Holding

The umpire was not proven biased, must confine his award to the claims actually referred, need not give reasons unless the contract requires, and his award of claims contrary to the contract constitutes misconduct, warranting its setting aside and remand to a new umpire.

Summary

The State of Rajasthan awarded a construction contract to Nav Bharat Construction Co., which later terminated the contract for delay. The contractor filed multiple claims, of which the district court initially referred only one claim to arbitration; the High Court later ordered all four claims to be referred. Subsequent applications led to 28 claims being referred, but the arbitrators received 39 claims. A difference of opinion between the two arbitrators led to the appointment of an umpire, V.K. Gupta, who awarded all 39 claims. The State challenged the umpire on grounds of bias, excess jurisdiction, failure to give reasons, and awarding contrary to contract terms. The Supreme Court held that bias was not proved, the umpire should have confined the award to the claims actually referred, and under the Arbitration Act 1940 reasons are not mandatory unless the contract requires them. Since the umpire awarded claims beyond the contract, he mis‑conducted himself. The Court set aside the award and remitted the matter to an independent umpire, disposing of the appeals.

Issues considered

Whether the umpire was biased against the State of Rajasthan.
Whether the umpire exceeded his jurisdiction by deciding claims not referred to arbitration.
Whether the umpire was required to give a reasoned award under the Arbitration Act, 1940.
Whether the umpire mis‑conducted himself by awarding amounts contrary to the terms of the contract.
Whether the award should be set aside on the grounds of bias, excess jurisdiction, or misconduct.

Legislation cited

Arbitration Act, 1940s. 11, s. 20, s. 30, s. 33

Subjects

ArbitrationUmpireBiasJurisdictionReasoned awardArbitration Act 1940Construction contractAward set asideMisconduct

Judgment

A STATE OF RAJASTHAN
V.

MIS. NA V BHARAT CONSTRUCTION CO.

OCTOBER 4, 2005

B [S.N. VARIAVA AND TARUN CHATTERJEE, JJ.]

Arbitration:

·contract-Dispute-Reference of claims to arbitration-Reference of
C 28 claims-Decision of 39 claims-Difference of opinion between two
arbitrators-Dispute referred to Umpire arbitrator-Award by Umpire
challenged on the grounds that the Umpire was biased; that decision of 39
claims were wrong as only 28 claims were referred; and that the umpire had
misconducted himself by not giving reasoned award and by passing the award
D contrary to the terms of the contract-Held: In the facts of the case bias not
proved-Umpire should have confined its award only to the claims made in
the applications-The Act does not require giving reasons unless the contract
so requires-An arbitrator cannot go beyond the terms of the contract-The
majority of the claims in the present case are against the terms of the contract-
Award is not set aside on the ground of misconduct as it would cause hardship
E to the party who had got contract-Hence award set aside and matter referred
to independent Umpire appointed by this Court-Arbitration Act, 1940.
A contract for construction was awarded by appellant to the
respondent. Despite extension of time, respondent was not able to complete
the work within stipulated time. The contract was terminated and the
F balance work was completed by some other contractor. Various claims of
respondents were rejected by appellants. The respondent moved
application u/s.20 of Arbitration Act, 1940 for reference of 4 claims to the
Arbitrator. District Judge referred only one claim and refused to refer
other three claims as not referable. In appeal, High Court directed that
G all the four claims be referred to arbitration. In the meantime, respondent
had filed another application· u/s 20 of the Act seeking reference of 24 more
claims and the same was allowed. Disputes were referred to two
arbitrators. Due to difference of opinion between the two arbitrators,
dispute was referred to an Umpire arbitrator. Appellant filed application
seeking removal of the Umpire on the ground of bias and the same was
fl 988
STATE OF RAJASTllAN "· NAV BHARAT CONSTRUCTION CO. 989
dismissed. Revision against the same was also dismissed. Umpire passed A
the award. Appellants' objection was dismissed by trial court. The cross-
appeals of the appellants and respondents were dismissed by High Court.
Hence the present cross-appeals.

It was contended that the Umpire was biased; that the Umpire had
wrongly decided 39 claims as only 28 claims were referred; that as one of B
the Arbitrators out of the two, had given reasoned and speaking order,
the Umpire by not giving reasoned award had misconducted himself; that
the Umpire had also misconducted himself inasmuch as he had awarded
contrary to the terms of the contract.

Disposing of the appeals, the Court c
HELD: 1. It cannot be said that the Umpire was biased against the
appella~ts inasmuch as he was the person, who regularly appeared for the
respondent in arbitration matters and assisted the respondent in their
arbitration cases. On this ground the Appellant had earlier filed an
application for removal of the Umpire. That application came to be D
rejected and an appeal against that order was also dismissed. Having failed
in their attempt to remove the Umpire, this ground is no longer available
to the appellants. Even otherwise except for making bare averments no
proof has been produced to substantiate the averments. If, this Umpire
was appearing for and/or regularly assisting the respondents there would E
be documents showing his name/appearance. None have been produced.
[994-F; 995-A-BJ

Ran)it Thakur v. Union of India and Ors., [1987) 4 SCC 611 and Jiwan
Kumar Lohia and Anr. v. Durga Dutt Lohia and Ors., [1992] 1 SCC 56,
referred to. F
2. If any claim did not form part of the two applications the same
cannot be arbitrated upon and the Umpire will confine the reference to
the claims made in the two applications. It prima facie appears that the
two applications were for referring, in all, 28 claims to arbitration. G
(995-F-G; 995-C(

Orissa Mining Corporation Ltd v. Prannath Vishvanath Rawlley, [1977)
3 SCC 535 and H.L. Batra and Co. v. State of Haryana and Anr.. (1999] 9
sec 188, relied on.
H
990 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A 3. Under the Arbitration Act 1940, unless the contract so required,
reasons were not required to be given. The mere fact that two Arbitrators
had differed and that the matter was required to be dealt with by an
Umpire does not mean that the Umpire should give reasons for his Award.
(996-C-D]

B Raipur Development Authority and Ors. v. Mis. Chokhamal Contractors
and Ors., (1989] 2 SCC 721, followed.

