But, if either the employer or the contractor be dissatisfied
with the decision of the Executive Engineer or any matter question or the dispute of
any kind except any of the excepted matters) or as to the withholding by the
Executive Engineer of any certificate to which the contractor may claim to be
entitled, then and in any such case either party (the Employer or the Contractors)
may within 280 days after receiving a notice to such decision give a written notice
to the other party requiring that such matters in dispute be arbitrated upon. Such
written notice shall specify the matters which are in dispute and such dispute or
difference of which such written notice has been given and no other shall be and is
hereby referred to the arbitration and final decision of a single Arbitrator being a
fellow of the Indian Institute of Architects to be agreed upon be appointed by both
the parties or in case of disagreement as to the
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Page: 78
appointment of a single arbitrator to the arbitration of two Arbitrators being both

fellow of the Indian Institute of Architects one to be appointed by each party, which
Arbitrators shall before taking upon themselves the burden of Reference appoint an
umpire.
The arbitrator, the Arbitrators or the Umpire shall have power to open requisition
or notice, save in regard and to excepted matters referred to in Clause No. 41 to
determine all matters in dispute which shall be submitted to him or them and of
which notice shall have been given as aforesaid ………”
13. The decision of the Vice-Chairman cannot be treated as final between the
parties. It is the decision of the Arbitrator which shall be taken as binding between the
parties subject to making it rule of the Court in accordance with the provisions of the
Arbitration Act.
14. The second limb of the argument is that the arbitrator was to be appointed by
both the parties and in accordance with the terms of the arbitration clause but the
respondent-company alone was not entitled to appoint a sole arbitrator. The sole
arbitrator is appointed by both the parties. In this context reference may be made to
the letter dated 11.2.1995 of the respondent-company sent to the Vice-Chairman of
A.D.A. indicating the name of arbitrator and asking him to appoint another arbitrator
in accordance with the terms of the Arbitration clause and if he fails to appoint another
arbitrator, it was pointed out the the sole arbitrator shall enter into the reference. On
6th April 1995 the respondent-company received a letter from the appellant that as
the matter has been decided by the Vice-Chairman of A.D.A., the question of
appointment of arbitrator does not arise. Clause 46 of the Arbitration Act confers right
on both the parties to appoint their own arbitrator. If any one of the parties do not
appoint another arbitrator of its own choice, there is no bar under the arbitration
clause that the single arbitrator cannot enter into the reference. Clause (b) of Section
9 of the Arbitration Act provides that if one party fails to appoint an arbitrator, either
originally or by way of substitution as aforesaid, for fifteen clear days after the service
by the other party of a notice in writing to make the appointment, such other party
having appointed his arbitrator before giving the notice, the party who has appointed
an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference, and
his award shall be binding on both parties as if he had been appointed by consent. In
view this provision the arbitrator appointed by the respondent was entitled to act as a
sole arbitrator.
15. The core question is whether the arbitrator misconducted himself or not. In this
respect three aspects have to be examined:
1. The procedure adopted by the arbitrator;
2. Whether the claim of the respondent-company was not in accordance with the
terms of the agreement.
3. Whether the claim of the respondent was barred by time.
16. We deal with all these aspects in seriatun.
I. Procedure.
17. The appellant company was given due notice and none on behalf of the
appellant appeared before the arbitrator. It did not file any objection. The arbitrator
was required to give notice to the parties. If one of the parties could not appear, it
cannot be held that the arbitrator misconducted himself.
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Page: 79
18. In this respect one of the submissions raised by the learned counsel for the
appellant is that the arbitrator submitted an application under Section 28 of the
Arbitration Act for extending the time for giving award and the court allowed the
application on 3rd May 1997 giving him one month further time to give award. It is
true that while the court extending time has to act judicially but it has to be shown
that there were circumstances which did not justify to extend the time. The arbitrator
had entered into reference on 14th June 1996. It fixed various dates of hearing and
the hearing could not be completed. The appellant did not appear before the
Arbitrator. In case the hearing could not complete and the court extended time for
giving award, it cannot be held that it acted illegally.
II. Misconduct.
19. The next contention is that the arbitrator could give award in respect of a claim,
which is covered under the agreement and on evidence which is produced before it in
support of such claim. If the amount claimed is not covered either in the agreement or
the award is based on no evidence, the said award can be impeached on the ground
that the arbitrator misconducted himself.
20. An award can be set aside on the grounds enumerated under Section 30 of the
Arbitration Act, 1940. Clause (a) of Section 30 of the Arbitration Act provides that if an
