K.K. Sunil Kumar v. State of Kerala and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** ## **TUESDAY, THE 4TH DAY OF JUNE 2013/14TH JYAISHTA 1935** ## **WP(C).No. 3316 of 2012 (L)** **---------------------------------------** **PETITIONER(S): ----------------------** **K.K.SUNIL KUMAR, GOVERNMENT CONTRACTOR, `UDHAYANAM', CHANGANKULANGARA, OACHIRA P.O., KOLLAM.** **BY ADVS.SRI.N.N. SUGUNAPALAN (SR.) SRI.S. SUJIN** ## **RESPONDENT(S):** **--------------------------** ## **1. STATE OF KERALA,** **REPRESENTED BY THE PRINCIPAL SECRETARY, PUBLIC WORKS DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-695 001.** **2. THE PRINCIPAL SECRETARY, FINANCE DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-695 001.** **3. THE CHIEF ENGINEER, PUBLIC WORKS DEPARTMENT, PUBLIC OFFICE BUILDING, THIRUVANANTHAPURAM-695 001.** ## **4. P.S.SREEKUMAR,** - **ADDITIONAL SECRETARY TO GOVERNMNET, PUBLIC WORKS DEPARTMENT, GOVT.SECRETARIAT, THIRUVANANTHAPURAM-695 001.** ## **5. THE EXECUTIVE ENGINEER,** - **OFFICE OF THE EXECUTIVE ENGINEER, PWD (BUILDINGS DIVISION), KOLLAM-691 001.** **BY SPECIAL GOVERNMENT PLEADER SRI.P.M.A.KALAM** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 04-06-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **PJ** ## **WP(C).No. 3316 of 2012 (L) ---------------------------------------** ## **APPENDIX** ## **PETITIONER(S) EXHIBITS** **EXHIBIT P1: TRUE COPY OF THE SELECTION NOTICE DATED 13-2-2008.** **EXHIBIT P2: TRUE COPY OF THE THE AGREEMENT DATED 15-2-2008.** **EXHIBIT P3: TRUE COPY OF THE WORK ORDER DATED 3-5-2008.** **EXHIBIT P4: TRUE COPY OF THE G.O.NO.84/97/PW&T DATED 19-8-1997.** **EXHIBIT P5: TRUE COPY OF THE LETTER DATED 20-6-2008 SENT BY R6 TO R3.** **EXHIBIT P6: TRUE COPY OF THE ACKNOWLEDGMENT GIVEN BY PETITIONER TO THE ASST.ENGINEER.** **EXHIBIT P7: TRUE COPY OF THE INTIMATION RECEIVED VIDE PB(4) 18550/2007/DES DATED 23-10-2007.** **EXHIBIT P8: TRUE COPY OF THE REPRESENTATION DATED 20-5-2008.** **EXHIBIT P9: TRUE COPY OF THE REPRESENTATION SENT TO R3.** **EXHIBIT P10: TRUE COPY OF THE REPRESENTATION DATED 26-6-2008.** **EXHIBIT P11: TRUE COPY OF THE JUDGMENT DATED 14-7-2008 PASS IN WPC 21180/2008.** **EXHIBIT P12: TRUE COPY OF THE AFFIDAVIT DATED 10-11-2008 FILED BY THE PETITIONER.** **EXHIBIT P13: TRUE COPY OF THE ACKNOWLEDGMENT OF HANDING OVER OF THE SITE DATED 1-9-2008.** **EXHIBIT P14: TRUE COPY OF THE GO(RT)NO.1530/2008/PWD DATED 10-9-2008.** **EXHIBIT P15: TRUE COPY OF THE GO(RT)NO.1532/2008/PWD DATED 15-9-2008. EXHIBIT P16: TRUE COPY OF THE GO(RT)NO.1573/2008/PWD DATED 20-9-2008. EXHIBIT P17: TRUE COPY OF THE GO(RT)NO.1665/2003/PWD DATED 29-9-2008. EXHIBIT P18: TRUE COPY OF THE GO(RT)NO.1649/2003/PWD DATED 25-9-2008. EXHIBIT P19: TRUE COPY OF THE GO(RT)NO.1497/2008/PWD DATED 2-9-2008.** ## **PJ** **...2/-** **..2..** ## **WP(C).No. 3316 of 2012 (L)** ## **---------------------------------------** **EXHIBIT P20: TRUE COPY OF THE PROJECT STATUS OF AYRIAMTHENGUAZHEECKAL BRIDGE IN KOLLAM DISTRICT SENT BY R6.** **EXHIBIT P21: TRUE COPY OF THE LETTER DATED 29-10-2008 SENT BY THE INFORMATION OFFICER TO THE PETITIONER.** **EXHIBIT P22: TRUE COPY OF THE PROCEEDING OF THE R6 DATED 15-3-2005 ON THE APPLICATION OF CONTRACTOR CHERIANVARKEY.** **EXHIBIT P23: TRUE COPY OF THE ORDER DATED 29-11-2008 PASSED BY R1.** **EXHIBIT P24: TRUE COPY OF THE JUDGMENT DATED 29-9-2009 IN WPC 36900/2008.** **EXHIBIT P25: TRUE COPY OF THE ADDITIONAL AFFIDAVIT DATED 5-10-2009 FILED BY THE PETITIONER.** **EXHIBIT P26: TRUE COPY OF THE PROCEEDINGS OF HEARING DATED 11-11-2009 ISSUED TO THE PETITIONER BY THE R1 UNDER RIGHT TO INFORMATION ACT.** **EXHIBIT P27: TRUE COPY OF THE ORDER DATED 22-1-2010 ISSUED BY R4.** **EXHIBIT P28: TRUE COPY OF THE COUNTER AFFIDAVIT ON BEHALF OF THE GOVT.OF KERALA,PWD AND FINANCE DEPARTMENT.** **EXHIBIT P29: TRUE COPY OF THE THE JUDGMENT IN WPC 5599/2010.** **EXHIBIT P30: TRUE COPY OF THE LETTER DATED 23-1-2012.** **EXHIBIT P31: TRUE COPY OF THE REPORT DATED 30-9-2008.** **EXHIBIT P32: TRUE COPY OF THE MINUTES OF THE TENDER COMMITTEE DATED 1912-2008 ISSUED TO THE PETITIONER ON APPLICATION UNDER RIGHT TO INFORMATION ACT.** **EXHIBIT P33: TRUE COPY OF THE LETTER HANDING OVER THE SITE DATED 11-42008 ISSUED BY THE DIRECTOR, PRINTING DEPARTMENT TO 5TH RESPONDENT.** ## **RESPONDENTS' EXHIBITS** ## **NIL.