# RAJASTHAN STATE MINES AND MINERALS LTD v. EASTERN ENGINEERING ENTERPRISES AND ANR

- **Citation:** [1999] Supp. 2 S.C.R. 710
- **Court:** Supreme Court of India
- **Decided:** 1999-09-20
- **Case number:** Civil Appeal No. 1202of1992
- **Bench:** D.P. Wadhwa, M.B. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/rajasthan-state-mines-and-minerals-ltd-v-eastern-engineering-enterprises-and-anr-16868
- **Pages:** 32

## Headnote

Arbitration Act, 1940: Ss. 30 and 33.
Jurisdiction of Arbitrator-Determination of-Works contractC Agreement clauses stipulating fzxed payment-Claim for additional payments
and compensation-Dispute-Arbitration-Arbitrator appointed solely on
the basis of agreement between the parties-Arbitrator allowing the claim
in a non-speaking award-Validity of-Held, arbitrator has travelled beyond
his jurisdiction by passing an award against the stipulations and prohibitions
D contained in the contract-Arbitrator cannot act arbitrarily, irrationally,
capriciously or independently of the contract-Deliberate departure or
conscious disregard of the contract tantamount to malafide action-Award
quashed and set aside.
Arbitration~Non-speaking order-Inte1ference by courts-Scope and
E extent of-Held, courts cannot speculate or probe the mental process by
which arbitrator has reached his conclusion. Award can be set aside if
arbitrator acts beyond his jurisdiction.
F
Arbitration-Award-lnte1ference by courts-Arbitrator committing
mere error of fact or la~Held, courts cannot interfere.
Arbitration-Award-Arbitrator exc;eding his jurisdictionDetermination of-Held, in order to find out whether arbitrator exceeded his
jurisdiction, refere_nce to terms of award necessary ..
Appellant-company entered into an agreement with respondent No. 1
G contractor on turn-key basis for carrying out certain work. The agreement
clauses 17 and 18, clearly and unambiguously stipulated that the contractor
shall be paid fixed rates and shall not be entitled to claim any extra payment
or Increase in cost. However, respondent No. 1 contractor claimed additional ,
payments and compensation on account of escalation of cost of work, which
H
was refuted by the appellant. Thus, a dispute arose between the parties which
710
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RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES
711
was referred to the arbitrator for adjudication. The arbitrator by a non- A
speaking award allowed the claims of the contractor along with interest.
Appellant unsuccessfully challenged the said award before the trial court
and High Court Hence the present appeal.
On behalf of the appellant it was contended that the claims made by
respondent No.I were not entertainable in view of clauses 17 and 18 of the B
agreement and therefore the arbitrator travelled beyond his jurisdiction in
awarding the compensation for the said claims.
On behalf of respondent No. 1 contractor it was submitted that
arbitration clause was of widest amplitude and it provides that "all disputes C
and differences arising out of or in any way touching or concerning the
contract whatsoever shall be referred to the sole arbitration". Hence the
award passed by the arbitrator cannot be held to be without jurisdiction or
it cannot be held that arbitrator has travelled beyond jurisdiction; award was
a non-speaking one and therefore, also .the Court cannot go behind the said
award for finding out the mental process of the arbitrator for awarding the D
said sum; jurisdictional question was not raised properly before the arbitrator
or before the District Court and the appellant allowed the arbitrator to
proceed with the proceeding without raising its objection of jurisdiction or
competence.
Allowing the appeal, the Court.
HELD: 1.1. Arbitrator has travelled beyond his jurisdiction by passing
an award against the stipulations and prohibitions contained in the contract
between the parties. Hence the award passed by the arbitrator is quashed and
set aside. (740-G; 741-A]
E
F
1.2. Arbitrator is a creature of the contract between the parties and
hence if he ignores the specific terms of the contract, it would amount to
jurisdictional error. In the instant case, the appointment of arbitrator was
solely on the basis of the agreement entered into between the parties. It was
nowhere indicated that the arbitrator was empowered to adjudicate any other G
claims beyond the agreement between the parties. Even the arbitrator in his
interim

## Text

_Characters 0–39,685 of 78,783. This is a partial read: ask again with offset=39685 for what follows._

A
RAJASTHAN STATE MINES AND MINERALS LTD.
v.
EASTERN ENGINEERING ENTERPRISES AND ANR.
SEPTEMBER 20, 1999
B
[D.P. WADHWA AND M.B. SHAH, JJ.]
Arbitration Act, 1940: Ss. 30 and 33.
Jurisdiction of Arbitrator-Determination of-Works contractC Agreement clauses stipulating fzxed payment-Claim for additional payments
and compensation-Dispute-Arbitration-Arbitrator appointed solely on
the basis of agreement between the parties-Arbitrator allowing the claim
in a non-speaking award-Validity of-Held, arbitrator has travelled beyond
his jurisdiction by passing an award against the stipulations and prohibitions
D contained in the contract-Arbitrator cannot act arbitrarily, irrationally,
capriciously or independently of the contract-Deliberate departure or
conscious disregard of the contract tantamount to malafide action-Award
quashed and set aside.