4.1. An arbitrator cannot go beyond the terms of the contract
between the parties. In the guise of doing justice he cannot award contrary
C to the terms of the contract. If he does so he will have misconducted
himself. Of course if an interpretation of a term of the contract is involved
then the interpretation of the arbitrator must be accepted unless it is one
which could not be reasonably possible. However where the term of the
contract is clear and unambiguous the arbitrator cannot ignore it.
(1008-C-D]
D
4.2. In this case the award itself states that the award is against claims
l to 39, except claim no. 30. Therefore this award is in respect of claims
covered by the contract and to that extent the Umpire has misconducted
himself. (1009-A]

E 4.3. The Contract is very specific. The majority of the claims are
against the terms of the Contract. However, there are also other claims,
which are not against the terms of the Contract. To merely set aside the
Award on ground of misconduct would work hardship on the Respondent
as they would then be depriyed of claims which may be maintainable. The
F correct course would be to set aside the award and refer the matter back
to an independent Umpire appointed by this Court. The Umpire will fix
his own terms and conditions. However it is clarified that only those claims
covered by the two applications will be considered. [1009-E; 1010-C-D[

4.4. The Umpire will also decide whether the Respondent had agreed
G to do the contracted work done during the extended period at the same
rates and/or whether the Respondent is entitled to increased rates and if
so at what rate. The Umpire shall decide only on the basis of the materials
already placed before the earlier Arbitrators and the earlier Umpire.
[1010-E]
H
...:.., STATE OF RAJASTHAN v. NAY BHARAT CONSTRUCTION CO. [VARIAVA, J.] 991
4.5. It is clarified that this is not a new reference but a continuation A
of the earlier proceedings and thus the Arbitration Act 1940 shall continue
to apply. (1011-AI

Paradip Port Trust and Ors. v. Unique Builders, AIR (2001) SC 846,
distinguished.
B
Bharat Coking Coal Ltd. v. L.K. Ahuja and Co., (2001) 4 SCC 86;
Continental Constructions Co. Ltd. v. State of M.P., (1988) 3 SCC 82;
Hindustan Steel Works Construction Ltd v. C. Rajasekhar Rao, [1987) 4 SCC
93; S. Harcharan Singh v. Union of India, AIR (1991) SC 945; Hindustan
Constructions Co. Ltd. v. State of J & K, AIR (1992) SC 2192; Continental
Construction Ltd. v. State of U.P. 12003) 8 SCC 4; Mis. Sudarsan Trading c
Co. v. State of Kera/a, AIR (1989) SC 890; P.M Paul v. Union of India, AIR
(1989) SC 1034; Build India Construction System v. Union of India, (2002)
5 SCC 433 and Tarapore and Co. v. State of M.P., (1994) 3 SCC 521,
referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2500 of 200 I. D
From the Judgment and Order dated 10.12. 99 of the Rajasthan High
Court in S.B.C.M.A. No. 1091 of 1996.

V.A. Mohta, Aruneshwar Gupta, Naveen Kumar Singh and Nilakanta
Nayak with him for the appellant in C.A. No. 2500/200 I and Respondent in E
C.A. No. 2501/2001.

Moolchand Luhadia, Respondent In-person in C.A. No. 2500/200 I and
appellant-in-person In C.A. No. 2501/2001.

The Judgment of the Court was delivered by
F
S.N. VARIA VA, J. These Appeals are against the Judgment dated I 0th
December 1999 of the Rajasthan High Court.

Briefly stated the facts are as follows.

The Appellants invited tenders for construction of Bhimsagar Dam.
Pursuant thereto, various tenders were received. Ultimately the tender of the G
Respondent was accepted. A contract was awarded to the Respondent on
18th January 1979. Under the contract, the work was to be started on 16th
November 1978 and to be completed by 15th May 1981. The work was not
completed within this time and time was extended. It appears that the work
•
was not completed within the extended time also. The Appellants terminated H
992 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A the contract and got the balance work completed from some other contractor.
The Respondent raised various claims which were rejected by the
Appellants. The Respondent, therefore, moved an application under Section
20 of the Arbitration Act, 1940 for referring the claims mentioned therein to
arbitration. By an Order dated 11th November 1982, the District Judge held
B that only one claim was referable to arbitration and refused to refer the other
three claims to arbitration.

The Respondent filed an Appeal before the High Court. The High
Court by its Order dated 7th June 1984 held that it was for the Arbitrator to
decide whether the claims were to be awarded or not. The High Court held
C that reference could not be refused and, therefore, directed that all the four
claims be referred to arbitration.
Even before the High Court passed the Order dt. 7th June 1984, the
Respondent had, on 31st March 1983, filed another application under Section
20 of the Arbitration Act, 1940. By this application the Respondent sought
D reference of 24 more claims. The District Judge by an Order dated I st March
1985 allowed the application.
The disputes were referred to two Arbitrators. One Shri M.K. Gambhir
was appointed by the Appellants and Shri Leeladhar Aggarwal was appointed
by the Respondent. The Respondent, however, filed 39 claims amounting to
E Rs. 42,59,155.56 before the Arbitrators.
Parties led oral and documentary evidence. There was a difference of
opinions between the two Arbitrators. Therefore, the Arbitrators referred the
disputes to an Umpire viz. one Shri V. K. Gupta.
F The Appellants filed an application under Section 11 of the Arbitration
Act, 1940 for removal of Shri V. K. Gupta as an Umpire on the ground of
bias. This application was dismissed on 16th November 1993 inter a/ia on
the ground that there was no evidence to show that there was any bias. The
Appellants filed a Revision which also came to be dismissed by the High
Court in January 1995.
G The Umpire entered into the reference and gave an Award on 29th May
1995. The operative part of the Award reads as follows:-
" ...... And having carefully considered the oral evidence, the
documents, site topographical conditions, analysis of rates, technical
specifications, other exhibits filed by the parties, the operations
H
STATE OF RAJASTHAN 1·. NA V BHARAT CONSTRUCTION CO. [VARIA VA. J.] 993
required for various items of existing B.S.R. and newly approved A
rates for Bhim Sagar Dam, Schedule 'C' the conditions of the contract,
P. W.F.A.R. and various case laws cited by the parties, I make the
award as under:-

I award an amount of Rs. 29,96,060/- (Rupees Twenty nine lacs
Ninety-six thousand and sixty only) payable by the Respondents to B
the Claimants against claim Nos. 1 to 39 except Claim No. 30 (as
awarded below separately) and enumerated under paras 15 and 16 of
the statement of claims of the Claimants.

