STATE OF HARYANA versus M/S. SHIV SHANKAR CONSTRUCTION CO. & ANR. on 14 December 2021

Conclusion

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 03.11.2015 passed by the High Court of Punjab andHaryana at Chandigarh in FAO No. 4482 of 2011 (O&M), by which theHigh Court has dismissed the appeal preferred by the appellant hereinunder Section 37 of the Arbitration and Conciliation Act, 1996, the Stateof Haryana has preferred the present appeals.

2. At the outset it is required to be noted that while issuing noticein the present appeals, this Court has stayed the award exceedingRs.1,03,50,263/- insofar as claim Nos.1 and 8 are concerned.

3. The facts leading to the present appeals in a nutshell are asunder:-

3.1 That the appellant herein awarded the contract to respondentNo.1 herein – contractor for strengthening, up-gradation and maintenanceof road from Palwal to Hasanpur, Haryana for a length of 31.17kilometres on certain terms and conditions as per the contract enteredinto between the parties. The contract was for Rs.5,26,59,688/-. That asper the design calculation data, the specifications as prepared by theappellant department were meant for 3364 traffic intensity PCU(Passenger Car Unit)/day. The contract was up to 31.05.2010. That on05.03.2005 due to the closing of the Palwal Aligarh Road on account ofthe construction of the railway bridge, the entire traffic was divertedfrom Palwal Aligarh Road to the present road. That due to this diversionof traffic from Palwal Aligarh Road, heavy traffic of 24418 PCUS perday was plying on the road as against the design of 3364 PCUS per day,which damaged the road. That according to the contractor – respondentNo.1 herein, he was required to do heavy repair by incurring additionalexpenditure. Disputes arose between the parties. A legal notice wasserved upon the appellant making the claims. Disputes were not resolvedand therefore respondent No.1 – contractor invoked the arbitration clauseas per clauses 24 & 25 and approached the High Court for appointmentof an arbitrator in exercise of power conferred under Section 11 (6) ofthe Arbitration and Conciliation Act, 1996.

3.2 Vide order dated 23.04.2007, the High Court appointed ShriR.S. Jindal, retired Chief Engineer, Delhi Development Authority as thesole Arbitrator to adjudicate upon all the disputes between the parties.

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AThat the contractor submitted various claims including claim Nos. 1 and8. For the purpose of deciding the present appeals, claim Nos.1 and 8are relevant. The sole Arbitrator awarded a total sum of Rs.1,51,95,400/- with respect to claim Nos.1 and 8.

4. Feeling aggrieved and dissatisfied with the award declared byBthe learned Arbitrator, the appellant preferred an application before theCourt under Section 34 of the Arbitration and Conciliation Act, 1996,which came to be dismissed against which the appellant – State preferredan appeal under Section 37 of the Arbitration and Conciliation Act, 1996before the High Court. By the impugned judgment and order the HighCourt has dismissed the said appeal. Hence, the State of Haryana hasCpreferred the present appeals.

5. Shri Shyam Divan, learned Senior Advocate has appeared onbehalf of the State – appellant and Shri Ranjit Kumar, learned SeniorAdvocate has appeared on behalf of the respondent No.1 – contractor.

5.1 Shri Shyam Divan, learned Senior Advocate appearing on behalfDof the appellant submitted that the appellant has already paid torespondent No.1 – contractor an amount of Rs.1,03,50,263/- pursuant tothe interim order dated 26.08.2016 passed by this Court.

5.2 Shri Shyam Divan, learned Senior Advocate appearing on behalfof the appellant has submitted that the arbitral award is liable to be setEaside on the following grounds:-

(i) The award is in excess of claim;

(ii) The Arbitrator exceeded the scope of reference;

(iii) The Arbitrator has rewritten the contract with respect tothe amount payable which was specified in the contract.F

5.3 Now, so far as ground No.1 that the award is in excess ofclaim, it is vehemently submitted by Shri Shyam Divan, learned SeniorAdvocate appearing on behalf of the appellant that the contractor in itsstatement of claim had claimed an amount of Rs. 1,03,50,263/- onlyunder the claim Nos.1 and 8. It is submitted that despite the above theGArbitrator has awarded a total sum of Rs.1,51,95,400/-, which is in farexcess of amount claimed. It is submitted that the statement of claimwas never modified by the contractor and therefore, the Arbitrator oughtnot to have awarded the sum/amount in excess of the amount claimed.