Arbitration~Non-speaking order-Inte1ference by courts-Scope and
E extent of-Held, courts cannot speculate or probe the mental process by
which arbitrator has reached his conclusion. Award can be set aside if
arbitrator acts beyond his jurisdiction.
F
Arbitration-Award-lnte1ference by courts-Arbitrator committing
mere error of fact or la~Held, courts cannot interfere.
Arbitration-Award-Arbitrator exc;eding his jurisdictionDetermination of-Held, in order to find out whether arbitrator exceeded his
jurisdiction, refere_nce to terms of award necessary ..
Appellant-company entered into an agreement with respondent No. 1
G contractor on turn-key basis for carrying out certain work. The agreement
clauses 17 and 18, clearly and unambiguously stipulated that the contractor
shall be paid fixed rates and shall not be entitled to claim any extra payment
or Increase in cost. However, respondent No. 1 contractor claimed additional ,
payments and compensation on account of escalation of cost of work, which
H
was refuted by the appellant. Thus, a dispute arose between the parties which
710
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RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES
711
was referred to the arbitrator for adjudication. The arbitrator by a non- A
speaking award allowed the claims of the contractor along with interest.
Appellant unsuccessfully challenged the said award before the trial court
and High Court Hence the present appeal.
On behalf of the appellant it was contended that the claims made by
respondent No.I were not entertainable in view of clauses 17 and 18 of the B
agreement and therefore the arbitrator travelled beyond his jurisdiction in
awarding the compensation for the said claims.
On behalf of respondent No. 1 contractor it was submitted that
arbitration clause was of widest amplitude and it provides that "all disputes C
and differences arising out of or in any way touching or concerning the
contract whatsoever shall be referred to the sole arbitration". Hence the
award passed by the arbitrator cannot be held to be without jurisdiction or
it cannot be held that arbitrator has travelled beyond jurisdiction; award was
a non-speaking one and therefore, also .the Court cannot go behind the said
award for finding out the mental process of the arbitrator for awarding the D
said sum; jurisdictional question was not raised properly before the arbitrator
or before the District Court and the appellant allowed the arbitrator to
proceed with the proceeding without raising its objection of jurisdiction or
competence.
Allowing the appeal, the Court.
HELD: 1.1. Arbitrator has travelled beyond his jurisdiction by passing
an award against the stipulations and prohibitions contained in the contract
between the parties. Hence the award passed by the arbitrator is quashed and
set aside. (740-G; 741-A]
E
F
1.2. Arbitrator is a creature of the contract between the parties and
hence if he ignores the specific terms of the contract, it would amount to
jurisdictional error. In the instant case, the appointment of arbitrator was
solely on the basis of the agreement entered into between the parties. It was
nowhere indicated that the arbitrator was empowered to adjudicate any other G
claims beyond the agreement between the parties. Even the arbitrator in his
interim award has specifically stated that he was appointed to adjudicate the
disputes between the parties arising out of the agreement. The award made
by the arbitrator disregarding the terms of the reference or the arbitration
agreement or the terms of the contract would be a jurisdictional error which
requires ultimately to be decided by the Court He cannot"award an amount H
712
SUPREME COURT REPORTS (1999] SUPP. 2 S.C.R.
A which is ruled out or prohibited by the terms of the agreement. In view of
the specific bar stipulated by the parties in the agreement, that claim could
not be.raised. Even ifit is raised and referred to arbitration because of wider
arbitration clause such claim amount cannot be awarded as agreement is
binding between the parties and the arbitrator has to adjudicate as per the
agreement. [728-B-C; 739-F-G]
B
Continental Construction Co. Ltd v. State of MP., [1988) 3 SCR 103;
Tarapore & Co. v. State of MP., (1994) 3 SCC 521; T.N Electricity Board
v. Bridge Tunnel Constructions and Ors., (1997) 4 SCC 121; New India Civil
Erectors (P) Ltd v. Oil & Natural Gas Corpn., [1997] 11 SCC 75; H.P. State
C Electricity Board v. R.J. Shah & Co., [1999) 4 SCC 214 and Mis. Alopi
Parshad v. Union of India, [1960) 2 SCR 703, relied on.
1.3. In the instant case, there is no question of interpretation of
clauses 17 and 18 as the said clauses are so clear and unambiguous that
they do not require any interpretation. It provides both, in positive and
D negative terms that contractor shall be paid fixed rates and that he would not
be entitled to extra payment or further payment for any ground whatsoever
except as mentioned therein. The rates agreed were firm, fixed and binding
irrespective of any fall or rise in the cost of the work covered by the contract
or for any other reason or any ground whatsoever. It is specifically agreed
E that the contractor wilt not be entitled or justified in raising any claim or
dispute because of increase in cost of expenses on any ground whatsoever.