arbitrator or umpire has misconducted himself of the proceedings it can be set aside.
It can also be set aside under clause (c) of Section 20 that the award has been
improperly precured or is otherwise invalid. The award in question does not assign any
reason for accepting the claims of the respondent. The award, however, cannot be
impeached merely on the ground that it accepts the claimant without assigning any
reason. In Rajput Development Authority v. Chikhamal Contractors1 it was held that
an award passed under the Arbitration Act is not liable to be remitted or set aside
merely on the ground that no reasons have been given in its support. In para 38 of the
judgment the court observed:
“38. Having given our careful and anxious consideration to the contentions urged
by the parties we feel that law should be allowed to remain as it is until the
competent legislature amends the law. In the result we hold that an award passed
under the Arbitration Act is not liable to be remitted or set aside merely on the
ground that no reasons have been given in its support except where the arbitration
agreement or the deed of submission or an order made by the Court such as the
one under Section 20 or Section 21 or Section 34 of the Act or the statute
governing the arbitration requires that the arbitrator or the umpire should give
reasons for the award. These cases will now go back to the Division Bench for
disposal in accordance with law and the view expressed by us in this decision.”
(Emphasis supplied)
21. In Ispat Engineering & Foundry Works v. Steel Authority of India Ltd.,2 where
the award in question was non-speaking one it was held that such award cannot be set
aside on reappraisal of evidence by the Court. The Court relied upon the decision of
Jivrjaj Bhai U.S. v. Chintaman Rao Balaji,3 wherein it was held that it is not open to
Page: 80
the court to speculate where no reasons are given by the arbitrator as to what
impelled the arbitrator to arrive at his conclusion and it is not open to the Court to
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attempt to assess the mental process by which the Arbitrator has reached his
conclusion where it is not disclosed by the terms of the Award. The Court, however,
noted that the award can be challenged if it is contrary to the terms of agreement
itself. Paragraph 5 of the judgment reads as under:—
“5. Be it noted that the Award of the Arbitrator is ordinarily final and conclusive
unless a contra intention is disclosed in the agreement itself. This Court in Ralliaram
(Union of India v. A.L. Ralliaram)4 stated that right or wrong the decision of the
Arbitrator is binding excepting in the case of error of law on the face of it or in the
event the Award itself or in a document actually incorporated in it, there is found
some legal proposition which stands out to be the basis of the Award and which is
erroneous. Ralliaram decision expressly records that the civil courts cannot exercise
apparent power over the decision of an Arbitrator, wrong or right irrespective
(excepting however the situation noticed above).”
22. In case the award is challenged on the ground that the arbitrator made the
award against the terms of the contract or against any provisions of law, non-
disclosure of reasons itself will not put a curtain on the Court to find out as to whether
the arbitrator misconducted himself. If on the face of the award or other material
which is placed before the Court it comes to the conclusion that the arbitrator has
awarded the amount in contravention of the terms of contract or it is against the law
itself, it can examine the relevant aspect which makes the award invalid under law.
23. In Dandasi Sahu v. State of Orissa,5 the Supreme Court found that the amount
awarded was disproportionately high having regard to the original claim made and in
totality of the circumstances it would certainly be a case where the arbitrator could be
said to have not applied his mind amounting to legal misconduct.
24. In Steel Authority of India Ltd. v. J.C. Budharaja, Government and Mining
Contractor,6 Hon'ble Supreme Court held that even if reasons are not recorded in the
award but the claim itself was entertained for prohibited items, such award can be set
aside. The Supreme Court relied upon the observation in the case of H.P. State
Electricity Board v. R.J. Shah and Company7 which reads as under:—
“In order to determine whether the arbitrator has acted in excess of jurisdiction
what has to be seen in whether the claimant could raise a particular dispute or
claim before the arbitrator. If the answer is in affirmative, then it is clear that
arbitrator would have the jurisdiction to deal with such a claim. On the other hand if
the arbitration clause or a specific term in the contract or the law does not permit or
give the arbitrator the power to decide or to adjudicate on a dispute raised by the
claimant or there is a specific bar to the raising of a particular dispute or claim, then
any decision given by the Arbitrator in respect thereof would clearly be in excess of
jurisdiction.”
Page: 81
25. In Sikkim Subha Associates v. State of Sikkim8 , the Apex Court laid down guiding
principles when an award can be set aside. One of the principles laid down is that if
the arbitrator has not applied his mind in the matter into the controversy and yet has
adjudicated upon those matters, in law there can be no adjudication made on them. In
paragraph 13 the Court observed:
“ In other words, if the arbitrator or umpire is found to have not applied his mind
to the matters in controversy and yet, has adjudicated upon those matters in law,
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there can be no adjudication made on them.”

