NR Construction Private Limited Vs The State of JhJH2023291223154252228COM721231

MANU/JH/1578/2023
IN THE HIGH COURT OF JHARKHAND AT RANCHI

Arbitration Appeal No. 17 of 2009
Decided On: 18.12.2023
N.R. Construction Private Limited Vs. The State of Jharkhand and Ors.
Hon'ble Judges/Coram:
Anubha Rawat Choudhary, J.
Counsels:
For Appellant/Petitioner/Plaintiff: Indrajit Sinha, Pooja Agarwal and Prerna Jhunjhunwala,
Advocates
For Respondents/Defendant: Ashutosh Anand, A.A.G-III
Case Category:
ARBITRATION MATTERS
DECISION
Anubha Rawat Choudhary, J.
1. Heard the learned counsels for the parties.
2. This appeal has been filed against the order dated 29.08.2009 passed under section
34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of
1996) by learned Subordinate Judge-I at Ranchi in Misc. Case No. 57 of 2007 whereby
an award dated 17.07.2007 made and published by the sole Arbitrator has been set-
aside.
Foundational Facts.
3. The appellant herein was the claimant before the learned Arbitrator, who was allotted
the work for construction of minor bridge on N.H. 23 in K.M. 49 pertaining to National
Highway Road Construction Department, Dhanbad Division No. 2 for which an
agreement was executed between the parties on 04.03.1992, containing an arbitration
clause, for the total value of Rs. 34,92,803/-which was to be completed by 03.09.1993.
4. As per the appellant, additional work was done which was necessary for completion
of the bridge and the inflow of traffic. The appellant, on the direction of the Engineer
In-charge and assurance of extra payment, executed certain additional and extra work
which was not provided in the item of work in the agreement. The work as per the
agreement and also the additional work was completed on 31.08.2001 i.e. within the
extended time.
5. The claim of the appellant was first placed before the Junior Engineer who prepared
a report dated 16.06.2003. Thereafter, vide letter no.7(A) dated 17.06.2003, the
Executive Engineer recommended and placed the matter before the Superintending
Engineer for his approval and payment. The Superintending Engineer sent a letter to the
Chief Engineer on 22.09.2003 stating that the extra work done by the appellant was not
included in the item of work in the agreement and made the recommendation for
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sanction of funds. However, no payment was made to the appellant.
6 . When all attempts to persuade the authorities to make payment failed and having
found no other alternative to recover the legitimate dues, the appellant filed a petition
under section 11(6) of the Act of 1996 before this Court bearing Arbitration Application
No. 28 of 2004 which was disposed of vide order dated 21.06.2006 wherein the
arbitration was referred to the sole Arbitrator and direction was given to the learned
Arbitrator to enter into reference and to pass an award within a period of four months
from the date of receipt of the order, which was received on 25.07.2006. However, the
award was pronounced on 17.07.2007.
7. There was a total of four claims and claim no.1 was divided into 5 sub-claims. The
summary of the award in connection with the claims is as under:-

8. The learned Arbitrator framed the following issues for consideration:-
1. Whether the claimant is entitled for a sum of Rs. 55,69,577.00 on account of
additional work done beyond the agreement No. 4/F2/91-92 dated 4.3.92 as
claimed?
2. Whether the claimant is entitled for the interest as claimed?
3. Whether the claimant is entitled for cost of litigation/arbitration as claimed?
4. To any other relief or reliefs the parties are entitled.
9. The claim was opposed by the respondents before the learned Arbitrator, inter alia,
on the ground that no work beyond the scope of sanctioned estimate leading either to
an increase in the scope of work or change in specification could be undertaken without
obtaining prior written approval of the Ministry for which the Ministry's letter dated
19.04.1984 was referred and it was asserted that the claim had no locus. It was also
asserted that the Executive Engineer had prepared the amount payable for additional
work done beyond the value of the agreement and sent with his comments and
recommendation to the Superintending Engineer for approval and payment and the
Superintending Engineer had also forwarded the claim for additional work to the Chief
Engineer for sanction of fund, but neither the fund was sanctioned nor the payment was
made to the appellant.

10. About claim no. 1 i.e. for payment of Rs. 55,69,577.00 on account of additional
work done beyond the agreement value, it was the further case of the respondents that
the Superintending Engineer had not sanctioned the claim, but only submitted it to the
Chief Engineer. It was asserted that the claimant (appellant herein) had done the work
without proper sanction by the competent authority i.e. Ministry of Road and Surface
Transportation and the claim did not stand against the Government as the Government
had delegated power for the execution of work to their officers. The stand of the
respondents has been recorded in paragraphs nos. 8 and 9 of the Arbitral Award. The
issue no. 1 i.e. the claim of Rs. 55,69,577.00 on account of additional work done
beyond the agreement was considered and decided by the learned Arbitrator vide
paragraphs nos. 12 to 23. The learned Arbitrator recorded that the said amount was
only for additional work done beyond the contract agreement; the claimant completed
the work not only to the extent of agreement value but also much more than the
agreement value as many more items were required to be done to complete the work
and these items were left while preparing the estimate; unless these items were also
constructed, the bridge could not be made workable and therefore, under the orders of
the Engineer In-charge of the site and also the Executive Engineer, the claimant did
these works. It was also recorded that there was no dispute on the point that the
appellant performed the works as per the agreement value and there was no dispute on
the point that the appellant received full payment for the work done as per the
agreement value.
11. The learned Arbitrator also recorded that the entire dispute was regarding payment
for additional work done beyond the agreement value and that the claim for the
additional quantity of work was on account of the additional cost spent over
procurement of materials, actual loss, and expenditure over establishment and overhead
due to inordinate delay attributable to the respondents. It was also recorded that the
claim was recommended with comments to the Superintending Engineer for sanction
and approval who, in turn, after due examination and verification forwarded the claim to
the Chief Engineer for sanction of the fund to make payment to the claimant, but neither
the funds were sanctioned nor the payment was made. The learned Arbitrator also
recorded that since the rate prescribed was of the year 1986 and the work was
completed in the year 2001 i.e. after 15 years from preparation of the chart for schedule
rates, the cost was calculated at an escalated rate and approved by the officials of the
respondents. The learned Arbitrator recorded that it appeared that the cost of additional
work was prepared at the escalated rate keeping in mind the difference of the price rise
from the time when the old chart was prepared and this was approved by the
Superintending Engineer of the Circle. The learned Arbitrator had referred to the letter
no. 7(A) dated 17.06.2003 which contained a chart prepared by the Junior Engineer,
Gola-2, and addressed to the Superintending Engineer, National Highway Circle,
Dhanbad. The said chart has been annexed as Annexure-2 to the memorandum of
appeal also. The learned Arbitrator also referred to the letter of the Superintending
Engineer recommending the payment.
1 2 . The learned Arbitrator also recorded the break-up of the heads of claim in
paragraph no. 15 of the award and the submission in connection with each of the sub-
headings have been mentioned in paragraphs nos. 16 to 20 of the award which is
quoted as under:-
"16. The learned counsel further submitted that report annexed to Annexure-1
prepared by the Junior Engineer on the basis of which the claim was
recommended by the Executive Engineer and the Superintending Engineer gives
the minute details and is a crucial document. This document has not been

