Holding

The claims for compensation are barred by clause 11(C) and the arbitrator exceeded his jurisdiction, so the award is set aside.

Summary

The contractor, Ramnath International Construction, was awarded two government contracts for a hangar and road works, but failed to complete them within the stipulated time. The employer granted several extensions before terminating the contracts, after which the contractor claimed compensation for extra costs and loss of profit due to the delays. The arbitrator held both parties responsible for the delay but still awarded damages to the contractor, reasoning that compensation was payable unless the employer proved the contractor had consented to accept only an extension of time. The High Court Division Bench held that the arbitrator exceeded his jurisdiction because clause 11(C) of the contract expressly barred any claim for compensation when an extension of time was granted, limiting the contractor’s remedy to the extension alone. The Supreme Court affirmed this view, stating that the claims were barred by the contractual clause and the arbitrator’s award was ultra vires, and dismissed the appeals.

Issues considered

Whether the contractor's claims for compensation under claim No. 24 of the Hangar Contract and claims Nos. 13‑16 of the Road Contract are barred by clause 11(C) of the contract.
Whether the arbitrator exceeded his jurisdiction by awarding compensation despite the contractual bar.
Whether the arbitrator committed legal misconduct by ignoring the specific terms of the contract.

Subjects

ArbitrationContractual clauseExtension of timeCompensation claimJurisdictionAward set asideSpecific consent

Judgment

A RAMNATH INTERNATIONAL CONSTRUCTION PVT. LTD.
v.
UNION OF INDIA AND ANR.

DECEMBER I I, 2006

B [H.K. SEMA AND R.V. RA VEENDRAN,JJ.)

Arbitration-Contract-Delay in execution partly on account of
employer-Claim of compensation by contractor-Terms of contract bearing
C claim of compensation on account of delay~Arbitrator granted the
compensation despite holding that both employer and contractor responsible
for the delay-Award made rule of Court-Division Bench of High Court
holding that award in respect of certain items was in derogation of the terms
of the contract-On appeal, held: The claim for compensation in respect of
certain items of contract on account of delay was barred by the terms of the
D Contract-Award ignoring the term of contract was made in excess of
jurisdiction-The terms of the contract amounts to specific consent in
satisfaction by the contractor to accept extention of time alone in satisfaction
of his claims for delay and not claim any compensation.

Appellant was awarded two contracts viz. Aircraft and Airtech Hangar
Ep (Hangar contract) and for construction of roads (Road Contract). The contract
work could not be completed within stipulated time, partly due to the default
on the part of the respondent-employer. Several extentions were given by the
employer. Subsequently the contracts were terminated. Appellant-contractor
claimed compensation on the ground that on account of delay and extention
F on the part of the employer, it incurred extra cost and losses. Matter was
referred to Arbitrator. Arbitrator held that both contractor as well as employer
were responsible for the delay. However, it held that employer was liable to
pay the damages as work was delayed on his part and employer failed to
establish that the contractor had consented to accept the extention of time
alone, in satisfaction of his claims for the delay. Single Judge of High Court
G made the award rule of the Court. Division Bench of High Court held that
Arbitrator had exceeded its jurisdiction in making an award towards claim
No. 24 of Hangar Contract and towards claim Nos. 13 to 16 of Road Contract
as the same were in derogation of clause 11 (C) of the contract, which
prohibited the contractor from making any claim for compensation or

H 570
RAMNATH INTERNATIONAL CONSTRUCTION PVT.LTD. v. U.0.1. 571
otherwise, as a result of extension of time granted under the contract. Hence A
the present appeals.

Dismissing the appeals, the Court

HELD: 1. Clause 11 (C) of the contract provides that if there is any
delay, attributable either to the contractor or the employer or to both, and the B
contractor seeks and obtains extension of time for execution on that account,
he will not be entitled to claim compensation ofany nature, on the ground of
such delay, in addition to the extension of time obtained by him. Therefore,
the claims for compensation as a consequence of delays, that is claim 24 of
Hangar Contract and claims 13 to 16 of Road Contract are barred by clause C
1 l(C). (576-G-H; 577-A)

