The arbitrator cannot use Section 70 of the Indian Contract Act to award damages on a quantum meruit basis for the additional work performed without the employer's prior consent when the agreement did not contemplate any additional work, according to a ruling made on December 21 by a single judge bench of the Gauhati High Court, comprised of Justice Kalyan Rai Surana. 

The bench ruled that any dispute regarding the additional work would fall outside the scope of the arbitration clause and any award made thereon would be against the fundamental policy of Indian Law if the agreement, which contained the arbitration clause, did not contemplate any additional work and the contractor performed the additional work without the employer's prior consent.

The Court reaffirmed that the statute of limitations would not be extended by a simple communication exchange or a letter of reminder. 

The Court noted that the claim petition was filed on behalf of respondent no. 1 by a person whose authority had not been established and who had not been called as a witness. As a result, the claim petition was not maintainable. 

The Court then looked at the question of substantive claim limitation. The project work was finished on January 30, 2007, and the defect liability period ended on January 30, 2008, the court said. The certificate of completion was also issued on the same day. The Court determined that, in light of Article 18 of the Schedule to the Limitation Act and the fact that the final bill was raised well after January 29, 2010, the statute of limitations for the substantive claims would expire on that day. Additionally, the arbitration was also referred after the statute of limitations had run out. 

The Court then addressed the issue of the work being completed without the required authorization and how that affected the subsequent relief that was sought. The Court noted that respondent number 2, who had the ability to alter the scope of the job, was not consulted before beginning the additional work. Furthermore, they could back up their assertion that the work was completed per the Engineer-in-directions Charge's because no supporting documentation was provided. 

The Court determined that any dispute regarding the additional work would fall outside the scope of the arbitration clause and any award made thereon would be against the fundamental policy of Indian Law if the agreement, which contained the arbitration clause, did not contemplate any additional work and the contractor performed the additional work without the employer's prior consent.

The Court ruled that as the agreement did not foresee any further labour, the arbitrator could not award damages under Section 70 of the Indian Contract Act for the extra work performed without the employer's prior approval. It was decided that a quantum meruit claim could be brought before the court but not the tribunal because it directly violated the terms of the agreement. 

In light of this, the Court upheld the appeal and annulled the award. 

The National Games Secretariat (Performa Respondent No. 2, replaced by the appellant throughout the arbitration) requested bids for the construction of the venue for the National Games of India, which were to be held in the State of Assam. Larsen and Turbo Ltd (Respondent No. 1) as a result filed its bid, which was chosen, and was given the project job. As a result, the parties signed a contract on April 10, 2004. As the project's engineer-in-charge, STUP Consultants was chosen. 

On January 30, 2007, the work was finished and given to respondent number 2, and on January 30, 2008, the defect responsibility period ended. The sport complex was shielded from precipitation by extra earth filling work that respondent no. 1 had admittedly completed. Regarding the payment for the additional work performed by Respondent No. 1 on the alleged orders of the Engineer-in-Charge, there was a disagreement between the parties. Respondent No. 1 was informed that the High-Powered Committee is reviewing its request for extra work. The additional work was not based on a work order and was completed without the employer's prior approval, hence HPC rejected the claim for further payment. Respondent No. 1 received notice of this decision in a letter dated September 28, 2013. 

As a result, arbitration was requested to resolve the conflict.

Since the final bill was approved by the Engineer-in-Charge, who had also suggested the release of payment in favour of respondent no. 1 by way of a letter in the year 2011, the tribunal granted the relief in favour of respondent no. 1 by noting that, even though the additional work might not have been completed without the prior consent of respondent no. 2 (appellant currently), the DW-1 had acknowledged that the HPC had recommended additional work. Furthermore, in light of Section 70 of the Indian Contract Act, the contractor would be entitled to compensation based on quantum meruit. 

The appellant appealed the award in accordance with Section 34 of the Act, but the court rejected the argument and affirmed the decision.

Case Title: The Sports Authority of Assam v. Larsen and Turbo
Citation: Arb. A. 7 of 2020
Link: https://hcservices.ecourts.gov.in/ecourtindiaHC/cases/display_pdf.php?filename=%2FE3WiyNUWFIaR1oBGE62Wifkqf7xO0Ox91A1EmRIc%2Fm%2Fd3QkLDiDvOrsUdyYCCfn&caseno=Arb.A./7/2020&cCode=1&appFlag=