TARAPORE AND CO. versus STATE OF MADHYA PRADESH

Citation: [1994] 1 S.C.R. 1012 · Decided: 16-02-1994 · Supreme Court of India · Bench: B.P. JEEVAN REDDY, B.L. HANSARIA

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Judgment (excerpt)

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I 
A 
TARAPORE AND CO. 
v. 
STATE OF MADHYA PRADESH 
FEBRUARY 16, 1994 
~I 
B 
[B.P. JEEVAN REDDY AND B.L. HANSARIA, JJ.] 
Arbitration Ac~ 1940: Sections 16(1)(b), 20(1) and 30(a). 
Agreement-Arbitration clause-Provision requiring Contractor to pay 
c not less than fair wages and to observe labour laws without having any claim 
against state-Payment of increased amount of wages on account of rise in 
minimum wages-Payment not pursuant to any term of contract but under 
mandate of law-Payment off air wages by Contractor under terms of con-
,1 
tract-Claim by Contractor-Award by arbitrator allowing Contractor's 
D 
claim-Award held valid qua increase in fair wages but held invalid qua rise 
in minimum wages--/n the assence of express provision for escalation Ar-
bitrator can award amount of escalation if the terms of agreement permit by 
necessary implication. 
,_ 
The appellant entered in to a contract with the respondent for 
E 
construction of a Masonry Dam which provided for settlement of dispute 
arising out of contract by arbitrathm. Further, the conditions in the tender 
notice provided: (i) the contractor should observe all Labour Laws without 
having any claim on Irrigation Department and (ii) the contractor shall 
pay not less than fair wage to labourers engaged by him on the work 
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whether for time or piece work notified at the time of inviting tenders for 
the work. Subsequent to the entering of agreement, the State revised 
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minimum wages. Accordingly, the appellant paid the revised wages and 
made claim on the said count but the claim was rejected by the respondent. 
On a reference sought by the appellant under Section 20(1) of the 
G Arbitration Act, 1940 two arbitrators were appointed before whom the 
appellant made bis claim on the aforesaid count. The State denied its 
liability to reimburse stating that the contractor was not entitled to the 
increased amount on account of revi~ion of wages. However, the arbitrator 
awarded a sum of rupees 236 lakhs to the appellant. 
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H 
The State challenged the validity of the award before the District 
1012 
TARAPORECO. v. STATEOFM.P. 
1013 
Judge on the ground that the arbitrators had not decided the question of A 
the liability of the State to reimburse the claim due to escalation of wages 
which was one of the matters referred to the arbitrators. Regarding the 
quantum of award, it was contended that the arbitrator could not have 
calculated the amount on the task-basis ·Of the sub-contractor and piece 
workers. The District Judge took the view that the difference in wages was 
required to be calculated on "actual basis" unless the parties agreed upon 
some other formula for calculation. As the arbitrators had calculated the 
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amount taking the labour components as 35 per cent, the finding of the 
arbitrator was held to be based on "wrong basis". Therefore, the District 
r-
Judge remitted the award under Section 16(1)(c) of the Act to the ar-
bitrators to find out the amount reimbursable on "actual basis" and not C 
on "notional basis". 
After the matter was taken up again by the arbitrators, the appellant 
furnished details of wages, duly verified by the Labour Welfare Officer, 
paid by it to the labourers directly and also details of payments made to 
piece workers. The arbitrators awarded Rs.236 lakhs to the appellant. 
D 
The State filed an application for setting aside the award on the 
ground that the arbitrators erred in fixing the liability to reimburse the 
escalate~ wages in the face of clear condition in the agreement of contract, 
that the appellant was bound to comply with all labour laws an~ to make E 
payments at the rates prescribed; there was no clause in the work contract 
to allow claim towards escalated payments of wages. The District Judge 
set aside the award on the ground that arbitrators did not at all consider 
whether the State was liable to reimburse and that the quantification was 
also defective. 
The appellant filed appeal in the High Court which upheld the order 
of District Judge setting aside the award holding that the arbitrators ought 
to have given their finding in so far as primary question of liability was 
concerned which, however, was not done. On the question of quantum also 
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the High Court found fault inasmuch as in the second award also the same G 
basis had been adopted as had been done in the first award, which had 
been regarded as wrong by the District Judge. 
In appeal to this Court it was contended

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