Partly allowed

Cochin International Airport Ltd., v. Kamal Jain Associates

Kerala HC4 Feb 2022Arb.A/39/2012

Case brief

AI extract

What is this about?

In an appeal against the dismissal of an objection to an arbitral award, the Court held that a dispute clause in the contract urging early resolution was valid as it extinguished rights, unlike a limitation clause. The appellant could claim escalation but was entitled to revised rates only for quantities exceeding the contract-plus-25% threshold. The Court segregated the erroneous portion of the a

What did the court decide?

The Award is set aside to the extent the claimant was granted revised rates for the entire quantity worked beyond initial contract, limiting revised rates to work exceeding 125% of contract quantity.

Cochin International Airport Ltd., Vs Kamal Jain Associates — Arbitration | Kerala HC (2022)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR

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THE HONOURABLE MRS. JUSTICE C.S. SUDHA FRIDAY, THE 4^TH DAY OF FEBRUARY 2022 / 15TH MAGHA, 1943

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ARB.A NO. 39 OF 2012

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AGAINST THE ORDER DATED 10.04.2012 IN OP(ARB) 792/2008 OF DISTRICT COURT,

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ERNAKULAM

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APPELLANT/PETITIONER:

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COCHIN INTERNATIONAL AIRPORT LTD., KOCHI AIRPORT P.O., ERNAKULAM - 683111. REP. BY ITS EXECUTIVE DIRECTOR (FINANCE) AND COMPANY SECRETARY. BY ADVS.P.BENNY THOMAS D.PREM KAMATH TOM THOMAS (KAKKUZHIYIL) ABEL TOM BENNY JYOTHISH KRISHNA MEENAKSHY S DEV AHAMMAD SACHIN K. G.SREEKUMAR (CHELUR)

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RESPONDENT/RESPONDENT:

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M/s.KAMAL JAIN ASSOCIATES REP. BY ITS SOLE PROPRIETOR SRI.KAMAL JAIN, 3-SHREEMAN YOGIRAJ SOCIETY, OPPOSITE BHARATHI BANK, SINHGAD ROAD, VADAGAON BK, PUNE-411041. BY ADVS.SRI.K.JAYAKUMAR (SR.) SRI.N.AJITH SMT.GEETHA P.MENON SRI.K.JAYAKUMAR SR. SRI.P.B.KRISHNAN SRI.P.B.SUBRAMANYAN

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THIS ARBITRATION APPEALS HAVING COME UP FOR ADMISSION ON

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04.02.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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Arb.Appeal No.39 of 2012

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P.B.SURESH KUMAR & C.S.SUDHA, JJ.

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Arb.Appeal No.39 of 2012

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Dated this the 4 th day of February, 2022

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J U D G M E N T

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C.S.Sudha, J.

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This appeal filed under Section 37 of the Arbitration and Conciliation Act (the Act), is against the order in O.P. (Arbitration) No. 792/2008 dated 10.04.2012 on the file of the District Court, Ernakulam.

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The appellant herein is the petitioner in O.P. (Arbitration) No. 792/2008 filed under Section 34 of the Act to set aside the Award of the sole Arbitrator in A.R.No.4/2003 dated 15.02.2008. The respondent herein was the claimant in the arbitral proceedings and the respondent before

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the court below. The parties in this appeal will be referred to as described in the proceedings before the Arbitrator.

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The respondent, namely, Cochin International Airport Limited (CIAL), Kochi, invited tender for the work of 'Fire Detection,

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Alarm and Fighting System for International Airport at Nedumbasseri'. In response to the tender notice, the claimant submitted a tender, which was accepted by the respondent on 08.07.1997. The contract agreement was executed between the parties on 14.08.1997. The work was to be completed within a period of nine months from 24.07.1997, i.e., by 23.04.1998. The amount as per the tender was ₹ 51,72,837/- which was 10% lower than the estimated cost of ₹ 57,47,597/-. The respondent CIAL engaged M/s. KITCO as their consultant for the management and supervision of the project. According to the claimant, even after the expiry of five months of the acceptance of the tender, the respondent was not sure, clear or conclusive regarding their requirements. There was considerable delay in getting approval of the Tariff Advisory Committee (TAC) for the fire hydrant system. There was delay in finalising the design and drawings. The approval for the same was also given quite belatedly. The work was delayed due to the acts of the respondent. The completion certificate was issued only on 29.04.2000. As disputes arose between the parties, the matter was referred for

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arbitration. Before the arbitrator claims under 9 different heads were made. Claims 1,2,4,5,7 and 8 were allowed. The remaining claims were rejected. The counter claim of the respondent was also rejected. Aggrieved, the respondent CIAL moved the District Court under Section 34. The court below as per the impugned order dismissed the OP.