In paragraph 14 it was further clarified as under:
“It is also, by now, well settled that an arbitrator is not a conciliator and his duty
is to decide the dispute 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 arbitrarily,
irrationally, capriciously or independently of the contract Rajasthan State Mines and
Minerals Ltd. v. Eastern Engineering Enterprises.”9
26. The parties had entered into an agreement in respect of execution of contract
work. The details regarding payment and damages were contained in the agreement.
The arbitrator could not travel beyond the terms of the agreement. In Continental
Construction Co. Ltd. v. State of Madhya Pradesh10 , it was held that the contractor was
not entitled to claim for extra cost in view of the clauses of the contract and the
arbitrator could not allow such claim. The Court can examine the terms of the
agreement in order to find out illegality of the claim of the claimant regarding extra
cost towards rise in prices of the material and labour.
27. In New India Civil Eroctors (P) Ltd. v. Oil and Natural Gas Corporation11 , where
the arbitrator has awarded the sum in respect of certain items which were prohibited
under the agreement between the parties, the Court observed as under:—
“It is is axiomatic that the arbitrator being a creature of the agreement, must
operate within the four corners of the agreement and cannot travel beyond it. More
particularly, he cannot award any amount which is ruled out or prohibited by the
terms of the agreement. In this case, the agreement between the parties clearly
says that in measuring the built-up area the balcony areas should be excluded. The
arbitrators could not have acted contrary to the said stipulation and awarded any
amount to the appellant on that account.”
28. We have referred to various claims submitted by the respondent before the
arbitrator and most of the items were not covered by the agreement. The respondent
had claimed Rs. 51,83,639/- in respect of work executed. According to it the cost of
work executed was Rs. 1,77,27,561/- out of which he was paid Rs. 1,25,43,902/- and
the balance amount remained as Rs. 51,83,639/-. The respondent, however, made
extra claims. The total amount of such extra claims comes to Rs. 1,54,57,369/-
besides the interest on such amount. It has to be examined whether such amount
claimed was covered under the terms of the agreement.
Page: 82
29. We are considering some of the claims, according to their nature in terms of
contract.
Claim No. 8.
30. It was for interest of Rs. 42,64,798/- at the rate of 24% per annum for the
period the running bills and the final bill suffered delay. Para 33 of the agreement in
this respect reads as under:—
“33. Delayed Payment.
Any amount payable by the Employer to the Contractor in pursuance of any
certificate given by the Executive Engineer hereunder shall if not paid within the
“period for honouring Certificates” named in the Appendix as the “Rate of interest
for delayed payment” from the date upon which such sum ought to have been paid
by the Employer until payment.”
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31. In accordance with the aforesaid clause of agreement the contractor will be
entitled to interest on delayed payment only when a certificate is given by the
Executive Engineer. If, however, the Executive Engineer does not find that there was
any dealy on the part of the employer, he cannot seek any amount as interest on the
delayed payment. It has to be certified. The contractor may say that the delay in
payment was caused by the employer. On the other hand the appellant may say that
the respondent himself delayed in execution of the work and it is itself liable to pay
damages under Clause 23 of the agreement which reads as under:—
23. Damages for non-completion:
If the contractor fails to complete the work by the date completion stated in the
Appendix or within any extended time under Clause (22) hereof and the Executive
Engineer certifying writing that in their opinion the same ought reasonable to have