I further award refund/release of the Bank F.D.R.S. amounting to
Rs. 2,84,000/- (Rupees two lacs eighty-four thousand only) being C
security deposit by the Respondents in favour of Claimants as claimed
under para 17 of the Claim statement.

I award an interest difference of (18% - F.D.R. interest rate on
F.D.R. amount w.e.f. 15.12.82 till released to the Claimants or decreed
whichever is earlier however the interest already accrued from 17.11.78 D
upto 14.12.82 is to be reduced from the final calculated sum.

I also award an interest @ 18% per annum from 15.12.82 to
14.7.83 on total amount of claims except F.D.R. amount payable to
Claimants as prior to reference.
E
I further award an interest@ 18% p.a. from 15.7.83 to 29.5.95
on total amount of Claims except F.0.R. amount payable to Claimants
as pendente lite interest.

I further award an interest @ 18% p.a. on total amount of Claims
except F.0.R. amounts beyond 29.5.95 upto the date of payment or F
decree of the Court whichever is earlier.

I further award that the Respondents shall pay a part of the cost
of arbitration and part of fees of arbitrator and Umpire to the extent
of Rs.20,000 to the Claimants."
G
The Appellants filed objections under Sections 30 and 33 of the
Arbitration Act 1940, which were dismissed by the Trial Court or, !6th July
1996. The Appellants filed an Appeal before the High Court and the
Respondent filed a Cross-Appeal claiming compound interest. The High Court
by the impugned Judgment dismissed both the Appeals. Civil Appeal No.2500
of 200 I is by the Appellants who are aggrieved by the dismissal of their
\
H
994 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A objections. Civil Appeal No.250 I of 200 I is by the Respondents against
dismissal of their claim for compound interest.

Mr. Mohta has assailed the Award on five grounds:

(I) that the Umpire was biased against the Appellants inasmuch as
B he was person, who regularly appeared for the Respondent in
arbitration matters and assisted the Respondent in their arbitration
cases;
(2) that the Court had referred only 28 claims yet all the 39 claims
have been allowed by the Umpire. It was submitted that in respect
c of the claim which had not been referred to arbitration the Umpire
had no jurisdiction to arbitrate and the Award in respect of those
claims had to be set aside;
(3) that as there had been a difference of opinion between the two
Arbitrators and, one of the Arbitrators namely, Mr. Gambhir,
had given a speaking and reasoned Award, the Umpire was also
D
bound to pass a reasoned Award. It was submitted that by not
giving a reasoned Award the Umpire had misconducted himself;
(4) that the Umpire had misconducted himself inasmuch as he had
not applied his mind to the terms of the contract and had awarded
contrary to the terms of the contract; and
E
(5) that the interest awarded is very high and that in an identical
matter between the same parties, reported in (2002] I SCC 659,
this Court has reduced interest to 6%.

Mr. Mohta first submitted that the Umpire was biased against the
F Appellants inasmuch as he was the person, who regularly appeared for the
Respondent in arbitration matters and assisted the Respondent in their
arbitration cases. Mr. Mohta relied on the case of Ranjit Thakur v. Union of
India and Ors., reported in [l987j 4 SCC 611. In this case it has been held
that the test of real likelihood of bias is whether a reasonable person in
G possession of relevant information would have thought that bias was likely
and whether the authority concerned was likely to be disposed to decide the
matter only in a particular manner. It is held that what is relevant is the
reasonableness of the apprehension in that regard in the mind of the party.
Mr. Mohta also relied on the case of Jiwan Kumar lohia and Anr. v. Durga
Dutt lohia and Ors., reported in [ 1992] I SCC 56 wherein also the same
H principles have been reiterated. We see no substance in this first ground of
STATE OF RAJASTHAN "· NAV BHARAT CONSTRUCTION CO. [VARIAVA, J.] 995
challenge. On the ground now urged the Appellant had earlier filed an A
application for removal of the Umpire. That application came to be rejected
on 16th November 1993 and an Appeal against that Order was also dismissed
in January 1995. Having failed in their attempt to remove the Umpire, in our
view, this ground is no longer available to the Appellants. Even otherwise
except for making bare averments no proof has been produced to substantiate
the averments. If, as claimed, this Umpire was appearing for and/or regularly
B
assisting the Respondents there would be documents showing his name/
appearance. None have been produced.

So far as the second ground is concerned, we have seen the two
applications made by the Respondent. It prima facie appears that the two C
applications were for referring, in all, 28 claims to arbitration. The Respondent
then made 39 claims before the Arbitrators. The Umpire has awarded in
respect of all the 39 claims. If claims not referred to Arbitration have been
dealt with and awarded the Umpire would have exceeded his jurisdiction.
However Mr. Moolchand Luhadia, partner of the Respondent who appeared
in person, contended that all the claims were referred to the Arbitrators by D
the Order dt. !st March 1985. He submitted that this is clear from the directions
to the Arbitrators to decide all disputes arising between the parties. We are
unable to accept this submission. The Order dt. I st March 1985 allows
"application dt. 9th April 1983 as part of application dt. 5th October 1981 ".
It is in the context of claims raised in these two applications that the Arbitrators E
are instructed to decide all disputes between the parties. Mr. Lohadia then
submitted that all claims were included in the two applications made by
them. It was submitted that in the applications some of the claims were
clubbed together but whilst filing the statement of claims they were segregated
and separated. As we are proposing to refer the matter back to an Umpire,
we do not propose to go into the question as to whether or not the 39 claims F
were part of the two applications filed by the Respondent. In our view, this
is a question which can be decided by the Umpire. All that we need to clarify
is that if any claim did not form part of the two applications the same cannot
be arbitrated upon and the Umpire will confine the reference to the claims
made in the two applications. It must be mentioned that in the case of Orissa G
Mining Corporation Ltd. v. Prannath Vishvanath Rawlley, reported in (1977]
3 SCC 535 this Court has held that when an agreement is filed in Court and
an order of reference is made, then the claim as a result of the order of
reference is limited to that relief and the arbitrator cannot enlarge the scope
of reference and entertain fresh claims without a further order of reference.
It must also be mentioned that Mr. Lohadia had relied upon the case of H. H
996 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A L. Batra & Co. v. State of Haryana and Anr. Reported in (1999] 9 SCC 188.
In this case the award of the arbitrator was set aside and a new arbitrator was
appointed. The order stated that the new arbitrator was appointed "for settling
disputes between the parties". Before the new arbitrator 7 additional claims,
over and above the 30 claims originally made, were made. It was held that
the award was not vitiated as the terms of reference did not confine the
B second reference to only 30 claims. This authority is of no assistance to the
Respondent as it does not lay down that the arbitrator can entertain claims
not referred to him.

