4 Whether This Case Involves A ...

vs Ms Khurana & on 30 October, 2015

Gujarat High Court

4 Whether This Case Involves A ... vs Ms Khurana & on 30 October, 2015
C/FA/6269/1998 CAV JUDGMENT

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

FIRST APPEAL NO. 6269 of 1998

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI

==============================================================

1 Whether Reporters of Local Papers may be allowed to see the judgment ?

2 To be referred to the Reporter or not ?

3 Whether their Lordships wish to see the fair copy of the judgment ?

4 Whether this case involves a substantial question of law as to the interpretation of the Constitution
of India or any order made thereunder ?

============================================================== BHARAT
SANCHAR NIGAM LIMITED....Appellant(s) Versus MS KHURANA & 1....Defendant(s)
==============================================================
Appearance:

MS PJ DAVAWALA, ADVOCATE for the Appellant(s) No. 1 MR KG SUKHWANI, ADVOCATE for

t h e D e f e n d a n t ( s ) N o . 1
============================================================== CORAM:
HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI Date : 30/10/2015 CAV JUDGMENT

1. Appellant - Bharat Sanchar Nigam Limited (hereinafter referred to as 'BSNL' for short) has
preferred this appeal against the judgment and order dated 20.08.1998 passed by City Civil HC-NIC
Page 1 of 34 Created On Thu Nov 05 01:17:51 IST 2015 Court, Ahmedabad in CMA No.534 of 1996
with CMA No.35 of 1997 with CMA No.6 of 1997, whereby CMA No.6 of 1997 filed by the present
appellant has been rejected, whereas CMA No.534 of 1996 and CMA No.35 of 1997, filed by the
contractor as well as the arbitrator, are allowed.

2. Heard learned advocate Ms. P.J.Davawala for the appellant and learned advocate Mr. Paras K.
Sukhwani for the respondent.

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 4 Whether This Case Involves A ... vs Ms Khurana & on 30 October, 2015

3. Learned advocate Ms. P.J.Davawala appearing for the appellant submitted that the contract of
construction of telephone exchange building at Bapunagar, Ahmedabad, was awarded by the
appellant department to one M/s. M.S.khurana, Engineers & Builders (hereinafter referred to as
'contractor'). The said contract was executed between the parties vide agreement No.20/TCD/89-

90. The contractor had completed the work of the construction of the building after the due date and
in the meantime during the course of the execution of the contract work and after completion of the
same certain disputes and difference arise between the parties. The contractor, therefore, invoked
provisions of clause 25 of the agreement and pursuant to the same, one Mr. S.K.Ahuja, Chief
Engineer (Arbitration), Department of Telecommunication, HC-NIC Page 2 of 34 Created On Thu
Nov 05 01:17:51 IST 2015 Ministry of Communications, New Delhi, was appointed as the sole
arbitrator to adjudicate the disputes between the parties. The contractor filed his claim, whereas, the
department filed counter claims before the sole arbitrator and thereafter the sole arbitrator, after
considering the evidence produced on record, passed his award. The sole arbitrator, thereafter sent
a copy of the original award with its record to the City Civil Court, Ahmedabad for making the award
rule of the Court and for passing the decree accordingly. The appellant, in the meantime, filed CMA
No.6 of 1997 and challenged the award made by the sole arbitrator. The contractor also filed CMA
No.534 of 1996 for direction against the arbitrator to file the original award in the Court and also for
making the award rule of the Court. All the aforesaid applications were heard together and by way of
common judgment, the learned Judge, City Civil Court, Ahmedabad, by common judgment dated
20.08.1998 rejected CMA No.6 of 1997 filed by the present appellant and allowed the other two
applications.

4. Learned advocate Ms. Davawala submitted that the appellant has, therefore, filed this appeal.
Learned advocate Ms. Davawala mainly contended that the City Civil Court has erred in not
exercising the jurisdiction which is vested in HC-NIC Page 3 of 34 Created On Thu Nov 05 01:17:51
IST 2015 it. The City Civil Court has erred in considering that the arbitrator has disallowed the
double rate recovery of cement and steel for excess quantity beyond the permissible variation and
the same is against the interest of the appellant department. It is contended that it was specifically
pointed out before the City Civil Court that the arbitrator has erroneously arrived at the decision to
award double rate recovery of cement by ignoring the provisions of agreement, material documents
and oral submissions, inspite of that the City Civil Court has ignored the same. She further
contended that it was also specifically pointed out before the City Civil Court that the arbitrator has
traversed beyond his jurisdiction by putting unnecessary restriction on adjustment of the amount of
compensation from the award sum and thereby the arbitrator has misconducted himself. It is
further contended that the City Civil Court has not properly appreciated the fact that the arbitrator
has committed an error by disallowing the recovery made by the appellant department under Clause
29(a) and thereby acted beyond his jurisdiction. It is further contended that the arbitrator while
passing an award made observations in Clause 3 (viii) as under:

"(viii) Levy of compensation under clause 2:- Since this subject matter is outside HC-NIC Page 4 of
34 Created On Thu Nov 05 01:17:51 IST 2015 the jurisdiction of arbitrator in view of Supreme Court
judgment (Visvanath Sood v. Union of India) AIR 1989 SC page 952 as such no argument was heard.
However, respondent is at liberty to take up the matter at appropriate forum. No recovery on this

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 4 Whether This Case Involves A ... vs Ms Khurana & on 30 October, 2015

account is allowed from the award."