been completed, the contractor shall pay or allow the Employer the sum named in
the Appendix as “Liquidated Damages” for the period during which the said work
shall remain incomplete and the Employer may deduct such damage from any
moneys due to the contractor.”
32. It may be noted that according to the claim of the respondent himself the
amount due for the work done was Rs. 51,83,639/- and the interest on the balance
amount is Rs. 42,64,798/-. In accordance with the terms of Clause (33) of the
agreement, the respondent-company is not entitled to any such payment unless
certified by the Executive Engineer.
Claim No. 11.
33. Rs. 14,86,772/- has been claimed for the payment of loss of profit at the rate of
15% due to prolongation of the work. In this respect if reference to Clause 13 of the
agreement may be made which provides that time will be essence of the contract and
the contractor will adhere to the proportionate time and in case of delay on the part of
the contractor to give proportionate progress in proportionate time then the Executive
Engineer may recover by way of liquidated damages the amount calculated at 1% of
the amount of short progress. There was no agreement that if the work is not done
within the stipulated time the contractor shall be entitled to any damages. The
petitioner in paragraph 3 of the Writ Petition No. 9086 of 1993 stated that the time for
completion of the work was six months from the date of start of work i.e., with effect
from 4.4.1985. In paragraph 5 the reason of delay of the work was given and in
paragraph 6 it was stated that the work was completed on 31st August 1987.
Paragraph 5 and 6 of the writ petition read as under:—
Page: 83
“5. That, however, on account of various factors, including litigation and acute paucity
of funds, the work under the project remained held up for a considerable long time. It
also remained held up on account of communal disturbances.
5. That however, ultimately, the work was completed on 31st August, 1987. The
petitioner thereafter submitted the final bill to the Authority with full details.”
34. In absence of any agreement that if the work is completed beyond certain
period the contractor shall be liable to loss of profit at 15% due to prolongation of
work, the respondent was not entitled to payment of such amount.
Claim No. 5.
35. This claim is for Rs. 18,73,121/- for payment of enhanced rate over and above
tender rate for the quantum of work executed beyond the stipulated date of
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completion since earlier progress in the statutory period was due to default and laches
committed by the appellant. The contractor was to be paid at the rate specified under
the agreement. In respect of rates not mentioned in the price schedule, the price was
to be fixed by the architects. There was no term in the agreement with provides that
contractor shall be entitled at the enhanced rate over and above the tender rate in
case the work is not completed within the stipulated period. In this respect the
relevant part of Clause 2(g) of the agreement reads as under:—
“The contractor shall forthwith comply with and execute any work comprised in
such Architects instructions provided always that verbal instruction, directions and
explanations given to the Contractor or his Foreman upon the works by the
Executive Engineer/Architect shall if involving a variation be confirmed in writing by
the Contractor within seven days and not dissented from in writing within further
period of seven days by the Executive Engineer Architect such shall be deemed to
be the Executive. Engineer/Architects instructions without the scope of contract.
Rates of items not mentioned in the Priced Schedule of Quantities shall be fixed by
the Architects, Executive Engineer in compliance with the Architects/Executive
Engineers Instructions as aforesaid invoices work and or loss beyond that
contemplated by the contractor, then unless the same were issued owing to some
breach of this contract by the Contractor, the Employer shall pay to the Contractor
the price of said work as an extra to be valued as hereinafter provided and/or