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3. The first and foremost challenge of the respondent in this appeal is relating to the maintainability of the claim. The claim made by the claimant is contended to be not maintainable in the light of clause 52 of Ext.C71 agreement executed between the parties. Clause 52 of Ext.C71 reads -

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“52. The final bill shall be submitted by the Contractor within three months of physical completion of the Works. No further claims shall be made by the Contractor after submission of the final bill and these shall be deemed to have been waived and extinguished. Payment of those items of the bill in respect of which there is no dispute and of items in dispute for quantities and at rates as approved by Engineer-in-Charge shall be made within the period, specified hereunder; the period being reckoned from the

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date of receipt of the bill by the Engineer-in-Charge.

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(a) Contract amount not exceeding Rs.5 lakhs Four months

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(b) Contract amount exceeding Rs.5 lakhs Six months

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After payment of the amount of the final bill payable as aforesaid has been made, the Contractor may, if he so desired, reconsider his position in respect of the disputed portion of the final bill and if he fails to do so within 90 days, his disputed claim shall be dealt with as provided in the Contract.”

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The respondent’s contention is that as per clause 52, the

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claimant ought to have submitted the final bill within three months from

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the date of physical completion of the work and in case they had a revised claim, the same ought to have been made within a period of ninety days. No such claim was made by the claimant within the said period. On the other hand, the claim was preferred after a lapse of more than two years and therefore the contention is that the claim itself was not maintainable. They also contended that after the performance guarantee period of one year, the bank guarantee had also been released in November, 2001. This had put an end to the contract itself and

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therefore nothing survived to be decided in arbitration. The claimant disputed this case of the respondent and contended that the issue regarding maintainability had been raised by the former in an earlier proceeding between the parties before this Court and that this Court had rejected the same. They also contended that they could submit the final bill only after the respondent finalized the measurements, rates and rates for extra items. After the same were finalized, Ext.C93 final bill was submitted. As per the terms contained in Ext.C71, it is the prerogative of the claimant to prepare and submit the bill. There is no provision in Ext.C71 which empowers the respondent to prepare the final bill.

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5. The Arbitrator relying on the evidence adduced by the parties and Section 28 of the Contract Act, rejected the aforesaid contention of the respondent CIAL. This finding has been confirmed by the court below. Here we refer to the decision in National Insurance

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Co. Ltd. v. Sujir Ganesh Nayak & Co. [(1997)4 SCC 366] relied on by the court below to reject the argument of the respondent.

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Paragraph 16 reads -

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“16. From the case-law referred to above the legal position that emerges is that an agreement which in effect seeks to curtail the period of limitation and prescribes a shorter period than that prescribed by law would be void as offending Section 28 of the Contract Act. That is because such an agreement would seek to restrict the party from enforcing his right in Court after the period prescribed under the agreement expires even though the period prescribed by law for the enforcement of his right has yet not expired. But there could be agreements which do not seek to curtail the time for enforcement of the right but which provide for the forfeiture or waiver of the right itself if no action is commenced within the period stipulated by the agreement. Such a clause in the agreement would not fall within the mischief of Section 28 of the Contract Act. To put it differently, curtailment of the period of limitation is not permissible in view of Section 28 but extinction of the right itself unless exercised within a specified time is permissible and can be enforced. If the policy of insurance provides that if a claim is made and rejected and no action is commenced within the time stated in the policy, the benefits flowing from the policy shall stand extinguished and any subsequent action would be time-barred. Such a clause would fall

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outside the scope of Section 28 of the Contract Act. This, in brief, seems to be the settled legal position. ….”

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Therefore, the period of limitation for moving the claim

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cannot be curtailed as it would be in violation of Section 28 of the Contract Act. This finding of the Arbitrator as well as the court below based on Section 28 of the Contract Act does not suffer from any infirmity or perversity and so, we find no reasons for interference. The respondent also does not have a case that the claim had not been made within three years of the right to apply accruing, as contemplated under Article 137 of the Limitation Act. That being the position, the challenge relating to the maintainability of the claim will necessarily have to fail.

