M-S ASIAN TECHS LTD. v. UNION OF INDIA & OTHERS

Citation: [2009] 14 S.C.R. 182

Court: Supreme Court of India

Bench: MARKANDEY KATJU, A.K. GANGULY

Case summary

M-S ASIAN TECHS LTD. v. UNION OF INDIA & OTHERS.pdf

Judgment text

[2009] 14 (ADDL. ) S. C. R. 182 A-- MIS ASIAN TECHS LTD. + v. UNION OF INDIA & OTHERS (Civil Appeal No. 311-312 of 2003) SEPTEMBER 7, 2009 [MARKANDEY KATJU AND ASOK KUMAR GANGULY, JJ. ] .. t. Arbitration: Jurisdiction of arbitrator - Appellant-contractor entered · into works contract with respondents - Material alteration and addition in work done at the instance of respondents - Consequent delay in execution of contract - Dispute over claim raised by appellant - Arbitration clause in contract ·--r invoked - Arbitrator passed non-speaking award in favour of appellant - Decree passed in terms of the award - Set aside by High Court on ground that the arbitrator travelled beyond the. terms of reference - Propriety of - Held: Not prQper - On facts, delay in execution of the contract was solely due to default of the respondents - Relevant clauses of the contract made it clear that the arbitrator was well within its jurisdiction -J.

to decide the matter - Award of arbitrator restored - MES Regulations 1968 - Regulation 439. Non-speaking arbitral award - Interference by Court, - Scope of. Appellant-contractor entered into a works contract with the respondents. There was material alteration and addition in the work done at the instance of the respondents and consequently the execution of the -:r contract was delayed. Dispute arose over the claim raised by the appellant. The matter was referred to arbitration in terms of arbitration clause in the contract. The Arbitrator passed a non-speaking award in favour of the appellant. The Trial court dismissed the application filed for setting aside the award and passed decree in terms thereof. On appeal an~evision, the High Court set aside the award holding that under the finality clause under clauses 11(C) and 62(G) of the contract, the decision of the Commander Works Engineer (CWE) was final and binding and exempted from purview of the arbitration clause i. e.

clause 70 of the contract and consequently the arbitrator had travelled beyond the terms of the reference. Hence the present appeals. Allowing the appeals, the Court HELD: 1. 1. In the present case, it is apparent that the delay in the execution of the contract was solely due to )- the default of the respondents. The facts of the case show the repeated defaults by the respondents due to which the contract could not be completed in time. The appellant was not ready to carry out the work beyond the contracted period otherwise than on separate work orders and the subsequent correspondence makes it clear that it was on the specific assurance given by the respondent to the appellant to continue the work and that >-- the rates would be decided across the table that the appellant went ahead with the work. Hence it is now not open to the respondent to contend that no claim for further amount can be made due to clause 11(C) and that the arbitrator would have no jurisdiction to award the - .

- pendente lite and future interest and rejected the counter claims. The Subordinate Judge's Court, Ernakulam passed a decree in terms of the Award, on 8. 10. 96, while dismissing the application for setting aside the award by a common judgment. The respondents filed M. F. A. No. 452 of 1997 and CRP No. 1906 of 1998 before the High Court of Kerala, Ernakulam, challenging the decree in terms of the award. The High Court set aside the non-speaking Award, except in respect of claim No. 12 for payment of Rs. 1,20,000/- wrongfully withheld by the respondents. 7. It is alleged by the appellant that the High Court erroneously allowed C. R. P. No. 1906 of 1998, contrary to the . law declared by this Court in Essar Constructions vs. N. P. Ramakrishna Reddy (2000) 6 SCC 94, 103. In paragraph 33 of the said judgment it was observed that an application under ~- Section 115 ·of the Code of Civil Procedure, 1908, did not lie to challenge a decree passed in terms of the Award. · ·' 8.

The appellant has further alleged that the High Court ignored a long line of decisions of this Court declaring that it is not open to the Court to examine the correctness of a nonspeaking award on a reappraisal of evidence, nor for that purpose was it permissible to interpret the con~ract. It is alleged ·>that the High Court did not refer t. o the memorandum of appeal filed by the respondents. It is alleged that the High Court without stating any. reason rejected the contention of the petitioner that the Commander Works Engineer (CWE) was not the competent authority to fix the rates for extra, deviated and additional items under the contract entered into with Respondent No. 2. and beyond the period of contract and that his pecuniary jurisdiction ~ was only up to Rs. 20,000/-, stipulated in MES Regul~tioh, 1968 and that no final decision on the objections of the· petitioner against erroneous fixation of rates was ever communicated by the Chief Engineer, who is the accepting officer.