We, however, see no substance in the third ground i.e. that reasons
C should have been given by the Umpire. It is settled position that under the
Arbitration Act 1940, unless the contract so required, reasons were not required
to be given. A Constitution Bench of this Court in the case Raipur Development
Authority and Ors. v. Mis Chokhamal Contractors and Ors., reported in
(1989] 2 SCC 721, has held that it is not necessary. to give reasons and that
an Award cannot be set aside merely because it is a non-speaking Award.
D The mere fact that two Arbitrators had differed and that the matter was
required to be dealt with by an Umpire does not mean that the Umpire should
give reasons for his Award. We further clarify that the Umpire now being
appointed by us need not give reasons.

Mr. Mohta had next contended that the Umpire has misconducted himself
E inasmuch as he had ignored the terms of the contract and awarded contrary
to the terms of the contract. To this objection, the Respondent had submitted
that such a point had neither been urged before the District Judge nor before
the High Court. We, however, find that this point has in fact been urged both
before the District Judge as well as before the High Court. This point, therefore,
F requires to be considered.

In order to consider this point, some of the terms and conditions of the
tender documents and the contract are required to be set out.

The Respondent has given a declaration which inter-alia reads as
G follows:
"I. I/We have visited the Site and fully acquainted myself/ourselves
the local situation regarding materials, labour and other factors
pertaining to the work before submitting this order.

2. !/We carefully studied the N.1.T. conditions of contract,
H
STATE OF RAJASTHAN '" NA V BHARAT CONSTRUCTION CO. [VARIA VA.J.] 997
specification, additional instructions, general rules and directions and A
other documents related to this work and I/We agree to execute the
work accordingly.

I/We do hereby tender for the execution for the Rajasthan Government B
of the work specified as above within the time specified in Schedule
'F' and at the rates entered in Schedule 'G '. The work will be carried
out in accordance in all respects with the detailed specifications,
designs, drawings and instructions referred to in the attached Schedule
sheet."

The relevant terms of the tender document (which is part of the contract)
c
and the contract reads as follows;

"7. HOUSES:-

No local housing is likely to be available and the contract should D
arrange for suitable housing for the staff and labour. Land for the
same will be granted free of charge for temporary use during the
period of contract.

12. SUPPLY OF PETROL AND DIESEL:- E
The contractor has to make his own arrangements for the supply of
petrol and diesel and lubricants. The nearest place from where it can
be obtained is Jhalawar.

F
Clause 12-The Engineer-in-Charge shall have power to make any
alterations in or additions to the original specifications, drawings,
designs and instructions, that may appear to him be necessary or
advisable during the progress of the work and the contractor shall be
bound to carry out the working in accordance with any instruction G
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 011 which he H
998 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A agreed to do the main work, and at the same rates as are specified
in 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 rate is specified in this
B contract then such class of work shall be carried out at the rates
entered in the schedule of rates of the district if it exists and 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 this
receipt of the order to carry out the work, inform the Engineer-in-
c Charge of the rate which it is his intention to charge for such class
of work and if the Engineer-in-Charge does not agree to 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 if the contractor shall
commence work or incur any expenditure in regard thereto before the
D rates shall have been determined as lastly herein before mentioned,
then and in such case he shall only be entitled to be 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 as shall be fixed by the Engineer-in-Charge. In the event
E of a dispute, the decision of the Chief Engineer will be final.

Clause 23-Except where otherwise specified in the contract the decision
of the Chief Engineer of the Government of Rajasthan for the time
being shall be final, conclusive, and binding on all parties to the
F contract upon all questions relating to the meaning of the specifications,
designs, drawings and instructions herein before mentioned and as to
the quality of workmanship, or materials used on the work or as to
any other question, claim, rights, matter, or thing whatsoever in any
way arising out of, or relating to, the contract, designs, drawings,
G specifications, estimates, instructions, order, these conditions or
otherwise concerning the works, or the execution or failure to execute
the same, whether arising during the progress of the work, or after
the completion or abandonment thereof, or the contract by the
contractor shall be final, conclusive and binding on the contractor.

H
STATE OF RAJASTl·IAN v. NAV BHARAT CONSTRUCTION CO. [VARIAVA. J.] 999
.' Clause 36-The Sales Tax or any other tax on materials issued in the A
process offulfilling contract payable to the Government under rules
in fo'tce will be paid by the contractor himself

Clause 38-Fair Wages Clause:-{a) The contractor shall pay not less B
than fair wage to labourers engaged by him on the work.

Explanation:- {'fair wages' means minimum wages for time on piece
work fixed or revised by the State Govt. under the minimum Wages
Act, 1948.}

(b) The contractor shall not withstanding the prov1s1ons C
of... .................contract to the contrary cause to be paid fair wages to
labourers indirectly engaged on the work including any labour engaged
by him, his sub-contractors in connection with the said work as if the
labourers has been immediately or directly employed by him.

(c) In respect of all labourers indirectly or directly employed on the D
work for the purpose of the contractor's part of this agreement, the
contractor shall comply with or cause to be complied with the P.W.D.
contractor's labour regulation made way of that be made by the
Government from time to time in regard to payment of wages period,
deductions, maintenance of wages register, wage card, publications E
and submission of wages periodical returns in all other matters of like
nature.