disputed/denied. The document gives quantity of work done which was not
provided in the agreement. It is further stated that item no. 1 of the claim for
deck slab casting total quantity has been indicated at 89,375 M3 @ Rs. 1029.38
per M3 and R.C.C. beams quantity is 150.754 M3 @ Rs. 4025.10 per M3. This
amount comes to Rs. 92,000.00. Similarly for R.C.C. beams payable amount
comes to Rs. 606799.92. Thus the total amount comes to Rs. 698800.00.
17. It is further submitted by the claimant that for Item No: 2 of claim No. 1,
the authorities below have recommended the quantity of work at 1518.545 M3
@ Rs. 228.90 per M3. The work done is staging, shuttering of H.L. Bridge. The
specification was not provided in the agreement. The amount is thus payable in
full in view of recommendation by the Executive Engineer and the
Superintending Engineer. It is submitted that this figure comes to Rs.
3,47,594.95. It is further submitted that so far item no. 3 & 4 of the Claim No.
1 relate to over head expenses and turn over losses as the period of work was
extended beyond the completion period for departmental reasons. The
extension of completion period up to 2001 from 1992 for about nine years
resulted in over head expenses which has been claimed at the rate of 10% of
the agreement value after deducting the on account payment on this head Rs.
3,49,280.00 each for item no. 3 and item no. 4 has been recommended. It is
further submitted that item no. 5 of claim no. 1 is for escalation on labour and
material as the claimant had to do the work in 2001= 2002 at the estimated
rate of 1991 or even earlier. The authorities recommended for payment at 109.5
of the agreement value at figure of Rs. 38,24,621.00 in terms of law laid down
by the Hon'ble Supreme court reported in 2006 A.I.R. S.C.W. 6222, the
Opposite parties are liable to pay for escalation. The learned counsel for the
claimant therefore submits that on the basis of the paper (Annexure-1) it is
clear that on the admission of the Respondents themselves the claim no. 1 of
the claimant stand established. The learned counsel therefore submits that the
claimant is entitle for Rs. 55,69,577.00 as recommended by the Engineers of
the Respondents.
18. In view of the enclosures of Annexure-1 i.e. the recommendation of the
Assistant Engineer and Executive Engineer on the report of the claim prepared
by the Junior Engineer and also Annexure-2 the letter forwarding the claim to
the Chief Engineer by the Superintending Engineer, the Respondents did not or
could not deny the work done by the claimant. The main objection of the
Respondents argued by Sri Swami Bibhudeo, Executive Engineer, N.H. Division,
Dhanbad is that since the Chief Engineer did not sanction the work order for
payment, the entire additional work done becomes illegal and therefore no
payment can be made.
19. Thus the Respondents/Opposite Party have not dined the work or additional
work done and the fact that the work was complete in all respects on
31.08.2001 i.e. within the extended period of time. The Respondents also agree
that originally the work was to be completed by 03.09.1993. There is therefore
no dispute on the fact that the work was completed within the extended period
of time. It also appears that the work continued up to almost nine years. Shri
Swami Bibhudeo, learned Executive Engineer while making his submission
mainly objected on the rates the recommendation were made by the then
Engineers including the Executive and Superintending Engineer. It is submitted
that the schedule of rates are prepared in the department regularly taking into
consideration the escalation of rates of different materials, labour etc within

that period. But in this case it appears that schedules were not considered and
proper procedure were not followed while preparing the above bills. It appears
that escalation has been made in some case more than 180 p.c. from the
schedules of 1986. This appears to be unwarranted in some cases. The learned
Executive Engineer therefore submitted that he will file the schedules of the
different periods to justify his submissions. Accordingly time was allowed to the
Respondents to produce the schedules/necessary papers to support his
contention. Unfortunately the Respondents could not produce any schedule or
paper in this connection.
2 0 . Shri N. K. Singh, learned Advocate appearing on behalf of the claimant
submits that the recommendation of the Engineers in the increased/ escalated
rate in Annexure-1 has not been disputed as not genuine. The document is an
official document. The aforesaid document clearly show the increased rates due
to escalation or in other word the extra amount sanctioned beyond the agreed
rate due to escalation of prices. Item No. 3 of claim no. 1 is for Rs. 3,49,280.50
as over head expenses due to longer period of completion on account of
departmental failures. Item No. 4 of claim No. 1 is for Rs. 3,49,280.50 on
account of turn over losses as the work continued for much longer period than
specified in the agreement. Item No. 5 is for Rs. 36,24,621.14 on account of
escalation on increased value of inputs an labour after the agreement was
executed and continued up to 2001. The learned counsel therefore submits that
all the facts and detail calculation on all counts clearly show that the official
concerned while preparing the bills considered all the aspect. At this stage
therefore the submissions of the Respondents/Opposite Party appear to be an
afterthought."
13. The learned Arbitrator ultimately recorded his findings in paragraph nos. 21 to 23
as follows:
"21. I have carefully gone through the submissions made by both the parties.
On perusal of Annexure 1 & 2 there is no doubt on the fact that the entire extra
work done was actually done and the work was evaluated by the Junior
Engineer, Asstt. Engineer and the Executive Engineer. The value of the work has
been shown as Rs. 55,69,577.00 in the chart. The Superintending Engineering
also forwarded the above evaluation made by his subordinate Engineers to the
Chief Engineer. The said recommendations were made as far as on 22.09.2003.
But neither the recommendations, have been accepted in full or in part or with
modification or rejected completely. It is still pending for consideration. This
action on the part of the Chief Engineer is really surprising. No order in the file
could be made even in four years for the reasons best known to the office of
the Chief Engineer. This shows complete lack of control of the Chief Engineer
on his office. Now when there is sanction/recommendation of the authorities up
to the Superintending Engineer may be on increase rate, there can be no
ground to observe the recommendation as motivated/illegal/wrong defective
unless the Chief Engineer passes a reasoned order giving proper reason on
basis of which he reaches on some decision. In this case the Chief Engineer has
failed to come to a decision even after four years. Even if it is admitted that the
recommendation are on increased escalated rates this cannot be ignored unless
it is shown that the recommendation were made with dishonest intention and
for illegal gains. Because the official Incharge of the work at the time when the
work was done is supposed to have done fully knowing the consequences and
any dereliction of duty would be liable for disciplinary departmental action

against them. The Respondents did not specifically alleged any such illegal act
on the part of the concerned officials. It is most unethical that a person made
certain work on the direction of the concerned Engineers and made expenditure
from his own pocket and only because the Chief Engineer is sleeping over the
matter for years or unable to take a decision for the reason best known to him
the person who did the work will sustain loss. The argument of the learned
counsels of the claimant therefore in this connection appears quite forceful and
acceptable. The Respondents submission that since no sanction order was
issued for the work, the entire work becomes illegal and unauthorised and thus
no payment can be made appears unethical. In that case at best the officers
under whose supervision the work was done and who made their
recommendations fully knowing the responsibility may be liable to explain the
irregularity, if any, but that can not come in the way of payment if the work has
actually been done.
22. In view of the facts, circumstances and the papers on record, it appears
that the work and the additional work have been done within the extended
period of completion i.e. 31.8.2001. There is no complain about the quality of
the work also. So far the question of approval of rates/increased rates on
escalated cost is concerned, there is no paper before us to show the rates as
wrong. There is no order or paper on the basis of which the matter can be
considered. So far the power of the concerned official who approved the
escalated cost is concerned, no paper has been produced before me to show
that they did not have any such power.
2 3 . In the result, on the basis of the recommendation of the Engineers
including the Executive Engineer, N.H. Division 2, Dhanbad and Superintending
engineer, N.H. Circle, Dhanbad to the Chief Engineer for sanction and payment
of Rs. 55,69,577.00 and since the Chief Engineer has not passed any order
rejecting the proposal and is sleeping over the matter. I am of the opinion that
the claimant has been able to establish the fact that he is entitled to realize a
sum of Rs. 55,69,577.00 for additional work done in the instant agreement
bearing no. 4/F/2/91-92 dated 04.03.92. This issue no. I is therefore answered
accordingly in favour of the claimant."
14. The award was challenged by the respondents under section 34 of the Act of 1996
and the award has been set aside by holding that by ignoring Clause 11 (proviso) of the
contract the learned Arbitrator has traveled beyond his jurisdiction. The findings of the
learned Court are quoted as under:
"7. The award shows that the learned arbitrator at the time of deciding issue
no.1 has been pleased to observe that this issue is the main issue which relates
to the question whether the claimant is entitled for a sum of Rs. 55,69,577/-on
account of additional work done beyond the agreement no.21/F2/1991-92
dated 4.3.1992 as claimed. The other issues are relating to interest cost etc;
which are subsidiary to this main claim. The learned arbitrator discussed this
issue in his award and he hold that the claimant is entitled for payment of Rs.
55,69,577/-as claimed for additional work done unless the same or any portion
of the same has been paid. In this context, the learned counsel for petitioners
submitted and pointed out that terms of agreement bears mention of a term as
clause 11 which is very clear and as per this clause the approval for any
extra/additional work shall only be made by the Superintending Engineer and
the said approval must be in writing. So far as the documentary proves which