By ignoring the-Said terms, the arbitrator awarded compensation to respondent
No.I and thus travelled beyond his jurisdiction as his existence depends upon
the agreement and his function is to act within the limits of the said agreement.
This deliberate departure from the contract amounts not only to manifest
F disregard of the authority or misconduct on his part but it may tantamount
to malajide action. (727-F-G-H; 728-A]
2. It is true that in the instant case arbitration clause 74 is very widely
worded, therefore, the dispute was required to be referred to the arbitrator.
G Hence, the award passed by the arbitrator cannot be said to be without
jurisdiction, but at the same time, it is apparent that he has exceeded bis
jurisdiction by ignoring the specific stipulations in the agreement which
prohibit entertaining of the claims made by the contractor. In order to
determine whether arbitrator has acted in excess of his jurisdiction what has
to be seen is whether the claimant could raise a particular claim before the
H arbitrator. If there is a specific term in the contract or the law which does
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RAJASTHAN STATE MINES AND MINERALS LTD_'" EASTERN ENG_ ENTERPRISES
713
not permit or give the arbitrator the power to decide the dispute raised by A
the claimant or there is a specific bar in the contract to the raising of the
particular claim then the award passed by the arbitrator in respect thereof
would be in excess of jurisdiction. Thus, in order to find out whether the
arbitrator has travelled beyond his jurisdiction, it would be necessary to
consider the agreement between the parties containing arbitration clause. _ B
Arbitrator acting beyond his jurisdiction is a different ground from the
error apparent on the face of the award.
Tarapore Co. v. Cochin Shipyard Ltd. and Anr., 11984) 2 SCC 680;
Managing Director J&K Handicrafts, Jammu v. Good Luck Carpets, (1990)
4 SCC 740; P. V Subba Naidu & Ors. v. Govt. of A.P. & Ors., [1998) 9 SCC C
407 and Ch. Ramalinga Reddy v. Superintending Engineer, (1994) 5 Scale
67, distinguished.
3. It is not open to the Court to speculate, where no reasons are given
by the arbitrator, as to what impelled arbitrator to arrive at this conclusion.
It is not open to the Court to admit or probe the mental process by which D
the arbitrator has reached his conclusion where it is not disclosed by the
terms of the award. In a case of non-speaking award, the jurisdiction of
Court is limited. The award can be set aside if the arbitrator acts beyond his
jurisdiction. If the arbitrator has committed a mere error of fact or law in
reaching his conclusion on the disputed question submitted for his
adjudication then the Court cannot interfere. [738-F-G; 739-BJ
E
Jivarajbhai Ujamshi Sheth & Ors. v. Chintamanrao Balaji & Ors.,
(1964] 5 SCR 481; Chempsey Bhara & Co. v. Jivraj Ba/loo Spinning and
Weaving Co. Ltd., LR 50 IA 324 and Mis. Sudarshan Trading Co. v. Govt.
of Kera/a & Anr., (1989) 2 SCC 38, relied on.
Hindustan Construction Co. Ltd v. State of Jammu & Kashmir, (1992)
4 sec 217, distinguished.
4. If no specific question of law is referred, the decision of the arbitrator
F
on that question is not final, however much it may be within his jurisdiction G
and indeed essential for him to decide the question incidentally. In a case
where specific question of law touching upon the jurisdiction of the arbitrator
was referred for the decision of the arbitrator by the parties, then the finding
of the arbitrator on the said question between the parties may be binding.
[738-H; 739-A] H
714
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
A
5. The arbitrator is not a conciliator and cannot ignore the law or
misapply it in order to do what he thinks just and reasonable; the arbitrator '"'
is a tribunal selected by the parties to decide the disputes according to law.
1740-D-El
Continental Construction Co. ltd. v. State of M.P., 1198813SCR103,
B relied on.
c
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1202of1992.
From the Judgment and Order dated 17 .12.91 of the Rajasthan High
Court in C.M. No. 254of1991.
Dr. A.M. Singhvi, P.K. Ganguli and Pankaj Kr. Singh for the Appellant.
B. Sen, Ashok H. Desai, A. Mishra, A.P. Dhomija, Pradeep Aggarwal,
L.P. Singh and Sushil Kr. Jain for the Respondents.
D
The Judgment of the Court was delivered by
SHAH, J. By the impugned Judgment and Order dated 17 December,
1991, the High Court of Judicature ofRajasthan at Jodhpur, dismissed the S.B.
Civil Miscellaneous Appeal No. 254 of 199 I filed by the appellant and confirmed
E the Judgment and Order dated 1 August, 1989 passed by the District Judge, -
Udaipur in Petition under Sections 30 and 33 of the Arbitration Act, 1940_ The
District Judge had passed the decree in terms of the award.