5. Though the arbitrator has observed that levy of compensation under clause 2 is the subject matter
outside the jurisdiction of arbitrator and no argument was heard, inspite of that the arbitrator
observed that no recovery of the amount of compensation is allowed from the award. Thus, the
arbitrator has acted beyond his jurisdiction.

6. Lastly, learned advocate for the appellant submitted that the arbitrator has wrongly awarded
interest at the rate of 12%, which is on higher side and therefore the City Civil Court ought to have
reduced the rate of interest. Learned advocate, therefore, submitted that present appeal be allowed.

7. Learned advocate Ms. Davawala has placed reliance upon the decision rendered by the Hon'ble
Supreme Court in the case of Himachal Pradesh Nagar Vikas Pradhikaran v. Aggarwal & Co.,
reported in 1997(1) Arb. LR 275. In the said decision, in para 5, the Hon'ble Supreme Court HC-NIC
Page 5 of 34 Created On Thu Nov 05 01:17:51 IST 2015 has observed as under:

"5. It is submitted by Shri H.K. Puri, learned counsel for the appellant that the enhancement of 25%
is relatable to the tendered rates for the works executed by the respondent and does not relate to the
rates of raw material supplied by the appellant. He also submitted that cement and steel were
supplied by the Department at the contract. Thus, escalation in price of raw materials supplied by
the appellant the entire burden was borne by the appellant and, therefore, no extra payment could
have been intended to be made under the award in respect to those items. Therefore, the High Court
was not right in directing payment thereof. We find force in the contention. It is contended by Shri
Upadhyay, learned counsel for the respondent, that when the Arbitrator recorded a finding that
delay in execution was on account of the laches on the part of the Executive Engineer and awarded
25% more than the agree normal rate, as per the contract and the award having been allowed to
become final, it is not open to the appellant to deny 25% escalation charges for the period. In other
words, it amounts to interference with the award which has attained finality. In support thereof, the
learned counsel relied upon paragraph 12 of the judgment in P.M.Paul v. Union of India[1989 supp.
(1) SCC 368]. Therein, the question was whether the contractor was entitled to escalated rates due to
delay in execution of the award on the part of the Department. As seen, There is no dispute on the
proposition that when the award has been made awarding escalation charges, necessarily the
increased rates of the cost of securing the material for performance of the HC-NIC Page 6 of 34
Created On Thu Nov 05 01:17:51 IST 2015 contract are required to be compensated by paying the
amount to the extent of the escalated charges. It is seen that under Clause 10 of the contract, the
appellant was required to supply the material at the rates prevailing as on the date of the execution
and it was entitled to deduct the same from the amounts payable after the execution of the contract.
In other words, when the iron and cement were supplied, during the relevant period, even after the
expiry of the year for which the award came t be made, necessarily it included the increase in rates.
It is stated that they did not charge increased rates but the rates prevailing as on the dates and the
amount worked out came to Rs. 23,25,785/-. The respondent is not entitled to 25% of the escalated
costs in that behalf. The very object of awarding escalated cost was that the contractor had secured
the material from the open market at the price prevailing at the relevant time and used the same for
execution of the work. In view of the fact that iron and that iron and cement were not procured by

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 4 Whether This Case Involves A ... vs Ms Khurana & on 30 October, 2015

the respondent during the extended time and actual price for which they were supplied has been
worked out as detailed earlier, the respondent is not entitled to 25% more on that material supplied
by the Department itself. Under these circumstance, The High Court was clearly in error in directing
payment of the said amount."

8. Learned advocate Ms. Davawala has also drawn attention of this Court to a decision of the
Hon'ble Supreme Court rendered in the case of New India Civil Erectors (P.) Ltd. v. Oil and Natural
Gas Corporation, reported in AIR 1997 SC 980. In HC-NIC Page 7 of 34 Created On Thu Nov 05
01:17:51 IST 2015 the said decision, the Hon'ble Supreme Court observed as under:

"8. Claim No.9: The appellant claimed an amount of Rs.32,21,099.89p. Under this
head, against which the arbitrators have awarded a sum of Rs.16,31,425/-. The above
claim was made on account of escalation in the cost of construction during the period
subsequent to the expiry of the original contract period. The appellant's claim on this
account was resisted by the respondent-corporation with reference to and on the
basis of the stipulation in the corporations' acceptance letters dated 10th January,
1985 which stated clearly that "the above price is firm and is not subject to any
escalation under whatsoever ground till the completion of the work". The Division
Bench held, and in our opinion rightly, that in the face of the said express stipulation
between the parties, the appellant could not have claimed any amount on account of
escalation in the cost of construction carried on by him the expiry of the original
contract period. The aforesaid stipulation provides clearly that there shall be no
escalation on any ground whatsoever and the said prohibition is effective till the
completion of the work.

The learned arbitrators, could not therefore have awarded any amount on the ground that the
appellant must have incurred extra expense in carrying out the construction after the expiry of the
original contract period. The aforesaid stipulation between the parties is binding upon them both
and the arbitrators. We are of the opinion that the learned single Judge was not right in holding that
the said prohibition is confirmed to the HC-NIC Page 8 of 34 Created On Thu Nov 05 01:17:51 IST
2015 original contract period and does not operate thereafter. Merely, because the time was made
the essence of the contract and the work was completed within 15 months, it does not follow that the
aforesaid stipulation was confirmed to the original contract period this is not a case of the
arbitrators construing the agreement. It is a clear case of the arbitrators acting contrary to the
stipulation/condition contained in the agreement between the parties. We therefore, affirm the
decision of the Division Bench on this Count as well [claim No.9].