has been relied by the learned arbitrator are concern all of them are letters of
estimates, the approval of which has been prayed from the higher authority.
Mere preparation of claim by the then Junior Engineer, Assistant Engineer and
Executive Engineer is not sufficient to prove that the so called additional work
was actually executed. The award is liable to be set aside as the learned
arbitrator ignore the fact that the Chief Engineer did not sanction for extra work
nor accepted the amount of bill for the additional work and therefore no
payment can be made. The learned arbitrator has acted in excess of his
jurisdiction by allowing such payment of extra work in increased rate which is
not permissible.
8 . On the other hand the learned counsel for O.P. submitted that the learned
arbitrator by the impugned award has rightly allowed claim no. 1 by recording
finding in issue no. 1 in favour of the O.P./claimant Issue no. 1 relates to claim
of O.P. for payment of value of additional work done beyond terms of
agreement. The learned arbitrator has relied on the documents of the
petitioners. In the award it has been categorically referred that the
departmental officer right from Junior to Superintending Engineer has evaluated
the work, measured the quantity and after due verification submitted it to the
Chief Engineer for allotment of fund to pay who did not pass any order. Thus all
finding of facts by the learned arbitrator is based on evaluation of documentary
evidence and as such the court is not empowered to re-evaluate the documents
and come to a different finding of facts without any perversity much less
inconsistency has been demonstrated. Moreover an award can be challenged
only within the parameters of Section 34 of Act of 1996, but no ground rest fell
U/s 34. The ground of challenge also did not fall under sub. Clause (1)(a) as
there is no averment with respect to capacity of any party in entering into a
contract. It is also not the case of the petitioners that the arbitration agreement
or the main agreement itself is invalid or void. The petitioners have also not
submitted that they were even denied proper opportunity. It is also not the case
of the petitioners that the learned arbitrator has made an award on a point
which was not under reference. It is well settled law that an award being
decision by the coram selected by the parties is binding on the parties. Point of
limitation cannot be raised where the tribunal is constituted by Hon'ble High
Court. Moreover period of limitation for arbitration starts from the date of
arising of dispute and not from the date of agreement. It is also well settled law
that arbitrator is final authority and the court cannot probe the mental process
of the arbitrator. The entire case of the petitioner is based on inaction of the
Chief Engineer to whom the claim for additional work was recommended by the
Superintending Engineer who had never pass any order and could not be taken
as license for rejecting the claim. The department cannot take advantage of its
own fault.
9. Having heard the learned counsel for the parties, after gone through the case
record and award dated 17.7.07, it appears that in order to determine whether
the learned arbitrator has acted in excess of his jurisdiction it could be
necessary to consider the agreement between the parties.
On perusal of the agreement no. 21/F2/1991-92 dated 4.3.92, it appears that
proviso of clause 11 of the agreement read as follows:-
"Provided always that the contractor shall not entitle to any payment
for any additional work done unless he has received an order in writing

from the Engineer incharge for the additional work, the contractor shall
be bound to submit his claim for any additional work done during any
month on or before the 15th day of the following month accompanying
copy of the order in writing of the engineer incharge for the additional
work". The learned arbitrator has not mentioned in his award dated
17.7.07 regarding any written order in respect of the additional work
for which the O.P/respondent has claimed. The learned arbitrator has
relied upon some documents, but on perusal of these it appears that
none of them are related to the written order for additional work. As
per learned arbitrator since no reply has been given by the Chief
Engineer, in such circumstances he allowed the claim of the
claimant/O.P.
It is settled principle of law that neither the arbitrator nor the parties can
impart, add or deduct any term of the contract other than those which occurred
in contract agreement. It is also well settled that an arbitrator is not a
conciliator and his duty is to decide the dispute submitted before him,
according to the legal rights of the parties and not according to what he may
considering it to be fair and reasonable. In this context, a ruling reported in
MANU/SC/0601/1999 : 1999 (9) SCC page 283 is very relevant, wherein the
Hon'ble Apex Court has been pleased to observe that "where fundamental terms
of agreement between the parties are ignored by the arbitrator, such arbitrator
exceeded his jurisdiction and where the reference to the arbitrator is solely
based on the agreement between the parties and no other specific issue, which
could confer jurisdiction of the arbitrator to go beyond the terms of the contract
is referred to him, the arbitrator is bound by the terms of contract".
10. Taking into consideration all these facts and circumstances of the case and
in view of the aforesaid law and fact stated above, it is apparent that the award
passed by the learned arbitrator is against the stipulation and prohibition
contained in contract between the parties. The learned arbitrator acting beyond
his jurisdiction is a different ground beyond the error apparent on the face of
the award. The learned arbitrator has overlooked the proviso of clause-11 of
agreement no. 21/F2/1991-92 dated 4.3.1992, wherein it has been clearly
mentioned that "Provided always that a contractor shall not entitle to any
payment for any additional work done unless he has received an order in
writing from the incharge for the additional work .............work" And no such
document (written sanction order) either mentioned by the learned arbitrator in
his award dated 17.7.07 nor any such document has been available on record.
The contract/agreement No. 21/F2/1991-92 dated 4.3.92 is admitted by both
the parties and the learned Arbitrator is bound by the term of contract. Hence
by ignoring the Clause 11 (proviso) of contract/agreement the learned
arbitrator has traveled beyond his jurisdiction. In such circumstances in the
interest of justice, the award passed by the learned arbitrator is liable to be set
aside. Therefore, it is,
ORDERED
That this Misc. case is allowed on contest and the impugned award dated
17.7.07 is hereby set-aside. There will be no order as to costs."
15. Arguments of the Appellant.

A. In the written statement filed by the respondents before the learned Arbitrator
(Annexure-4), the respondents did not deny the execution of the work but stated that
since the Superintending Engineer/Chief Engineer had not yet sanctioned the claim and
as such the claim was not payable.
B. The learned Court below went beyond its jurisdiction by reappreciating and
reconsidering the evidence and considering a plea of the respondents which was never
made before the learned Arbitrator. The respondents did not raise the plea of absence of
written order before doing the additional work and applicability of proviso to Clause 11
of the contract before the learned Arbitrator. The specific case of the respondents before
the learned Arbitrator was that since the Superintending Engineer/Chief Engineer had
not yet sanctioned the claim as such the claim was not payable. Therefore, the learned
Court below has committed an error of law by accepting a new plea not raised before
the learned Arbitrator and has made out a different case.
C. The learned Court below erred in holding that there was no written order for the
additional work and erred in setting aside the award which was arrived at based on the
documents contained in Annexures-2 & 3 which are letters with certificate of completion
and recommendation of all the authorities of the departments for doing additional work
and sanction thereof.
D. The learned Court below further failed to consider that the learned Arbitral Tribunal
was bound by section 70 of the Indian Contract Act, 1872 which states that:
"Where a person lawfully does anything for another person, or delivers
anything to him, not intending to do so gratuitously, and such other person
enjoys the benefit thereof, the latter is bound to make compensation to the
former in respect of, or to restore, the thing so done or delivered."
E. The learned Arbitrator has rightly passed the award, which is also as per the Indian
Contract Act which, if rejected, would be contrary to the provisions of the Indian
Contract Act, 1872.
F. Claim No. 1 of the appellant for Rs. 55,69,577/-was on account of extra work done
which includes the following heads:
a. Additional work actually done with respect to deck slab casting-Claim for Rs.
92,000.83 was for deck slab and Rs. 6,06,799.92 was for RCC work in beams
and superstructure. Total amount of Rs. 6,98,800/-was claimed for the work
actually done.
b. Additional work actually done with respect to staging, shuttering of H.L.
Bridge-Total amount of Rs. 3,47,595/-was claimed for the work actually done.
c. Overhead expenses due to prolongation-Total amount of Rs. 3,49,280.50 was
claimed as overhead expenses due to longer period of completion on account of
departmental failure. The period of work was extended beyond the completion
period for about 9 years as the completion period was extended from 1992 till
2001 resulting in overhead expenses which has been claimed @10% of the
Agreement value after the on-account payment.
d. Turnover loss due to delay-Total amount of Rs. 349280.50 was claimed on
account of turnover losses as the work continued for much longer period than
specified in the agreement and has been claimed @ 10% of the agreement