(d) The Executive Engineer-in-Charge shall have the right to deduct
from the money due to the contractor may sum required to estimate
to be required for making good the loss suffered by a worker by F
reasons of non-fulfillment of the conditions of the contract for the
benefit of the worker or workers non-payment of wages or deductions
made therefor which are not justified by the tenns of contract or as
a result of non-observance of the aforesaid regulations.

(e) Vis-a-vis the Government of Rajasthan the contractor shall be G
primarily liable for all payments to be made and for the observance
of the regulations aforesaid without prejudice to his right to claim
indemnity from his sub-contract.

(t) The regulations aforesaid shall be deemed to be part of this contract
and breach thereof shall be deemed to be breach of contract." H
1000 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A Special Conditions of the contract inter-alia provide as follows: ·'
"31 LABOUR CONDITIONS:-
(a) The contractor shall comply with the labour laws viz. Contractor
Labour Regulation Act, Minimum Wages Act. Workman's
B Compensation Act, Industrial Disputes Act, etc. as may be current
and shall furnish the returns and information as any required and
be specified from time to time. The contractor will have to carry
out registration with the office or Regional Labour Commissioner,
and obtain a valid licence for employing labour.

c (b) The contractor shall as far as possible, obtain his requirements of
labour, skilled and unskilled from the local area. No person below
the age of 12 years shall be employed as labour.
(c) The contractor shall pay fair and reasonable wages (whether or
not such wages are controlled by any Laws existing at the time)
to the workmen employed by him for the work. In the event of
D
any disputes arising between the contractor and his workmen on
the grounds that the wages paid are not fair and reasonable the
dispute shall in the absence of legal or other relief to the workmen,
be referred to the Engineer who shall decide the same the decision
of the Engineer shall be conclusive and binding on the contractor
E but such decision or any decision in this behalf that the
contractor's workmen may obtain by resource to law or other
legal means available to them, shall not, in any way, affect the
condition in the contract regarding payment to be made by Govt.
to the contractor only at the rate accounted in this contrtact.
F (d) The contractor shall not employ animals suffering from source,
lameness, or emaciation or which are immature nor shall treat
them in a way that may be considered in human.
(e) The Engineer shall have the authority to remove from the work
any animal or workmen that, in his opinion which shall be
G conclusive, he may consider unfit or undesirable and no
responsibility shall be accepted by the Government for any delay
or extra expenses caused towards the completion of the work
such removal.
(t) While employing skilled or un-skilled labourers piece workers
H the contractor sh al I be first preference to the person certified to
\.
STATE OF RAJASTHAN r. NA V BHARAT CONSTRUCTION CO. [VARIA VA, J ] J00]

. " him by the Engineer, or his duly authorized representative as A
persons who are adversely affected by the Bhimsagar submergence
and are suitable for employment and shall be minimum fair wages
not below the minimum which has been fixed to this
implementation of this work sited by the Engineer, whose decision
shall be final, binding on the piece worker/contractor.
B
(g) The contractor shall employ any famine, convict or other labour
of a particular class or kind if ordered in writing to do so by the
Engineer.
(h) Should Government declare a state of famine to exist in any
village within I 0 miles of the work, the contractor shall employee c
upon such parts of the works are suitable for unskilled labour,
any persons certified to him by the Engineers or by a duly
authorized agent of the Engineers, in writing to be in need or
relief and the contractor shall pay to such persons wages not
below the minimum which the Government may have fixed in
this behalf. Any disputes which may arise in the implementation D
of this provision shall be decided by the Engineer whose decision
shall be final and binding on the contractor.
(i) The contractor shall provide reasonable facilities to the satisfaction
of the Engineer, for the labour employed by him, where no such
natural facilities exists. The usual facilities are weather proof E
shelter for rest and supply or whole some drinking water, facilities
for obtaining food reasonable washing and sanitary facilities
special facilities for women workers, suitable residential
accommodation, recreation and cultural activities, general sanction
and health measures etc.
F
U) The implementation of any provision of this clause shall, in no
way, entitle the contractor to claim compensation or rates higher
than tendered in his contract.

"'""'"'''''''''''"'"'n"""'"''''''''''''"'''''''''''''''''

G
(57) The quantities given in Schedule 'G' are approximate and
payments will be made on measurement of actual quantities of different
items of work executed by the contractor.

The rates quoted shall be for the committed item in the schedule.
The contractor is advised to see the site fully and investigate in detail H
.t
1002 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A as to the source of materials availability of labour means of approach
and carrying quarries to be put stocking of materials putting tools and
plants in use and other site conditions such of flood levels etc. He is
expected to have investigated as site the execution of work and quote
his tender accordingly. No claim on 11is account shall be accepted. ft
shall be assumed that his rates quoted in 'G' Schedule cover all
B possible eventualities that may be not within the course of execution
of this work.

60. Owning to difficulty in obtaining certain materials in the open
c market the Government has undertaken to supply materials specified
in the schedules of the tender form. There may be delay in obtaining
materials by the Department and the contractor is therefore required
to keep in touch with the day to day position of supply of material
from the Engineer-in-Charge need to so adjust the progress of the
work that their labour may not remain idle not there may be no other
D
claim due to or arising from delay in obtaining materials. It should
be clearly understood that no monetary claim whatsoever shall be
entertained by the Government on account of delay in supplying way.

61. Under no circumstances shall any claim for compensation from
the Government on any account be considered unless the contractor
E
shall have informed the reasons for the claim in writing to the
Engineer-in-Charge within 7 days of occurrence of cause of such
claim. Similarly any hindrances to the work which may cause extension
of period of completion of work shall be immediately informed in
writing to the Engineer for his consideration."
F
Schedule 'G' to the contract lists the estimated quantities of items of
work and the rates payable for such work. At the end of this Schedule
a lead statement and some notes appear, the relevant portion of which
reads as follows:

G "LEAD STATEMENT

s. Items Source Lead in Total
No Kms. Km.
I. Stone Ballast Local I km I km.
2. Sand Piplia river 46 km. 46 km.
H
\
STATE OF RAJASTHAN 1·. NAY BHARAT CONSTRUCTION CO. [VARIAVA, J.] 1003

(1) Any extra items if involved will be paid on the basis of the B.S.R. A
1975 of Ajmer Irrigation on which 'G' Schedule is prepared plus the
tendered premium of the Contractor.