9. So far as the position of the law on the subject is concerned, there is hardly any dispute between
the parties. It is sufficient to refer to the well considered decision of this Court in Sudarshan Trading
Company V. Government of Kerala [A.I.R.[1989] S.C. 890], within it has been held: "........... if the
parties set limits to action by the arbitrator, then the arbitrator had to follow the limits set for him
and the court can find that he exceeded his jurisdiction on proof of such excess..... Therefore it
appears to us that there are two different and distinct grounds involved in many of the cases. One is
the error apparent on the face of the award, and the other is that arbitrator exceeded his

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 4 Whether This Case Involves A ... vs Ms Khurana & on 30 October, 2015

jurisdiction. In the latter case, the courts can look into the arbitration agreement but in the former,
it cannot, unless the agreement was incorporated or recited in the award".

9. Learned advocate Ms. Davawala also drawn the attention of this Court to another decision of
HC-NIC Page 9 of 34 Created On Thu Nov 05 01:17:51 IST 2015 the Hon'ble Supreme Court
rendered in Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises and Another,
reported in (1999) 9 SCC 283, in which, in para 44, the Hon'ble Apex Court has observed as under:

"44. From the resume of the aforesaid decisions, it can be stated that:

(a) it is not open to the Court to speculate, where no reasons are given by the arbitrator, as to what
impelled arbitrator to arrive at his conclusion.

(b) It is not open to the Court to admit to probe the mental process by which the arbitrator has
reached his conclusion where it is not disclosed by the terms of the award.

(c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the
disputed question submitted for his adjudication then the Court cannot interfere.

(d) If no specific question of law is referred, the decision of the Arbitrator on that question is not
final, however much it may be within his jurisdiction and indeed essential for him to decide the
question incidentally. In a case where specific question of law touching upon the jurisdiction of the
arbitrator was referred for the decision of the arbitrator by the parties, then the finding of the
arbitrator on the said question between the parties may be binding.

(e) In a case of non-speaking award, the jurisdiction of the Court is limited. The award can be set
aside if the arbitrator acts beyond his jurisdiction.

HC-NIC Page 10 of 34 Created On Thu Nov 05 01:17:51 IST 2015

(f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to
consider the agreement between the parties containing the arbitration clause. Arbitrator acting
beyond his jurisdiction is a different ground from the error apparent on the face of the award.

(g) In order to determine whether arbitrator has acted in excess of his jurisdiction what has to be
seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific
term in the contract or the law which does not permit or give the arbitrator the power to decide the
dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular
claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction.

(h) The award made by the Arbitrator disregarding the terms of the reference or the arbitration
agreement or the terms of the contract would be a jurisdictional error which requires ultimately to
be decided by the Court. He cannot award an amount which is ruled out or prohibited by the terms
of the agreement. Because of specific bar stipulated by the parties in the agreement, that claim could

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 4 Whether This Case Involves A ... vs Ms Khurana & on 30 October, 2015

not be raised. Even if it is raised and referred to arbitration because of wider arbitration clause such
claim amount cannot be awarded as agreement is binding between the parties and the arbitrator has
to adjudicate as per the agreement. This aspect is absolutely made clear in Continental Construction
Co. Ltd.(supra) by relying upon the following passage from M/s. Alopi Parshad Vs. Union of India
[1960] 2 SCR 703 which is to the following HC-NIC Page 11 of 34 Created On Thu Nov 05 01:17:51
IST 2015 effect:-

"There it was observed that a contract is not frustrated merely because the circumstances in which
the contract was made, altered. The Contract Act does not enable a party to a contract to ignore the
express covenants thereof, and to claim payment of consideration for performance of the contract at
rates different from the stipulated rates, on some vague plea of equity. The parties to an executory
contract are often faced, in the course of carrying it out, with a turn of event which they did not at all
anticipate, a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected
obstacle to execution, or the like. There is no general liberty reserved to the courts to absolve a party
from liability to perform his part of the contract merely because on account of an uncontemplated
turn of events, the performance of the contract may become onerous."

(i) The arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract.
A deliberate departure or conscious disregard of the contract not only manifests the disregard of his
authority or misconduct on his part but it may tantamount to mala fide action.

(j) The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he
thinks just and reasonable; the arbitrator is a tribunal selected by the parties to decide the disputes
according to law."

HC-NIC Page 12 of 34 Created On Thu Nov 05 01:17:51 IST 2015

10. In view of the aforesaid decisions, learned advocate Ms. Davawala submitted that the arbitrator
has exceeded his jurisdiction while passing the award and therefore the City Civil Court ought to
have allowed the application filed by the appellant department. However, the same has been
wrongly dismissed. Thus, the present appeal be allowed.