** **/ TRUE COPY /** ## **P.S. TO JUDGE** **PJ** **A.M.SHAFFIQUE, J * * * * * * * * * * * * *** W.P.C.No.3316 of 2012 ---------------------------------------Dated this the 4[th] day of June 2013 ## **J U D G M E N T** The petitioner is a Contractor who was awarded the work for construction of a building for Government Press and Training Centre at Umayanelloor, Kollam District. He challenges Ext.P13, an order issued by the Government denying him a claim for enhancement in the rates for the work undertaken by him as stated above. 2. The facts of the case would disclose that pursuant to a tender notice dated 15/09/2007, the petitioner was awarded the work. The rate was quoted at 19% above the 2007 rates fixed by the Public Works Department. The probable amount of contract was Rs.105 lakhs and agreement was executed on 15/02/2008 and the work order was issued on 03/05/2008. W.P.C..No.3316/2012 2 3. The period of completion of work was 12 months from the date of issuing the work order. According to the petitioner, the site was handed over partially on 20/05/2008 and the entire site was handed over on 01/09/2008 since certain trees had to be cut and removed for handing over of the entire site as evident from Ext.P5. As per the Government, the site was partially handed over on 07/05/2008. 4. Before the petitioner started the work, 2008 rates of PWD came into force. As there was substantial increase in the rates as fixed by PWD, petitioner requested for enhancement in the rates. The petitioner was not given any reply in that regard. However he completed the work on 11/08/2010. The department had accepted completion of the work and the time for completion was extended without levy of liquidated damages or penalty. 5. Petitioner's request for the enhancement in rates were turned down on the ground that there was no provision W.P.C..No.3316/2012 3 in the contract for giving escalation in the rates due to any reason and as the rates were confirmed, the petitioner cannot claim anything more than what has been stated in the agreement. 6. The claim of the petitioner for enhanced rates underwent a lot of consideration by the department at various levels. Ultimately when the petitioner obtained information regarding the manner in which the petitioner's claim has been considered by way of Ext.P26 under the Right to Information Act, the petitioner came across a report by which there was specific finding that there was delay on the part of PWD in handing over the entire site. The site was fully handed over with building only on 01/09/2008 which is a default on the part of the PWD. In the meantime the new scale of rates had come into effect on 01/04/2008. There was price escalation for materials in the market. The request of the petitioner was to grant enhanced rates at 60% above the scale of rates at 2007. However, the said W.P.C..No.3316/2012 4 Committee observed that the rates could be enhanced at the rate of 35% above estimate rates of 2007 SOR subject to the decision to be taken by the Finance Department. Apparently Ext.P26 is the report prepared on the basis of the judgment of this Court in W.P.C.No.36900 of 2008 which is produced as Ext.P24. Despite this report, no action was taken by the department and ultimately by Ext.P27 order the Government rejected the claim of the petitioner. This action was challenged by the petitioner by filing W.P.C.No.5599 of 2010. By judgment dated 28/11/2011 this Court having taken into consideration the entire matter observed at paragraphs 9, 10, 11 as follows: _“9. Neither in the counter affidavit nor in Ext.P27 is there any statement that the Finance Department had disagreed to the proposal as contained in Ext.P26. Going by the recommendation in Ext.P26, if the proposal has not been disagreed by the Finance Department, since the proposal has been approved by the Principal Secretary to_ W.P.C..No.3316/2012 5 _Government and the Minister himself, the resultant order could not have been inconsistent with the proposal therein._ _10. Further, on the materials now available before this Court, the rejection of the petitioner's claim is also on irrelevant grounds. I say so for the reason that the only reason stated in Ext.P27 is that the rate enhancement sought by the petitioner is in violation of the agreement