2003 (8) TMI 368 - SC - Indian Laws

Arbitral award - whether the respondent was entitled to any compensation for the alleged loss occurred on the ground of delay in completion of work particularly when it was agreed that the extension of time was granted subject to payment of penalty? Held that - Appeal allowed. This case stands on a different footing namely that the arbitrator while passing the award in relation to some items failed and/or neglected to take into consideration the relevant clauses of the contract nor did he take into consideration the relevant materials for the purpose of arriving at a correct fact. Such an order would amount to misdirection in law. Therefore the matter requires reconsideration. Having regard to the facts and circumstances of the this case and particularly keeping in view the fact that the matter relates to pure interpretation of document which gives rise to question of law and instead and in place of remitting the matter to the named arbitrator we would direct that the disputes in relation to claim item Nos. 3 7 and 11 be referred to Hon ble Mr. Justice D.N. Prasad a retired Judge of the Jharkhand High Court on such terms and conditions as may be mutually agreed upon by the parties. The learned arbitrator is requested to consider the desirability of making his award as expeditiously as possible keeping in view the fact that the matter has been pending for a long time.

Issues Involved:
1. Acceptance of Final Bill and Further Claims
2. Grant of Interest from the Date of Decree
3. Delay in Payment of Bills
4. Extra Work Done
5. Penalty Deduction
6. Losses Due to Prolongation of Work and Material Escalation
7. Arbitrator's Jurisdiction and Misconduct

Detailed Analysis:

1. Acceptance of Final Bill and Further Claims:
The appellant argued that the respondent, having accepted the final bill, was not entitled to raise any further claims. However, the court found that there was no unequivocal statement from the respondent indicating that no further claims would be raised. Therefore, the respondent was not precluded from making additional claims.

2. Grant of Interest from the Date of Decree:
The court agreed with the appellant that the High Court erred in granting interest from the date of the decree under Section 29 of the Arbitration Act. The Subordinate Judge had not granted such interest, and any correction should have been sought through an appeal or review petition, not under Section 152 of the Code of Civil Procedure.

3. Delay in Payment of Bills:
The arbitrator found an inordinate delay in the payment of the 10th R/A bill, which was paid one year after the completion of the work. Damages were awarded at 12% for the delay. This finding was based on the evidence presented and was upheld by the court.

4. Extra Work Done:
The arbitrator awarded a sum for extra work done by the respondent, despite the appellant's contention that no extra work was performed. The court noted that the arbitrator should have considered specific contractual clauses requiring written orders for additional work and timely submission of claims. The arbitrator's failure to consider these clauses was a point of contention.

5. Penalty Deduction:
The arbitrator found the penalty deduction of Rs. 10,000 unjustifiable and directed its refund. This part of the award was not contested.

6. Losses Due to Prolongation of Work and Material Escalation:
The arbitrator awarded claims for losses due to the prolongation of work and material escalation. The court noted that the arbitrator should have considered the relevant contractual provisions and correspondence between the parties. The appellant had provided a secured advance and supplied essential materials, which should have been factored into the decision.

7. Arbitrator's Jurisdiction and Misconduct:
The court emphasized that an arbitrator must operate within the confines of the contract and cannot act arbitrarily or beyond the scope of the agreement. The arbitrator's failure to consider essential contractual clauses and relevant materials constituted a misdirection in law. The court cited several precedents to underline that an arbitrator exceeding his jurisdiction or ignoring contractual terms could have his award set aside.

Conclusion:
The court found that the arbitrator had not adequately considered the contractual clauses and relevant materials, leading to a misdirection in law. The matter was referred to a retired judge for reconsideration of claims related to extra work, losses due to prolongation, and material escalation. The appeals were allowed to this extent, with no costs awarded.

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