value.
e. Extra cost on procurement of materials by way of escalation-Total amount of
Rs. 38,24,621.14 was claimed on account of escalation on increased value of
inputs and labour after the agreement was executed and continued up to 2001
whereas estimated rate was for the year 1991 or even earlier.
Judgment Relied on for escalation cost: "K.N. Sathyapalan v. State of Kerala &
Anr." reported in MANU/SC/5270/2006 : (2007) 13 SCC 43-Para 32.
G. On perusal of Exhibit-1 (Annexure-2 of the Arbitration Appeal), it is evident that
claim no. 1 contains five distinct heads. The report of the Executive Engineer and his
subordinate engineers recorded therein clearly indicates admission of the work to have
been done and contains recommendations for payment in all the distinct heads.
H. The Junior Engineer examined the details of the claim and recommended the same to
the Assistant Engineer who further recommended to the Executive Engineer. The
Executive Engineer also submitted and recommended the same to the Superintending
Engineer which is evident from the perusal of Exhibit-1 of the Statement of Claim
(Annexure-2 of the Arbitration Appeal).
I. The Superintending Engineer was the final authority for sanctioning the amount at the
schedule rate of the claim, but to shift his responsibility, he recommended to the Chief
Engineer, however, due to the failure of the Chief Engineer to discharge his duties, the
claim was neither decided nor the amount was paid.
J. The report annexed to Exhibit-1 of the Statement of Claim (Annexure-2 of the
Arbitration Appeal) prepared by the Junior Engineer, based on which the claim was
recommended by the Executive Engineer and the Superintending Engineer, gives the
minute details of the claims and has not been disputed or denied by the respondents.
The document gives the quantity of work done by the appellant which was not provided
in the agreement.
K. Claims under Item No. 1 and Item No. 2 were allowed in full by the Executive
Engineer whereas claims under Item Nos. 3 to 5 were left for consideration at a higher
level by the Executive Engineer and further by the Superintending Engineer, but were
left undecided and were the subject of arbitration before the learned Arbitrator. It is
submitted that claims under Item Nos. 3 to 5 have not been denied which have been left
for decision and hence, are deemed to be admitted.
L. The objection raised by the respondents during the course of the argument that only
one issue whether the claimant is entitled to a sum of Rs. 55,69,577/-on account of
additional work done beyond the agreement was framed and that no issue for payment
of Overhead expenses, Turnover losses and Escalation was ever framed by the learned
Arbitrator, is an afterthought as neither any objection was raised during the arbitration
proceeding nor any such ground was raised in the petition filed under section 34 by the
respondents before the learned Court below.
M. This Hon'ble Court has no power to reappraise the evidence and no perversity as
such has been demonstrated by the respondents in the finding of the learned Arbitrator.
To support this submission, following judgments have been relied upon:
i. "Associate Builders Vs. DDA" reported in MANU/SC/1076/2014 :
2014:INSC:809 : (2015) 3 SCC 49 (Paragraph 52)

ii. "Maharashtra State Electricity Distribution Company Limited Vs. M/s. Datar
Switchgear Ltd. & Ors." reported in MANU/SC/0017/2018 : 2018:INSC:33 :
(2018) 3 SCC 133 (Paragraph 51)
iii. "Ssangyong Engineering and Construction Company Ltd. Vs. National
Highway Authority of India" reported in MANU/SC/0705/2019 : 2019:INSC:647
: (2019) 15 SCC 131 (Paragraph 24)
N. The learned Court below has erred in setting aside the award dated 17.07.2007
passed by the sole Arbitrator.
O. Learned counsel for the appellant has relied upon the judgment passed by this Court
in Arbitration Appeal No. 12 of 2012 dated 05.04.2023 to submit that the point of
limitation was never raised before the learned Arbitrator and the same having not been
raised, cannot be raised subsequently and the point of limitation in the present case is
itself a mixed question of fact and law.
P. In view of the findings recorded by the learned Arbitrator in paragraph no. 18 of the
award that the State could not dispute the fact that the work was done by the appellant,
the award passed by the learned Arbitrator for the additional work admittedly done by
the claimant as per the award, was certainly a plausible view taken by the learned
Arbitrator which did not call for any interference in the limited jurisdiction under section
34 of the Act of 1996.
Q. Learned counsel for the appellant has also referred to the judgment passed by the
Hon'ble Supreme Court reported in MANU/SC/0182/2020 : 2020:INSC:187 : (2020) 11
SCC 161 (Chandigarh Construction Company Private Limited Vs. State of Punjab and
Another) and has relied upon paragraph nos. 17 and 18 of the said judgment.
R. The learned counsel for the appellant has also relied upon the judgment passed by
the Hon'ble Supreme Court reported in MANU/SC/0060/2016 : 2016:INSC:70 : (2016) 4
SCC 119 [Venkatesh Construction Company Vs. Karnataka Vidyuth Karkhane Limited
(KAVIKA)] (paragraph no. 18) to submit that in the said case also, there was a
provision as Clause 11 of the present case, but the extra work having been completed,
the award was not interfered with.
16. Arguments of the Respondents.
(I) The learned Sub-Judge allowed the objection application only on one ground i.e.
non-consideration of Clause 11 of the contract which prohibited payment of the amount
under additional work and the other issues raised by the respondents were left
unanswered as the Arbitral Award was being set aside on this sole aspect. However, the
impugned order warrants no interference at this stage on account of multiple reasons,
such as:
A) The award has been passed after the expiry of the time fixed by the Hon'ble
Court due to which the learned Arbitrator became de jure incompetent and
became functus officio. Reliance in this regard has been placed on two
judgments passed by the Hon'ble Supreme Court, viz:
(i) "NBCC Limited Vs. J.G. Engineering Private Limited" reported in
MANU/SC/0013/2010 : (2010) 2 SCC 385, paragraphs 22, 23 and 27.
(ii) "Jayesh H. Pandya and Another Vs. Subhtex India Limited" reported

in MANU/SC/1162/2019 : 2019:INSC:958 : (2020) 17 SCC 383.
B) The impugned order is just, proper, and correct since Clause 11 has rightly
been invoked to reject the claim of the appellant.
C) The respondents raised various other issues before the learned Sub-Judge in
their objection application under section 34 of the Act of 1996:
a. The Ministry of Shipping, Road Transport and Highways, Lucknow is
the paying authority and it ought to be made party.
b. The value of extra work has wrongly been shown as Rs. 55,69,577/-
and the learned Arbitrator framed and decided issue no.1-as to whether
the claimant was entitled to Rs. 55,69,577/-on account of extra work.
c. Neither sanction was given nor the amount of any extra work was
accepted.
d. As per Clause 12 of the contract, no escalation was permissible.
e. The learned Arbitrator has acted in excess of his jurisdiction by
allowing payment for extra work in the increased rate.
f. Arbitral Award is in conflict with public policy.
g. As per Clause 28, the discretion of the Superintending Engineer in
writing was binding and no sanction was given by the Superintending
Engineer.
h. Mere preparation of the claim is not proof that additional work was
executed.
i. The claim was time-barred.
D) It has been argued that the entire claim no.1 was decided and allowed as
extra work but it contained claims under distinct heads i.e. extra work at
escalated rate, Overhead expenses and Turnover losses and further escalation
for which no issue were framed and the entire claim no.1 was wrongly decided
under the heading 'claim for additional work'.
E) Though the additional work was permissible to be done, but it required
sanction and a proper procedure was prescribed for raising the bill for payment.
The learned counsel has referred to Clause 11 of the contract. Since there was
no sanction for the additional work, therefore, the learned Court below has
rightly interfered with the award by saying that the learned Arbitrator ignored
proviso to Clause 11 of the contract and has travelled beyond his jurisdiction.
The learned counsel has relied upon a judgment passed by the Hon'ble
Supreme Court in the case of "Rajasthan State Mines & Minerals Limited Vs.
Eastern Engineering Enterprises and Another" reported in MANU/SC/0601/1999
: (1999) 9 SCC 283 and has submitted that in case of jurisdictional error
ignoring the fundamental terms of the agreement between the parties, the
learned Court below was within its right under section 34 of the Act of 1996 to
interfere with the Arbitral Award.
Rejoinder arguments of the Appellant.