conditions. First of all, it was despite the agreement conditions, that in Ext.P26 rate revision was agreed to. Secondly, despite the agreement conditions, rate revision has been given to in similar cases, details of which are mentioned in paragraph 9 of Ext.P26 itself. For the reasons, Ext.P27 cannot be sustained and in such circumstances, I quash Ext.P27._ _11. However, in view of the dearth of materials regarding the view taken by the Finance Department on Ext.P26, I direct that on receipt of a copy of this judgment, the first respondent will consider the matter afresh and if the Finance Department has not_ W.P.C..No.3316/2012 6 _disagreed to the proposal in Ext.P26, it is directed that the petitioner shall be given the benefit of the proposal contained in Ext.P26. The matter shall be re-examined and necessary orders shall be issued, at any rate, within six weeks from the date of production of a copy of this judgment.”_ 7. The purport of this Court's order was with reference to the recommendation made by the Committee at Ext.P26 subject to the decision of the Finance Department. This Court observed that there is no material to indicate that the Finance Department had rejected the same. However, in Ext.P30 the Government having examined the particulars of the decision taken by the Finance Department observed that the case of the petitioner was examined in consultation with Finance Department and rejected the request of the petitioner on the following reasons: _“(a) In the cases shown as exhibits P14, P15, P16, P17 & P18, the rate for the works_ W.P.C..No.3316/2012 7 _were reduced by the Government Tender Committee._ _(b) Executive Engineer's recommendation to enhance the rate is in violation of agreement conditions. If the enhancement is sanctioned for one work, many similar cases are likely to crop up._ _(c) Public Works Department contracts being fixed rate contracts no enhancement of agreed rate can be allowed.”_ Hence the claim of the petitioner for enhancement being in violation of the agreement conditions, the request of the petitioner was rejected. 8. According to the petitioner, the reasons stated by the Finance Department to reject the claim of the petitioner was absolutely baseless. This is a contract which is admittedly completed by the petitioner despite the fact that the work site was not handed over within the time. According to the petitioner, at the earliest, when the 2008 W.P.C..No.3316/2012 8 rates came into force, the petitioner had requested for enhancement of rates. The claim of the petitioner for enhancement of rates were on account of two factors: i) There has been enhancement of rates in the market with effect from 01/04/2008 and this contract was awarded only on 03/05/2008 though the agreement was executed on 15/02/2008. ii) Though the petitioner had made a claim for enhanced rates on account of the delay in handing over the site the petitioner was permitted to continue with the work and no objection was raised by the department in regard to the claim made by him. 9. Counter affidavit is filed by the 6[th] respondent supporting the stand taken by the Government. According to the respondent, as the price fixed for the contract cannot be increased for any reason whatsoever, merely for the reason that there was delay in issuing the work order or delay in handing over of the site will not enable the W.P.C..No.3316/2012 9 petitioner for enhancement in the rates and the Finance Department was justified in not granting the enhancement as sought for. 10. Heard learned senior counsel appearing for the petitioner and the learned Special Government Pleader appearing on behalf of the department. 11. The learned counsel for the petitioner relied upon the judgment of the Supreme Court in **McDermott International Inc. v. Burn Standard Co.Ltd.** _[(2006) 11 SCC 181]_ , in which the Supreme Court had occasion to consider the effect of Section 55 of the Contract Act where time has been treated as the essence of the Contract. 12. Another judgment relied upon is **Tarapore and Company v. Cochin Shipyard Ltd. Cochin & Another** _[(1984) 2 SCC 680_ ]. There also reference is made to paragraphs 38 which reads as under: _“_ _**38.