S. HARCHARAN SINGH v. UNION OF INDIA

The Judgment of the Court was delivered by

S,C. AGRA WAL, J. Civil Appeal No. 322 of 1976 G This appeal by special leave has been filed against the judgment dated March 27. 1973 of the High Court of Delhi in F.A.O. (O.S.) No.

The appellant, S. Harcharan Singh, was awarded a contract for H

80 SUPREME COURT REPORTS [1999] Supp. 1 S.C.R.

constructing approaches to the Bridge Structure B-2 on the North A Sikkim Road in 1959-60. Under the agreement the appellant was required to do hard rock cutting to the extent of 7 ,54 ,530 cft. The rate fixed for the said work in the contract was Rs. 129 per thousand cft. plus 2%. The appellant was required to perform hard rock cutting to the extent of 18, 18,704 cft. The appellant claimed payment at the rate B of Rs.200 per thousand cft. for the additi0 nal work of hard rock cut- ting. He also claimed certain other sums under other heads. The dis- pute in respect of four heads was referred to arbitration in accordance with the clause 25 of the agreement. The arbitrator gave his award dated February 5, 1965 wherein he disallowed the claim of the appel- lant in respect of-two items but made an award in favour of the appel- lant in respect of two items of claim. In this appeal we are only con- c cerned with the-claim of the appellant in respect of the additional work of hard rock cutting which the appellant was required to execute. The arbitrator awarded a sum of Rs.52,800 against the said item. The award was filed in the High Court by the arbitrator alongwith his lettei:_ dated June 6, 1968. Objections were filed by the respondent under D Sections 30 and 33 of the Arbitration Act, 1940 {hereinafter referred to as 'the Act'). The said objections were considered by the learned ,. single Judge of the Delhi High Court and by order dated April 23, 1969, the said objections of the respondent were rejected and it was ordered that the award be made a rule of the Court. The respondent filed an appeal against the said order and decree passed by the !_earned E single Judge. The appeal was partly allowed by the Division Bench of the High Court by judgment dated March 27, 1973, whereby the award as regards the claim for higher remuneration at the rate of Rs.200 per thousand cft. for the additional work of hard rock cutting was set aside. The award in respect of other item of the claim relating to expenditure incurred by tlte appellant in reconstructing the retaining walls after damage, was maintained. Aggdeved by the said decision of the Division Bench of the High Court the appellant has filed this appeal after obtaining special leave.

As indicated earlier, this appeal is confined to the claim ofthe appellant for payment for the additional work of hard rock cutting which the appellant was required to execute. The appellant has claimed a higher rate of Rs .200 per thousand cft. for this additional work .. Under the agreement the appellant was required to execute .hard rock cutting to the extent of 7 ,54,_530 cft. but actually he was required to execu.te such cutting to the extent of 18.15 lacs cft. The extent of the_ additional w.orkwas about 10.60 lacs cft., i.e. about 140%. .. H While undertaking the execution of the additional work of hard rock

HARCHARAN v. U.0.1. [AGRAWAL, J.) 81

cutting the appellant in his letter dates August 24, 1960 addressed to A the Executive Engineer, Central Division No. II, Gangtok, had requested for revision of the rate for hard rock cutting and stated that the minimum working rates for this item are 52% above the tendered rales. The Executive Engineer by his letter dated September 2, 1960, r·equested the appellant to submit an analysis of rate for hard rock cutting. The appellant submitted his analysis of rates on September 14, B 1960 wherein after analysing the rates of materials and labour the workable rate _worked out to Rs.200 per thousand cft. The Executive Engineer also got an analysis of rates done on the basis of the data collected on actual observation and h"e arrived at a figure of Rs.237 per thousand cft. By his letter dated November 9, 1961 :addressed to the Superintending Engineer, Calcutta Central Circle No. III, CPWD, Calcutta, the Executive Engineer recommended the extra rate of c Rs.200 per thousand cft. for work in excess of 20% of the stipulated quantity. The Superintending Engineer, in his letter dated February 23, 1962 addressed to the Additional Chief Engineer III, Central P.W.D:, New Delhi, made a similar recommendation and the Addi- tional Chief Engineer made a similar recommendation in his letter D dated July 16, 1962 addressed to the Secretary to the Government of Iildia, Ministry of Works and Housing. It appears that the Govern- ment did not agree to pay at a rate in excess of the rate of Rs .129 per thqusand cft. plus 2% stipulated under the agreement. The dispute was, therefore, referred to arbitration. E The arbitrator in his award has considaed this item of claim as under:

Claim Dispute Award F "The contractor The arbitrator is to The claim of the cont- claims that for Item determine whether ractor is partly justified. No. 3 of the agree- under the terms and He should be paid an ment he should be conditions of the amount ofRs.52,800 paid at the rate of contract, the claim (Rupees fifty two thous- Rs.200 per 1000 cft. is justified and if so, and Eight hundred only) G for the quantities to what extent. in addition to the payment beyond what is io be made to him at re-

- stipulated in the agreement. levant agreement rate for the total quantity of work executed by him under this item." Ii

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Before the learned single fodge it was submitted on behalf of the respondent that the award is a speaking award and from the award it is apparent that the arbitrator has fixed rates for additional work done by the contractor which the arbitrator has no jurisdiction to do by reason of clause 12 of the agreement between the parties which provides that additions to the contract work shall be carried out by the contractor on the same conditions in all respects on which he agreed to do the main work and at the same rates as specified in the tender for,the mainwork. The learned single Juc!ge rejected the said contentitm and held that the arbitrator was determining only the value ,of the additional work at the rate of Rs.200 which had been agreed by the Engineer-in-charge and •f the Superintending Engineer of the Circle as contemplated by clause 12 and the scope of the inquiry before the arbitrator was only the c quantity of work which was additional to the quantities specified in.the agreement. The learned Judges of the Division Bench of the High Court have disagreed with the said view arid have observed that it is clear from the statement of claim as incorporated in the award, and the affidavit of the contractor that there was no dispute with regatd to the D quantity of work and the only dispute was with regard to the rate and that the arbitrator had. allowed a sum of Rs.52,800 to the contractor in respect of the total quantity of work executed by him under item No. 3 in addition to the agreed rate and that there was no escape from the conclusion that the arbitrator had awarded the above 'amount by .applying ~rate higher than the agreed rate. The learned Judges of the E Division Bench were of the view that under clause 12 of the agreement the provision with regard to the fixing of the rate by the Engineer-in- charge and the Superintending Engineer of the Circle comes into play only when the additional item of work does not form part of the main work and the rates for such work are not specified in the schedule of rates. The learned Judges of the Division Bench have held that since the additional hard rock cutting job done by the appellant was part of the main work ~nd the agreement provided the rate· for the said item, there was no occasion for the Engineer-in-charge or the Suprerintend- ing Engineer to fix the rate for the extra quantity of hard rock cutting and that the action of the arbitrator in allowing the rate to the con- tractor in excess of the agreed rate for the job of hard rock cutting was against clause 12 of the agreement and thereby the arbitrator had exceeded his jurisdiction.

As regards the award of an arbitrator under the Act, the law is well settled that the arbitrator's adjudication is generally considered binding between the parties for he is a tribuqal selected by the parties ..- H and the power of the court to set aside the award is restrkted to cases

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set out in section 30 of the Act, viz. (a) if the arbitrator has miscon- A ducted himself or the proceedings; or (b) when the award has been made after the issue of an order by the Court superseding the arbitra- tion or after arbitration proceedings have become invalid under Sec- tion 35; or (c) when the award has been improperly procured or is otherwise invalid. Under clause (c) of Section 30 the Court can ;et aside an award which suffers from an error on the face of the award. It B is. however. not open to the Court to speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. But the jurisdiction of the arbitrator is limited by the ·~ reference and if the arbitrator has assumed jurisdiction not possessed by him, the award to the extent to which it is beyond the arbitrator's jurisdiction would be invalid and liable to be set aside (See: Jivarajbhai Ujamshi Sheth and Others v. Chintamanrao Balaji and Others, [1964] 5 c SCR 480). This position at law has been reiterated by the Constitution Bench of this Court in its recent decision in Raipur Development Authority and Others v. M/s Chokhamal Contractors and Others, [1989] 2 S.C.C. 721. It has been held that an arbitrator or umpire is under no obligation to give reasons in support of the decision reached by him unless underthe arbitration agreement or the deed of submis- ~- sion he is required to give such reasons and if the arbitrator or umpire chooses to give reasons in support of his decision it is open to the Court to set aside the award if it finds that an error of law has been committed by the arbitrator or umpire on the face of the record on going through such reasons and that an award can neither be remitted nor set aside merely on the ground that it does not contain reasons in support of the conclusion or decisions reached in it except where the

. arbitration agreement or the deed of submission requires him to give reasons .