Associated Engineering Co. v. Government of Andhra Pradesh, (1991)
4 SCC 93 and Ch. Ramalinga Reddy v. Superintending Engineer, (19991 9
sec 610, relied on.
2. Arbitrator, inspite of having held that both Department as well as D
contractors were responsible for the delay and having noticed the arguments
based on clause l l(C) of the General Conditions of contract, the Arbitrator
proceeded to award damages on the ground of delay on the reasoning that the
contractor is entitled to compensation, unless the employer establishes that
the contractor has consented to accept the extension of time alone in E
satisfaction of his claim for delay. Clause 11 (C) of the General Conditions of
Contract is a clear bar to any claim for compensation for delays, in respect of
which extensions have been sought and ob(air.ed. Clause ll(C) amounts to a
specific consent by the contractor to accept extension of time alo_ne in
satisfaction of his claims for delay and not claim any compensation. In view of
the clear bar against award of damages on account of delay, the arbitrator F
clearly exceeded his jurisdiction, in awarding damages, ignoring clause 1 l(C).
(578-D-G)

Associated Engineering Co. v. Government of Andhra Pradesh. (1991)
4 SCC 93 and Rajasthan State Mines and Minerals Ltd. v. Eastern
Engineering Enterprises and Anr., (1999) 9 sec 283, relied on. G
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3167-3168 of
2005.

From the Final Judgment and Order dated 31. l 0.2002 of the High Court
of Judicature at Madras in O.S.A. Nos. 27/95 and 25/1996. H
572 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

·A Yashank Adhyaru, D.P. Sharma, Abhishek Singh and Sanjay Kapur for
the Appellant.

Amarendra Saran, A.S.G., B.B. Singh, Kumar Rajesh Singh, Sushma Suri
and Anil Katiyar for the Respondents.

B The Judgment of the Court was delivered by

H.K. SEMA, J. The validity and legality of the judgment dated 31.10.2002
of the Division Bench of the High Court of Madras in OSA. No. 27/1995 and
25/1996 is assailed in these appeals.

C 2. The appellant was awarded two contracts - the first for construction
of LRMR Aircraft Hangar and Airtech Hangar and connected works; and the
second for construction of roads and allied works at NAS Arakonam. In
respect of the two contracts, hereinafter referred to as the Hangar Contract
and Road Contract, the tenders submitted by appellant were ·accepted on
10.10.1988 and 3/5.1.1989 respectively. The necessary agreements were executed
D between the parties. Disputes ~rose between the parties in respect of those
contracts and the matter was referred to Arbitration. The Arbitrator after
examining the oral and documentary evidence made his Awards dated 20. 7.1993
and 5.3.1994. Applications were filed before the learned Single Judge by the
respondent herein for setting aside the Awards. The learned Single Judge by
E orders dated 24.8.1994 and 22.9.1995 rejected the applications and in each
case made a rule of the court in terms of the award. ~eing aggrieved the
respondent filed OSA Nos. 27/1995 and 25/1996, which were partly allowed
by the Division Bench of the High Court. Hence, the present appeals by the
claimant contractor.

F 3. It may not be necessary for us to refer to the entire facts leading to
the filing of the present appeals as the substantial question of law posed
requires reference to limited facts. Suffice it to say that awards of the learned
Arbitrator related to claims under several heads. The controversy in these
appeals relate to award in respect of item no. 24 in the Hangar contract and
G items 13 to 16 in respect of the road contract. The particulars thereof are
extracted below :

H
RAMNATH INTERNATIONAL CONSTRUCTION PVT. LTD. v. U.0.1. [SEMA, J.] 573

Item No. Description of work Amount claimed Amount awarded A
Hanger Contract
24 AmouRt due on account Rs. 2, 77,41,692 Rs. 51,36,015/98
of escalation in materials
and labour
Road Contract B
i3 Loss of profit due to Rs.2,34, 78,404
turnover loss for staying
beyond contract period Rs.41,51,847/50
\4. Additional compensation Rs.22,89,200
for work done beyond c
original contract period
15 Loss of profit on Rs.26,00,000
balance work due to
termination of contract
16. Escalation payable for Rs.3,50,000 D
the period 5.3.1992 to
date of termination
4. In regard to Hangar Contract, undisputedly, the contract work had to
be completed in two phases, the first phase by 31.l 0.1989 and the second
phase by 30.4.1990. However, the contract work could not be completed E
within the stipulated time, partly due to the default on the part of respondent.
It is also undisputed that on the request of the contractor, the employer gave
several extensions by a letter dated 28.2.1990 the period of completion of
work was extended up to 30.6.1990; by a letter dated 10.5.1991 it was extended
up to 31.5.1991; by a letter dated 27.8.1991 it was extended up to 30.9.1991;
by a letter dated 23.1.1992 the time was extended up to 15.4.1992; by a letter F
dated 15.5.1992 it was extended up to 28.5.1992 and by a letter dated 4.6.1992,
it was further extended up to 22.6.1992. The contract was subsequently
terminated by the employer on 1.7 .1992.