The brief facts of the case are that on 14th May, 1981, appellant and
respondent no_ l entered into an agreement on a tum-key basis for excavation,
F
removal, transportation including loading and unloading, disposal dumping
dozing, levelling etc_ of over burden at the specified dump yards including
final dressing of the mine benches, faces, sides etc, and incidental mining of
rock phosphate ore encountered during the excavation of over-burden and its
transportation to ore-stacks etc_ from the footwall, western portion and eastern
portions of 'D' Block of the Jhamarkotra mines including drilling, blasting,
G loading,· transportation, unloading etc_ with the leads and lifts involved in
connection therewith, more particularly described 'in the said contract for the
period of three years and three months, that is, from 13.3,81to12.6_84 for the
quantity of 21.15 lacs cubic meter subject to plus minus l 0% at the fixed rate
of Rs. 35.80 (Rupees Thirty Five and eighty paise) all inclusive per cubic meter
H in respect of over burden and/or ore actually excavated mined, removed etc.·
~
,- .. "
..; '
----
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RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.J 715
Respondent No. I vide its letter dated 7th September, 1983, raised A
certain disputes and claimed reimbursement and/or additional payments and/
or compensation on account of escalation of cost of work and breach of
contract by the Appellant. The Appellant vide its letter dated I Ith September,
1984 refuted the claims of Respondent No. I by stating that in no case the
rates over and above Rs. 35.80 per cubic meter could be given. On 10th B
November, 1984, respondent No. 1 invoking the arbitration clause, requested
the Managing Director of Appellant to appoint a sole arbitrator to adjudicate
the claims made by the Contractor. Thereafter, on 5th February, 1985, Shri C.S.
Jha, Chairman-cum-Managing. Director, Bihar State Mineral Development
Corporation Ltd. was appointed as a sole arbitrator "to decide all claims raised
by the contractor, Mis. Eastern Engineering Enterprises vide its letter dated C
7th September, 1983."
On 20th September, 1985, the sole arbitrator made an interim award in
respect of three claims, namely, claim nos. 2, 3 and 5 and awarded Rs. 65 lacs
to the claimants. Paragraph 1 of the said award mentions that Mr. C.S. Jha was D
appointed as the sole arbitrator "to decide the disputes between the parties
arising out of the agreement dated 14th May, 1981." It also recites that by the
consent of the parties, arguments were heard claim-wise and out of 7 claims
submitted by the claimants, hearing in respect of claim no. 2, 3 and 5 was
completed. It is also stated that when final award would be made in respect
of the entire proceedings, interim award would be integrated into and form E
part of the final award. The Appellant challenged the interim award on 15th
January, 1986 in the Court of District Judge, Udaipur.
Thereafter, on 18th February, 1986 the sole arbitrator made final award.
It, inter-alia, provides that after considering the long drawn arguments and
examination of documentary evidence and having made detailed examination F
of the calculations "/have given due thought and.weightage to all that was
placed/argued before me, as regards admissibility as well as quantum of
each claim by going through details of work done under e~ch item of claim
as filed before me. Thereafter, he awarded Rs. 1.07 crore for the claims made
by the respondent no. 1. The said amount included the amount awarded G
against the claims 2, 3 and 5 for which he had passed interim award. He further
awarded interest@ 12.5 % p.a. on the sum awarded from 5th February, 1985
till the date of payment or decree whichever is earlier.
That final award was also challenged before the District Judge. The
Court framed as many as 12 issues out of which issues (5) to (8) are as under: H
716
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
A
5.
Did the Arbitrator fail correctly to consider Clauses 17 and 18
B
c
of the Agreement and the Contract labour (Abolition and
Regulation) Act, 1970?
6.
Did the Arbitrator fail to apply his mind to consider pleadings,
documents and evidence?
7.
Whether the award is bad as the learned sole Arbitrator failed
to apply his mind to documents and decide the dispute on per
unit basis?
8.
·Is the award perverse? Has it been improperly procured and is
it otherwise invalid as mentioned in the Objection Petition?
Thereafter, the District Judge, rejected the contentions raised by the
appellant and declared the award as the rule of Court and passed the decree.
That was challenged by filing the appeal before the High Court.
D
Before the High Court, it was contended that the District Judge erred
in accepting the interim as well as the final award and it was required to be
set aside as the arbitrator had ignored the fixed rate mentioned in clauses 17
& 18 of the agreement and thereby he has travelled beyond his jurisdiction.
It was also pointed out that by doing so the arbitrator has legally misconducted·
himself. It was also submitted that the arbitrator was influenced by Mr. K.
E Sehgal, hence, the award was required to be set aside. The High Court arrived
at the conclusion that the point of jurisdiction was not raised before the
arbitrator. Therefore, appellant cannot raise the same before the court. The
learned Judge held that the perusal of the letter dated 5th February, 1985 goes
to show that there was nothing by which the arbitrator was restricted with
F regard to rates, on the contrary, he was asked to decide all the claims raised
by the contractor without any clarification. The High Court further observed
that ''the appellant raised objection in view of clauses 17 and 18 of the
Contract in his reply to the claim petition but he has not raised this point
before the arbitrator and thus the arbitrator has not disclosed it". The learned
Judge further observed that the appellant never asked the arbitrator to decide
G his objection at initial stage or final stage and this conduct of the appellant
goes to show that he has waived the objection, otherwise he ought to have
asked the arbitrator to decide at proper stage. The Court held that even before
District Judge, the point of jurisdiction was never raised and the issues
framed were with regard to clauses 17 & 18 which were decided against the
.-.