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In addition to the challenge on maintainability of the claim, the respondent has also challenged the Award granting reliefs under various heads to the claimant. The case of the claimant is that, even after five months after the acceptance of the tender, the respondent was not clear as to what exactly was their requirements. The period stipulated for completion of the work was nine months. The work required the approval of the TAC. There was considerable delay in

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obtaining approval of the TAC. Even thereafter, there was lack of clarity on many aspects and these aspects were not clarified or cleared by the respondent in spite of repeated requests by the claimant. The drawings approved by the TAC was received after the initial period of contract was over. The design was not only faulty on many aspects but also uneconomical and not feasible for future expansion. Therefore, as directed by the respondent, the claimant prepared a fresh design, the approval of which was further delayed. The claimant had to do several extra works as directed by the respondent, which increased the cost of work executed. The respondent never made payments on time and there was gross under-payment. These defaults on the part of the respondent, according to the claimant, are breaches of the contract. Further, after the completion certificate was issued, though the claimant requested return of the bank guarantee and finalisation of the final bill, their request was not acceded to. Finally, they had to move this Court even for getting the Arbitrator appointed. The delay in completing the work was solely due to the default and breaches committed by the respondent. Contending

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so, the claimant filed their claim statement before the Arbitrator claiming amounts under various heads.

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The respondent CIAL disputed and denied the case of the claimant. The claimant was supposed to complete the work within nine months from 15.08.1997, i.e., by April, 1998. However due to the delay and default for which the claimant alone is responsible, the work was delayed considerably. It was only in April, 2000, that is, after about 33 months, the claimant completed the work and that too after repeated requests from the respondent. The claimant never raised any dispute(s) during the currency of the contract. Disputes were raised after a lapse of more than two years as an after-thought. The claim made is not justified and hence liable to be rejected, contended the respondent. The respondent had also put in a counter claim before the Arbitrator.

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The learned counsel for the respondent repeatedly stressed the point that after the execution of the contract between the parties, there was nothing to be done on the part of the respondent. The work was to be started by the claimant on preparing the necessary

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drawing and design for the same. As per the contract it was the sole responsibility of the claimant to obtain approval of the design from TAC. However, the claimant even after the expiry of about five months failed to obtain the necessary approval. Hence an outside agency was entrusted with the task of obtaining the approval. The said agency succeeded in obtaining the necessary approval within one month. Even thereafter the work was dragged on and ultimately completed after about 33 months after the scheduled completion date.

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10. The Arbitrator after examining the numerous correspondence between the parties, rejected the contention of the respondent. It was found that the communications from the claimant mainly dealt with clarifications sought from the respondent for the purpose of completion of the work and also included various suggestions, most of which had been accepted by the respondent. It was also seen that the claimant was quite diligent in seeking extensions as per the terms contained in the contract, and the same were acceded to without demur by the respondent and KITCO, their consultant. The

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minutes of the meetings held between the parties revealed that the progress of the work was being closely monitored and assessed periodically. From none of the materials produced by the parties, the Arbitrator was able to find any fault on the part of the claimant. The Arbitrator also held that, if the claimant had not been diligent in executing his part of the contract, the respondent would not have readily acceded to the demand of the former for extensions. Had the respondent's contentions been actually true, they would have rescinded the contract and completed the work at the risk and cost of the claimant. Therefore, on the basis of the materials placed before him, the Arbitrator concluded that the claimant was quite diligent in executing the work and that it was the respondent who had substantially contributed to the delay.

