2006 (11) TMI 724 - SC - Indian Laws

Summary

Issues Involved:
1. Competence of the Arbitrator post-suspension and retirement.
2. Entitlement to compensation for interruption of work due to anti-social elements.
3. Entitlement to compensation for price escalation of materials.
4. Entitlement to compensation for additional transportation costs due to non-availability of a suitable quarry.
5. Entitlement to compensation for losses due to non-availability of a suitable dumping yard.

Summary:

1. Competence of the Arbitrator:
The preliminary objection raised by the State of Kerala was that the Arbitrator, who was suspended and later retired, had no jurisdiction to continue with the arbitration. The High Court rejected this objection, stating that the authority of the Arbitrator could only be revoked u/s 5 of the Arbitration Act with the leave of the Court. The Arbitrator's authority was upheld despite his suspension and retirement.

2. Compensation for Interruption of Work:
Claim (a) involved compensation for interruption of work by anti-social elements. The Arbitrator found that the State failed to remove such obstructions, causing financial losses to the appellant. The Arbitrator awarded Rs. 7,30,000/- under this claim. The High Court, however, held that the Arbitrator had exceeded his jurisdiction in granting this claim, as it was outside the terms of the contract.

3. Compensation for Price Escalation:
Claim (g) pertained to compensation for losses due to price escalation of materials during the extended period of completion. The Arbitrator awarded Rs. 11,70,000/-. The High Court found that the Arbitrator had acted beyond his jurisdiction, as the Supplemental Agreement specifically prohibited enhanced rates during the extended period.

4. Additional Transportation Costs:
Claim (i) involved compensation for additional transportation costs due to the non-availability of a suitable quarry. The Arbitrator awarded Rs. 13,35,000/-. The High Court held that the Arbitrator had mis-conducted himself by granting this claim, as it was beyond the terms of the contract.

5. Losses Due to Non-availability of a Dumping Yard:
Claim (k) related to losses due to the non-availability of a suitable dumping yard. The Arbitrator awarded Rs. 6,62,000/-. The High Court allowed this claim, finding no issue with the Arbitrator's decision.

Supreme Court's Decision:
The Supreme Court allowed the appeal, setting aside the High Court's order and restoring the Arbitrator's award. The Court held that the Arbitrator acted within his jurisdiction in allowing claims related to escalation of costs due to unforeseen circumstances and the State's failure to fulfill its obligations. The Court emphasized that the Arbitrator could compensate for extra costs incurred due to the State's failure to maintain law and order and provide necessary resources, even in the absence of specific escalation clauses in the contract.