(2) If any construction material is not available at the sources indicated
in the Lead Statement and has to be obtained from other sources
intimated in writing by the Executive Engineer and if such other B
sources are nearer or further than the original source indicated recovery
or extra payment will accordingly be made for the leaser or greater
distance involved as per B.S.R. on which 'G' Schedule is based plus
the premium tendered by the contractor."(emphasis supplied)

Thus the Respondents had fully acquainted themselves with the local conditions C
and had agreed to execute the work as per specifications and at the rates
specified in Schedule 'G'. It is only in respect of additional work that the
Respondents were entitled to be paid at rates set out in B.S.R. 1975. Clause
12 provides that the Respondents had to make their own arrangements for
petrol, diesel and lubricants. Clause 31 of the special conditions provides that D
the Respondent shall pay fair wages and comply with labour laws. The contract
provides that the fact that the contractor had to pay fair/minimum wages and
comply with labour laws would not entitle the contractor to claim compensation
or rates higher than those tendered in the contract. Clause 57 of the special
conditions provides that the rates quoted in Schedule G cover all possible
eventualities and that no claim can be made in respect of items like source E
of material, availability of labour, means of approach etc.

At this stage it becomes necessary to set out a summary of the claims made
by the respondent. They are as under:

s. Amount F
No Claim No. Claim (Rs.)
Claim No. I Amount of Final Bill 2,00,000.00

2 Claim No. 2 (I) For Chisel Dressed Face Stone 2,78,737.92

(2) Cost of C.R. Stone
G

3 Claim No. 3 Cost of R. R. Stone 2,71,282.00

4 Claim No. 4 Rehandling of Sand I, 18,559.82

5 Claim No. 5 Rehandling of Stone 15,743.59 H
1004 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.
.; ,
A 6 Claim No. 6 Extra lead of stone 15,743.59

7 Claim No. 7 Extra lead of Rubble Stone I l,123.19

8 Claim No. 8 Preparation of Foundation for slides 1,49,955.00

9 Claim No. 9 Final excavation of sides 18,556.57
B
10 Claim No. IO Carriage of porus pipes 2,662.90

11 Claim No. 11 Finishing of the concrete 5,861.16

12 Claim No. 12 R.C.C. in inspection gallery and sluice 32,000.00
c 13 Claim No. 13 Rock cutting by line drilling chiseling 25,947.31

14 Claim No. 14 Mechanical mixing of cement mortar 1,82,990.72

15 Claim No. 15 Cleaning of surface by air & water daily 66,079.74

D 16 Claim . No. 16 Shuttering of stair case in Galleries 2,231.60

17 Claim No. 17 Cement concrete in saturated condition 29,223.81

18 Claim No. 18 Shuttering at the junction of the
Dam heel and the Down stream
E protection 5,126.49

19 Claim No. 19 Mechanical mixing of cement concrete 2,463.26

20 Claim No. 20 Carriage of Air vent pipe 2,497.50

21 Claim No. 21 Crusher broken aggregate 33,669.00
F
22 Claim No. 22 Cleaning the foundation surface
handed over by the department 28,092.00

23 Claim No. 23 Increased in rates of royalty 17,216.87

24 Claim No. 24 Increased in rates of Diesel 1,22,604.36
G
25 Claim No. 25 Increased in minimum labour wages 5,27,638.60

26 Claim No. 26 Increased in minimum labour wages
and increase in price in the rates I0,52, 797 .30
~
H 27 Claim No. 27 Loss of profit 3,07,038,00
STATE OF RAJASTHAN 1·. NAY BHARAT CONSTRUCTION CO. [VARIAVA, J.] 1005

28 Claim No. 28 Due to unlawful withdraw! of the A
running work 1,58,904.85

29 Claim No. 29 Over establishment and
overheads beyond 16.5.81
(stipulated date of completion) 4,33,347.00
B
30 Claim No. 30 Difference of interest of F.D.R. 56,800.00

31 Claim No. 31 Wrong recovery from bills for sand
department & extra carriage
(6364.71 + 23206.90 29,571.61

32 Claim No. 32 Recovery of labour 2,730.30
c
33 Claim No. 33 Recovery of Storage charges 22,549.30

34 Claim No. 34 Material remain unused 5,856.00

35 Claim No. 35 Electric charges 10,205.20 D
36 Claim No. 36 Excess charges of hire charges of machine

37 Claim No. 37 Recoveries to be final

38 Claim No. 38 For screening of sand 4, 165.00
E
39 Claim No. 39 Royalty charges on departmental
material 6,243.30

Mr. Mohta relied upon the case of Bharat Coking Coal Ltd. v. L. K.
Ahuja & Co., reported in (2001] 4 sec 86, wherein it has been held that if F
an Arbitrator has not applied his mind to important terms of the contract
between the parties and has not applied such terms in making his award,
then, even though the award is a non-speaking award. This error is apparent
on the face of the award, the entire lump sum award is required to be set
aside. He also relied upon the case of Continental Constructions Co. Ltd. v.
State ofM. P., reported in (1988] 3 sec 82. In this case also it has been held G
that if an Arbitrator. awards extra costs on account of changes in circumstances
such as price rise, in spite of a provision in the Contract to the contrary, it
would amount to the Arbitrator mis-conducting himself and that such an
award would be required to set aside.

H
1006 SUPREME COURT REPORTS (2005] SUPP. 3 S.C.R.

A Mr. Mohta took us through a number of claims and pointed out that
under most of the claims additional/higher amounts were being claimed in
respect of works covered by the Contract. He submitted that there were a
number of claims where, for doing the contracted work during the extended
period, higher rates were claimed and the Umpire has awarded those claims
B not on the basis of contracted price but on basis of rates given to the new
contractor who was appointed to complete the work left unfinished by the
Respondent. Mr. Mohta submitted that the letters extending time categorically
provided that the work would be done at the contracted rate. He submitted
that this had been accepted by the Respondent. As we propose to remit the
matter back to an Umpire we do not deal with each instance pointed out by
C Mr. Mohta. Only by way of example we refer to two claims.