5. In respect of the road contract, the date of commencement of work
was 3.1.1989. The due date of completion was 2.ll.1990 (21 months). The G
employer granted extensions from time to time on the request of the contractor
up to 31.5.1992. Subsequently, the contract was terminated by the employer
on 14.7.1992.

6. The basis of the disputed claims is that the execution of work was H
574 SUPREME COURT REPORTS (2006] SUPP. 10 S.C.R.

A delayed on account of breaches on the part of the employer and the employer
is liable to compensate the contractor for all losses and extra cost on account
of such delay and extended execution.

7. These claims were resisted by the employer on the ground that the
contractor himself was liable for delays; that the employer had granted
B extension for the delays; and that the contract prohibits the contractor from
making any claim for compensation or otherwise, howsoever, arising as a
result of extension of time granted in terms of the contract.

8. The Arbitrator held that where the work was delayed on account of
delays attributable to the employer, grant of extension of time by the employer
C for completing of work does not exonerate the employer from the liability to
pay damages for breach on account of the delay caused by the employer
unless the employer establishes that the contractor has consented to accept
the extension of time alone, in satisfaction of his claims for the delay. The
Arbitrator held that in these two contracts, the employer was not released of
D his liability for damages on account of the delays, by granting extension of
· time. He, therefore, proceeded to quantify the loss and awarded the amounts
as aforesaid. The awards of the Arbitrator on these items were affirmed by
the learned Single Judge by making the awards a rule of the court, by
judgments dated 24.8.1994 and 22.9.1995.

E 9. The Division Bench of the High Court after considering the threadbare
submissions on the question of law arrived at a conclusion that the Arbitrator
has exceeded its jurisdiction in making an award towards claim no. 24 in the
Hangar Contract and an award towards claim nos. 13 to 16 in the Road
Contract, as they were made in derogation of clause I l{C) of the contract,
F which prohibited the contractor from making any claim for compensation or
otherwise, howsoever, arising, as a result of extension of time granted under
the contract.

I 0. The core questions which arise for our consideration are these:

(a) Whether claim no. 24 of Hangar Contract and claim nos. 13 to 16
G ofroad contract are unsustainable being in derogation of clause 1 l(C)
of the contract, which prohibits any compensation as a result of
extension of time granted by the department?

(b) Whether the Arbitrator committed a legal misconduct for not
acting in terms of clause 1l(C) of the contract though pleaded and
H
RAMNATH INTERNATIONAL CONSTRUCTION PVf. LTD. v. U.0.1. [SEMA, J.] 575

submitted before him? A
Re : Question (i)

11. Section 11 of the General Conditions of Contract relates to time,
delay and extension. We extract below the portions of section 11 relevant for
our purpose: B
"Section 11 : Time, Delay and Extension

(A) Time is of the essence of the contract and is specified in the
contract documents or in each individual works order.

As soon as possible after contract is let or any substantial work order C
is placed and before work tinder it is begun, the G.E. and the contractor
shall agree upon the time and progress chart. The chart shall be
prepared in direct relation to the time stated in the contract documents
or the works order for completion of the individual items thereof and/
or the contract or works order as a whole. It shall include the forecast D
of the dates for commencement and completion of the various trades
processes or sections of the work, and shall be amended as may be
required by agreement between the G.E. and the contractor within the
limitation of time imposed in the contract documents or works order.
If the work be delayed :
E
(i) by force majeure, or

(ii) by reason of abnormally bad weather, or

(iii) by reason of serious loss or damage by fire, or

(iv) by reason of civil commotion, local combination of workmen, F
strike or lockout, affecting any of the trades employed on the work,
or

(v) by reason of delay on part of nominated subcontractors, or
nominated suppliers which the contractor has, in the opinion of G.E.,
taken all practicable steps to avoid, or reduce, or G
(vi) by reason of delay on the part of contractors or tradesmen
engaged by government in executing work not forming part of the
contract, or
(viii) by reason of any other cause, which in the absolute discretion H
576 SUPREME COURT REPORTS [2006] SUPP. IO S.C.R.