** The High Court quoted clauses 16, 26 and 31 in its judgment but did not dilate_ W.P.C..No.3316/2012 10 _upon the provisions of the clauses so as to co-relate them with its decision. Clause 16 envisaged a situation where since the formation of the contract any fresh law is enacted which has the bearing on the price of materials incorporated in the works and/or wages of labour, the terms of contract shall accordingly be varied. Clause 26 provided for supply of materials, plants, tools, appliances etc. by the contractor. Clause 2 provides for the liability of the contractor to supply construction, plant and machinery including the items to be imported and a further obligation is cast on the contractor to furnish inventory of the same. Clause 31 amongst others, provided that the pile driving equipment shall be procured by the contractor, and the selection of equipment shall be done by the contractor, in consultation with the respondent. These clauses were presumably referred to in the context of an argument that the price escalation clause does not cover the claim for compensation for additional expenditure_ W.P.C..No.3316/2012 11 _on imported plant and machinery and technical know-how because the contract substantially provides for the same to be supplied by the contractor. In our opinion, this over-simplification of the clauses of the contract involving works of such magnitude is impermissible. The whole gamut of discussions, negotiations and correspondence must be taken into consideration to arrive at a true meaning of what was agreed to between the parties. And in this case there is no room for doubt that the parties agreed that the investment of the contractor under this head would be Rs 2 crores and the tendered rates were predicated upon and co-related to this understanding. When an agreement is predicated upon an agreed fact situation, if the latter ceases to exist the agreement to that extent becomes irrelevant or otiose. The rates payable to the contractor were related to the investment of Rs 2 crores under this head by the contractor. Once the rates became irrelevant on account of_ W.P.C..No.3316/2012 12 _circumstances beyond the control of the contractor, it was open to the contractor to make a claim for compensation. Therefore, it appears satisfactorily established that the claim arose while implementing the contract and in relation to the contract.”_ _(emphasis supplied)_ 13. Another judgment relied upon is **Sirimai Marbaniang v. State of Meghalaya** _[AIR 2004 Gauhati 140]_ in which reference is made to paragraphs 16A and 22 which reads as under: _“_ _**16A.** Publication of SORs is in line with the Government policy to fix the rates of all constructions in the State Govt. as well as in the Departments. This policy of issuing SORs from time to time is keeping with the price escalation prevailing in the State and this fact is also admitted by the respondents in paragraph 4 of the affidavit in opposition when it is stated that the Schedule of Rates are published periodically by Public Works_ W.P.C..No.3316/2012 13 _Department to keep pace with the escalation in the markets in the State._ _**22.** In the case of Tarapore and Company v. Cochin Shipyard Ltd. Cochin, reported in (1984) 2 SCC 680 : (AIR 1984 Supreme Court 1072) the Apex Court while dealing with the contract of this nature in which during the subsistence of the contract there was price escalation which was beyond the control of the contractor, the Apex Court held in paragraph 38 of the judgment that “Once the rates became irrelevant on account of circumstances beyond the control of the contractor, it was open to the contractor to make a claim for compensation. Therefore, it appears satisfactorily established that the claim arose while implementing the contract and in relation to the contract.”