As set out hereinabove claim no. 2 is in a sum of Rs.2,78,737.92 and
it is for chisel dressed face stones. Under this claim, the Respondents have
claimed extra amounts for chiseling the stones on all four sides when, under
the Contract, they are supposed to do this work at the rates specified for such
D work in Schedule G. Mr. Mohta pointed out Clause 5.1 l(iii) of the Technical
Specifications the relevant portion of which reads as follows:

"xxx xxx xxx

Dressing:- The face stone shall be squared on all joints and beds. The
E beds shall be hammer dressed true and square for at least 7.5 ems.
Back, from the face and the side joints for atleast 7.5 ems. The faces
of the stones shall be single line chisel dressed and bushing shall not
project by more than 3.75 ems. No pinnings will be allowed on the
face. All side joints shall be vertical and beds horizontal and no joint
shall be more than 12 mm. in thickness. Stones shall break joints in
F courses above and below by at least half the height of the courses.
The joint in face work shall not be thicker than 12 mm. for single line
chisel dressed stones. -
"xxx xxx xxx''

G He submitted that this was the work which was required to be done under the
Contract at the rate specified in Schedule G and yet the claim had been made
at higher rates. He submitted that the Umpire had not rejected the claim. He
submitted that even though the award was a lump sum award it was also in
respect of claim No. 2. Mr. Mohta also referred to claim No. 26 which was
H for Rs. 10,52, 797.30 for increase in minimum labour/wages and increase in -{
,-'

I
STATE OF RAJASTHAN i·. NAV BHARAT CONSTRUCTION CO. [VARIAVA, J.) 1007

prices. He pointed out that this claim was contrary to Clause 38 of the A
Contract and Clause 31 of the Special Conditions of the Contract which
specifically provided that the contractor would not be entitled to claim
compensation or higher rates because he had to implement labour laws or
pay fair wages.

In the same manner, Mr. Mohta took us through a large number of B
other claims to show that they were contrary to the terms of the Contract. As
stated above it is not necessary, for the purposes of this Judgment, to set out
in detail the submission of Mr. Mohta in respect of other claims referred to
by him.

On the other hand, Mr. Luhadia submitted that this was a non-speaking C
lump sum award and therefore the grounds on which this Court can interfere
with such an award are very limited. In support of his submission he relied
upon a number of authorities including the cases of Hindustan Steel Works
Construction Ltd. v. C. Rajasekhar Rao, reported in [1987] 4 SCC 93. In this
case it has been held that it is only in a speaking award that the Court can D
look into the reasoning of the award. It is held that it is not open to the Court
to probe the mental process of the arbitrator and speculate, where no reasons
are given, as to what impelled the arbitrator to arrive as to his conclusions.
He also relied on the cases of S. Harcharan Singh v. Union of India, _reported
in AIR (1991) SC 945; Hindustan Constructions Co. Ltd. v. State ofJ. & K.,
reported in AIR (1992) SC 2192 and Continental Construction Ltd. v. State E
of U. P., reported in (2003] 8 SCC 4. In these cases the question was regarding
interpretation of the terms of the contract. It was held that the Court cannot
substitute its own interpretation to that of the arbitrator so long as the
interpretation of the arbitrator is a possible one. Reliance was also placed
upon the case of M/s. Sudarsan Trading Co. v. State of Kera/a, reported in F
AIR (1989) SC 890. In this case also it has been held that it is for the
arbitrator to interpret terms of the contract and that if the view taken by the
arbitrator is a possible view then the court would not interfere. In the case of
P. M. Paul v. Union of India, reported in AIR (1989) SC 1034 the questions
referred to the arbitrator were (a) who was responsible for the delay; (b) what
are the repercussions of the delay and (c) how to apportion •he consequences. G
The arbitrator gave a reasoned award holding the Union of India responsible
for the delay and awarded escalation in costs to the contractor. It must
immediately be mentioned that there was no provision in the contract which
permitted or barred grant of escalation. This Court held that the arbitrator had
not exceeded his jurisdiction nor misconducted himself. In the case of Build H
1008 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A India Construction System v. Union of India, reported in [2002] 5 SCC 433
after the contract was entered into it was amended to provide that in cases
where the claim is more than 1 lakh a reasoned award should be given. The
arbitrator gave an unreasoned award. The challenge to it on the ground that
the award was unreasoned was not accepted as this point was taken for the
B first time in the high court and also on the ground that a contract cannot be
unilaterally altered.

There can be no dispute to the well established principle set out in these
cases. However these cases do not detract from the law laid C:Jwn in Bharat
Coking Coal Ltd's case or Continental Construction Co. Ltd's case (supra).
C An arbitrator cannot go beyond the terms of the contract between the parties.
In the guise of doing justice he cannot award contrary to the terms of the
contract. If he does so he will have misconducted himself. Of course if an
interpretation of a term of the contract is involved than the interpretation of
the arbitrator must be accepted unless it is one which could not be reasonably
possible. However where the term of the contract is clear and unambiguous
D the arbitrator cannot ignore it.
;
Mr. Luhadia submitted that the respondents had made claims totaling
Rs. 4556155.56p. He submitted that claims for damages were to the tune of
Rs. 27.50 lacs. He submitted that the -tlaim for final bill was for Rs. 2 lacs.
He submitted that the claims for extra items were for Rs. 1598495. He
E submitted that the Umpire had only awarded Rs. 2996060. He submitted that
as the award is a non speaking award, even presuming without admitting that
some claims were covered by the terms of the contract, it still could not be
said that the Umpire has awarded towards claims covered by the contract. He
submitted that thus the award could not be set aside. In support of this
F submission he relied upon the case of Paradip Port Trust and Ors. v. Unique
Builders, reported in AIR (200 I) SC 846. In this case the claim had been for
Rs. 1293260. The arbitrator awarded as follows:

"Mis Unique Builders Ltd. the claimant is entitled to receive from
Paradeep Port Trust a sum of Rs. 851315 with interest .............. "
G
It was contended in that case that claims 2 and 7 (therein) could not have
been awarded. This Court held that as the award was a lump sum award and
as only Rs. 851315 had been awarded against a claim of Rs. 1293260 it was
not possible to say whether any amounts had been awarded against claims 2
and/or 7, relying on this Mr. Lohadia submitted that even in this case it
H cannot be said whether any amounts have been awarded against claims alleged

I
STATE OF RAJASTHAN 1·. NAV BHARAT CONSTRUCTION CO. [VARIAVA, J.] J 009

to be covered by the contract. We are unable to accept this submission. In A
this case the award itself states that the award of Rs. 29,96,060 is against
claims 1 to 39, except claim no. 30. Therefore this award is in respect of
claims covered by the contract and to that extent the Umpire has misconducted
himself. Even otherwise the claim for damages is not in a sum of Rs. 27.50
lacs as claimed. Claims 27 and 28 which deal with damages are for Rs.
3,07,038 and Rs. 1,58,904.85. The other claims, included in the figure of Rs. B
27.50 given to this Court appear to be claims at enhanced rates for the
contracted work done during the extended period. Mr. Lohadia denied that
Respondents had agreed to do work during the extended period at the
contracted rate. Thus at this stage, unlike in Paradip Port Trust's case (supra),
it does appear on the face of the record that higher rates for items covered C
by the contract have been awarded.

As regards claim No. 2 Mr. Luhadia fairly admitted that Clause 5. I l(iii)
of the Contract requires chiseling of stones on all sides. He however submitted
that the rates given in Schedule G were only for chiseling of stones on one
side. He submitted that this was clear from Note 1 under Schedule G which D
stated that Schedule G was based on B.S.R. 1975. He submitted that B.S.R.
1975 showed that such rates were only for chiseling stones on one side. He
submitted that when the stone has to be chiseled on all sides the rates given
in B·.S.R. 1975 were to be applied. He submitted that claim No. 2 was based
on those rates. We are unable to accept this submission of Mr. Luhadia. The E
Contract is very specific. The work specified in the Contract has to be done
at the rates specified in Schedule 'G'. Even though Schedule G may be based
on B.S.R. 1975 it is not exactly as B.S.R. 1975. Where in respect of a work
specified in the contract the rate has been given in Schedule G that work
could only be done at that rate. Works specified in the Contract does not
become extra work. It is only in respect of extra work that rates specified in F
B.S.R. 1975 can be applied. To us it is clear that the claim No. 2 is contrary
to the terms of the Contract. It is barred by Clauses 57, 60 and 61 of the
Contract. As regards claim No. 26, Mr. Luhadia relied upon the case of
Tarapore & Co. v. State of M.P., reported in [1994] 3 SCC 521. In this case,
the question was whether the contractor was entitled to claim extra amounts G
because he had to pay increased wages to his workers. This Court has held
that the contractor would have tendered on the basis of the then prevailing
wages and as the contract required the contractor to pay the minimum wages
if the minimum wages increased it was an implied term of the contract that
he would not be entitled to claim the additional amount. However, it must be
noted that, in this case, there was no term in the contract which prohibited H
1010 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A any extra claims being made because of the increase in wages. Clause 31 of
the Special Conditions of the Contract, which has been reproduced
hereinabove, specifically bars the contractor from claiming any compensation
or an increase in rate under such circumstances. Not only that but the
Respondents had with their initial tender put in a term which provided that
B ifthere was any increase in the minimum wages by the Government the rates
quoted by him would be increased by the same percentage. At the time of
negotiation this clause was dropped. Thus, the Respondents had themselves
specifically agreed not to claim any compensation or increase by reason of
increase in wages. This claim could therefore not have been granted.

C It prima-facie appears that the majority of the claims are against the
terms of the Contract. However, there are also other claims which are not
against the terms of the Contract. To merely set aside the Award on ground
of misconduct would work hardship on the Respondent as they would then
be deprived of claims which may be maintainable. In our view the correct
course would be to set aside the award and refer the matter back to an
D independent Umpire appointed by this Court. The Umpire will fix his own
terms and conditions. We however clarify that only those claims covered by
the two applications will be considered. Of course the Umpire will decide
how many of the 39 claims formed part of the claims made in the two
applications. Needless to state that the terms of the contract will be kept in
E mind and claims contrary to terms of the contract will undoubtedly not be
allowed. The Umpire will also decide whether the Respondent had agreed to
do the contracted work done during the extended period at the same rates
and/or whether the Respondent is entitled to increased rates and if so at what
rate. The Umpire shall decide only on the basis of the materials already
placed before the earlier Arbitrators and the earlier Umpire.
F
Under the circumstances and for reasons set out hereinabove, we set
aside the Award and appoint Justice N. Santosh Hegde, a retired Judge of this
Court, as the Umpire. The Umpire, Mr. V. K. Gupta, shall forthwith forward
all papers and documents to Justice N. Santosh Hegde at his residence, i.e.,
9, Krishna Menon Marg, New Delhi. The parties shall appear before Justice
G N. Santosh Hegde on 6.10.2005 at 5.00 P.M. at 9, Krishna Menon Marg,
New Delhi. Justice N. Santosh Hegde shall fix his fees which shall be borne
by both the parties equally. Justice N. Santosh Hegde is requested to fix the
schedule and give his award within a period of 4 months from the date of
receipt of all the papers and documents from the outgoing Umpire Mr. V. K.
H Gupta. The award to be filed in this Court. We leave the questi<>r t>fgrant

(
STATE OF RAJASTHAN v. NAV BHARAT CONSTRUCTION CO. [VARIAVA.J.] 101 J

of interest open to be decided by the Umpire in accordance with law. A
Lastly, it is clarified that this is not a new reference but a continuation
of the earlier proceedings and thus the Arbitration Act 1940 shall continue
to apply.

The Appeals stand disposed off accordingly. There will be no order as B
to costs.

K.K.T. Appeals disposed of.