11. On the other hand, learned advocate Mr. Sukhwani submitted that no error is committed by the
arbitrator while passing an award nor the Civil Court has committed any error while rejecting the
application filed by the present appellant and therefore this Court may not interfere with the same.
Learned advocate Mr. Sukhwani submitted that the scope of interference by the Civil Court in the
award passed by the arbitrator is very limited. He has relied upon the judgment rendered by the
Division Bench of this Court on 22.03.2013 in First Appeal No.1379 of 1992 and submitted that the
arbitrator is not required to give reasons in detail in the award and the award can be set aside only
on the ground of error of law on the face of it i.e. if the award is based upon any legal proposition
which is erroneous. Learned advocate Mr. Sukhwani has submitted that the Civil Court has no
jurisdiction to sit in appeal over the award and HC-NIC Page 13 of 34 Created On Thu Nov 05
01:17:51 IST 2015 review the reasons assigned by the arbitrator and the award cannot be set aside
merely because by process of inference and arguments it could be demonstrated that the arbitrator

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has committed some mistake in arriving at his conclusion. He further contended that the award
cannot be interfered with even in the case where on an interpretation of any contract or documents,
two views are plausible and the arbitrator accepts one view while the other view is more appealing to
the Court. He would contend that the award can be set aside by the Civil Court if the arbitrator has
misconducted himself or the arbitrator has acted contrary to or gone beyond the terms of the
reference. Learned advocate Mr. Sukhwani has also placed reliance upon the order dated 30.07.2015
passed by the Division Bench of this Court in First Appeal No.609 of 2006 and allied matter,
wherein the Division Bench has taken the same view.

12. Learned advocate Mr. Sukhwani submitted that in the present case the appellant has failed to
demonstrate that arbitrator has misconducted himself or has acted contrary to or gone beyond the
terms of the reference.

13. Learned advocate Mr. Sukhwani has, thereafter, placed reliance upon the decision HC-NIC Page
14 of 34 Created On Thu Nov 05 01:17:51 IST 2015 rendered by the Hon'ble Supreme Court in the
case of M/s. A.T. Brij Paul Singh and Bros. v. State of Gujarat, reported in AIR 1984 SC 1703 and
more particularly the observations made by the Hon'ble Supreme Court in para 9, which reads as
under:

"9. It was not disputed before us that where in a works contract, the party entrusting the work
commits breach of the contract, the contractor would be entitled to claim damages for loss of profit
which he expected to earn by undertaking the works contract. What must be the measure of profit
and what proof should be tendered to sustain the claim are different matters. But the claim under
this head is certainly admissible. Leaving aside the judgment of the trial court which rejected the
claim for want of proof, the High Court after holding that the respondent was not justified in
rescinding the contract proceeded to examine whether the plaintiff-contractor was entitled to
damages under the head 'loss of profit.' In this connection, the High Court referred to Hudson's
Building and Engineering Contract (1970), tenth edition and observed that 'in major contracts
subject to competitive tender on a national basis, the evidence given in litigation on many occasions
suggests that the head-office overheads and : profit is between 3 to 7% of the total price of cost'
which is added to the tender. In other words, the High Court was of the view that the claim under
this head was admissible. The High Court, however, addressed itself to the question whether
adequate proof is tendered to sustain the claim. In this connection, it was observed that the loss of
profit when it is sought HC-NIC Page 15 of 34 Created On Thu Nov 05 01:17:51 IST 2015 to be
recovered on the percentage basis has to be proved by proper evidence. Having settled the legal
position in this manner, the High Court proceeded to reject the claim observing that the bare
statement of the partner of the contractor's firm that they are entitled to damages in the nature of
loss of profit @ 20% of the estimated cost is no evidence for the purpose of establishing the claim.
The High Court further observed that the appellant has not proved by any primary documents the
basis of its pricing for the purpose of quotation in reply to the tender and more so when it has
quoted at 7 % less than the original estimated cost and in this view of the matter the claim for loss of
profit is unsustainable."

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14. Learned advocate Mr. Sukhwani has also placed reliance upon the decision of the Hon'ble
Supreme Court in Dwarka Das v. State of M.P. and another, reported in AIR 1999 SC 1031, in which,
in para 9, the Hon'ble Supreme Court observed as under:

"The claim of the petitioner for payment of Rs. 20,000 as damages on account of breach of contract
committed by the respondent- State was disallowed by the High Court as the appellant was found to
have not placed the material on record to show that he had actually suffered any loss on account of
the breach of contract. In this regard the appellate court observed: "It is not his case that for due
compliance of the contract he had advanced money to the labourers or that he had purchased
materials or that he had incurred any obligations and on account of breach of contract by the
defendants he HC-NIC Page 16 of 34 Created On Thu Nov 05 01:17:51 IST 2015 had to suffer loss on
the above and other heads. Even in regard to the percentage of profit he did not place any material
on record but relied upon assessment of the profits by the Income Tax Officer while assessing the
income of the contractors from building contracts." such a finding of the appellate court appears to
be based on wrong assumptions. The appellant had never claimed Rs. 20,000 on account of alleged
actual loss suffered by him. He had preferred his claim on the ground that had he carried out the
contract he would have earned profit of 10% on Rs. 2 lacs which was the value of the contract. This
Court in A.T.Brij Pal Singh and Ors. v. State of Gujarat, [1984] 4 SCC 59) while interpreting the
provisions of Section 73 of the Contract Act, has held that damages can be claimed by a contractor
where the government is proved to have committed breach by improperly rescinding the contract
and for estimating the amount of damages court should make a broad evaluation instead of going
into minute details. It was specifically held that where in the works con-tract, the party entrusting
the work committed breach of contract, the contractor is entitled to claim the damages for loss of
profit which he expected to earn by undertaking the works contract. Claim of expected profits is
legally admissible on proof of the breach of contract by the erring party. It was observed :