It is alleged that the. High Court erroneously assumed that extensions of time granted by Respondent No. 2. from time to time, deprived the petitioner of its right for due payment at the then prevailing rates for delayed works at the instance of the respondents. _)_ 9. The High Court by the impugned order allowed the appeal and revision making the following observations: ...... "We, therefore, hold that the award passed by the arbitrator . in respect of claim Nos. 1 to 3, 5, 9, 17, 19, 21, 23, 24, 26, 30, 33, 35, 37, 38, 40, 41, 44 and 46 is against the conditions agreed to by the contracting parties and in G. conscious disregard of the terms of the contract and also the arbitration clause from which the arbitrator derives his authority. We are, however, not interfering with the award in respect of claim No. 12 alone, which in our view is binding on the appellants.

We hold that the arbitration clause 70 was conditional one giving finality to the decisions of CWE as per the various provisions, clauses 62(G) and 11 (C) of the contract. The award of the arbitrator and the orders of the court below in Arbitration O. P. Nos. 4 and 18of1994 to the Extent to which they are covered by clauses 62(G) and 11(C) except claim No. 12 are set aside and the Arbitration O. P. No. 18of1994 filed by Union of India is allowed as above. The appeal and the revision are allowed as above. In the facts and circumstances of this case, we are not awarding costs. " 10. It can be seen that the High Court has set aside the arbitrator's award holding that under the finality clause under clauses 11 (C) and 62(G), the decision of the Commander Works Engineer (CWE) is final and binding and has been exempted from the purview of the arbitration clause, which is clause 70 of the contract. Thus the High Court held that the arbitrator travelled beyond the terms of reference. 11.

In this connection we may refer to clause 70 of the contract which is the arbitration clause. The said clause reads as follows: "70. Arbitration ),. All disputes, between the parties to the Contract (other than those for which the decision of the CWE or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Engineer Office to ·be appointed by the authority mentioned in the tender documents. " Clause 11 of the contract reads as follows: "11. Time, delay and Extension (A) Time is of the essence of the contract and is specified in contract documents or in each individual Works Order. ... As soon as possible after the contract is let or any substantial Works Order is placed and before work under it has begun, the G. E. And the Contractor shall agree upon a Time Progress Chart.

The Chart shall be prepared in direct relation to the time stated in the contract documents or the Works Order for completion of the individual items thereof, and/or the Contract or Works order as a whole. (B) If the works be delayed: (a) by reason of non-availability of Government stores mentioned in Schedule 13; or (b) by reason of non-availa~ility or breakdown of Govt. Tools and Plant mentioned in Schedule 'C' then, in any such event, notwithstanding the provisions hereinbefore contained, the G. E. May in his discretion grant such extension of time as may appear reasonable to him and the Contractor shall be bound to complete the works within such extended time. In the event of the Contractor not agreeing to the extension granted by the Garrison Engineer, the matter shall be referred to the Accepting Officer (or CWE in case of contract accepted by Garrison Engineer) whose decision shall be final and binding.

(C) No claim in respect of compensation or otherwise, hoW5oever arising, as a result of extensions granted under Conditions (A) and (B) above shall be admitted. " Clause 62(G) of the Contract states as under: "(G) For all Contracts - If any work, the rate for which cannot be obtained by any of the methods referred to in paras (A) to (E) above, has been ordered on the contractor, the rate shall be decided by the G. E. On the basis of the cost to the Contractor at Site of Works plus 10% to cover all overheads and profit. Provided that if the contractor is not satisfied with the decision of the G. E. He shall be entitled to represent the matter to the C. W. E. Within seven days of receipt of the G. E. 's decision and the decision of the C. W. E. Thereon shall be final and binding.

If any alterations or additions (other than those authorised to be executed by day work or for an agreed sum) have been covered up by the Contractor without his having given notice of his intention to do so, the Engineerin-Charge shall be entitled to appraise the value thereof and in the event of any dispute the decision of the G. E. Thereon shall be final and binding. ". 12. In the present case it is apparent that the delay in the execution of the contract was solely due to the default of the respondents. In this connection we may refer to the following facts. (1) The Assistant Garrison Engineer sent letter dated 21. 06. 1988 admitting suspension of works of beams & of . E main roof slab building, due to non-finalization of design. (2) The user of the building i. e. NPOL directed stoppage of many items of work pending their final decisions on them by letter dated 17. 09. 1988. (3) On 26. 9.