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11. The learned Arbitrator also found that at various stages of the work, as and when alterations and variations were made to the proposed work, the claimant had promptly informed that such variations would cause escalation of cost. Clause 53 of the contract was

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relied on. The escalation claimed was @ 95%, which was found to be too tall a claim and so escalation at the rate of 15% was granted. This finding of the learned Arbitrator is taken serious exception to and it was argued by the learned counsel for the respondent that it was totally unjustified on the part of the Arbitrator to have uniformly applied 15% escalation to all the claims made by the claimant. We will shortly consider whether such uniform application is justified. However, the finding on delay is fully justified. The Arbitrator has given cogent reasons for arriving at the same relating to which we do not find any infirmity. It is well settled that an arbitral award can be set aside by the court only on the grounds stated in S.34(2) of the Act. Admittedly, it is the unamended provisions of Section 34 of the Act that will have to be applied in this case. Therefore, if the respondent is to succeed, they will have to establish that the finding of the Arbitrator is in conflict with the public policy of India. An appeal under S.37 can be heard only on limited grounds. Normally, the award of the Arbitrator is final and conclusive so long as the Arbitrator has acted within his authority and

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according to the principles of fair play. It is not open to the court to reassess the evidence in order to find out whether the Arbitrator had committed any error or to decide the question of adequacy of evidence as the Arbitrator appointed by the parties is the sole Judge of the quality and quantity of evidence when he delivers the arbitral award. Further, the concept of public policy, as explained in Associate Builders vs.

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Delhi Development Authority , 2014 KHC 4742 , connotes some matter which concerns public good and the public interest. An award could be set aside if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality, or (d) in addition, if it is patently illegal. Illegality must go to the root of the matter and if the illegality is of trivial nature, it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. None of these tests have been satisfied in this case calling for an interference by the court under section 34 or by this court under section

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37.

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12. Now coming to clause 53 of the contract which reads-

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“53. All statutory payments applicable as per the governing laws of Central and State Governments on the late date of submission of the tender shall be included in the quoted rate. In the event of there being any increase with respect to these statutory payments due to any change in the existing laws or due to imposition of any new laws by the Central and/or State Governments and thereby the Contractor incurs any new liability after the last date for submission of tender, the additional expenditure so incurred by the Contractor on this behalf shall be paid to the Contractor by CIAL. The Contractor shall within 30 days of becoming aware of any alteration in the laws/levies as provided above give notice thereof in writing to CIAL together with all information and documentary evidence of levy and demand of the appropriate authorities and payment of the same by the Contractor. However, should the contractor desire or is required by CIAL to counter the correctness of such demand the contractor will initiate appropriate proceedings under the relevant acts and rules framed thereunder for relief against such levy/demand. The contractor will, however, be responsible to refund the whole or any part of the money paid or reimbursed by CIAL should the contractor succeed in obtaining relief.”

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The rates and prices quoted by the tenderer shall be fixed and firm for the duration of the contract and shall not be subjected to adjustment on any account except for any variation under clause 53 if the duration of the contract as stated in the Notice inviting tender is less than or up to 12 calendar months. However, if an extension of time is granted by CIAL pursuant to clause 13.4 without any action under clause 32 hereof, CIAL shall agree to the price adjustment for the work done during extended period of the Contract, excluding the original contract period, provided that a total actual period of Contract including the original contract period exceeds 12 months .” (Emphasis supplied)

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13. As stated earlier, work which was to be completed within nine months was completed after about 33 months. Therefore, the claimant is certainly entitled to escalation, as per which the Arbitrator has granted it at the rate of 15%, which appears to be quite reasonable in the place of 95% claimed by the claimant. This is not a finding which is so perverse that no reasonable man would arrive at or perverse which shocks the conscience of the court.

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14. Now coming to the findings in the Award relating to the

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rates for items which exceeded 125%. The respondent allowed enhanced rates for items of work which exceeded 25% of the quantity given in the tender, that is, for extra items and work done beyond 125% . The claimant relying on clause 53.1 demanded that enhanced rates should be granted for the entire quantity of work done beyond the initial contract period. The Arbitrator allowed this claim made by the claimant. This is seriously objected to by the respondent. One of the claims allowed by the Arbitrator which is seriously objected to is relating to the claim under ‘Part I- Substituted items/extra items’, referred to in page 92 of the appeal paper book and page 24 of the Award. This part is divided into 2 parts- (a) and (b). Items 1 to 4 in list 4.b are not disputed. Dispute is relating to serial no.5 in list 4.b, that is, relating to the cost of cable used. Admittedly as per the contract, it is cable of 2x2.5 sq.mm. that was to be used and the rate agreed for the same was ₹ 63/- per running meter (RM). However, the cable actually used (not disputed) is cable of 2x1.5 sq.mm. The agreed rate for this is ₹ 95/- per RM. The quantity agreed to be done was 5500 RM + 25% = 6875 RM. The