"What would be the measure of profit would depend upon facts and circumstances of each case. But
that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to
be compensated by way of damages if the other party to the contract is guilty HC-NIC Page 17 of 34
Created On Thu Nov 05 01:17:51 IST 2015 of breach of contract cannot be gainsaid. In this case we
have the additional reason for rejecting the con-tention that for the same type of work, the work site
being in the vicinity of each other and for identical type of work between the same parties, a Division
Bench of the same High Court has accepted 15 per cent of the value of the balance of the works
contract would not be an unreasonable measure of damages for loss of profit......... Now if it is
well-established that the respondent was guilty of breach of contract inasmuch as the rescission of
contract by the respondent is held to be unjustified, and the plaintiff-contractor had executed a part
of the works contract, the contractor would be entitled to damages by way of loss of profit. Adopting
the measure accepted by the High Court in the facts and circumstances of the case between the same
parties and for the same type of work at 15 per cent of the value of the remaining parts of the work
contract, the damages for loss of profit can be measured."

To the same effect is the judgment in Mohd. Salamatullah and Ors. v. Government of Andhra
Pradesh, AIR (1977) SC 1481. After approving the grant of damages in case of breach of contract, the
court further held that the appellate court was not justified to interfere with finding of fact given by

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the trial court regarding quantification of the damages even if it was based upon guess work. In both
the cases referred to hereinabove. 15% of the contract price was granted as damages to the
contractor. In the instant case however the trial court had granted only 10% of the contract price
which we feel was reasonable and permissible, HC-NIC Page 18 of 34 Created On Thu Nov 05
01:17:51 IST 2015 particularly when the High Court had concurred with the finding of the trial court
regarding breach of contract by specially holding that "we therefore see no reason to interfere with
the finding recorded by the trial court that the defendants by rescinding the agreement committed
breach of contract." It follows there- fore as and when the breach of contract is held to have been
proved being contrary to law and terms of the agreement, the erring party is legally bound to
compensate the other party to the agreement. The appellate court was, therefore, not justified in
disallowing the claim of the appellant for Rs. 20,000 on account of damages as expected profit out
of the contract which was found to have been illegally rescinded."

15. Learned advocate Mr. Sukhwani thereafter has drawn the attention of this Court to a decision
rendered by the Hon'ble Supreme Court in Vishwanath Sood v. Union of India and another, and 9,
the Hon'ble Supreme Court observed and held that:

"8. We have gone through the judgment of the Division Bench of the High Court and we have also
considered the arguments advanced on both sides. With great respect, we find our- selves unable to
agree with the interpretation placed by the Division Bench on the terms of the contract. Clause 2 of
the contract makes the time specified for the performance of the contract a matter of essence and
emphasises the need on the part of the HC-NIC Page 19 of 34 Created On Thu Nov 05 01:17:51 IST
2015 contractor to scrupulously adhere to the time schedule approved by the Engineer-in charge.
With a view to compel the contractor to adhere to this time schedule, this clause provides a kind of
penalty in the form of a compensation to the Department for default in adhering to the time
schedule. The clause envisages an amount of compensation calculated as a percentage of the
estimated cost of the whole work on the basis of the number of days for which the work remains
uncommenced or unfinished to the prescribed extent on the relevant dates. We do not agree with
the counsel for the respondent that this is in the nature of an automatic levy to be made by the
Engineer-in charge based on the number of days of delay and the estimated amount of work. Firstly,
the reference in the clause to the requirement that the work shall throughout the stipulated period
of the contract be proceeded with due diligence and the reference in the latter part of the clause that
the compensation has to be paid "in the event of the contractor failing to comply with" the
prescribed time 298 schedule make it clear that the levy of compensation is conditioned on some
default or negligence on the part of the contractor. Secondly, while the clause fixes the rate of
compensation at 1 per cent for every day of default it takes care to prescribe the maximum
compensation of 10 per cent on this ground and it also provides for a discretion to the
Superintending Engineer to reduce the rate of penalty from 1 per cent. Though the clause does not
specifically say so, it is clear that any moderation that may be done by the Super- intending Engineer
would depend upon the circumstances, the nature and period of default and the degree of negligence
or default that could be HC-NIC Page 20 of 34 Created On Thu Nov 05 01:17:51 IST 2015 attributed
to the contractor. This means that the Superintending Engineer, in determining the rate of
compensation chargeable, will have to go into all the aspects and determine whether there is any
negligence on the part of the contractor or not. Where there has been no negligence on the part of

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the contractor or where on account of various extraneous circumstances referred to by the Division
Bench such as vis major or default on the part of the Government or some other unexpected
circumstance which does not justify penalising the contractor, the Superintending Engineer will be
entitled and bound to reduce or even waive the compensation. It is true that the clause does not in
terms provide for any notice to the contractor by the Superintending Engineer. But it will be
appreciated that in practice the amount of compensation will be initially levied by the Engineer-
in-charge and the Superintending Engineer comes into the picture only as some sort of revisional or
appellate authority to whom the contractor appeals for redress. As we see it, clause 2 contains a
complete machinry for determination of the compensation which can be claimed by the Government
on the ground of delay on the part of the contractor in completing the contract as per the time
schedule agreed to between the parties. The decision of the Superintending Engineer, it seems to us,
is in the nature of a considered decision which he has to arrive at after considering the various
mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to
pay compensation at all under this clause. In our opinion the question regarding the amount of
compensation leviable under clause 2 has to be decided only by the Superintending Engineer and no
HC-NIC Page 21 of 34 Created On Thu Nov 05 01:17:51 IST 2015 one else.

