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Judgment
The matter pertains to a contract of the year 1996 for the excavation and lining of the Teesta Jaldhaka Main Canal from 2.08 km to 3.00 km in Mal, District-Jalpaiguri.
Following a notice inviting tender, the respondent contractor's bid was accepted at 47.87% less than the tender price of the work specified in the schedule. The value of the work was reckoned to be about Rs.1.36 crore. For disputes which are not necessary to be gone into at this stage, the contract was terminated without the entire work being completed which resulted in the contractor lodging a claim. In accordance with the arbitration agreement contained in the contract, an arbitrator was appointed by this Court to adjudicate on the disputes between the parties as covered by the relevant agreement.
Several claims were made by the contractor, including on account of carrying earth for a longer distance than originally envisaged in the contract, for modified work as was required to be undertaken by the contractor as a consequence of an agitation by the locals near the site and for the quantum of work already executed before the termination was effected. The heads of claim were itemized from 1 to 10 with the fourth head being spread over claim nos.4(a)(i), 4(a)(ii), 4(b) and 4(c). The award was rendered on June 30, 2005 and challenged by September, 2005 before the appropriate court in Jalpaiguri. By the judgment and order impugned dated April 28, 2009, the court of the first instance repelled the challenge to the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.
The State is in appeal. According to the State, both the arbitrator and the court of the first instance failed to appreciate that the substantial claims made by the contractor were beyond the scope of the agreement between the parties and, indeed, contrary to the express terms thereof. In particular, the State is critical of the award of a total amount of Rs.63 crore under claim nos.4(a)(i), 4(a)(ii) and 4(b) of the award on the ground that the basis for the claim was contrary to the agreement between the parties and at variance with the methodology provided for in the agreement for measurement of the earth removed. The State says that it would be apparent on a plain reading of the arbitral award that the objection as to the methodology was taken before the arbitrator, but the arbitrator disregarded such objection on specious grounds and proceeded to substantially agree with the contractor and awarded an amount of Rs.63 lakh under such heads.
The State is equally critical of the amount of Rs.87.99 lakh awarded under claim no.4(c) on account of manual labour used instead of employing machines for completing the earth work, to the extent such work was undertaken by the contractor before the termination was effected. According to the State, since the contractor had quoted a rate which was 47.87% below the tender price of the work indicated by the employer, it was obliged to grant rebate to such extent across the various expenses incurred while performing the contract. The State says that the contractor purported to claim on the basis of actual costs incurred without allowing the rebate of 47.87% as envisaged in its offer which was accepted by the State.
The award under claim 4(c) appears to be the highest in terms of quantum. On no other head of claim has a sum of Rs.87.99 lakh or even close to such figure been awarded by the arbitrator. The context of such claim must be appreciated before the challenge thrown by the State can be assessed. In terms of the agreement between the parties, the earth work was supposed to be carried out by machines and manual labour was not to be deployed for such purpose. However, it appears that when the contractor attempted to deploy the sophisticated machines, there was resistance from the locals who demanded that the local personnel be engaged for the purpose of undertaking the earth work. Upon there being a law and order problem, high officials from the local Irrigation and Water Department of the State - the agency under which the contract was being performed - required the contractor to undertake the earth work by employing manual labour. As a consequence of the relevant work being undertaken manually, there was a considerable additional expenditure incurred by the contractor. The contractor referred to the calculations in the tender documents for basing its claim for having the earth work done by manual labour instead of using mechanical implements therefor. The arbitrator agreed that since the contractor had pegged the rates to the figures supplied in the tender documents by the employer, such figures ought to be accepted. However, the State now says that since the contractor had offered to undertake the work by offering a rebate of 47.87%, the price indicated in the tender documents for having the work done manually should also be reduced by 47.87% and the claim allowed to such extent, if at all.
Such contention of the State is exceptionable. It is evident that at the time of the parties entering into the contract, it was envisaged that the work would be done mechanically and not manually. The estimates that the contractor indicated were on such basis and by discounting the deployment of men for the purpose of undertaking the earth work. However, when, because of the ground realities, the earth work had to be undertaken by deploying men and not conducted with machines, the contractor was entitled to be compensated for the additional amount actually incurred by the contractor for such purpose and the concept of discount or rebate would be irrelevant in assessing the additional costs incurred by the contractor for deviating from the terms of the original contract at the request of the employer. The only issue before the arbitrator in respect of such head of claim was whether the quantum was justified. The arbitrator found the quantum to be relatable to the figure indicated in the tender documents. The arbitrator was perfectly justified in allowing the claim on such basis. There was no error of jurisdiction committed by the arbitrator, nor did the arbitrator exceed his authority or ignore any express or implied term of the agreement in arriving at such conclusion.
However, the challenge to the claims awarded under claim nos.4(a)(i), 4(a)(ii) and 4(b) stands on a different footing. The contract provided for the earth and material removed while dredging or digging the canal to be measured by the section or pit measurement method. The arbitrator found that because of the peculiar situation in the canal and viscosity of the material, the measurement by resorting to the section or pit measurement basis could not have been conveniently undertaken. Thus, the arbitrator acceded to the claimant's plea that the measurement had to be carried out on stack measurement basis, though such stack measurement basis was not indicated as the agreed methodology for the purpose in the contract between the parties. It is also evident that the arbitrator allowed the change of basis by referring to some other contract where the superintending engineer had actually allowed such alteration; however, in the present case there was no concession or permission granted by the employer or any official of the employer for the methodology provided for in the agreement to be substituted by some other methodology for the purpose of measuring the quantum of earth removed or the work done by the contractor.