H appellant.
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.J 717
Dr. A.M. Singh vi, the learned senior Counsel appearing on behalf of the A
appellant contended that the judgment and order passed by the High Court
is, on the face of it, illegal because all throughout the appellant has contended
that claims made by respondent no. 1 were not entertainable in view of
clauses 17 and 18 of the agreement. He submitted that, on the face of it, claims
made by the respondent no. 1 were for prohibited or excepted items under B
clauses 17 and 18 of the agreement between the parties. Therefore, he submitted
that the ar-bitrator travelled beyond his jurisdiction in awarding the
compensation for the said claims. He referred to all claims and pointed out
that except the claim for release of additional security deposit of Rs. 5 lacs
furnished by way of bank guarantee, no claim could be entertained and
granted in view of stipulations in clauses 17 and 18 of the agreement and also C
because the contract is on a tum-key basis.
As against this, learned senior Counsel, Mr. Ashok H. Desai, appearing
, on behalf of the Respondent No. 1 strenuously submitted that, in the present
case, arbitration clause is of widest amplitude and it provides that "all disputes
and differences arising out of or in any way touching or concerning the D
contract whatsoever shall be referred to the sole arbitration". Hence, the
award passed by the arbitrator cannot be held to be without jurisdiction or
it cannot be held that arbitrator has travelled beyond his jurisdiction. He also
submitted that award is a non-speaking one and, therefore, also the Court
cannot go behind the said award for finding out the mental process of the
arbitrator for awarding the said sum. He submitted that the award only depends E
upon interpretation of the clauses of the agreement between the parties. It is
his further contention that, in any case, jurisdictional question was not raised
properly b~fore the arbitrator or before the District Court and the appellant
allowed the arbitrator to proceed with the proceedings without raising its
objection of jurisdiction or competence. By the reference letter dated 5th p
February, 1985, arbitrator was empowered "to decide all claims raised by the
contractor vide its letter dated 7th September, 1983". He also submitted that
even the committee appointed by the appellant-company to examine the
claims of the respondent, has recommended some payment to the contractor
by granting an escalation in contracted rate and to pay compensation towards
. loss suffered on account of non supply of explosives. Hence, the appellant G
should not be permitted to raise the contention of jurisdiction and the appeal
be dismissed.
For deciding the controversy, clauses 17 and 18 as well as clause 74
which provides for arbitration is required to be referred. Clauses 17 & 18 read
thw:
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718
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
17. Blasting Operation
It is express term of this contract that while carrying out the
excavation/Mining operations from the aforesaid areas, blasting
wherever required, shall be undertaken by the contractor at his cost.
The remuneration payable under this contract for the work aforesaid
is inclusive of this element which includes cost of explosives, its
accessories transportation, salary and wages of its crew/blasters
etc., or otherwise. In view of aforesaid, the contractor shall obtain
necessary permission from the Director General of Mines Safety and/
or other competent authorities for undertaking the blasting operation
independently at the aforesaid areas covered by this contract as also
obtain necessary licence for the explosive magazine etc. The contractor
shall do all that are required to be done to obtain the necessary
permission etc., from the· competent authorities immediately without
any further loss of time and shall make regular and continuous efforts
for the same if for the present such permission is not granted to him/
her.
In the event of the contractor failing to obtain such permission
required from the competent authority for doing blasting operation in
the areas covered by this contract after all genuine and effective
efforts, the company may at the request of the contractor and subject
to its convenience take up the blasting operation in the areas entrusted
to the contractor under this contract, at the cost and risk of the
contractor.· Provided, however that the contractor shall be bound to
observe all terms and conditions of blasting operation in the contract
and other operations involved therein shall be duly observed/
undertaken by the contractor, as if the blasting is being done by them.