17. It is the case of the appellant that due to reasons attributable to the respondents,
the award could not be passed within four months i.e. till 25.11.2006, and was
ultimately passed on 17.07.2007. The respondents repeatedly sought adjournments and
the extension of time was duly informed to the Hon'ble High Court of Jharkhand, which
was also mentioned in the award of the learned Arbitrator in paragraph nos. 3, 4 and 6.
The written statement/counter-affidavit was filed by the respondents before the learned
Arbitrator on 16.12.2006 and the issue was framed on 30.01.2007, after the expiry of
the date on which the award was to be passed, and no objection was raised by the
respondents during the time of the arbitration or no objection was taken as a ground for
setting aside the award under section 34 of the Act of 1996. The respondents are further
deemed to have consented to the time extension by voluntarily participating in the
arbitral proceedings without raising any objection and by not filing any application
under section 14 of the Act of 1996. Hence, raising new ground at this stage is
impermissible under law and may not be considered at this stage. It is also submitted
that the two judgments relied upon by the respondents to prove that the learned
Arbitrator passed the award after the expiry of the time fixed by the Hon'ble Court due
to which the learned Arbitrator became de jure incompetent and became functus officio,
do not apply to the present case as the facts and circumstances in the present case are
completely different from that of the judgments relied upon. Hence, the learned
Arbitrator was competent and was within its jurisdiction to pass the award.
Findings of this Court.
18. Although the Arbitral Award has been set-aside on the sole ground that the Arbitral
Award was passed by ignoring Clause 11 (proviso) of the contract and therefore the
learned Arbitrator had traveled beyond his jurisdiction, but the learned counsels for the
parties have extensively argued their case on all the points. Both the parties have
referred to the claim chart relating to claim no.1 consisting of five sub-heads and the
recommendations made which have also been annexed with the memorandum of appeal
and are the two annexures considered by the learned Arbitrator while allowing claim
no.1. The learned arbitrator has treated the entire claim no.1 as claim relating to
additional work which is apparent from the issue no.1 and its decision.
1 9 . The appellant has heavily relied upon the judgment passed by this Court in
Arbitration Appeal No. 13 of 2009 (N.R. Construction Private Limited Vs. the State of
Jharkhand and others). In the said judgment, the learned Court below had set-aside the
award between the same parties and by the same Arbitrator on the sole ground that the
Arbitral Award was passed by ignoring Clause 11 (proviso) of the contract and therefore
the learned Arbitrator had traveled beyond his jurisdiction. This Court allowed the
appeal, inter alia, on the ground that the claim to the extent of a sum of Rs.
14,13,779/-was admitted; no specific plea regarding point of jurisdiction or any
objection with regard to Clause 11 of the contract was raised before the learned
Arbitrator and that the learned Arbitrator had passed the award after considering the
various materials and documents and it was recorded in the award involved in this said
case that the respondents had annexed a statement with their written statement giving
the details of payment due but only Rs. 14,13,779/-was sanctioned which was to the
extent the amount was available although the sanction was asked for by the authorities
for the additional amount of Rs. 31,72,871.00 from the Chief Engineer. In the said case
no dispute was raised regarding the rate at which the payment was to be made or
regarding any claim of escalation etc. as are involved in the present case. The award in
the said case was passed on the basis of the materials on record and did not call for any
interference under section 34 of the Act of 1996. The said judgment does not apply to
the facts and circumstances of this case considering the nature of claims and the

manner in which the award has been passed which would appear from the discussions
made in the later part of this judgment. Every award has to be tested independently on
the touchstone of the permissible grounds of interference under section 34 of the Act of
1996. In the present case, although the learned Court below has set-aside the award
only by referring to Clause 11 of the contract and not touched upon the other grounds
raised under section 34 of the Act of 1996, but the parties have advanced their
arguments on all aspects of the matter including Clause 11 of the contract. It is also
important to note that the requirement of sanction for additional work and also the
sanction of the amount for payment was hotly contested before the learned Arbitrator.
Not only the requirement of sanction for additional work but also the rate at which the
payment for additional work was to be made, were disputed before the learned
Arbitrator. The other claims on account of escalation etc. under claim no.1 were also
disputed and contested. The entire claim under claim no.1 was allowed by only referring
to the two annexures i.e. annexure-1 and 2 said to be the recommendation asking for
sanction of additional work and its payment and taking into consideration that no
decision was taken by the Chief Engineer for a long time and matter remained pending
before him. Extensive arguments have been advanced by referring to the two annexures
which have also been annexed by the appellant with the memorandum of appeal.
Scope of interference under section 34 of the Act of 1996 and the applicable law
20. In the present case, the petition under section 34 of the aforesaid Act of 1996 has
been filed before coming into force of the Arbitration and Conciliation (Amendment)
Act, 2015 and in view of judgment of Hon'ble Supreme Court in "Ssangyong Engg. &
Construction Co. Ltd. vs. NHAI" MANU/SC/0705/2019 : 2019:INSC:647 : (2019) 15
SCC 131, the case will be governed by the law which existed before 2015 amendment
regarding the permissible grounds for setting aside an Arbitral Award.
21. Before coming into force of the 2015 amendment, the Hon'ble Supreme Court in the
judgment in the case of "ONGC Limited Vs. Saw Pipes Limited" reported in
MANU/SC/0314/2003 : (2003) 5 SCC 705, held that an award contrary to substantive
provisions of law or the provisions of Arbitration and Conciliation Act, 1996 or against
the terms of the contract would be patently illegal, and if it effects the rights of the
parties, it would be open to interference by the Court under section 34(2) of the
aforesaid Act of 1996.
22. The interpretation of the law by the Hon'ble Supreme Court in so far as section 34
of the Act of 1996, as it stood then, was summarized in paragraph no.21 of the
judgment in the case of "DDA Vs. R.S Sharma and Co." reported in
MANU/SC/3624/2008 : (2008) 13 SCC 80 which is quoted as under:-
"21. From the above decisions, the following principles emerge:
(a) An Award, which is
(i) contrary to substantive provisions of law; or
(ii) the provisions of the Arbitration and Conciliation Act, 1996; or
(iii) against the terms of the respective contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties;

is open to interference by the court under Section 34(2) of the Act.
(b) The Award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality.
(c) The Award could also be set aside if it is so unfair and unreasonable that it
shocks the conscience of the court.
(d) It is open to the court to consider whether the Award is against the specific
terms of contract and if so, interfere with it on the ground that it is patently
illegal and opposed to the public policy of India."
2 3 . By another judgment in "ONGC Vs. Western Geco International Ltd."
MANU/SC/0772/2014 : 2014:INSC:596 : (2014) 9 SCC 263, the Hon'ble Supreme
Court, by further expansion of the phrase "public policy of India" contained in section
34 of the Act of 1996, added three other distinct and fundamental juristic principles
which were to form part and parcel of the fundamental policy of Indian law. It was held
that without meaning to exhaustively enumerate the purpose of the expression
'fundamental policy of Indian law', three distinct and fundamental juristic principles
must necessarily be understood as a part and parcel of the fundamental policy of Indian
law.
The first and foremost is the principle that in every determination whether by a
Court or other authority that affects the rights of a citizen or leads to any civil
consequences, the Court or authority concerned is bound to adopt what is in
legal parlance called a 'judicial approach' in the matter and they cannot act in
arbitrary, capricious or whimsical manner and the subject is required to be
dealt with in fair, reasonable and objective manner and that the decision is not
actuated by any extraneous consideration.
The second principle was held to be the determination of dispute in accordance
with the principles of natural justice which included not only the principle of
audi alteram partem but also the fact that the authority must apply its mind to
the facts and circumstances while taking a view one way or the other and non-
application of mind is a defect that is fatal to any adjudication and recording of
reasons in support of the decision is best demonstrated for disclosure of mind.
It was held that the requirement that an adjudicatory authority must apply its
mind is so deeply embedded in our jurisprudence that it can be described as a
fundamental policy of Indian law.
The third point which was included was that a decision which is perverse or so
irrational that no reasonable person would have arrived at the same will not be
sustainable in a Court of law.
The Hon'ble Supreme Court in the case of "Western Geco" (supra) was also of
the view that it was neither necessary nor proper to attempt an exhaustive
enumeration of what would constitute the fundamental policy of Indian law.
24. The Hon'ble Supreme Court in Paragraph nos. 29, 30 and 31 of the judgment in the
case of "Associate Builders Vs. DDA" reported in MANU/SC/1076/2014 : 2014:INSC:809

: (2015) 3 SCC 49 held as follows:-
"29. It is clear that the juristic principle of a "judicial approach" demands that a
decision be fair, reasonable and objective. On the obverse side, anything
arbitrary and whimsical would obviously not be a determination which would
either be fair, reasonable or objective.
3 0 . The audi alteram partem principle which undoubtedly is a fundamental
juristic principle in Indian law is also contained in Sections 18 and 34(2)(a)(iii)
of the Arbitration and Conciliation Act. These sections read as follows:
"18. Equal treatment of parties. -The parties shall be treated with
equality and each party shall be given a full opportunity to present his
case.
34. Application for setting aside arbitral Award. -(1) ...
(2) An arbitral Award may be set aside by the court only if-
(a) the party making the application furnishes proof that- ...
(iii) the party making the application was not given proper notice of the
appointment of an arbitrator or of the arbitral proceedings or was
otherwise unable to present his case;"
3 1 . The third juristic principle is that a decision which is perverse or so
irrational that no reasonable person would have arrived at the same is
important and requires some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant to the
decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision
would necessarily be perverse."
25. In the judgment passed in the case of "Associate Builders Vs. DDA" reported in
MANU/SC/1076/2014 : 2014:INSC:809 : (2015) 3 SCC 49, the head "public policy of
India" was considered as falling into following heads and subheads:
a. Fundamental policy of Indian Law-
i. Compliance with statutes, Judicial Precedents orders of superior
courts in India. (para 27)
ii. Need for judicial approach-decision be fair, reasonable and
objective. (para 29)
iii. Natural Justice compliance-Audi alteram partem rule. (para 30)
iv. Wednesbury reasonableness-Perversity or irrationality. (para 31)
b. Interest of India. (Para 35) Related to foreign powers of India
c. Justice or morality (para 36), and