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quantity of cable actually used is 21986 RM. According to the claimant, they are entitled to be reimbursed @ ₹ 95/- for the entire 21986 RM. This has been accepted by the Arbitrator, which according to the learned counsel is without giving any reason(s) and therefore unjustified, illegal and perverse. It was pointed out that, admittedly the quantity agreed to be done as per the contract is 5500 RM + 25% = 6875 RM @ ₹ 63/- per RM. Hence, for 6875 RM, only ₹ 63/- per RM

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could have been granted and for the remaining excess quantity i.e., for 15111 RM, the enhanced rate of ₹ 95/- per RM, granted. Therefore, the

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amount the claimant would be entitled to under this head is 6875 x 63 =

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₹ 4,33,125/- plus 15111 x 95 = ₹ 14,35,545/-. Hence the total would be

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₹ 18,68,670/-. However, the claimant was granted – 21986 x 95 = ₹20,88,670/-. The difference is ₹2,20,000/-. As this finding is not

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supported by any reason(s), the same is liable to be set aside, goes the argument.

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15. Clauses 10 and 11 relate to extent of

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deviations/variations and their pricing. As per these clauses, in case of

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deviations and variations, the claimant has to claim revision of rates within the time stipulated therein and then the engineer-in-charge can fix the rates as per the prevailing market rate. There is no dispute regarding the quantity of cable used. It is also not disputed that though as per the contract, it was cable of 2x2.5 sq.mm. that had to be used, the cable actually used was cable of 2x1.5 sq.mm. this certainly was a deviation or a new item used which was not contemplated in the initial agreement executed between the parties. The Arbitrator from the records concluded that the rate for the cable used had been approved by the respondent @ ₹ 95/- per RM and so accepted the argument of the claimant that since this is a totally new item, there is no logic in restricting the rate to ₹ 63/- per RM. There is no infirmity in this finding in the light of the aforesaid clauses and hence no interference is called for.

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16. Similar is the challenge for the items claimed under Part II- Deviated items, referred to in page 92 and 93 of the appeal paper book and pages 24 and 25 of the Award. This part is again sub divided

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into two parts. The dispute is regarding items in list 3.b, which reads -

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“b) Tender items executed as per Contract Rs.69,21,433.00” Agreement where quantity is exceeding 25% and rates are agreed rates – List 3. b

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The Award of this amount is disputed by the respondent. According to them, List 3.b is related to tender items executed in which the quantity exceeded 25%, that is, above 125%. The claimant adopted revised rates for the total quantity executed, whereas the respondent granted revised rates only for the quantity exceeding 125% of the quantity included in the contract. According to the respondent, under this head, amount calculated at enhanced rates for work done in excess of 125% would be ₹ 51,10,878/-. The claimant on the other hand adopted revised rates for the entire quantity, as per which the amount would be ₹ 69,21,433/-. This cannot be justified, for the claimant can claim enhanced rates for the work done over and above the quantity agreed in the contract.

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Therefore, for the work done in excess of the quantity agreed (quantity agreed + 25% = 125%) only, the claimant is entitled to enhanced rate. Hence the difference would be ₹ 69,21,433/- (amount claimed by the claimant) minus ₹ 51,10,878/- (admitted to be due by the respondent), which is ₹18,10,555/- (69,21,433 - 51,10,878==18,10,555). Therefore, to that extent the Award needs to be interfered with as it is against the terms of the contract executed between the parties. This would not amount to a modification of the Award, which alone is prohibited by the dictum in Project Director, National Highways Authority of India v. M. Hakeem, (2021 SCC Online 473) , wherein it has been held that Section 34 does not empower the court to modify an Award. But this is a case where the Award deals with and decides several claims separately and distinctly. In such cases, as held in J. G. Engineers Pvt. Ltd. v. Union of India, 2011 KHC 4418: AIR 2011 SC 2477 , even if the Court finds that the award in regard to some items is bad, the Court can segregate the award on items which do not suffer from any infirmity and uphold the award to that extent.

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17. There is no serious challenge to the Award relating to

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the other claims and the rejection of the counter claim. The same does

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not require any interference as no infirmity could be brought out regarding the said findings by the respondent.

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In the result, the appeal is partly allowed to the extent stated

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