The matter relates to work undertaken in the year 1996 or thereabout. By the time, the appeal has ripened for hearing and has been taken up, there is no possibility of any remeasurement being undertaken of the earth removed to assess the extent of dredging or digging that was completed by the contractor prior to the termination of the contract. It was in such circumstances, particularly since the sums awarded under claim nos.4(a)(i), 4(a)(ii) and 4(b) could no longer be conveniently assessed even if the methodology indicated in the agreement were directed to be resorted to, the parties were requested by this Court to take a pragmatic view of the matter and split the total amount awarded under such three heads down the middle, irrespective of whether it meant that the contractor would take a cut or the State would suffer some amount of loss. Such suggestion was given by this Court since it was no longer practically feasible for remeasuring the earth removed while undertaking the dredging or digging work by the contractor.
The contractor has agreed to accept the suggestion that fell from the Court. However, the State says that since the basis for the award under the three heads of claim was contrary to the contract, the State may not be in a position to accept even the reduced claim as per the acceptance of the Court's suggestion by the contractor.
It is unfortunate that the State has taken such a hardened stand notwithstanding the concession by the contractor. There cannot be any doubt that the methodology adopted was erroneous. Equally, there can be no doubt that some amount of work had been performed by the contractor prior to the termination of the agreement. The contractor was justifiably entitled to the value of the services rendered and it is no longer possible to assess such value since the earth removed in 1996 or 1997 cannot be remeasured more than twenty years down the line. In such a situation, the concession offered by the contractor appears to be fair and bona fide and notwithstanding the State's reluctance to accept the Court's suggestion, it is hoped that better sense will prevail and the State accepts the position.
As far as the State's challenge to the other heads of claim, particularly the first three heads, is concerned, the arbitral award contains sufficient reasons in support thereof. On facts, the arbitrator found the contractor was entitled to a sum of Rs.80,000/- against the first head of claim, Rs.22,000/- against the second head of claim and Rs.2 lakh against the third head of claim. In view of the adequate and detailed reasoning given in the award, there is no authority available under Section 34 of the Act of 1996 to interfere with the arbitrator's findings on such score.
It is recorded that the claims made under head nos.5 to 9 were disallowed by the arbitrator. The tenth head of claim which was allowed pertained to refund of earnest money. Again, in view of the adequate reasons furnished by the arbitrator for permitting such claim, such part of the award cannot be tinkered with.
Accordingly, the amounts awarded under claim nos.4(a)(i), 4(a)(ii) and 4(b) are reduced from a combined figure of Rs.63 lakh to Rs.30 lakh . There is an element of guess-work which was involved in arriving at such figure, but it is no longer possible to accurately calculate the extent of the work done by the contractor and remanding the matter for a fresh consideration would have yielded no meaningful result.
Pursuant to a previous order in this appeal, the State has deposited an amount of Rs.2.5 crore with the Registrar-General. In view of the reduction of the principal amount awarded by the arbitral award in respect of the three relevant heads from Rs.63 lakh to Rs.30 lakh, there will be a corresponding reduction of the amount receivable by the contractor in terms of the award. The original principal amount awarded was Rs.1,55,23,483/- . After deducting Rs.33,22,000/-, the principal amount stands reduced to Rs.1,22,01,483/-. After applying interest on such figure at the rate of 5% per annum as awarded by the arbitrator, the contractor is found entitled to a sum slightly over Rs.2.05 crore as at September 15, 2013 with interest running on the principal sum at the rate of 5% per annum as awarded by the arbitrator till realization. Without prejudice to the State's rights and contentions otherwise in this appeal, the State accepts that on the basis of the calculations a sum of Rs.2.06 crore would have been due to the contractor as at September 15, 2013 on the basis of the reduction as provided for in this judgment.
Accordingly, the Registrar-General should make over the amount due and owing to the contractor on the basis that as at September 15, 2013 the contractor would have been entitled to Rs.2.06 crore. For such purpose, the Registrar-General will encash the fixed deposit that must have been created upon the deposit being made by the State. The original amount deposited and the interest accrued thereon will be used for paying the amount due to the contractor on the bass indicated in the preceding paragraph. If any further amount remains due and owing from the State to the contractor after the deposit and the interest accrued thereon are made over to the contractor, the contractor will be entitled to execute the balance award. If, however, the entire dues of the contractor are discharged from out of the deposit and the interest accrued thereon, the balance should be handed over to the State within a fortnight of the payment being made to the contractor in terms of the award as modified by this order.
In the event the State does not object to the release of the funds of the Registrar-General within eight weeks of this order being made, there will be no order as to costs. If otherwise, the State will be liable to pay costs assessed at Rs.3 lakh for the needless challenge to the other parts of the award.
It is also made clear that the concession made by the contractor in this case is on the understanding that the matter will be resolved at this level and such concession will be without prejudice to the rights of the contractor in the event this order is challenged by the State.
FMA 1600 of 2013 is allowed to the limited extent as indicated.
Urgent certified website copies of this order, if applied for, be made available to the parties upon compliance with the requisite formalities.