d. Patent illegality-
i. Contravention of substantive law of India.
ii. Contravention of Arbitration and Conciliation Act, 1996.
iii. Contravention of terms of contract.
Perversity has been considered in the following terms:
31. The third juristic principle is that a decision which is perverse or so
irrational that no reasonable person would have arrived at the same is
important and requires some degree of explanation. It is settled law
that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant to the
decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision
would necessarily be perverse.
32. A good working test of perversity is contained in two judgments.
In Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath &
Sons [1992 Supp (2) SCC 312], it was held: (SCC p. 317, para 7)
"7. ... It is, no doubt, true that if a finding of fact is arrived at
by ignoring or excluding relevant material or by taking into
consideration irrelevant material or if the finding so
outrageously defies logic as to suffer from the vice of
irrationality incurring the blame of being perverse, then, the
finding is rendered infirm in law."
In Kuldeep Singh v. Commr. of Police [MANU/SC/0793/1998 : (1999) 2 SCC 10
: 1999 SCC (L&S) 429] , it was held: (SCC p. 14, para 10)
"10. A broad distinction has, therefore, to be maintained between the
decisions which are perverse and those which are not. If a decision is
arrived at on no evidence or evidence which is thoroughly unreliable
and no reasonable person would act upon it, the order would be
perverse. But if there is some evidence on record which is acceptable
and which could be relied upon, howsoever compendious it may be, the
conclusions would not be treated as perverse and the findings would
not be interfered with."
Justice has been considered in the following terms-
36. The third ground of public policy is, if an award is against justice
or morality. These are two different concepts in law. An award can be
said to be against justice only when it shocks the conscience of the
court. An illustration of this can be given. A claimant is content with
restricting his claim, let us say to Rs. 30 lakhs in a statement of claim
before the arbitrator and at no point does he seek to claim anything
more. The arbitral award ultimately awards him Rs. 45 lakhs without

any acceptable reason or justification. Obviously, this would shock the
conscience of the court and the arbitral award would be liable to be set
aside on the ground that it is contrary to "justice".
Patent illegality: Again sub-divided into:
a) Para 42.1-contravention of substantive law of India
b) Para 42.2-contravention of the Arbitration Act itself.
c) Para 42.3-arbitrator deciding outside the terms of the contract.
2 6 . The expanding nature of the interpretation of the term "fundamental policy of
Indian law" in order to set aside an award under section 34 of the Act of 1996 was
noticed and was followed by Law Commission recommendations which ultimately
culminated in an amendment of the aforesaid Act of 1996 vide Amendment Act 2015.
The entire background and the purpose of the Amendment Act 2015 in the aforesaid Act
of 1996 have been fully narrated and explained in the judgment in the case of
"Ssangyong Engineering and Construction Company Ltd. Vs. National Highway Authority
of India" reported in MANU/SC/0705/2019 : 2019:INSC:647 : (2019) 15 SCC 131. The
expansion of "public policy of India" in "ONGC Ltd. v. Saw Pipes Ltd."
MANU/SC/0314/2003 : (2003) 5 SCC 705 ["Saw Pipes"] and "ONGC Ltd. v. Western
Geco International Ltd." MANU/SC/0772/2014 : 2014:INSC:596 : (2014) 9 SCC 263
["Western Geco"] has been done away with and a new ground of "patent illegality" with
inbuilt exceptions has been introduced through 2015 Amendment. However, this case
will be governed by the law relating to setting aside of an award as it stood before the
2015 Amendment.
27. The foundational facts mentioned above are not in dispute.
Issue No. 1-Whether the learned Arbitrator could have pronounced the award beyond
the period prescribed by the High Court without any extension of time?
28. The award could not be passed within four months i.e. till 25.11.2006 and was
ultimately passed on 17.07.2007. Paragraph 3 of the award mentions that the
respondents filed written statement on 16.12.2006 after repeated adjournments.
Paragraph 4 of the award mentions that the hearing of the proceeding could not be
completed due to repeated adjournments taken by the respondents. Paragraph 6 of the
award mentions that the award could not be published within four months as five
awards in five proceedings were to be published. This Court finds that not only the
respondents filed the written statement before the learned Arbitrator after expiry of the
stipulated time for pronouncing the award, but also fully participated in the proceedings
and now it is not open to the respondents to contend that the learned Arbitrator had
become functus officio and could not have passed the award. Moreover, the learned
Arbitrator has explained the delay by referring to the conduct of the respondents who
sought repeated adjournments.
The judgment passed in the case of "NBCC Limited Vs. J.G. Engineering Private Limited"
reported in MANU/SC/0013/2010 : (2010) 2 SCC 385 is clearly distinguishable. In the
said case, as mentioned in paragraph 16 of the report, there was no cogent reason for
the delay in publication of the award and in the present case the delay in passing the
award has been explained by the learned Arbitrator in the award itself which was
primarily attributable to the respondents. Further, in paragraph 16 of the aforesaid
judgement it has been observed that the time limit for publication of award can be

enlarged with the consent of the parties and in the said case an application was also
filed seeking termination of the mandate of the Arbitrator. In the present case, the
parties had willingly participated in the proceedings before the learned Arbitrator
beyond the time frame stipulated by the High Court while referring the matter to
arbitration and in fact, the written statement was filed by the respondents after the
period prescribed for pronouncement of the award. The conduct of the respondents
itself shows that they had no objection to continuation of the proceedings. Moreover, no
such objection was raised either before the learned Arbitrator or even in the petition
filed under section 34 of the Act of 1996.
The judgment passed in the case of "Jayesh H. Pandya and Another Vs. Subhtex India
Limited & Ors." reported in MANU/SC/1162/2019 : 2019:INSC:958 : (2020) 17 SCC
383 is also clearly distinguishable on facts. In the said case, the Arbitration Agreement
provided a time restriction to conclude the arbitration proceeding and the Arbitrator was
vested with power to extend the period for making and publishing the award from time
to time, with the consent of both the parties. The respondent in the referred judgment
had raised an objection to the extension of time during the arbitral proceedings and in
the said case the essential element of waiver was not present which essentially has to
depend upon the facts and circumstances of each case. So far as the present case is
concerned, the time limit was not provided for in the Arbitration Agreement and no such
objection was raised by the respondents before the learned Arbitrator or even before the
learned Court below under section 34 of the Act of 1996. Moreover, the very facts that
the respondents had filed their written statement after expiry of the period prescribed
by the High Court and fully participated in the arbitral proceedings without any
objection, are themselves indicators of the fact that the respondents had no objection to
the arbitration proceeding with the Arbitrator beyond the period stipulated by the High
Court while referring the matter to arbitration.
2 9 . In view of the aforesaid findings, this Court is of the considered view that the
learned Arbitrator was competent and was within his jurisdiction to pass the award. The
issue no.1 is accordingly decided against the respondents and in favour of the
appellant.
Issue No. 2-Whether the claim no.1 awarded by the learned Arbitrator called for
interference under section 34 of the Act of 1996?
30. Two clauses of the contract are relevant, they are Clause 11 of the Conditions of
Contract and Clause 12 of the General Conditions.
Clause 11 of the Conditions of Contract
Engineer-in-charge shall have power to make any alterations in or addition to
the original specifications, designs, and instructions that may appear to him to
be necessary or invisible during the progress of and the work, the contractor
shall be bound to carry out the work accordance with any instructions which
may be given to him in writing signed by the Engineer-in-charge and such
alteration shall not invalidate the contract, and any additional work which the
contractor may be directed to do in the manner above specified as part of the
work shall be carried out by the contractor on the same conditions in all
respects on which he agreed to do the main work and at the same rates as are
specified in the tender for the main work . The time for the completion of the
work shall be extended in the proportion that the additional work bears to the
original contract work and the certificate of the Engineer-in-charge shall be