In the instant case the arbitration agreement or the deed of sub- F missions did not require the arbitrator to give reasons and, therefore, the award cannot be questioned on the ground of an error on the face of the award. The learned Judges of the Division Bench of the High Court have set aside the award in relation to claim No. l relating payment for additional work of hard rock cutting on the ground that in making the award the arbitrator exceeded his jurisdiction by allowing G a rate to the contractor in excess of the agreed rate for the job of hard rock cutting against the terms and conditions contained in clause 12 of

-. the agreement.

The question which needs to be considered here is as to whether in awarding the sum of Rs.52,800 to the appellant for the additional H

84 SUPREME COURT REPORTS [1990] Supp. 1 S.-C.R.

A work of hard rock cutting executed by him the arbitrator has disre- garded clause 12 of the agreement. The said clause reads as under:

"The Engineer'in-charge shall have power to make any alterations in. comissions from, additions to or substituting for, the original specifications, drawings, designs and B instructions, that may appear to him to be necessary or advisable during the progress of the work, and the con- tractor shall be bound to carry out the work in accordance with any instructions which may be given to him in writing signed by the Engineer-in-charge, and such alterations, .('

omissions, additions or substitutions shall not invalidate the contract: and any altered, additional or substituted c work which the contractor may be directed to do in the manner above specified as part of the work shall be carried out by the contractor on the same conditions in all respects on which he agreed to do the main work and at the same rates as are specified in the tender for the main work. The D time for the completion of the work shall be extended in the proportion that the additional or substituted work bears to the original work, and the certificate of the Engineer-in-charge shall be conclusive as to such propor- tion. And if the altered, additional or substituted work included any class of work for which no rate is specified in E this contract, then such class of work shall be carried out at the rates entered in the schedule of rates of the C.P.W.D. Schedule of Rates 53-54 on which the estimated cost shown on page 1 of tender is based provided that when the tender for the original work is a percentage above the schdule rates the altered, additional or substituted work required as 4I F aforesaid shall be chargeable at the said schedule rate plus the same percentage deduction addition and if such class of work is not entered in the said schedule of rates, then the contractor shall within seven days of the date of the receipt of the order to carry out the work inform 'the Engineer-in- charge of the rate which it is his intention to charge for such G class of work, and if the Engineer-in-charge does not agree to this rate he shall by notice in writing be at liberty to cancel his order to carry out such class of work and arrange to carry it out in such manner as he may consider advisable provided always that if the contractor "shall commence work or incur any expenditure in regard therto before the "" rates shall have been determined as _lastly hereinbefore

HARCHARAN v. U.0.1. [AGRAWAL, J.] 85

mentioned, then and in such case he shall only be entitled to be paid in respect of the work carried out or expenditure A incurred by him prior to the date of the determination of the rate as aforesaid according to such rate or rates as shall be fixed by the Engineer-in-charge. In the event of a dis- pute the decision of the Superintending Engineer of the Circle shall be final." B

Under this cluase the Engineer-in-charge was empowered to make any additions to the original specifications that may appear to ... him to be necessary or advisable during the progress of the work and the contractor was bound to carry out the work in accordance with any instructions given to him in writing signed by the Engineer-in-charge. As regards payment for the additional work which the contractor was c directed to do it was provided that:

(i) The contractor shall be paid at the same rates as are specified in the tender for the main work; D (ii) If the additional work included any class of work for which no rate was specified in the contract then the contractor shall be paid at the rates entered into the schedule of rates of the C.P.W.D. Schedule of Rates 53-54 on which the estimated cost shown on page I of tender is based and if the tender for the original work is a percentage above the schedule rates the addi- E tional work shall be chargeable at the said schedule rates plus the same percentage deductions/addition; and

(iii) If such class of work is not entered in the said Schedule of Rates then the contractor should inform the Engineer-in-charge within seven days of the receipt of the order the rate he wants to charge for such class of work and the Engineer-in-charge, if he does not agree to the said rate,. may cancel the order for such additional work and if the contractor has commenced the work or incurred expenditure in regard thereto before the determina- tion of the rates the contractor shall be paid in respect of work carried out or expenditure incurred by him prior to the determi- 0 nation of the rates according to such rates or rates as shall be fixed by the E·ngineer-in-charge and in the event of a dispute the decision of the Superintending Engineer of the Circle would be final.

