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Issues: (i) Whether the contractor could claim extra cost for rise in prices of materials and labour despite the contractual clauses governing completion at stipulated rates and time. (ii) Whether the award was liable to be set aside for legal error or misconduct on the part of the arbitrator.
Issue (i): Whether the contractor could claim extra cost for rise in prices of materials and labour despite the contractual clauses governing completion at stipulated rates and time.
Analysis: The contract contained express clauses requiring the contractor to execute the work at the stipulated rates and to complete it notwithstanding escalation in prices or labour charges. The Court held that a contractor who has accepted such terms cannot, merely because performance has become onerous, claim compensation at higher rates on a general equity basis. The plea under Section 56 of the Contract Act, 1872 was rejected because the contract had not become impossible or frustrated; it remained binding according to its terms.
Conclusion: The claim for extra cost on account of rise in prices of materials and labour was not legally maintainable and was against the contractor.
Issue (ii): Whether the award was liable to be set aside for legal error or misconduct on the part of the arbitrator.
Analysis: The Court held that where a general question is referred, the Court may examine whether the arbitrator ignored a specific contractual objection going to the legality of the claim. Mere reference to the contract in the award did not incorporate the contract so as to bar scrutiny of the legal basis of the claim. The arbitrator was found to have misdirected himself by allowing the extra claim without deciding the State's objection based on the contract, and this constituted a valid ground to interfere under the Arbitration Act, 1940.
Conclusion: The award was rightly set aside and the challenge to it failed.
Final Conclusion: The Court affirmed that a contractor cannot override express contractual stipulations on escalation by invoking general equitable considerations, and an arbitral award may be interfered with where the arbitrator fails to address a specific legal objection arising from the contract.
Ratio Decidendi: An arbitral award can be set aside where the arbitrator disregards an express contractual bar affecting the legality of the claim, and a party to an executory contract cannot obtain compensation contrary to the agreed rates merely because performance has become more onerous.
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