5.3.1 It is submitted that the differential amount of Rs.48,45,137/H- is in excess of claim and to that extent the arbitral award is invalid and liable to be set aside. Reliance is placed on the decision of this Court inthe case of ONGC Ltd. v. Off-Shore Enterprises Inc., (2011) 14SCC 147 (para 16).

5.3.2 It is submitted that as held by this Court in the cases ofAssociate Builders v. Delhi Development Authority, (2015) 3 SCC49 (para 36) and J.C. Budhraja v. Chairman, Orissa Mining Corpn.Ltd. & Anr., (2008) 2 SCC 444 (para 31-32), making an award in excessof claim is clear cut an act exceeding the jurisdiction and amounts to amisconduct of the Arbitrator.

5.4 Now, so far as ground No.2 namely, that the Arbitrator exceededthe scope of reference, it is contended that the Arbitrator cannot exceedthe scope of reference.

5.4.1 It is submitted that the contractor invoked the arbitrationclause on 06.03.2006. The High Court appointed the sole Arbitrator on23.04.2007 and the Arbitrator entered upon reference on 19.05.2007. Itis urged that by allowing the claims for a period beyond 19.05.2007, theArbitrator exceeded the scope of reference.

5.4.2 It is submitted that an amount of Rs.57,96,000/- (approx.)has been awarded for claims arising between 19.05.2007 to 31.07.2008(calculated as amount for maintenance of road @ Rs. 45,000/- perkilometre (km) per month). It is submitted that it was not permissible forthe Arbitrator to exceed the scope of the reference beyond the dateupon entering reference and as a consequence the award is liable to beset aside.

5.4.3 Learned senior counsel appearing on behalf of the appellanthas relied upon the decisions of this Court in the cases of IndianAluminium Cables Ltd. v. Haryana State Electricity Board, 1996(5) SCALE 708 (para 2) and MSK Projects India (JV) Ltd. v. Stateof Rajasthan & Anr. (2011) 10 SCC 573 (para 15), in support of hisabove submissions that as the Arbitrator exceeded the scope of referenceand hence the award is liable to be set aside.

5.5 In so far as the ground No.3 is concerned namely, the Arbitratorhas rewritten the contract with respect to the amount payable whichwas specified in the contract, it is submitted that the Arbitrator hasrewritten the terms of the contract by directing the appellant to pay thecompensation to respondent No.1 – contractor at the rate of Rs.45,000/- per km per month instead of mutually agreed contractual rate of A

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ARs.1,000/- per km per month. It is contended that it was not open to theArbitrator to rewrite the terms of the contract and award the contractora higher rate for the work than the rate which was already fixed in thecontract. It is submitted that such an exercise is beyond the competenceand authority of the Arbitrator. Reliance is placed on the decision of thisCourt in the case of Satyanarayana Construction Company v. UnionBof India and Others (2011) 15 SCC 101 (para 11).

5.6 It is further contended by Shri Divan, learned Senior Advocateappearing on behalf of the appellant that even otherwise, the amountawarded by the Arbitrator at Rs.45,000/- per km per month beyond thetime period of additional traffic i.e. from 31.07.2008 to 31.05.2010 i.e.Ctill the end of contract is wholly impermissible. It is submitted thatdiversion of traffic on 9.2 km stretch of the road which gave rise to thecause of action ceased to exist w.e.f. January 2008. It is submitted thathowever, the Arbitrator has directed the appellant to make payment atRs. 45,000/- per km per month even beyond the time period of additionalDtraffic. It is contended that the aforesaid is wholly impermissible.6. Making the above submissions, it is prayed to allow the presentappeals.