9. The Division Bench has construed the expression in clause 2 in parenthesis that "the
Superintending Engineer's decision shall be final" as referring only to a finality qua the department;
in other words, that it only constitutes a declaration that no officer in the department can determine
the quantification and that the quantum of compensation levied by the Superintending Engineer
shall not be 299 changed without the approval of the Government. After refer- ring to certain
judicial decisions regarding the meaning of the word "final" in various statutes, the Division Bench
concluded that the finality cannot be construed as excluding the jurisdiction of the arbitrator under
clause 25. We are unable to accept this view. Clause 25 which is the arbitration clause starts with an
opening phrase excluding certain matters and disputes from arbitration and these are matters or
disputes in respect of which provision has been made elsewhere or otherwise in the contract. These
words in our opinion can have reference only to provisions such as the one in parenthesis in clause 2
by which certain types of determinations are left to the administrative authorities concerned. If that
be not so, the words "except where other- wise provided in the contract" would become meaningless.
We are therefore inclined to hold that the opening part of clause 25 clearly excludes matters like
those mentioned in clause 2 in respect of which any dispute is left to be decided by a higher official
of the Department. Our conclusion, therefore, is that the question of awarding compensation under
clause 2 is outside the purview of the arbitrator and that the compensation, HC-NIC Page 22 of 34
Created On Thu Nov 05 01:17:51 IST 2015 determined under clause 2 either by the
Engineer-in-charge or on further reference by the Superintending Engineer will not be capable of
being called in question before the arbitrator."

16. Learned advocate Mr. Sukhwani also placed reliance upon the decision of the Hon'ble Supreme
Court in Sir Chunilal V. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co.Ltd.,
reported in AIR 1962 SC 1314(1). In the said decision, in para 11, the Hon'ble Supreme Court
observed as under:

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"11. A perusal of cl. 14 clearly shows that the parties have themselves provided for the precise
amount of damages that would be payable by the Company to the Managing Agents if the Managing
Agency agreement was terminated before the expiry of the period for which it was made. The clause
clearly states that the Managing Agent shall receive from the Company as compensation or
liquidated damages for the loss of appointment a sum equal to the aggregate amount of the monthly
salary of not less than Rs. 6,000/- for and during the whole of the unexpired portion. of the term of
Agency. Now, when parties name a sum of money to be paid as liquidated damages they must be
deemed to exclude the right to claim an unascertained sum of money as damages. The contention of
learned counsel is that the words "not less than" appearing before "Rs. 6,000/-" in cl. 14 clearly
bring in el. 10 and, therefore, entitle the appellant to claim 10% of the estimated profits for the
unexpired period by way of damages. But if HC-NIC Page 23 of 34 Created On Thu Nov 05 01:17:51
IST 2015 we accept the interpretation, it would mean that the parties intended to confer on .the
Managing Agents what is in fact a right conferred by a. 73 of the Contract Act and the entire clause
would be rendered those. Again the right to claim liquidated damages is enforceable under is. 74 of
the Contract Act and where such a right is found to exist no question of ascertaining damages really
arises. Where the parties have deliberately specified the amount of liquidated damages there can be
no presumption that they, at the same time, intended to allow the party who has suffered by the
breach to give a go-by to the sum specified and claim instead a sum of' money which was not
ascertained or ascertainable at the date of the breach. Learned counsel contends that upon this view
the words "not less than" would be rendered otiose. In our opinion 562 these words, as
rightly-pointed out by the High Court, were intended only to emphasis the fact that compensation
will be computable at an amount not less than Rs. 6,000 p.m. Apparently, they thought it desirable
to emphasis the point that the amount of Rs. 6,000 p.m. was regarded by' them as reasonable and
intended that it should not be reduced by the court in its discretion.

17. After relying upon the aforesaid decisions rendered by this Court as well as Hon'ble Supreme
Court, learned advocate Mr. Sukhwani submitted that the arbitrator has rightly observed in the
award in Clause 3(viii) with regard to levy of compensation under clause 2 that in view of the
decision rendered by the Hon'ble Supreme Court reported in AIR 1989 SC 952, the subject matter
HC-NIC Page 24 of 34 Created On Thu Nov 05 01:17:51 IST 2015 is outside the jurisdiction of the
arbitrator with a liberty to the present appellant to take up the matter at appropriate forum. Thus,
the arbitrator has held that no recovery on this account is allowed from the award. Thus, the
arbitrator has not committed any error while making such observations. Learned advocate Mr.
Sukhwani further contended that since no escalation was allowed by the present appellant under
clause 10CC for the prolonged period to the contractor, the arbitrator awarded 25% of
Rs.45,54,528/- to cover the increased cost and also extra expenditure towards establishment and
overhead expenses. Thus, the arbitrator has not awarded such amount only for the cost of the
material supplied by the department. Thus, the decision rendered by the Hon'ble Supreme Court in
the case of Himachal Pradesh Nagar Vikas Pradhikaran (supra) is not applicable.