1987 the appellant notified the respondents about the idling due to non-finalization of various structural particulars, and demanded compensation. The appellant again sent notice dated 9. 2. 1988 intimating the respondent about idling at the site and losses due to nonfinalization of designs and particulars. The Assistant Garrison Engineer sent a letter on 21. 6. 1988 admitting suspension of works of beams and of main roof slab building due to non-finalization of design. (4) On 17. 9. 1988 the user of the building i. e. NPOL directed stoppage of many items of works pending their ;.... final decision on them. Also, by letter dated 26. 9. 1988 )respondent No. 3 directed stoppage of construction of many items of work pending their final decision on structural particulars. (5) On 10. 11. 1988 respondent No. 3 intimated unconditional grant of extension of time from 8. 9. 1988 to 31. 1. 1989 by respondent No. 2. . A_ . (6) The appellant by letter dated 24. 11·. 1988 requested respondent Nos.

2 & 3 to settle accounts of the value of ! the works already carried out, to make payment in terms ) I of the agreement and to close the agreement due to continued suspension of works and increased cost of ,. ___ construction due to efflux . of time so as to arrange the (- ·-( remaining· works through separate work orders ' (7) The Assistant Garrison Engineer of respondent No. 3 sent a letter dated 11. 10. 1989 assuring the petitioner to settle rates across the table and directed to carry out such items, agreeing to take up objections as to rates, for settlement by the appropriate authority. (8) Respondent No. 3 on 23. 11. 1990 wrote to the appellant --'. "' directing it to forvard paid vouchers for items to take up the objections as to rates before the respondent No. 2, who was the Accepting Officer. . ~~ . ,.. (9) The last bill amount of Rs. 7,87, 143/- was paid by respondent No. 3 which was received by the appellant under protest.

(10) The ·appellant issued demand notice for paynient of Rs. 1,24,58,108/- being the unpaid amount allegedly due Y' :and payable to it. - All the above facts show the repeated defaults by the respondents due to which the contract could not be completed J. in time. ~ 13. The letter dated 24. 11. 1988 makes it clear that the appellant was not ready to carry out the work beyon~ the contracted period otherwise than on separate work orders, and the subsequent correspondence like the letter dated 11. 10. 1989 makes it clear that it was on the specific assurance given by the respondent to the appellant to continue the work and that the rates would be decided across the table that the appellant went ahead with the work. Hence, in our opinion it is now not open to the respondent to contend that no claim for further amount can be made due to clause 11(C) and that the arbitrator would have no jurisdiction to award the same. 14.

Clause 62(G) read with clause 7 make it clear that the y finality provided under clause 62(G) applies only to cases of '. deviation' and not in a case when there is a material alteration and addition in the work done, as is clear from the correspondence between the parties in the present case. 15. Moreover, Regulation 439 of tne MES Regulations 1968 fixes the pecuniary jurisdiction of the CWE at Rs. 20,000/ iE - only. It is evident that the CWE has no jurisdiction to decide ';.. the dispute where the valuation is above Rs. 20,000/-, as in the present case. The finality of the decision of the CWE applies only where the dispute is not exceeding Rs. 20,000/-. Hence, in our opinion, the arbitrator was within his jurisdiction to decide the matter in question. 16. It is well-settled that in the case of non-speaking awards under the Arbitration Act, 1940 the Court has very little scope of interference vide State of Rajasthan vs. Nav Bharat Construction Co.

(2006) 1 SCC 86, Raipur Development y Authority vs. Chokhamal Constructions (1989) 2 SCC 721, Arosan Enterprises Ltd. vs. Union of India (1999) 9 SCC 449, /spat Engineering vs. Steel Authority of India (2001) 6 SCC 347, D. D. Sharma vs. Union of India (2004) 5 SCC 325. 17. It has been held by this Court in National Insurance ~ Company Ltd. vs. Boghara Polyfab Pvt. Ltd (2009) 1 SCC 267 that even in the case of issuance of full and final discharge/ settlement voucher/no-dues certificate the arbitrator or Court can go into the question whether the liability has been satisfie~ or not. This decision has followed the view taken in Chairman· and Managing Director, NTPC Ltd. vs. Reshmi Constructions, Builders and Contractors (2004) 2 SCC 663 (vide paragraphs 27 and 28). ~- 18. Apart from the above, it has been held by this Court in Board of Trustees, Port of Calcutta vs.

Engineers-De-Space- Age (1996) 1 SCC 516, that a clause like clause 11 only prohibits the department from entertaining the claim, but it did not· prohibit the arbitrator from entertaining it. This view has . been followed by another Bench of this Court in Bharat Drilling -"( & Treatment Pvt. Ltd.. vs. State of Jharkhand &others in Civil Appeal No. 10216 of 2003 decided on 20th August, 2009. 19. For the reasons given above we are not in agreement with the view taken by the High Court that the award of the arbitrator was without jurisdiction. In the facts and circumstances of the case, we allow these appeals and set aside the impugned order of the High Court and restore the award of the ~ arbitrator. No costs. B. B. B. Appeals allowed.