7. Shri Ranjit Kumar, learned Senior Advocate appearing on behalfof respondent No.1 – contractor, has vehemently contended that theEaward passed by the Arbitrator cannot be said to be (i) in excess ofclaim; (ii) exceeding the scope of reference and (iii) rewriting the contractwith respect to the amount payable which was specified in the contract,as submitted on behalf of the appellant. It is submitted that in the statementof claim the contractor specifically stated that the amount has been workedFout up to the month of May, 2007 and the details of expenditure beyondMay, 2007 will be submitted during the course of hearing. It is thereforesubmitted that it cannot be said that claim Nos.1 and 8 were restrictedto Rs. 1,03,50,263/- only. It is urged that on appreciation of the evidenceon record the Arbitrator has awarded Rs. 1,51,95,400/- for claim Nos.1and 8, which in any case cannot be said to be beyond the amount claimedGin the statement of claim.

7.1 It is next contended that it also cannot be said that the awardpassed by the Arbitrator was beyond the scope of reference. It issubmitted that as such cause of action to claim the additional amountarose due to over-expenditure owing to maintenance of road due toHdiversion of traffic from Palwal Aligarh Road to the present road which continued even beyond 06.03.2006 and/or 23.04.2007 and 19.05.2007.It is submitted that the amount awarded by the Arbitrator under claimNos.1 and 8 cannot be said to be exceeding the scope of reference.

7.2 It is further submitted that even the award passed by theArbitrator to make payment at Rs.45,000/- per km per month cannot besaid to be rewriting of the contract with respect to the amount payablewhich was specified in the contract. It is urged that at the time when thecontract was written/entered into between the parties the contract rateof Rs.1,000/- per km per month was agreed against the design of 3364PCUS per day. However, after the contract was entered into and thecontractor acted as per the contract there was diversion of traffic fromPalwal Aligarh Road to the present road and the heavy traffic of 24418PCUS per day was plying on the road as against the design of 3364PCUS per day and therefore the contractor was required to incuradditional expenditure at Rs.45,000/- per km per month. It is submittedthat the amount awarded by the Arbitrator at Rs.45,000/- per km permonth cannot be said to be rewriting the contract with respect to theamount payable than what was specified in the contract i.e. Rs.1,000/-per km per month.

7.3 However, Shri Ranjit Kumar, learned Senior Advocateappearing on behalf of the contractor is not in a position to justify theaward by which the Arbitrator has awarded the payment at Rs.45,000/- per km per month even beyond the time period of additional traffic i.e.up to 31.05.2010 i.e. till the end of the contract.

8. We have heard the learned senior counsel appearing on behalfof the respective parties at length and given our thoughtful consideration.

9. That the contractor was awarded the contract for maintenance,etc. The contract amount was for Rs.5,26,59,688/-. The rate ofmaintenance of the road as accepted was Rs.12,000/- per km per annumor Rs.1,000/- per km per month. The maintenance contract was valid upto 31.07.2010. When the contract was entered into, the contract wasmeant for only 3364 PCUS per day. However, due to diversion of trafficfrom Palwal Aligarh Road to the present road, the contractor was requiredto incur additional expenditure on the maintenance due to increase in thetraffic and plying the additional commercial vehicles. Therefore thecontractor claimed the amount towards additional expenditure formaintenance which was due to increase in the traffic and plying morecommercial vehicles. On appreciation of evidence the Arbitrator has AB

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Adetermined the loss at Rs.45,000/- per km per month (claim Nos.1 and8).