A of the accepting officer ·is beyond the contractors control;

then in any such case the officer herein after mentioned may make fair
and reasonable extension in the completion dates of individual iten!s
or groups of items of works for which separate periods of completion
are mentioned in the contract documents or works order, as applicable.
B
xxxxx

(B) If the works be delayed :
,
(a) by reason of Jnon-availability of government stores in schedule
.
B or
c
(b) by reason of non-availability or breakdown of government tools
and plant listed in schedule C;

then, in any such event, notwithstanding the provisions hereinbefore
contained, the accepting officer may in his discretion, grant such
D extension of time as may appear reasonable to him and the same shall
be communicated to the contractor by the G.E. in writing. The decision
so communicated shall be final and binding and the contractor shall
be bound to complete the works within such extended time.

(C) No claim in respect of compensation or otherwise, howsoever
·E arising, as a result of extensions granted under condition (A) and (B)
above shall be admitted."

Clause (C) provides that where extensions have been granted by reason of
the delays enumerated in Clause (A) which were beyond the control of the
contractor, or on account of the delays on the part of the employer specified
F in Clause (B), the contractor is not entitled to make any claim either for
compensation or otherwise, arising in whatsoever manner, as a result of such
extensions. After enumerating certain delays, sub-clause (viii) of Clause (A)
specifically mentions delay on account of any other cause beyond the control
of the contractor. The causes for delays specified in clause A, thus, encompass
G all delays over which the contractor has no control. This will necessarily
include any delays attributable to the employer or any delay for which both
the employer and the contractor are responsible. The contract thus provides
that if there is any delay, attributable either to the contractor or the employer
or to both, and the contractor seeks and obtains extension of time for execution
on that account, he will not be entitled to claim compensation of any nature,
H
RAMNATH INTERNATIONAL CONSTRUCTION PVT. LTD. v. U.0.I. [SEMA, J.] 577

on the ground of such delay, in addition to the extension of time obtained A
by him. Therefore, the claims for compensation as a consequence of delays,
that is claim 24 of Hangar Contract and claims 13 to 16 of Road Contract are
barred by clause ll(C).

12. We are fortified in this view by several decision of this Court. We
may refer to two of them. In Associated Engineering Co. v. Government of B
Andhra Pradesh, [1991] 4 SCC 93, this Court was concerned with an appeal
which related to similar claims based on delays in execution. The High Court
had held (reported in AIR 1990 AP 294) thus :

Applying the principle of the above decision to the facts of the case C
before us, it must be held that clause 59 bars a claim for compensation
on account of any delays or hindrances caused by the department.
In such a case, the contractor is entitled only to extension of the
period of contract. Indeed, such an extension was asked for, and
granted on more than one occasion. (The penalty levied for completing
the work beyond the extended period of contract has been waived in D
this case). The contract was not avoided by the contractor, but he
chose to complete the work within the extended time. In such a case,
the claim for compensation is clearly barred by clause 59 -of the
APDSS which is admittedly, a tenn of the agreement between the
parties.
E
This Court noticed that the claims were set aside by the High Court on the
ground that those claims were not supported by any agreement between the
parties, and that the arbitrator had travelled outside the contract iri awarding
those claims. This Court held that the said claims were not payable under the
contract and that the contract does not postulate, in fact prohibits, payment p
of any escalation under those heads. It affirmed the decision of the High
Court setting aside the award of those claims.

In Ch. Ramalinga Reddy v. Superintending Engineer, [1999] 9 SCC 610],
while considering the similar claim, this Court observed thus :
G
"Claim 8 was for 'payment of extra rates for work done beyond
agreement time at schedule of rate prevailing at the time of execution'.
The arbitrator awarded the sum of Rs.39,540. Clause 59 of the A.P.
Standard Specifications, which applied to the contract between the
parties, stated that no claim for compensation on account of delays
or hindrances to the work from any cause would lie except as therein H
578 SUPREME COURT REPORTS [2006) SUPP. 10 S.C.R.

A defined. The claim falls outside the defined exceptions. When
extensions of time, were granted to the appellant to complete the
work, the respondents made it clear that no claim for compensation
would lie. On both counts, therefore, claim 8 was impermissible and
the High Court was right in so holding."

B We, therefore, answer the first question in the affirmative.