_ 14. The short question to be considered in the above case is whether the petitioner is entitled to get enhancement of rates despite the terms of contract which W.P.C..No.3316/2012 14 treats the price as firm. Normally, in a case where there is no procedure for resolving any dispute between the parties, the only remedy open to such parties is to approach the civil court. But in this case it could be seen that claim for enhancement of rates was directed to be considered by the Government in terms of certain admitted facts. The Committee which was appointed by the Government, having considered the claim, formed an opinion that the petitioner could be granted 35% above the 2007 scale of rates. However, it was subject to the decision to be taken by the Finance Department. The Finance Department has now formed an opinion that the same could not be granted on account of the reasons stated above. The question therefore to be considered is the justification of the finance department to form such an opinion and/or whether this Court should adjudicate on issues relating to a contractual matter or is it not appropriate for this Court to relegate the parties to a civil court. But, even in matters relating to W.P.C..No.3316/2012 15 contractual disputes if the admitted facts would show that the disputes can be resolved without reference to a civil dispute which ultimately will take a long time, there is no bar for this Court to consider contractual matter as well. This position is covered by the judgment of the Supreme Court in **ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd.** _[(2004) 3 SCC 553]._ 15. In Ext.P30 there is reference to the Finance Committee stating that in the cases shown as Exts. P14, P15, P16, P17 & P18, the rate for the works were reduced by the Government Tender Committee. This apparently is not a reason for denying the claim for enhancement of rates. At the stage of tender, the Government considered the rates on the basis of the scale of rates prevailing in the year 2007. In 2008, that is with effect from 01/04/2008, there is enhancement in rates. The claim of the contractor is not on account of the mere fact that there had been enhancement in the rates with effect from 01/04/2008. Of course, that is W.P.C..No.3316/2012 16 also a reason. Though the tender was finalised on 15/02/2008 the work order is issued only on 03/05/2008. The Contractor also has a case that there had been delay on the part of the Government in giving the work site in full. This apparently is a fact which has been taken note of by the Committee at Ext.P26 in which it is stated that the entire work site has been given only on 01/09/2008. Therefore, apparently, there is delay on the part of the Government which consequently gives rise to the claim for enhancement of rates or damages by the Government. 16. The question is whether there had been a demand by the Contractor at that point of time. Ext.P9 is dated 20/05/2008. In the said communication to the department, the petitioner had given the details of the enhancement of rates given at that relevant time and also the hindrance that he is facing on account of the delay in handing over the site. Hence he had requested for enhancement of rates at 60% above the quoted rates. Ext.P10 is another representation W.P.C..No.3316/2012 17 given on 26/06/2008. Therefore, while carrying out the work, he had approached this Court and this Court by judgment dated 14/07/2008 in W.P.C.No.21180/2008 directed the department to consider the claim. The petitioner relies upon Ext.P14 to P19 Government orders by which similarly placed contractors were granted enhanced rates which were never objected by the Finance Department. As far as the petitioner is concerned, there had been no reply. Again the petitioner had to approach this Court by filing W.P.C.No.36900 of 2008 which resulted in judgment dated 29/09/2009 at Ext.P24. This Court again directed the petitioner's claim to be considered. It could therefore be seen that there is no consideration of the petitioner's request at Exts.P9 and P10 at any point of time while the contract was being proceeded with. No reply was given to the petitioner's request for enhancement of rates. Apparently the department kept silent while they had given enhanced rates to certain other contractors. Therefore, in W.P.C..No.3316/2012 18 all probability, the petitioner's claim ought to have been considered favourably. It is on the background of this proceedings that Ext.P26 report came to be prepared by the Committee and they recommended for grant of 35% above the 2007 rates. Therefore it could be seen that the opinion formed by the Finance Committee as evident from Ext.P.30 is not a proper consideration of the materials on hand. This issue was never considered by the Finance Committee which ought to have been considered keeping in mind the claim of the petitioner. 