conclusive as to such proportion. And if the additional work includes any class
of work for which no rate is specified in this contract. Then such class of work
shall be carried out at the rates entered in the sanctioned schedule of rates of
the locality during the period when the work is being carried on and if such last
mentioned class of work is not entered in the schedule of rates of the district
then the contractor shall within seven days of the date of his receipt of the
order to carry out the work inform the Engineer-in-charge of the rate which it is
his intention to charge for such class of work, and of the Engineer-in-charge
does not agree in this rate he shall by notice in writing be at liberty to cancel
his order to carry out such class of work and arrange to carry it out in such
manner as he may consider advisable, provided always that if the contractor
shall commence work or in our any expenditure in regard thereof before the
rates shall have been determined as lastly bear in before mentioned then and in
such case he shall only be entitled to paid in respect of the work carried out or
expenditure incurred by him prior to the date of the determination of the rate as
aforesaid according to such rate or rates shall be fixed by the Engineer-in-
charge. In the event of a dispute, the decision of the Superintending Engineer
of the circle will be final.
Provided always that the contractor shall not be entitled to any payment for any
additional work done unless he has received an order in writing from the
Engineer-in-charge for the additional work that the contractor shall be bound to
submit his claim for any additional work done during any month on or before
the 15th days of the following month accompanied by a copy of the order in
writing of the Engineer-in-charge for the additional work, and that the
contractor shall not be entitled to any payment in respect of such additional
work if he fails to submit his claim within the aforesaid period.
Clause-12 of General Conditions
"12. Approved rates will remain unaffected by the fluctuation of rates
for labour and materials in the market during the execution of work and
no claim shall be entertained for the same."
3 1 . Thus, there is a requirement under proviso to Clause 11 of the conditions of
contract to obtain an order in writing for the additional work and claim also has to be
made in terms of the said provision. Further, Clause 12 of the General Conditions is
essentially a clause denying claim for any escalation.
32. The bone of contention between the parties is with regard to the claim no. 1.
3 3 . The claim no.1 has been mentioned in the form of a chart in claim book no.1
(Annexure-2 to the memorandum of appeal) with the following salient features:-
a) Agreement No. 4 F2 of 1991-92
b) Date of agreement:-04.03.1992
c) Date of written order to commence:-04.03.1992
d) Stipulated period of completion:-03.09.1993
e) Amount of work as per agreement:-Rs. 34,92,805.00
f) Actual date of completion:-31.08.2001

It was the case of the appellant that on valid reasons extension of time was
granted upto 31.08.2001 vide Chief Engineer's letter No. 298 dated 04.07.2001.
It was also the case of the appellant that the cement and steel required for the
execution of the work was to be supplied by the departments as per terms of
the agreement. Delay was on account of the fact that the final set of drawing
was not made available to the appellant in time and after excavation of the
foundation the appellant was forced to wait as required quantity of cement and
steel was not available with the department. Initially, the appellant was not
allowed to purchase cement and steel on their own. However, the Engineer-in-
chief, P.W.D (Roads) visited the site in January 2001 and verbally instructed the
appellant to purchase these materials and proceed with the work and also
instructed that difference of cost will be payable to the appellant for such
purchases. The appellant was compelled to incur overhead expenses, turnover
losses as well as unwanted escalation of cost on materials and labours. The
work was completed in all respect on 31.08.2001. It was further case of the
appellant that they having fulfilled the contractual obligation in respect of the
agreement, it was prayed that losses incurred for no fault on their part be
considered and paid.
34. Claim No. 1 is said to be the claim on account of extra work/extra cost amounting
to a total of Rs. 55,69,577/-as per the award. However, the claim book no.1 gave the
details of the claim under five sub-items consisting of extra work at escalated rates
taking the base year as 1985 and overhead expenses, turnover losses and escalation
taking into consideration the agreement value of the work-

35. The basis of the entire claim was the recommendation made by the Junior Engineer
which formed a part of the claim book no.1. The Junior Engineer recommended for
payment of extra cost for item nos. 1 and 2 but so far as item nos. 3, 4 and 5 are
concerned, it was observed that there is no such provision for payment of overhead
expenses, loss of turnover and escalation and therefore, the decision was to be taken by
the higher authority. Similar was the observation of the Superintending Engineer vide
letter no. 838(A) dated 22.09.2003. The recommendation of the Junior Engineer is
quoted as under:-
"..... on items of claim Book No.-1, submitted by M/s N.R. Construction Pvt. Ltd,
Bokaro Steal City, in connection with construction of Miner's bridge in K.M. 49 of
NH-23.
Agreement No. 4 F2 of 1991-92
Data of work order-4.3.92
Stipulated period of completion as per Agt.-3.9.93
Actual date completion-31.8.2001
Extension granted by proper authority upto :-31.8.2001
Item No. 1.-The extra cost involved in casting of deck-slab and R.C.C. girder
etc. in staging, centering, shuttering etc. than inherent in schedule of rate of
North chotanagpur.
It is a fact that casting was done by providing sound, staging, centering and
shuttering required for the purpose. It is also a fact that there was separate
analysis of rate for the same in the estimate. In view of the approval of rates for
the same by the schedule rates committee of North chotanagpur for N.H. works
only in the year 1985 the item may be paid as under.
(1 ) Deck slab-89.375 M3(As per M.B.) @ Rs. 1029.38 per M3
(2) R.C.C.-150.754 M3(As per M.B.) @ Rs. 4025.10 Per M3
Item No. 2. Extra cost involved in casting of sub-structure in slagging,
centering, shuttering, gangway etc.
The casting was done by providing sound staging, centering, and shuttering etc,
by providing requirement, batters, cut water, ease water portion etc. There was
separate analysis of rate for the same in the estimate.

In view of the approval of rates for the same by the schedule rates committee of
North Chotanagpur exclusively for N.H. Works only in the year 1985 the item
may be paid as under.
Quantity-1518.545 M3 (As per M.B.) @ Rs. 228.90 per M3
Item No. 3.-Overhead expenses etc-Amount of running A/C bill till taking upto
Agreement value of Rs. 34,92,805.00 only. The agreement does not indicate
anything on such claim. May be considered and decided by higher authority.
Item No. 4-Overhead expenses etc:-Amount taken upto Agreement value.
Turnover losses due to work extended. The Agreement was does not indicate
anything on such claim may be considered and decided by higher authority.
Item No. 5-Overhead expenses etc:-Amount taken upto Agreement value.
Escalation on the cost of labour and materials for the period beyond 3.9.93 to
31.8.2001. The Agreement does not indicate anything on such claim. May be
considered and decided by higher authority."
(emphasis supplied)
36. The undisputed fact which arises from the aforesaid is as follows:-
A. Item nos. 1 and 2 were on account of extra work over and above the
agreement value and item nos. 3, 4 and 5 were on account of overhead
expenses, loss of turnover, and escalation based on work covered by the
agreement and were calculated taking the agreement value of the work
respectively. Item nos. 3 and 4 were claimed at 10% of the agreement value
each and item no. 5 was claimed for the period beyond scheduled date of
completion @ 15% per annum of the agreement value.
B. The following position emerges:-
Item No. 1 was on account of extra cost incurred. Extra cost involved in
suitably designed staging, centering shuttering etc. and Item no.2 was
on account of Extra cost for slagging centering, shuttering etc. for
R.C.C. sub-structure work, including providing gangway at subsequent
height, including ensuring proper better cease water, cur-water, faces
etc.
and the extra cost for both the Item nos. 1 and 2 was calculated by
referring to base rates of the year 1985 with an annual enhancement of
rates of materials and labour at the rate of 15% per annum for 15 years
i.e. from 1986 to 2001;
Item no.3 was on account of overhead expenses at flat 10% of the
agreement value;
Item no.4 was on account of loss of turnover at flat 10% of the
agreement value;
Item no.5 was on account of escalation on the cost of labour and
materials for the period beyond 03.09.93 to 31.8.2001 (Difference
between stipulated date of completion and actual completion) i.e. 7
years 3 months and 26 days, at the rate of 15% per annum on the