9.1 The case on behalf of the appellant that as in the statement ofclaim, the claimant claimed an amount of Rs.1,03,50,263/- under theclaim Nos. 1 and 8 and the Arbitrator has awarded Rs.1,51,95,400/-, theBsame is in far excess of amount claimed and therefore the award is inexcess of amount claimed has no substance. When the statement ofclaim submitted by the contractor is seen, it is specifically stated by theclaimant that the amount of Rs.1,03,50,263/- has been worked out up toMay, 2007 and the details of expenditure beyond May, 2007 will besubmitted during the course of hearing. It is specifically stated thatCexpenditure incurred up to May, 2007 works out to Rs.1,03,50,263/-.Therefore, the amount awarded by the Arbitrator cannot be said to be inexcess of the claim.

9.2 Now so far as the submission on behalf of the appellant thatthe Arbitrator exceeded the scope of reference while awarding an amountDbeyond 19.05.2007 – the date on which the High Court appointed thesole Arbitrator is concerned, the same has no substance. The case onbehalf of the appellant that the Arbitrator ought to have restricted theclaim either up to 06.03.2006 – the date on which the contractor invokedthe arbitration clause or 23.04.2007, the date on which the High CourtEappointed the sole Arbitrator or at least up to 19.05.2007 – the date onwhich the Arbitrator entered into reference, is concerned, it is requiredto be noted that the claim made by the Arbitrator was till the traffic wasdiverted which was up to January, 2008. Therefore, the Arbitrator wasjustified in awarding the amount beyond the aforesaid periods and till theadditional traffic was diverted due to the closure of Palwal Aligarh Road.F

9.3 Now the submission on behalf of the appellant is that byawarding Rs.45,000/- per km per month the Arbitrator has rewritten thecontract with respect to the amount payable than what was specified inthe contract. It is urged that under the contract mutually agreed contractualrate was Rs.1,000/- per km per month and therefore any amount higherGthan Rs.1,000/- per km per month is beyond the terms and conditions ofthe contract, is also without substance. It is noted that at the time whenthe contract was entered into the mutually agreed, the rate fixed wasRs.1,000/- per km per month and the estimated traffic was 3364 PCUSper day. The cause of action arose subsequently due to diversion oftraffic from Palwal Aligarh Road and plying of more heavy vehicles dueH

to which the contractor was required to incur additional expenditure formaintenance of the road. Therefore, the contractor was entitled to theloss on account of the additional expenditure incurred for maintenanceof the road due to increase in the traffic because of the closure of thePalwal Aligarh Road and diversion of the traffic to the present road.Therefore, by no stretch of imagination it can be said that there wasrewriting the terms of the contract as submitted on behalf of the appellant.

9.4 In view of the above findings, none of the decisions of thisCourt relied upon by the learned senior counsel appearing on behalf ofthe appellant are applicable to the facts of the case on hand as the sameare not of any assistance to the appellant.

9.5 However, at the same time Shri Divan, learned SeniorAdvocate, appearing on behalf of the appellant is justified in submittingthat the Arbitrator ought not to have awarded an amount of Rs.45,000/-per km per month beyond the time period of additional traffic. TheArbitrator has awarded the loss/amount at Rs.45,000/- per km per monthup to 31.05.2010 i.e. till the end of the contract which is whollyimpermissible diversion of the additional traffic ceased to exist w.e.f.January, 2008. Therefore, the Arbitrator ought not to have awarded anyamount beyond the above time period beyond January, 2008. To thatextent the award passed by the Arbitrator can be said to be perverseand to that extent the present appeals are required to be allowed.

10. In view of the above and for the reasons stated above, thepresent appeals are allowed in part. The award passed by the Arbitratorawarding the amount/compensation at Rs.45,000/- per km per month upto January, 2008 under claim Nos.1 and 8 is hereby confirmed. Theaward passed by the Arbitrator awarding the amount/compensation atRs.45,000/- per km per month from February, 2008 to 31.05.2010 i.e. tillthe end of the contract is hereby quashed and set aside. The amount dueand payable has to be worked out accordingly. The present appeals arepartly allowed to the aforesaid extent. In the facts and circumstances ofthe case there shall be no order as to costs.

Devika Gujral

Appeals partly allowed.

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