18. Learned advocate Mr. Sukhwani thereafter contended that the arbitrator has rightly awarded
interest at the rate of 12% and the same cannot be said to be on higher side as contended by learned
advocate for the appellant department and therefore this appeal be dismissed.

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19. I have considered the submissions canvassed on behalf of the learned advocates appearing for
HC-NIC Page 25 of 34 Created On Thu Nov 05 01:17:51 IST 2015 the parties. I have also gone
through the Record and Proceedings called for from the trial Court and the decisions relied on by
the learned advocates for the parties. From the record, it has emerged that contract of construction
of Telephone Exchange Building at Bapunagar, Ahmedabad was awarded by the appellant
department to the respondent contractor. Certain disputes and difference arose between the parties.
Contractor, therefore, invoked the provision of Clause 25 of the agreement and an arbitrator was
appointed to adjudicate the dispute between the parties. Arbitrator passed an award which was sent
to City Civil Court, Ahmedabad, for making the award rule of the Court and for passing the decree
accordingly. Objections were filed by the appellant department. The respondent contractor also filed
an application for passing the decree in terms of the award passed by the Arbitrator. Before the trial
Court, the appellant had taken the following contentions:

"1. The arbitrator has erroneously arrived at the decision to award double rate
recovery of cement by ignoring the agreement provisions, material documents and
oral submission.

2. The arbitrator has traversed beyond his jurisdiction by putting unnecessary

restriction on adjustment of the amount of compensation from the award sum.
Hence, the arbitrator has misconducted himself.

HC-NIC Page 26 of 34 Created On Thu Nov 05 01:17:51 IST 2015

3. The arbitrator has committed an error by disallowing the recovery made by the respondent under
clause 29(a) by acting beyond his jurisdiction.

4. That the award sum is erroneously arrived at by the arbitrator and the learned arbitrator has
ignored the facts, evidence and material placed before him."

20. The trial Court after considering the terms of the agreement and the award passed by the
arbitrator, observed that it is settled position of law that the said Court cannot sit in appeal against
the findings given by the arbitrator and cannot record its own findings in place of the findings of fact
of the arbitrator and thereby rejected the objections taken by the present appellant and the award
passed by the arbitrator was made rule of the Court and decree was accordingly drawn up in terms
of the said award.

21. Thus, in view of the aforesaid facts, this Court is required to consider whether the trial Court has
committed any error while passing the impugned order.

22. This Court in the order dated 22.03.2013 passed in F.A. No. 1379 of 1992 after considering the
various decisions rendered by the Hon'ble Supreme Court, observed and held in para 17 as under:

HC-NIC Page 27 of 34 Created On Thu Nov 05 01:17:51 IST 2015 "17. From the various decisions
referred to above, it could safely be stated that:

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(a) In the award, the arbitrator is not required to give reasons in detail.

(b) The award can be set aside only on the ground of error of law on the face of it, i.e. to say, if the
award is based upon any legal proposition which is erroneous.

(c) The Civil Court has no jurisdiction to sit in appeal over the award and review the reasons
assigned by the arbitrator and the award cannot be set aside merely because by process of inference
and arguments it could be demonstrated that the arbitrator has committed some mistake in arriving
at his conclusion.

(d) The award cannot be interfered with even in the case where on an interpretation of any contract
or documents, two views are plausible and the arbitrator accepts one view while the other view is
more appealing to the Court.

(e) The award can be set aside by the Civil Court if the arbitrator has misconducted himself or the
arbitrator has acted contrary to or gone beyond the terms of the reference."

23. Similarly, relying upon the aforesaid decision rendered by the Hon'ble Division Bench of this
Court in F.A. No.1379 of 1992, another Hon'ble Division Bench of this Court in F.A. No.609 of 2006
and allied matter, observed in para 8 as under:

HC-NIC Page 28 of 34 Created On Thu Nov 05 01:17:51 IST 2015 "8. From a perusal of the materials
on record, we are of the opinion that the objections raised by the appellant were duly considered by
the trial court and thereafter the trial court took the view that the findings arrived at by the
Arbitrator were just and proper and the trial court justifiably made the award of the arbitrator the
rule of the Court. This court does not see any reason or cause to remit the award or to set aside the
award. As the parties had chosen their own Arbitrator, they cannot, when the award is good on the
face of it, object to the decision either upon law or facts. In exercise of our powers under Section 39
of the Arbitration Act, it is not permissible for us to substitute the view of the Court below with our
own opinion on appreciation of evidence. Such a course is not permissible to the High Court while
examining objections to the award under Section 30 of the Arbitration Act, 1940.

Appeals therefore deserve to be

dismissed."

24. Thus, keeping in mind the decisions rendered by the Hon'ble Division Bench of this Court, the
objections of the appellants are required to be considered. In the present proceedings, one of the
contentions raised by learned advocate Ms. Davawala appearing for the appellant is that though the
arbitrator has observed that levy of compensation under Clause 2 is the subject matter outside the
jurisdiction of the arbitrator and no argument was heard, inspite of that the arbitrator observed that
no recovery of the amount of compensation is allowed from the award.