17. The second reason for denying the benefit was that the Executive Engineer's recommendation to enhance the rate is in violation of agreement conditions. Public Works Department contracts being fixed rate contracts no enhancement of agreed rate can be allowed. It could have been stated by the department that since the contract is a fixed price contract, no enhancement is possible. At this juncture, I shall refer to the following judgments, which W.P.C..No.3316/2012 19 clearly indicates a contrary view: “(i) In **Northern Railway v. Sarvesh Chopra,** _[(2002) 4 SCC 45)]_ the Supreme court while considering the question whether reference to Arbitration is justified in respect of a contract which contained excepted matters held as under: _“_ _**15.** In our country question of delay in performance of the contract is governed by Sections 55 and 56 of the Indian Contract Act, 1872. If there is an abnormal rise in prices of material and labour, it may frustrate the contract and then the innocent party need not perform the contract. So also, if time is of the essence of the contract, failure of the employer to perform a mutual obligation would enable the contractor to avoid the contract as the contract becomes voidable at his option. Where time is “of the essence” of an obligation, Chitty on Contracts (28th Edn., 1999, at p. 1106, para 22-015) states “a failure to perform by the stipulated time will entitle the innocent party to (a) terminate performance of the contract and_ W.P.C..No.3316/2012 20 _thereby put an end to all the primary obligations of both parties remaining unperformed; and (b) claim damages from the contract-breaker on the basis that he has committed a fundamental breach of the contract (‘a breach going to the root of the contract’) depriving the innocent party of the benefit of the contract (‘damages for loss of the whole transaction’)”._ _If, instead of avoiding the contract, the contractor accepts the belated performance of reciprocal obligation on the part of the employer, the innocent party i.e. the contractor, cannot claim compensation for any loss occasioned by the non-performance of the reciprocal promise by the employer at the time agreed, “unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so”. Thus, it appears that under the Indian law, in spite of there being a contract between the parties whereunder the contractor has undertaken not to make any claim for delay in performance of the contract occasioned by an act of the employer, still a claim would be entertainable in one of the_ W.P.C..No.3316/2012 21 _following situations: (i) if the contractor repudiates the contract exercising his right to do so under Section 55 of the Contract Act, (ii) the employer gives an extension of time either by entering into supplemental agreement or by making it clear that escalation of rates or compensation for delay would be permissible, (iii) if the contractor makes it clear that escalation of rates or compensation for delay shall have to be made by the employer and the employer accepts performance by the contractor in spite of delay and such notice by the contractor putting the employer on terms._ _**16.** Thus, it may be open to prefer a claim touching an apparently excepted matter subject to a clear case having been made out for excepting or excluding the claim from within the four corners of “excepted matters”. xxxxxx_ ## (ii) In _**P.M. Paul v. Union of India,** [1989 Supp (1) SCC 368)]_ the Supreme Court held as under: _**“13.** It was submitted that if the contract work was not completed within the stipulated time which it appears was not done then the contractor has got_ W.P.C..No.3316/2012 22 _a right to ask for extension of time, and he could claim difference in price. This is precisely what he has done and has obtained a portion of the claim in the award. It was submitted on behalf of the Union of India that failure to complete the contract was not the case. Hence, there was no substance in the objections raised. Furthermore, in the objections raised, it must be within the time provided for the application under Section 30 i.e. 30 days during which the objection was not specifically taken, we are of the opinion that there is no substance in this objection sought to be raised in opposition to the award. Once it was found that the arbitrator had jurisdiction to find that there was delay in execution of the contract due to the conduct of the respondent, the respondent was liable for the consequences of the delay, namely, increase in prices. Therefore, the arbitrator had jurisdiction to go into this question. He has gone into that question and has awarded as he did._ _**14.