Additional Work Without Consent Of The Employer; Arbitrator Can't Award Damages : Gauhati High Court

The bench of Justice Kalyan Rai Surana held that when the agreement, containing the arbitration clause, did not contemplate any additional work and the contractor carries out the additional work without the prior consent of the employer then any dispute qua the additional work would fall outside the ambit of arbitration clause any award delivered thereupon would be against the fundamental policy of Indian Law.

The Court reiterated that mere exchange of communication or reminding letters would not extend the period of limitation.

Facts

The State of Assam was to hold the National Games of India pursuant to which the National Games Secretariat (Performa Respondent No. 2, replaced by the appellant during the arbitration) invited tenders for the construction of various sports complexes in the State. Consequently, Larsen and Turbo Ltd (Respondent No.1) submitted its bid that was selected and it was assigned the project work. Accordingly, the parties entered into an agreement dated 10.04.2004. STUP Consultants were appointed as the Engineer-in-Charge for the project work.

The work was completed and handed over to respondent no. 2 on 30.01.20007 and the defect liability period got over on 30.01.2008. Respondent no. 1 had admittedly carried out certain additional earth filling work to protect the sport complex from rainwater. A dispute arose between the parties qua the payment related to the additional work done by the respondent no.1 on the purported instructions of the Engineer-in-Charge. The respondent no. 1 was told that its claim for additional work is being examined by the High-Powered Committee (HPC). The claim for additional payment was rejected by HPC on the ground that the additional work was not based on any work order and was carried out without the prior consent of the employer. This decision was communicated to respondent no. 1 by a letter dated 28.09.2013.

Consequently, the dispute was referred to arbitration.

Decision of the Arbitral Tribunal

The tribunal had framed three issues, first, on the maintainability of the petition in view of the work being outside the scope of original project work and not falling within the arbitration. Second issue was framed regarding the claims being barred by limitation and the last issue was the consequent relief.

The tribunal answered all the three issues in favour of respondent no. 1. The tribunal observed that the dispute at hand emanates from the agreement and Clause 15.1 provides that all the disputes arising out of the agreement are to be decided in arbitration, therefore, the petition was maintainable. Similarly, the Court observed that although the bill for additional payment was raised in the year 2008, however, a decision on the same was taken only in the year 2013 that was communicated to the respondent no. 1 by letter dated 28.09.2013, therefore, the invocation of arbitration, by letter dared 09.05.2014, was within the three-year period of limitation.

Consequently, the tribunal awarded the relief in favour of respondent no. 1 by observing that though the additional work might not have been carried out without the prior consent of respondent no. 2 (appellant presently), as the final bill was approved by the Engineer-in-Charge who had also suggested the release of payment in favour of respondent no. 1 by way of a letter in the year 2011, also the DW-1 had admitted that the HPC had recommended additional work. Moreso, the contractor would be entitled to compensation on quantum meruit in view of Section 70 of the Indian Contract Act.

The award was challenged by the appellant under Section 34 of the Act, however, the Court rejected the challenge and upheld the award.

Contention of the Parties

The appellant challenged the award as well as the decision of the Court under Section 34 on the following grounds:

• The Statement of Claim was not maintainable in view that it was filed by a person not authorised to do so, moreover, he was not examined as a witness and also because the agreement did not provide for additional work, therefore, the dispute qua that would not fall within the scope of the dispute resolution clause.
• The Claim as well as the invocation of arbitration was barred by limitation as the work was completed on 30.01.2007 and the defect liability period was over on 30.01.2008, therefore, the period of limitation for recovery of amount, in view of Article 18 of the Schedule to the Limitation Act would expire on 29.01.2011 whereas the final bill was submitted after the expiry of the limitation period as provided under Article 18 of the Schedule to the Limitation Act. Moreover, the arbitration was also invoked belatedly much after the limitation period as given under Article 137 of the Schedule to the Limitation Act.
• The extra-work was not contemplated within the agreement, therefore, the arbitrator went beyond the terms of the agreement.
• The HPC was not the competent authority to revise the scope of work, therefore, their recommendations would not be binding.
• There is a specific bar on the grant of interest in the agreement, therefore, the tribunal could not have awarded interest.

The respondent no. 1 made the following submissions in favour of the award:

• The dispute would squarely fall within the arbitration agreement as it emanates from the project work and was carried out on the instructions of the Engineer-in-Charge.
• Clause 38 of SCC provided for Changes in Quantities and the approval of respondent no. 2 was only required in case the change in the value of work executed exceeds 15% of the original contract value. The present work was within the permissible limits, thus, no approval was required.
• The execution of additional was is duly admitted and the final bill was duly approved by the Engineer-in-Charge. Moreover, the HPC as well as PWD departments recommended release of payments.
• The cause of action arose only when the claim was rejected and the payment was denied, therefore, the claims as well as the invocation of arbitration was within the statutory limitation.

Analysis by the Court

The Court observed that the claim petition was filed by a person whose authority was neither proved nor he was examined as a witness, therefore, the claim petition on behalf of respondent no. 1 was filed without the authority, consequently, the claim petition was not maintainable.

Next, the Court examined the issue of limitation of substantive claims. The Court observed that the project work was completed on 30.01.2007 and the defect liability period got over on 30.01.2008. Also, the completion certificate was issued on the same date. The Court held that the limitation period for the substantive claims would expire on 29.01.2010 in view of Article 18 of the Schedule to the Limitation Act as the final bill was raise much after 29.01.2010. Moreover, the arbitration was also invoked after the expiry of limitation period.

Next, the Court dealt with the objection regarding the execution of the work without the requsite permission and its effect on the consequent relief claimed. The Court observed that the additional work was not carried out with the approval of respondent no.2 who was the authority competent to change the scope of the work. Moreover, they could substantiate their claim that the work was carried out on the instructions of the Engineer-in-Charge as no evidence to that effect was given.

The Court held that when the agreement, containing the arbitration clause, did not contemplate any additional work and the contractor carries out the additional work without the prior consent of the employer then any dispute qua the additional work would fall outside the ambit of arbitration clause any award delivered thereupon would be against the fundamental policy of Indian Law.

The Court held that the arbitrator cannot invoke Section 70 of the Indian Contract Act to award damages on quantum meruit for the additional work carried out without the prior consent of the employer when the agreement did not contemplate any additional work. It held that a claim on quantum meruit could be raise before the Court but not before the tribunal as it fell squarely outside the scope of the agreement.

Accordingly, the Court allowed the appeal and set aside the award.

Case Title: The Sports Authority of Assam v. Larsen and Turbo, Case No. Arb. A. 7 of 2020

Date: 21.12.2022

Counsel for the Appellant: Mr. S. Sarma, Senior Advocate

Counsel for the Respondent: Mr. R. Sharma, Senior Advocate with Ms. P. Phukan.

Citation: 2022 LiveLaw (Gau) 71 

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