Drilling shall be done by the contractor at places and as per the
pattern approved in writing by the Engineer-in-charge. The Engineerin-charge, may require drilling of additional holes by the contractor
before blasting is taken up. The holes not drilled as per the approved
drilling pattern shall not be taken up for blasting. On receipt of written
requisition from the contractor in the prescribed proforma duly signed
by the authorised representative of the contractor to the company not
less than 2 days prior to intended date of blasting, blasting will be
done by the Company as and when felt necessary and convenient by
the Engineer-in-charge. The company shall make available the blasting
material, its transportation, biasting accessories and blasting crews
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.] 719
including blaster/s. In case the company is not in a position to A
arrange for the same, the contractor shall make his own arrangements
for the same without any liability and obligation on the company. The
company shall deduct the actual landed cost of all explosives exJhamarkotra as may be used in the course of blasting plus five per
cent value of the landed cost of explosives as blasting charges from B
the contractor's running :Bill/s or any amount that may be found due
and payable to the contractor or the security amount. It is agreed'and
understood by the contractor that in the event of company doing
blasting as aforesaid, for and on behalf of the contractor, the contractor
shall not be allowed and/or permitted to raise any dispute as to make,
type quantity of the explosives that will be used in blasting by the c
company, fragmentation of rock, toes at the mining face, landed cost
of explosive, time and fo~quency of blasting etc., and the contractor
shall be bound to make good the landed cost of explosives, cost of
blasting accessories etc., plus overheads @ 5% as may be certified
by the Engineer-in-charge~ from time to time. Provided also that the
D
contractor shall not be entitled and/or justified to raise aey claim
or dispute on account of blasting or non blasting or idling of his
equipment or his labour or any rise in the landed cost of explosives
at any time or during the currency of this agreement or on any
ground or aey reason of any account, whatsoever.
At the time of blasting in the areas being worked by the Company E
or by the contractor if tht: company is required to carry out blasting
operation, the contractor shall be required to vacate the areas if the
areas fall within blasting zone, worked by him for which the contractor
shall not be entitled for_ any claim, additional payment whatsoever.
18. Contractor's remuneration for works under the Contract:
F
In consideration of the pe1formance of the work, fulfillment of all the
obligations, terms and conditions of this agreement by the contractor
in execution of the work covered by this contract in and from the
aforesaid areas, the contractor shall be paid remuneration calculated G
@ Rs. 35.80 (thirty five and eighty paise) all inclusive per cubic
meter in respect of over burden a!J.d/or Ore actually excavated,
-;..
mined, removed, transported, disposed off, dumped, do~ed, levelled
and spreaded including drilling, blasting, mucking, loading, and
unloading, etc., with an leads and lifts involved in connection with the
transportation and dumping of over-burden to the dump yards or ~re H
A
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720
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
stacks, including all preparatory dressing, finishing and other
operational works etc., executed and approved by the Engineer- incharge. The rates aforesaid shall be composite and inclusive of all
services, activities and operations involved in the execution of the
work as per terms and conditions of this agreement which constitute
the whole and inclusive remuneration that is payable by the Company
to the contractor under this contract. The contractor shall be only
entitled to the payment of composite rate as aforesaid and no other
or further payment of any kind or item, whatsoever, shall be due and
payable by the Company to the contractor under this agreement
except as aforesaid
The rates aforesaid shall remain firm, fvced and binding during
the currency of this agreement till the issue of final certificate
irrespective of any fall or rise in the cost of Mining operations of the
work covered by this contract or for any other reason or any account
or any ground whatsoever.
Provided, however, that the company has agreed to freeze the
issue rate of Diesel as on 13 March, 1981, at the rate of Rs. 2. 78
(Rupees Two and seventy eight paise only) per litre and the company
shall issue the Diesel subject to availability and its convenience to the
contractor against the surrender of permit/s of the equipment by him
at the frozen rate of Rs. 2. 78 per litre during the currency of this
contract even if there be any rise in the cost of diesel after execution
of this agreement subject to a ceiling of 1.3 litres (one point three litre)
for one cubic meter of rock (in situ) actually handled and work executed
by the contractor and approved by the Engineer-in-charge, as per
provisions of this agreement. No diesel at the frozen rate of Rs. 2. 78
per litre shall be supplied and/or issued to the contractor after the
12th day of June, 1984, if the work is not finally completed by the
contractor as aforesaid. The company shall deduct the cost of diesel
@ Rs. 2.78 per litre actually issued to the contractor from the
contractor's running bills or any amount that may be due to him or
the security amount. Save .and except as aforesaid the contractor
shall not be entitled to raise any claim and/or dispute on account
of any rise in the price of oil, lubricants, tyres, tubes, explosives,
spares etc. statutory or otherwise or increase in the wages or.Minimum
wages or on any other ground or reason or account, whatsoever."
Relevant part of arbitration clause 74 is as under:-
RAJASTHAN STATE MINES AND MINERALS LTD."· EASTERN ENG. ENTERPRISES [SHAH. J.) 721
All disputes and differences arising out of or in any way touching A
or concerning this contract whatsoever, except as to any matter, the
"decision of which is expressly vested in any authority in this
contract, shall be rieferred to the sole arbitration of the person appointed
by the Managing Director of Company who shall have status of a
Mines Manager having 1st Class Mines Manager's Certificate and
having experience not less than five years in open cast mining as
Mines Manager."
At this stage, we would refer to the relevant portion of letter dated 79-1983 written by the Contractor to the appellant as the dispute for the said
claims made in the Jetter is referred to for arbitration.
I.