agreement value.
37. The award reflects that as per the appellant the work in terms of the agreement was
completed and payment was also made, but the grievance was relating to additional
work for an amount of Rs. 55,69,577/-as mentioned in Claim no.1 and accordingly, the
learned Arbitrator framed the following issue relating to Claim no. 1 for consideration
taking the entire claim as claim on account of additional work :-
"Whether the claimant is entitled for a sum of Rs. 55,69,577.00 on account of
additional work done beyond the agreement No. 4/F2/91-92 dated 4.3.92 as
claimed?"
38. Although the entire amount of Rs. 55,69,577/-was termed by the learned Arbitrator
as claim for additional work but upon perusal of the claim no.1 it is ex-facie apparent
that it was under five distinct sub-heads. Sub-head nos. I and II were for extra cost of
the extra work; Sub-head no. III was for overhead expenses calculated on the basis of
agreement value; Sub-head no. IV was for turnover losses calculated on the basis of
agreement value and Sub-head no. V was for escalation also calculated on the basis of
agreement value.
39. There can be no dispute that claim of extra work is a completely distinct head when
seen as compared to claim of overhead expenses or turnover losses or escalation, but
the learned Arbitrator neither framed different issues in connection with such sub-heads
of claims nor dealt with these sub-heads separately. The entire claim was allowed on
the basis of two annexures i.e. recommendation of the Junior Engineer and the
recommendations made by the higher authorities to the Chief Engineer to take a
decision who did not take any decision.
Extra work under Sub-head nos. I and II and escalation under Sub-head no.V
40. The Sub-head nos. I and II related to extra cost involved in extra work and the
claim was made at enhanced rate by referring to the schedule rate of the year 1985. The
enhanced rate was calculated @ 15% per annum for 15 years from the year 1986 to
2001 as the additional work under Sub-head-I was completed in 2001 and that under
Sub-head-II was completed in 1997. So far as the recommendations by the authorities
are concerned, the rate was recommended but the quantity was to be ascertained as per
actual measurements. The amount allowed under Sub-heads-I and II was Rs. 92,000.83
+ Rs. 6,06,799.92 + Rs. 3,47,594.95.
Overhead expenses on account of delay under Sub-head no.III and Turnover losses on
account of delay under Sub-head no.IV
41. Overhead expenses were claimed for the period beyond the stipulated period of the
contract i.e. 03.09.1993 for no fault of the appellant and mainly due to non-availability
of departmental materials viz. cement and steel. It was claimed @10% of the agreement
value. The recommendation of the authorities indicated that there is no such provision
in the agreement and it was to be considered at the higher level. Similarly, Turnover
losses were also claimed on the same ground @10% of the agreement value. The
recommendation of the authorities indicated that there is no such provision in the
agreement and it was to be considered at the higher level.
42. This Court is of the considered view that by no stretch of imagination the Overhead
expenses and Turnover losses each claimed @ 10% of the agreement value could be
treated as a part of the claim under additional work under the broad head of claim no.1

which has been termed and allowed as such by the learned Arbitrator. It is important to
note that there is no discussion of any material whatsoever in connection with the claim
on account of Overhead expenses and Turnover losses except the recommendation of
the authorities with a rider that there is no such provision in the agreement and was
required to be considered by the higher authority. The claims on account of Overhead
expenses and Turnover losses under sub-head nos. III and IV have been clubbed with
the claim on account of additional work under the Sub-head nos. I and II and treated to
be a part of additional work and allowed on account of the fact that higher authority did
not take any final decision in the matter. Such approach on the part of the learned
Arbitrator is shocking on account of two reasons, firstly, claims on account of Overhead
expenses and Turnover losses cannot be termed as a part of claim on account of
additional work and secondly, no such claim can be allowed unless the claimant had
substantiated them by leading some evidence. Such claims could not be allowed merely
because the higher authority did not take any decision on such claims.
Escalation under Sub-head no. V
43. Under Sub-head no. V, claim was made under the head 'escalation on cost of labour
and material' for the period beyond the stipulated date of completion of the work under
the agreement till the actual date of completion @ 15% per annum of the agreement
value of Rs. 34,92,805.00 for total period being 7 years 3 months and 26 days (from
03.09.93 to 31.8.2001) amounting to Rs. 38,24,621.14. Thus, this claim was relatable
to the work executed as per the agreement and had nothing to do with the extra work.
In fact, the extra work at escalated rate was already claimed taking the base year as
1985 with escalation @15% per annum as is apparent from the claim under Sub-head
nos. I and II. The amount under Sub-head no.V has been allowed in totality under the
broad head of claim no.1 by treating it as a part of the additional work although the
authorities had clearly observed that there is no such provision for payment of
escalation and the decision was required to be taken by the Chief Engineer. The award
by the learned Arbitrator including Sub-head V in connection with escalation on the
agreement value for the period beyond the stipulated date of completion of the work
under the agreement till the actual date of completion by treating it as a part of the
additional work under Claim no.1 is shocking as on the face of the claim under Sub-
head no. V. Claim under Sub-head no. V was ex-facie a claim of escalation on value of
the work as per the agreement and not on extra or additional work. If for the sake of
arguments, it is assumed that the claim under Sub-head no. V was escalation on
account of additional work, then the claim of escalation on additional work is claimed
twice, once under Sub-head nos. I and II and again under Sub-head no. V.
4 4 . The findings with regards to claim on account of additional work beyond the
agreement as framed under issue no.1 started from paragraph no. 12 onwards of the
award. In paragraph no. 12, the learned Arbitrator reiterated that the entire claim of Rs.
55,69,577/-(covered under claim no.1 in connection with which issue no. 1 was
framed) was only for the additional work done beyond the agreement and that there
was no dispute on the point that the claimant (appellant herein) performed the work as
per the agreement and there was no dispute on the point that the claimant had received
full payments for the work done as per the agreement. In paragraph no. 18 of the
award, it has been recorded that Annexure-1 was the recommendation of the Assistant
Engineer and Executive Engineer on the report of the claim prepared by the Junior
Engineer and Annexure-2 was the letter forwarding the claim to the Executive Engineer
by the Superintendent Engineer. The learned Arbitrator dealt with the arguments of the
respective parties till paragraph no. 20 and in paragraph no. 21 of the award, recorded
that after going through the submissions of both the parties and upon perusal of

Annexures-1 and 2 there was no doubt that the extra work done was evaluated by the
Junior Engineer, Assistant Engineer and Executive Engineer and the value was shown as
Rs. 55,69,577/-in the chart which was finally recommended to the Chief Engineer and
was pending consideration. In paragraph no. 22 of the award, it has been observed that
the work and the additional work was completed within the extended period i.e.
31.08.2001 ; there was no complaint about the quality of work; so far as the question
of approval of rate/increased rate on escalated cost was concerned there was no paper
before the learned Arbitrator to show that the rates were wrong and there was no order
or paper on the basis of which the matter could be considered and that no paper was
produced to show that the officers who approved the escalated cost did not have the
power. In the aforesaid background, the learned Arbitrator allowed the entire claim of
Rs. 55,69,577/-vide paragraph no. 23 of the award treating the entire claim to be on
account of additional work.
45. The present case is not a simple case where escalation has been granted in spite of
negative covenant in the contract (Clause-12 as quoted above) or the required approval
of the additional work has not been granted in terms of the agreement (proviso to
Clause 11 as quoted above). It is a case where claims on account of Overhead
expenses, Turnover losses and Escalation on the work executed under the agreement
under sub-head nos. III, IV and V respectively have been allowed in the name of
additional work although the claim on account of additional work at escalated rate was
already claimed under sub-head no. I and II which was also allowed along with sub-
head nos. III, IV and V. The learned counsel for the respondents has rightly pointed out
that the entire claim under claim no.1 could not be clubbed and termed as claim on
account of additional work and, in fact, the learned Arbitrator ought to have separately
considered the claim on account of Overhead expenses, Turnover losses and Escalation
which were apparently relatable to the agreement value and not additional work.
46. Allowing the entire claim under claim no. 1 consisting of five distinct claims under
five different sub-heads, two relating to extra work/extra cost and three relating to
Overhead expenses, Turnover losses and Escalation all three relatable to agreement
value, by terming them as claim on account of additional work, is shocking to the
conscience of this Court and cannot be sustained in the eyes of law and calls for
interference when seen in the light of the law laid down by the Hon'ble Supreme Court
as mentioned above. The award passed by the learned Arbitrator treating and allowing
the entire claim under claim no.1 as claim on account of additional work is ex-facie
perverse when seen in the light of the distinct sub-heads as per the claim itself as
discussed above and such award is patently illegal on the face of it when seen in the
light of the permissible grounds for interference in Arbitral Award under section 34 of
the Act of 1996.
47. As a cumulative effect of the aforesaid findings, the award dated 17.07.2007 cannot
be sustained in the eyes of law and accordingly, the impugned order passed by the
learned Court below setting aside the arbitral award, does not call for any interference.
48. Accordingly, this arbitration appeal is dismissed.
49. Pending interlocutory application, if any, is closed.
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NR Construction Private Limited Vs The State of JhJH2023291223154252228COM721231

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MANU/JH/1578/2023

IN THE HIGH COURT OF JHARKHAND AT RANCHI

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