Re : Question (ii) :

13. The arbitrator in his two speaking Awards recorded the following
finding regarding delay :
c
"From the facts and evidence placed before me, I find that the
department cannot absolve itself of partial breaches committed which
are of fundamental nature and had snow-ball effect. The department
alone is not fully responsible, the contractor also has contributed to
certain delays." (in the Hangar Contract).
D
"The documents, the evidence and the arguments clearly indicate that
the delay for completing has been a joint responsibility of both the
Department and Contractor" (in Road Contract).

E lnspite of having held that both were responsible for the delay and having
noticed the arguments based on clause l l(C) of the General Conditions of
contract, the Arbitrator proceeded to award damages on the ground of delay
on the reasoning that the contractor is entitled to compensation, unless the
employer establishes that the contractor has consented to accept the extension
of time alone in satisfaction of his claim for delay. As rightly held by the High
F Court, which decision we have affirmed while considering questions no. (i),
clause 11 (C) of tlie General Conditions of Contract is a clear bar to any claim
for compensation for delays, in respect of which extensions have been sought
and obtained. Clause l l(C) amounts to a specific consent by the contractor I-
to accept extension of time alone in satisfaction of his claims for delay and
not claim any compensation. In view of the clear bar against award of damages
G on account of delay, the arbitrator clearly exceeded his jurisdiction, in awarding
damages, ignoring clause l I(C). In Associated Engineering Co. (supra) this
Court held:

"The arbitrator cannot act arbitrarily, irrationally, capriciously or
H independently of the contract. His sole function is to arbitrate in terms
RAMNATH INTERNATIONAL CONSTRUCTION PVT.LTD. v. U.0.1. [SEMA, J.] 579

of the contract. He has no power apart from what the parties have A
given him under the contract. If he has travelled outside the bounds
of the contract, he has acted without jurisdiction....... "

xx xx

A dispute as to the jurisdiction of the arbitrator is not a dispute within B
the award, but one which has to be decided outside the award. An
umpire or arbitrator cannot widen his jurisdiction by deciding a question
not referred to him by the parties or by deciding a question otherwise
than in accordance with the contract. He cannot say that he does ncit
care what the contract says. He is bound by it. It must bear his
decision. He cannot travel outside its bounds. If he exceeded his C
jurisdiction by so doing, his award would be liable to be set aside
..... .In the instant case, the umpire decided matters strikingly outside
his jurisdiction. He outstepped the confines of the contract. He
wandered far outside the designated area. He digressed far away from
the allotted task. His error arose not by misreading or misconstruing D
or misunderstanding the contract, but by acting in excess of what was
agreed. It was an error going to the root of his jurisdiction because
he asked himself the wrong question, disregarded the contract and
awarded in excess of his authority. In many respects, the award flew
in the face of the provisions of the contract to the contrary."
\ E
In Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises
& Anr., (1999] 9 SCC 283, this Court held thus :

"The rates agreed were firm, fixed and binding irrespective of any fall
or rise in the cost of the work covered by the contract or for any other
reason or any ground whatsoever. It is specifically agreed that the F
contractor will not be entitled or justified in raising any claim or
dispute because of increase in cost of expenses on any ground
whatsoever. By ignoring the said terms, the arbitrator has travelled
beyond his jurisdiction as his existence depends upon the agreement
and his function is to act within the limits of the said agreement. This
deliberate departure from the contract amounts not only to manifest G
disregard of the authority or misconduct on his part but it may be
tantamount to ma/a fide action ....... .It is settled law that the arbitrator
is the creature of the contract between the parties and hence if he
ignores the specific terms of the contract, it would be a· question of
jurisdictional error which would be corrected by the court and for that H
580 SUPREME COURT REPORTS (2006] SUPP. 10 S.C.R.

A limited purpose the agreement is required to be considered ...... He
cannot award an amount which is ruled out or prohibited by the terms
of the agreement."

14. In the view that we have taken the Arbitrator clearly misconducted
himself in awarding compensation under claim no. 24 under Hangar Contract
B and claim nos. 13 to 16 under the Road Contract which was rightly set aside
by the High Court in the order impugned herein, on the ground that the
Arbitrator had acted in excess of his jurisdiction.

15. There is no infinnity in the impugned order of the High Court. These
appeals being devoid of merits are, accordingly, dismissed. Parties are asked
C to bear their own costs.

K.K.T. Appeals dismissed.