expenses and or loss.”
36. Clause 51 of the agreement provides for market fluctuation which reads as
under:—
“51. Market Fluctuation.
The contract prices shall be based on current market rates for labour and
material and is not subject to any increase in such rates.”
37. Clause 51 clearly provides that the contractor shall not be entitled to any
increased rate because market rate is fluctuating.
Claim No. 9.
38. A sum of Rs. 5,14,700/- has been claimed in respect of items which have been
paid at lesser rate due to improper analysis of rates and non-reckoning of the actual
cost of material reigning at the time of incorporation of the same in addition,
substituted or altered items.
Page: 84
39. As noted above the rates which are specified in the contract are to be paid. The
contractor is not entitled to claim the rate of variance after the tender was submitted
on the rate given by them. It will be taken that the tender was submitted giving
specified rate and accepted by the parties. Later on it is not entitled to vary because
fluctuation of the market or it was wrongly mentioned.
Claim No. 6.
40. Rs. 8,09,100/- was claimed for storing the material at Sangeet Samiti causing
expenditure over payment of Supervisor and Chaukidar. Rs. 4,91,500/- payment to
the Supervisors and Rs. 4,17,600/- as payment to Chaukidars. Clause 4 of the
agreement provides that it will be the responsibility of the contractor for water, power
and maintain at his cost during the execution of work all necessary things required for
execution of work. The relevant part reads as under:—
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“The contractor shall supply, fix and maintain at his cost during the execution of
any works all the necessary centering, scaffolding, staging, planking timbering,
strutting, shorting, fencing, digging, watching and lighting by night as well as by
day required not only for proper execution and protection of the said works, but also
for the protection of the public and the safety of any adjacent roads, streets, cellars,
vaults ovens, pavements, walls houses, building and all other erections meters or
things, and the contractor shall take down and remove any or all such centering
scaffolding, staging, planking, timbering, structing, storing etc. as occasion shall
require or when ordered so to do, and shall fully reinstate and make good all
matters and things disturbed during the execution of the works, to the satisfaction
of the Architetcts/Executive Engineer.”
Claim No. 7.
41. This claim is for Rs. 6,64,783/- as a cost of material wastage due to rehandling
of the same by the transport agency from the initial dump to the site of work, in the
night.
42. As noted above under Clause 4 of the agreement the responsibility was of the
contractor to protect his own material at his own cost.
Claim No. 10.
43. Rs. 6,97,500/- has been claimed as payment of extra expenditure incurred on
Watch and Ward because of delay of taking over the building. It is alleged that the
work was completed on 31.8.1997 but the Allahabad Development Authority took over
the building in piece-meal by allotment of shops to the shop-keepers directly.
44. The contractor was only to complete the work and thereafter he was not
required to keep the constructed work with him. Clause 34 of the agreement provides
that after completion of the work the Executive Engineer shall certify in writing that
the work has been completed. The contractor under the said agreement is not entitled
to continue to occupy it and claim the amount for keeping Watch and Ward.
Claim No. 12.
45. In this head the respondent has claimed Rs. 5,31,826.83. at 3% on the total
cost of work done i.e.. Rs. 1,77,27,561.00 on the ground that the Allahabad
Development Authority had to arrange permit for plying vehicles up to the site of work
round the clock but as it failed to arrange the same the respondent suffered losses.
Page: 85
46. As noted in clause 4 it was the responsibility of the contractor himself to arrange
for the contract work.
Claim No. 14.

