NATIONAL FERTILIZERS versus PURAN CHAND NANGIA

Citation: [2000] SUPP. 4 S.C.R. 26 · Decided: 17-10-2000 · Supreme Court of India · Bench: M. JAGANNADHA RAO · Disposal: Dismissed

Judgment (excerpt)

A 
NATIONAL FERTILIZERS 
v. 
PURAN CHAND NANG IA 
OCTOBER 17, 2000 
B 
[M. JAGANNADHA RAO AND K.G. BALAKRISHNAN, JJ.) 
Arbitration : 
Works contract-Acceptance of tender-Applicability of quoted rates 
C for a variation upto ± 25% of contract value and higher market rates beyond 
the variation-Claim for higher rates-Arbitrator awarding 50% of higher 
rates-Jurisdiction of arbitrator-Held, on facts, there is no error of law in 
the award of the arbitrator. 
D 
Works contract-Changes in terms of contract-Held, the terms of 
contract cannot be altered unilaterally to the detriment of opposite party. 
Appellant-company invited quotations for works amounting to Rs. 
3,39,88,000. The quotation of respondent-contractor was accepted and was 
given 48% of the work only. The work order issued by the appellant consisted 
E a clause stating that the quoted rates of the respondent is applicable for a 
variation upto ±. 25% of contract value beyond which higher market rates 
would be applicable. Original date of completion of work was extended by 4 
months. The respondent submitted a final bill at higher rates since the 
variations went above 25% of the contract value. The appellant, besides holding 
F 
the respondent for delay in completion of work, rejected the bill stating that 
the higher rates is justified only if the total contract value of the work has 
increased or decreased by 25% and not on account of any increase or decrease 
in the quantity of individual items. Further, the appellant made a cross-claim 
from the respondent for compensation of Rs. 7.64 lakhs on account of delay 
in completion since another contractor had to be appointed for completing 
G the work. On reference of the disputes to arbitration, arbitrator gave a non-
speaking award. The arbitrator awarded 50% of the.extra claim to the 
respondent and rejected the claim of the appellant for compensation. On appeal 
Trial Court set aside the award of the arbitrator on the ground that the 
reference was bad and gave alternative finding!'. High Court, allowing the 
appeal of the respondent, held that the reference was maintainable and directed 
H 
26 
.• 
NA TI ON AL FERTILIZERS v. PU RAN CHAND NANG IA 
27 
that the award be made a Rule of Court. 
A 
In appeal to this Court, the appellant contended that tlie arbitrator acted 
beyond his jurisdiction in granting higher rates for the work done upto the 
extended date, which was contrary to the work order issued; that the higher 
rates are applicable only if the net difference between the increases and 
decreases works out to more than 25% of the contract value; that the variation B 
limit of±25% of the contract price was applicable on the total contract price 
and not on individual quantities or items; and that the award by the arbitrator 
at a flat rate of 50% of the extra claim is contrary to the terms and conditions 
of the tender. 
The respondent contended that if the sum total of the variations, both C 
plus and minus, exceeded 25%, the market rates are applicable; and that the 
Trial Court has found as a finding, that the sum total of the additions and 
deletions in the work exceeded l 00%. 
Dismissing the appeal, the Court 
D 
HELD: 1.1. The concept of variation of the question of work is a common 
feature of works contracts. This is because in contracts relating to major 
works, the estimates of work at the time of inviting the tenders can only be 
approximate. But the power of the employer to vary the terms relating to the 
quantum of work cannot be unlimited. Under the general law of Contracts, E 
. once the contract is entered into, any clause giving absolute power to one 
party to override or modify the terms of the contract at his sweet will or to 
cancel the contract - even if the opposite party is not in breach - will amount 
to interfering with the integrity of the contract. f35-E; 36-BJ 
1.2. The variation clause was understood by the arbitrator in a F 
reasonable manner as being applicable to a case where the value of the sum 
total of the additions and deletions exceeded 25% of the contract price. That 
construction cannot be said to be vitiated by any serious error of law. When 
a contractor bids in a contract, he has to offer reasonable rates for the works 
which are both difficult to perform and others works, which are not difficult G 
to perform. Every contractor tries to balance his rates in such a manner that 
the employer may consider his offer reasonable. In that process the contractor 

Excerpt shown. Read the full judgment & AI analysis in Lexace.