HC-NIC Page 29 of 34 Created On Thu Nov 05 01:17:51 IST 2015 With regard to the said contention,
the trial Court has specifically considered the said submission and rightly held that the arbitrator

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has not considered the said ground and has not permitted the claimant to agitate the same before
him. Arbitrator was having the opinion that he has no jurisdiction to entertain such a ground.
Liberty was reserved to take up the matter at appropriate forum and therefore no recovery of the
compensation under clause 2 was allowed from the award. Thus, this Court is also of the opinion
that no error is committed by the arbitrator or the learned trial Court.

24. The next contention of the learned advocate for the appellant is that the cement, steel and other
material was required to be supplied by the department to the contractor for the prolonged period
but as there was shortage, the appellant could not supply the same in time. However, the appellant
had supplied the material to the contractor after procuring the same at higher price from the market
and therefore no loss is caused to the contractor and therefore the arbitrator has wrongly awarded
25% extra towards the increase in price of material and labour for the prolonged period to the
contractor.

25. With regard to the aforesaid contentions, it HC-NIC Page 30 of 34 Created On Thu Nov 05
01:17:51 IST 2015 is borne out from the record that the arbitrator has awarded 25% extra over the
agreement rates to cover the increased cost and extra expenditure towards establishment and
overhead expenses. Thus, the arbitrator has not awarded 25% extra over the agreement rates qua
the material i.e. cement and steel supplied by the department. Thus, in view of the aforesaid facts,
no illegality is committed by the arbitrator nor any error is committed by the trial Court. The
reliance placed by learned advocate for the appellant on the decision rendered by the Hon'ble
Supreme Court in the case of Himachal Pradesh Nagar Vikas Pradhikaran (supra), is misconceived.
The facts of the present case are different from the said case and therefore the same is not applicable
in the facts of the present case.

26. There is no dispute with regard to the proposition laid down by the Hon'ble Supreme Court in
the case of New India Civil Erectors (P.) Ltd. (supra) as well as Rajasthan State Mines and Minerals
Ltd. (supra), relied on by the learned advocate for the appellant. However, the facts of the said cases
are different and therefore the said decisions are not helpful to the appellant in the facts of the
present case.

27. The last contention raised by the learned HC-NIC Page 31 of 34 Created On Thu Nov 05 01:17:51
IST 2015 advocate for the appellant is with regard to the higher rate of interest awarded by the
arbitrator and confirmed by the trial Court. It is contended that 12% interest is awarded by the
arbitrator which is on higher side and therefore the same be reduced. With regard to the said
contention, this Court is of the opinion that at the relevant time when the award was passed by the
arbitrator and the decree was drawn by the trial Court, the same rate of interest was prevailing and
therefore no error is committed while awarding the said rate of interest. Ordinarily, the High Court
should not interfere in the rate of interest awarded by the arbitrator except in certain circumstances
as per the decision rendered by the Hon'ble Supreme Court in the case of Manalal Prabhudayal v.
Oriental Insurance Company Ltd., reported in (2009) 17 SCC 296. In the said decision, the Hon'ble
Supreme Court observed in para 12 and 13 as under:

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 4 Whether This Case Involves A ... vs Ms Khurana & on 30 October, 2015

"12. Having considered the rival contentions of the parties, in our opinion, the appeal deserves to be
allowed by granting relief to the appellant-firm. It is well settled that award of interest is in the
discretion of court. Normally, when interest is granted, appellate, revisional or writ court would not
interfere with exercise of discretion unless the discretion has been exercised arbitrarily or
capriciously. It is equally well settled that like grant of interest, HC-NIC Page 32 of 34 Created On
Thu Nov 05 01:17:51 IST 2015 rate of interest is also in the discretion of the court and in the absence
of any agreement between the parties, usually, the court would not interfere with rate of interest
unless it is convinced that the direction of the lower court was ex facie bad in law.

13. As far as arbitration proceedings are concerned, it is well established that an arbitrator, in
absence of any prohibition in an arbitration agreement, has power to award interest. Though it is
not a "court" within the meaning of Section 34 of the Code of Civil Procedure, 1908, an arbitrator
has power to grant reasonable rate of interest at all the three stages; i.e. pre-reference period,
pendente lite and post award period. "

Thus, in view of the aforesaid decision rendered by the Hon'ble Supreme Court, this Court is of the
opinion that no interference is required.

28. In view of the aforesaid discussion, this Court is of the opinion that the objections raised by the
appellant department were duly considered by the trial Court and thereafter the trial Court has
taken the view that findings arrived at by the arbitrator were just and proper and trial Court
justifiably made the award of the arbitrator the rule of the Court. This Court does not see any reason
or cause to set aside the award as the parties had chosen their own arbitrator and they cannot, when
the award is HC-NIC Page 33 of 34 Created On Thu Nov 05 01:17:51 IST 2015 correct on the face of
it, object to the decision either upon law or facts. Thus, in exercise of powers under the provisions of
the Arbitration and Conciliation Act, 1996, it is not proper for this Court to substitute the view of the
Court below with the opinion of this Court on appreciation of evidence. Accordingly, the appeal
deserves dismissal and accordingly the same is dismissed.

R & P be sent back to the trial Court.

(VIPUL M. PANCHOLI, J.) Jani HC-NIC Page 34 of 34 Created On Thu Nov 05 01:17:51 IST 2015

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