** Claim No. I is not outside the purview of the contract. It arises as an incident of the contract and the arbitrator had jurisdiction. In that view of_ W.P.C..No.3316/2012 23 _the matter the objections raised against the award, cannot be sustained.xxxxxx”_ ## (iii) In **Food Corporation of India v. A.M. Ahmed &** ## **Co.,** _(2006) 13 SCC 779)_ the Supreme Court held as under: _**“31.** The second judgment is in P.M. Paul v. Union of India. In this case, the dispute that was referred to the arbitrator was as to who is responsible for the delay, what are the repercussions of the delay in completion of the building and how to apportion the consequences of the responsibility. The arbitrator found that there was escalation and, therefore, he came to the conclusion that it was reasonable to allow 20% of the compensation under the claim. He accordingly allowed the same. Counsel appearing for the Union of India submitted before this Court that the arbitrator had granted a sum of Rs 2 lakhs as escalation charges and cost in the absence of escalation clause was not a matter referred to the arbitrator. In other words, it was urged that the arbitrator had travelled beyond his jurisdiction in awarding the escalation cost and charges. This Court in paras 11 and 12 of the judgment held thus: (SCC p. 372)_ W.P.C..No.3316/2012 24 _“11. It is well settled that an award can only be set aside under Section 30 of the Act, which enjoins that an award of an arbitrator/umpire can be set aside, inter alia, if he has misconducted himself or the proceeding. Adjudicating upon a matter which is not the subject-matter of adjudication, is a legal misconduct for the arbitrator. The dispute that was referred to the arbitrator was, as to who is responsible for the delay, what are the repercussions of the delay in completion of the building and how to apportion the consequences of the responsibility. In the objections filed on behalf of the respondent, it has been stated that if the work was not completed within the stipulated time the party has got a right for extension of time. On failure to grant extension of time, it has been asserted, the contractor can claim difference in prices._ _12. In the instant case, it is asserted that the extension of time was granted and the arbitrator has granted 20 per cent of the escalation cost. Escalation is a normal_ W.P.C..No.3316/2012 25 _incident arising out of gap of time in this inflationary age in performing any contract. The arbitrator has held that there was delay, and he has further referred to this aspect in his award. The arbitrator has noted that Claim I related to the losses caused due to increase in prices of materials and cost of labour and transport during the extended period of contract from 9-5-1980 for the work under phase I, and from 9-11-1980 for the work under phase II. The total amount shown was Rs 5,47,618.50. After discussing the evidence and the submissions the arbitrator found that it was evident that there was escalation and, therefore, he came to the conclusion that it was reasonable to allow 20 per cent of the compensation under Claim I, he has accordingly allowed the same. This was a matter which was within the jurisdiction of the arbitrator and, hence, the arbitrator had not misconducted himself in awarding the amount as he has done.”_ _The above two cases, in our opinion, squarely apply to the facts and circumstances of the case on hand._ W.P.C..No.3316/2012 26 _**32.** Escalation, in our view, is normal and routine incident arising out of gap of time in this inflationary age in performing any contract of any type. In this case, the arbitrator has found that there was escalation by way of statutory wage revision and, therefore, he came to the conclusion that it was reasonable to allow escalation under the claim. Once it was found that the arbitrator had jurisdiction to find that there was delay in execution of the contract due to the conduct of FCI, the Corporation was liable for the consequences of the delay, namely, increase in statutory wages. Therefore, the arbitrator, in our opinion, had jurisdiction to go into this question. He has gone into that question and has awarded as he did. The arbitrator by awarding wage revision has not misconducted himself. The award was, therefore, made rule of the High Court, rightly so in our opinion.”