47. Rs. 5,78,400/- has been claimed as damages incurred on the idleness of the
labour and machinery from time to time due to failure and breaches on the part of the
department.
48. Admittedly the contract work was to be executed by the respondent and it was
to employ labour. There is no term in the agreement which stipulates that on account
of delay of work any loss on account of labour and employees shall be payable by the
A.D.A.
Claim No. 15.
49. In this item the respondent has claimed Rs. 2,35,858/- as interest payable on
the cost of materials purchased (cement, steel) at 24%. The material was to be
-----------------------------------------------------------------------------------------------------------------------------------------------------------
purchased by the contractor and there is nothing in the agreement which stipulates
that interest on the material shall be payable by the A.D.A. If the material has been
purchased, the price of such material, if it is covered under the agreement, will be
recovered but there is nothing to show that any interest on such amount is payable
under the agreement.
Interest
50. The arbitrator has awarded interest of 18% without taking note of the fact that
the claiment-respondent was himself guilty of laches in submitting the claim petition
before the arbitrator and claimed exaggerated amount.
III-Claim barred by Time.
51. It may further be noted that the various claims made by the respondent are
barred by time. The arbitrator could not award the amount which, on the date of
submission of claim petition before him, is barred by time. Section 3 of the Limitation
Act provides that even if no objection is raised the authority has to reject the claim if it
is barred by time. According to the respondent the work was completed on 31st
August 1987. Thereafter he wrote letters for payment of the amount on various dates.
In para 14 of the Writ Petition No. 9086 of 1993 the respondent has referred to the
various letters alleged to have been sent by the respondent to the appellant. The
respondent is alleged to have sent final bill on 9th October 1989 to the appellant. The
respondent filed writ petition after about five years in 1993 after completion of the
contract work. The mere correspondence will not extend the period of limitation. The
cause of action arose from the date the notice was given by the respondent for
payment of amount. The mere fact that the appellant did not given any reply or denied
its claim, will not extend the period of limitation. In Steel Authority of India v. J.C.
Budharaja, Government and Mining Contractor12 in paragraph 29 it was observed as
under:—
“29. Applying the aforesaid ratio in the present case, right to refer the dispute to
the arbitrator arose in 1979 when Contractor gave a notice demanding the amount
and there was no response from the appellant and the amount was not paid. The
case of action for recovery of the said amount arose from the date of the notice.
Contractor cannot wait indefinitely and is required to take action within the period
of limitation.”
(Emphasis supplied)
Page: 86
52. In paragraph 31 the Court further observed as under:—
“From these facts, it is apparent that claim before the arbitrator in November-
December, 1985 was apparently barred by period of limitation. Letter dated 3rd
September, 1983 written by the appellant repudiating the respondents claim on
account of damages or losses sustained by him would not give fresh cause of
action. On that date cause of action for recevering the said amount was barred by
the period of three years prescribed under Art. 137 of the Limitation Act, 1963.
Under Section 3 of the Limitation Act, it was the duty of the arbitrator to reject the
claim as it was on the face of it, barred by the period of limitation.”
53. We are of the opinion that the arbitrator misconducted himself and acted in
excess his jurisdiction. In this view the award is liable to be set aside.
54. In the result the appeal is allowed with cost. The order of the court below dated
24.5.1999 and the award of the arbitrator dated 23.5.1997 are hereby set aside and
-----------------------------------------------------------------------------------------------------------------------------------------------------------
the matter is remitted to the arbitrator to take decision afresh keeping in view the
observation made in this judgment.
Appeal Allowed.
———
1.
AIR 1990 SC 1426.
2. JT 2001 (6) SC 1,
3. 1964 (5) SCR 480.
4.
(1964) (3) SCR 164.
5. AIR 1990 SC 1128,
6. AIR 1999 SC 3275.
7.
(1999) 4 SCC 214.
8. AIR 2001 SC 2062.
9. (1999) 9 SCC 283 : (1999 AIR SCW 3644 : AIR 1999 SC 3627).
10.
AIR 1988 SC 1166.
11. AIR 1997 SC 980.
12. AIR 1999 SC 3275.
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Versus: Efore Udhir Arain AND Nkareshwar Hatt

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SCC Online Web Edition, © 2021 EBC Publishing Pvt. Ltd.

Page 1 Thursday, December 02, 2021

(Allahabad High Court)

Claim No. 1. Balance amount of work 51,83,639.00

Interest payable on the 2,35,858.00

Claim No. 16 Claim for returning trucks 20,000.00

appointment of a single arbitrator to the arbitration of two Arbitrators being both

there can be no adjudication made on them.”

Claim No. 14.

52. In paragraph 31 the Court further observed as under:—

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