After stating the reasons in delay in starting the work, it 1s
mentioned:
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"In view of above, we now request RSMML to consider our
case and condone the theoretical delay, which, in fact, was not
there and also give us necessary, relief as to consequential D
damages thereof. Hence, we request you to consider I st August,
1981 as the date of start of work and accordingly, extend the
validity of the contract."
2.
The demand is "Release of additional security deposit of Rs. 5
Jakhs furnished by us in RSMML's favour by way of bank E
guarantee" for the reasons stated therein.
3.
Request for 'Rescheduling of the existing excavation schedule'
for the reasons mentioned therein.
4.
Claim for Escalation in the existing rate of excavation:
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"We signed the contract with a clear understanding that the
rate under this contract is firm and final and we shall get no
escalation in our rates, except in case of diesel, which will be
supplied to us by the Company at a frozen rate. With the
passage of time our cost calculations went hayway for reasons G
which were beyond our control."
5.
(i) From the beginning of the contract we had paid wages
equivalent to RSMML wages instead of Minimum wages. The
difference between the two on an average in the last 25 months
works out to Rs.75,000 per month, against an average production H
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(ii)
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
of 40,000 cu.m. per month. Thus the additional cost works out
to Rs.1.80 per cu.m.
Unforeseen and difficult operating condition in the footwall and
its effect on the cost of operation:
"The work in footwall area of 'D' block is a major constituent
of the contract both quality and quantity wise. While the contract
is termed as a 'Turnkey' contract, at least in the footwall the
work cannot, by any stretch of imagination, be considered as
'Turnkey', as the operation in that area is totally controlled by
the Principal employer.'
In fact, it was beyond our imagination that our working in the
footwall will be so much restricted, resulting the cost of operation,
which is virtually very high than normal cost of operation. In view
of above, we feel that our request in this regard will be sympathetically
considered by the Management, who are also engaged in similar
work. Thus, for such poor utilisation of the Shovel, the rate should
be
35.80
58.50 x 100
= 61.20.
Thus, an additional rate of Rs. 25.40 per cu.m. for the entire footwall operation
has to be provided for.
(iii) Non-availability of explosive and use of costly explosive for
blasting :
Reimbursement of Rs.22.55 lakhs towards cash loss due to non- supply
of explosives in time plus Rs.1.82 per cu.m. of rock handled so far.
6. Claim for Transportation of ore :
After stating reasons in detail, it is claimed thus:
"Till 31st August, 1983 mined and transported 45,456 tonnes of ore
and mixed ore from Eastern Saddle and Footwall, the additional
expenses involved in this operation are:
(i)
Care being taken during mining to avoid as much as possible
admixture of ore and overburden, and
(ii)
Additional transportation involved for taking it to the crusher
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instead of the dumpyard. Towards this we have to make claim
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RAJASTHAN STA TE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.] 723
of Rs. 6 towards this mining cost per tonne and Rs. 4 towards A
transportation cost per tonne making the total to Rs. 4,05,660 for
40,566 tonnes of ore after allowing ~% of the total excavation
volume of footwall i.e. 3.36 lakhs cu/.m."
"To sum up, claims under various heads are as under:
(i) Not to levy any damages for not starting work in time and to
treat l st August, 1981 as the date of start of work and thereafter
calculate 3 years for completing this work under this contract;
(iI)
To release performance bank guarantee of 5 lakhs furnished in
your favour by way of additional security deposit;
(iii) To re-schedule the excavation schedule keeping in view the
industrial climate at Jhamarkotra @ 40,000 cu.m. per month;
(iv) To allow us escalation ofRs.3.62 in our rates towards additional
cost that has been incurred by us with retrospective effect.
(v) To admit our claim of Rs. 22.55 lakhs towards loss suffered on
account of non supply of explosives, Rs.4,05,660 towards
additional cost of mining and transportation of ore and
Rs.52,53,650 on account of loss suffered by us for unforeseen
and difficult operating condition at footwall or in other words
the present rate of Rs. 35.80 per cu.m. with retrospective effect."
On the basis of the claims made in the letter dated 7th September, 1983,
respondent filed claim statement for 8 items which is tabulated by the High
Court in its judgment.
Claim Description of
No.
claim
1. Claim for increase in rate
for excavation work at
the Footwall area demand
for escalation in the
existing rates of excavation.
2. Claim for increase in costs
Of work due to use of high
Relief claimed
Claimed reimbursement @
Rs. 25.40 per cu.m. up to
Aug. 83 thereafter @ 63.56
pe~ cu.m. Over and above
the contract rate of Rs.35.80 .
Cu.m. In all claim under this item
quantified for Rs. 1,36,43,218.
Claimed reimbursement @ Rs.
1.80 per cu.m. for all
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Explosives instead of use
excavation done/to be done
Of ANFO mixture.
under the contract using high
/
Explosives instead of ANFO mixture.
3. Claim for reimbursement for
Claim reimbursement of
Losses suffered due to nonRs. 22.55 lacs by way of loss
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Availability of explosive.
during the period February, 1963 to
May 1983.