_ A look at the factual circumstances involved in the matter would show that though the work order was issued on 03/05/2008 the work site was partially given only on W.P.C..No.3316/2012 27 07/05/2008 and full work site only on 01/09/2008. The Contractor was entitled to get the entire work site as per the terms of the contract. The period of work was 12 months from the date of issuing the work order. This apparently could not be done by the Contractor because of the delay on the part of the department in giving the work site. If the work site is not granted in time definitely there is a breach of contract on the part of the department and the Contractor is entitled to claim the enhanced rates if he had proceeded with the work after claiming enhancement in rates. If the Government does not want to give enhancement of rates the Government ought to have informed the Contractor that the enhancement in rates could not be granted. Then it is for the Contractor to decide whether he should proceed with the work or terminate the contract. This is a case in which the Government kept silent and did not reply to the claim for enhancement and adjudication of the same was done only after this Court interfered in the matter during the progress W.P.C..No.3316/2012 28 of the work as early as on 14/07/2008 as per judgment in W.P.C.No.21180 of 2008. Still nothing happened and no reply was issued by the department. When there was no response the petitioner again approached this Court by filing W.P.C.No.36900 of 2008. It was thereafter that the committee was directed to consider the matter who had given a positive finding in favour of the petitioner. But, again the claim was not approved or no orders were passed and finally after the work was over the finance committee had rejected the claim. These facts and circumstances would clearly indicate that the petitioner had been denied a valid legal right to claim enhancement in rates for reasons which are contrary to settled legal principles. The reasons stated by the committee recommending enhancement in rates is justifiable. In one sense this is a fixed contract. But even in respect of fixed contracts there are circumstances by which the contractor is entitled to claim enhancement in rates as held in **Sarvesh Chopra** (Supra), _**P.M. Paul**_ W.P.C..No.3316/2012 29 _(Supra)_ and **Food Corporation of India** (Supra). Here also a claim was made as early as on 20/05/2008 as per Ext.P9 and on 26/06/2008 as per Ext.P10. No specific reply was given as held in **Arosan Enterprises Ltd. v. Union of India** _[(1999) 9 SCC 449]._ 18. That apart, in the judgment in W.P.C.No.5599 of 2009 it is clearly indicated that the recommendation at Ext.P26 has to be considered by the finance committee and it could be rejected only on valid reasons. I am of the view that the reasons stated for rejection as per Ext.P26 is totally baseless. The finance committee did not consider the entire factual circumstances involved in the matter and therefore I am of the view that the petitioner was entitled for enhancement as stated in Ext.P26. Since sufficient opportunity was given to the Government to consider the matter, I do not think that a further remittance is necessary in the matter. For the above reasons, I am inclined to uphold Ext.P26 report. W.P.C..No.3316/2012 30 Under these circumstances, I am of the view that this writ petition is only to be allowed as follows: i) Ext.P30 is set aside. There will be a direction to the respondents to pass appropriate orders in the claim of the petitioner for enhancement of rates on the basis of Ext.P26 report in accordance with the procedure. This may be done within a period of two months from the date of receipt of a copy of this judgment. (sd/-) ## **(A.M.SHAFFIQUE, JUDGE)** jsr ## W.P.C..No.3316/2012 31 ## W.P.C..No.3316/2012 32 ## W.P.C..No.3316/2012 33