The case of the appellant is that clause 12 envisages alterations or H

86 I- SUPREME COURT REPORTS [1990] Supp. 1 S.C.R.

additions within reasonable limits and an addition to the extent of A 140% in respect of one particular item alone is not covered by this clause and that in awarding Rs.52,800 as extra payment for the addi- tional work the arbitrator has not acted in disregard of clause 12 and he cannot be said to have exceeded his jurisdiction.

B A cfause making provision for additions and variations is gener- ally found in building and construction contracts. In Hudson's Build- ing and Engineering Contracts 8th Edn. it has been observed:

"It may be that it can be inferred from the terms of the .. contract that the power to order extras, although apparen- tly unlimited, is in fact limiied to ordering extras up to a c certain value and, in such a case, extras ordered in excess of that amount, although work of a kind contemplated by the contract, 111ay yet be quite outside the terms of the contract." (p. 294)

D "If the extra work ordered is outside the contract the terms of the contract have no application." (p. 296) •. In this context it would be relevant to take note of the decision of the Court of Appeal in England in Parkinson (Sir Lindsay) & Co. Ltd. v. Commissioners of His Majesty's Works and Public Buildings, [1949] E 2 K.B. 632. In that case the contractors had· agreed with His Majesty's Commissioners of Works and Public Buildings to erect an ordnance factory according to the general conditions and specifications and bills of quantities and drawings annexed for the contract sum of £3,500,000 and under the general conditions of contract the Commissioners had power, at their absolute discretion, to modify the extent and character' F of the work or to order alterations of or additions to the works and it was the duty of the contractor to comply with the architect's instruc- tions in this respect. In the contract it was also provided that it is probable that further work to the value of approximately, £500,000 would be ordered on a measured basis under the terms of the contract. The contract was amended by a deed of variation and it was provided that exceptional methods should be used to hasten the work and that a system of uneconomic working should be introduced to bring about the completion of the factory by the date fixed by the contract. The Commissioners ordered work to be executed greatly in excess of the amount contemplated although not different in character from that covered by the varied contract, so that the works could not be comp- !" H leted until a year beyond the time anticipated and the actual cost of the

HARCHARAN v. U.O.l. [AGRAWAL, J.l 87

contracts was £6,683,056 which amount had been paid to them along- A with £300,000 the maximum profit under the deed of variation. During the progress of the work the contractors haosomplained to the Com- missioners that they were being called on to ex~te more work than was contemplated by the varied contract and claimed that they were entitled to extra remuneration for the work in excess of that contemp- lated but they proceeded with the work at the request of the Commis- B sioners leaving the issue to be subsequently decided by arbitration. The arbitrator found that the estimated cost of the work under the varied contract was £500,000 and awarded £90,298 as proportionate or reasonable profit or remuneration to the contractors for the additional work. The said award was upheld by the Court of Appeal on the view that a term must be. implied in the varied contract that the Commis- C sioners should not be entitled to require work materially in excess of the sum of £5,000,000 and that such excess work having been done by the contractors, the Commissioners were liable to pay the contractors reasonable remuneration therefor. On behalf of the Commissioners reliance was palced on Condition 33 of the original contract which gave the Commissioners an unlimited power of ordering extras even to D the extent of altering the character of the work. The contractors, on the other hand, placed reliance on the follwing observations of Mc Cardie, J. in Naylor, Benzon & Co. v. Krainische lndustrie Gesel/s- chaft, [1918] 1K.B.331:

"It is essential to remember, however, that words, even El though general, must be limited to circumstances within the contemplation of the parties."

Accepting the contention urged on behalf of the contractors Asquith L, J. observed: F "If the original contract plus the deed are read without any implied limitation on their literal meaning, the result, as indicated above, is that after £300,000 profit has been earned by the contractor, he can be compelled to Jabour like the Danaids without reward or limit, or any further "extras" which the commissioners may elect to exact from G him, 'till the last syllable of recorded time.' Only the most compelling language would induce a court to construe the combined instruments as placing one party so completely at the mercy of the other. Where the language of the contract is capable of a literal and a more restricted meaning, all relevant circumstances can be taken into account in decid- H

88 SUPREME COURT REPORTS [1990) Supp. I S.C.R.

ing whether the literal or a more limited meaning should be A ascribed to it". (p. 662)

Similarly Singleton L, J. has observed:

"I find myself unable to agree with the submission of Mr. B Rewcastle that, under the contract as varied by the deed of 'ariation, the contractors would have been bound to con- tinue making alterations and additions, if ordered, for years and years, without any extra payment by way of profit. That would have led to manifest absurdity and injustice, as Mathew, J. said in Bush v. Whitehaven Trustees, (I). There must be a limit." (p. 673) c Here also the. question has often arisen whether the contractor under. the variation clause is liable to execute the extra or additional quantities of the tendered items at the tendered rates to an unlimited extent. In some awards given by the arbitrators in the Central Public D Works Department of the Government of India the variation of the tendered quantities under the variation clause in the contract has been restricted to 10% beyond which the contractor was entitled to claim as extras and these awards have been accepted and implemented by the Government. It appears that the standard form of contract of the Central Public Works Department has been amended and now it speci- E fically permits for a limit of variation called "deviation limit" upto a maximum of 20% and upto such limit the contractor has to carry out the work at the rates stipulated in the contract and for the work in excess of that limit at the rates to be determined in accordance with clause 12-A l!nder which the Engineer-in-charge can revise the rates having regard to the prevailing market rates (See: Gajaria's Law relat- F ing to Building and Engineering Contracts in India, 3rd Edn., pages 410-412).

In the instant case, it appears that the Executive Engineer, the Superintending Engineer and the Additional Chief Engineer in their letters dated November 9, 1961, February 23, 1962 and July 16, 1962 G respectively have expressed the view that the additional work under the terms of the contract may be confined to 20% and the appellant may be paid at the rates prescribed in the contract for 20% of the additional work and for the extra quantity of additional work he may be paid remuneration at the increased rate taking into account the increased costs in execution of the said work on account of the peculiar nature of the work. While considering the claim of the appellant the

HARCHARAN v. U.0.1. [AGRAWAL, J.J 89

arbitrator was required to consider the tenns of the contract and to construe the same. It was, therefore, permissible for the arbitrator to consider whether clause 12 of the contract enables the Engineer-in- charge to require the appellant to execute additional work without any limit or a reasonable limit should be placed on the quantity of the additional work, which the appellant may be required to execute at the rate stipulated for the main work under the contract. For that purpose the arbitrator could take into consideration the practice prevalent in the Central Public Works Department in this regard as well as the correspondence between the appellant and the authorities including °o-• the letters dated November 9, 1961, February 23, 1962 and July 16, 1962 of the Executive Engineer, the Superintending Engineer and the Additional Chief Engineer recommending payment of remuneration at the increased rate for the additional work in excess of 20% of the c quantity stipulated in the contract. The appellant was claiming increased rate of Rs.200 per 1000 cft. for the entire quantity of addi- tional work. The arbitrator did not accept the said claim of the appel- !ant in full and has partly allowed the said claim by awarding Rs.52,800

- which means that the arbitrator has awarded the increased rate only for a part of the additional work of hard rock cutting which the appel- !ant was required to execute. The arbitrator was entitled to do so on the construction placed by him on clause 12 of the contract and, there- for~, it cannot be said that in awarding the sum of Rs.52,800 for the D

additional work the arbitrator has exceeded his jurisdiction and the award is vitiated by an error of jurisdiction. In the circumstances, we E are unable to agree with the judgment of the learned Judges of the Division Bench of the High Court on this part of the claim.

The appeal is, therefore, allowed and the judgment of the Divi- ~ sion Bench of the High Court setting aside the award of the arbitrator with regard to item No. 1 of the claim relating to payment for addi- F tional work of hard rock cutting is set aside and the order passed by the learned Single Judge upholding the award of the arbitrator in this regard is restored. The appellant will be entitled to his costs.

Civil Appeal No. 323 of 1976 G This appeal is directed against the order dated May 23, 1975 of the High Court of Delhi whereby the High Court rejected C.M. No. 1300 of 1974 filed by the appellant under Order 41, rule 21 read with -....... Section 151 C .P .C., praying that the ex-parte judgment dated March 27, 1973 in F.A.O. (O.S.) No. 35 of 1969 may be set aside and the appeal be re-admitted to its original number and the appeal be heard H

A and decided on merits. The appellant has filed C.A. No. 322 of 1976 against the said judgment of the High Court dated March 27, 1973·in F.A.O, (O.S.) No. 35 of 1968. The said appeal has been allowed by the judgment given today. Since the judgment of the High Court dated March 27, 1973 has been set aside by this Court in C.A. No. 322 of 1976 this appeal does not survive and it is disposed of accordingly. No B costs.

G.N. Appeal disposed of.