4. Claim for reimbursement
Claimed reimbursement of
of additional costs for mining
additional costs at the rate of
and transport of ore.
Rs. 6 per ton towards mining and
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Rs. 4 per ton towards additional
transportation to the crusher. Total
Rs.IO per ton for 47856 tonnes of
ore and mixed ore upto 31st
December, 1984 quantifying claim
of Rs. 4,31,890.
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5. Claim for reimbursement
Claim reimbursement @ Rs.
of additional expenditure
1.82 per cu.m. for excavation
incurred on account of
done/to be done on account
Agreement with RPMS.-
of respondent entering into
For wages to labourers.
an agreement with RPMS Dated
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26.5.81 Ex.C/I of the Arbitration
proceedings.
6. Claim for release of
Claimed release of duly discharged
additional securities
Bank guarantee of Rs. 5 lacks on
deposit.
Account of Addi. Security deposit.
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7. Claim for reimbursement
Claim reimbursement ofRs.0.90
of additional expenses on
per cu.m. of excavation done
account of revised wage
since 1.4.83 or to be done
structure w.e.f.1.4.83.
thereafter as per Ex.C/58 and C/68.
8. Interest
Claimed interest on the amount of
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Award@ Rs.18% per annum Or
decree whichever is earlier.
As stated earlier by interim award, arbitrator has awarded Rs. 65 lakhs
for claims No. 2, 3 and 5. Thereafter, by final award, he has awarded total sum
H of Rs. '1.07 crores with 12.5% interest w.e.f. 5.2.85.
RAJASTHAN STATE MINES AND MINERALS LTD. v. EASTERN ENG. ENTERPRISES [SHAH, J.J 725
Before discussing further, what emerges from the facts stated above is: A
(1)
in the award, no reasons are assigned for granting various
claims to that extent, it is non-speaking. For claim Nos. 2, 3 and
5, Rs. 65 lakhs were awarded by interim award dated 20th
September, 1985.
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(2)
In the interim award, the arbitrator has made it clear that he was
appointed as the sole arbitrator vide memo dated 5th February
1985 "to decide the dispute between the parties arising out of
the agreement dated 14 May, 1981 ". So, his authority or
jurisdiction to decide the claims raised by the contractor was on c
the basis of the agreement between the parties.
(3)
In the final award also, iIJ the first paragraph itself, arbitrator has
stated that:
"The claimants have put in claims arising out of and in relation
to the work 'Excavation and removal of overburden at the D
Jhamarkotra mines of 'RSMML' executed under agreement
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dated 14.5.1981, and have put in their claims under 7 heads
of claim and have further claimed interest, pendentelite and
future at 18% per annum .. " It further mentions that he has
given due weightage to all the documents placed and arguments E
submitted before him "as regards admissibility as well as
quantum of each claim by going through details of work done.
under each item of claims as filed before me."
(4)
In the letter dated 7th September, 1983, the Contractor himself
has clarified, admitted and stated thus:
F
"We signed the contract with a clear understanding that the
rate under this contract is firm and final and we shall get no
escalation in our rates, except in case of diesel, which will be
supplied to us by the company at a frozen rate. With the
•
passage of time our cost calculations went hay way for reasons G
which were beyond our control."
(5) The appellant in his detailed reply before the arbitrator to the
claims made by the contractor has pointed out and relied upon
clauses 17 and 18 for contending that contractor was not entitled
to any such claim under the contract.
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(6)
Before the District Judge also, the issues pertaining to clauses
17 and 18 as stated above were raised.
(7)
Before the High Court also, it was contended that arbitrator
made award against the stipulations of the agreement between
the parties and thereby travelled beyond his jurisdiction.
From the facts stated above, learned Counsel for the appellant has
rightly pointed out that Claim No. I for increase in rate of excavation work
at footwall area and claim no. 4 for reimbursement of additional costs for
mining and transport of ore is against the stipulation of clause 18 as narrated
above, which inter-alia, specifically provides as under:
(a) "The contractor shall be paid remuneration calculated @Rs. 35.80
(Rupees Thirty Five and Eighty Paise only) all inclusive per
cubic meter in respect of over burden and/or Ore actually
excavated .............. transported ......... "
(b) "The contractor shall be only entitled to payment of composite -
rate as aforesaid and no other or further payment of any kind'
of item, whatsoever, shall be due and payable by the Company
to the contractor under this agreement except as aforesaid."
(c)
"The rates shall remain in firm, fixed and binding irrespective of
any fall or rise in the cost of Mining operations of the work
covered by the contract or for any other reason or any account
or any ground whatsoever."
Similarly, claim no. 2 for increase in costs of work due to use of high
explosives instead of use of ANFO mixture and claim no. 3 for reimbursement
F for losses suffered due to non-availability of explosive is also against Clause
17, which inter-a/ia, provides:
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(a) "It is express term of this contract that while carrying out the
excavation/Mining operations from the aforesaid areas, blasting
wherever required, shall be undertaken by the contractor at his
cost.