M/S. HARSHA CONSTRUCTIONS Vs UNION OF INDIA .
Bench: ANIL R. DAVE,VIKRAMAJIT SEN
Case number: C.A. No.-000534-000534 / 2007
Diary number: 25738 / 2005
Advocates: G. RAMAKRISHNA PRASAD Vs
D. S. MAHRA
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REPORTABLE
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.534 OF 2007
M/s Harsha Constructions … Appellant
Versus
Union of India & Ors. … Respondents
J U D G M E N T
ANIL R. DAVE, J.
1. Aggrieved by the judgment dated 9th
September, 2005 delivered by the High Court of
Judicature, Andhra Pradesh at Hyderabad, in CMA
No.476 of 2005, this appeal has been filed by M/s
Harsha Constructions, a contractor, against Union
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of India and its authorities. Hereinafter, the
appellant has been described as a 'Contractor'.
2. The Union of India had entered into a
contract for construction of a road bridge at a
level crossing and in the said contract there was
a clause with regard to arbitration. The issue
with which we are concerned in the instant case,
in a nutshell, is as under:-
“When in a contract of arbitration, certain disputes are expressly “excepted”, whether the Arbitrator can arbitrate on such excepted issues and what are the consequences if the Arbitrator decides such issues?”
3. For the purpose of considering the issue, in
our opinion, certain clauses incorporated in the
contract are relevant and those clauses are
reproduced hereinbelow :-
“Clause 39. Any item of work carried out by the Contractor on the instructions of the Engineer which is not included in the accepted schedule of rates shall be executed at the rates set forth in the “Schedule of Rates, South Central
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Railway” modified by the tender percentage and where such items are not contained in the latter at the rates agreed upon between the Engineer and the Contractor before the execution of such items of work and the Contractor shall be bound to notify the Engineer at least seven days before the necessity arises for the execution of such items of work that the accepted schedule of rates does not include a rate or rates for the extra work involved. The rates payable for such items shall be decided at the meeting to be held between the Engineer and the contractor in as short a period as possible after the need for the special item has come to the notice. In case the contractor fails to attend the meeting after being notified to do so or in the event of no settlement being arrived at the Railway shall be entitled to execute the extra works by other means and the contractor shall have no claim for loss or damage that may result from such procedure. Provided that if the Contractor commences work or incurs any expenditure in regard thereto before the rates are determined and agreed upon as lastly mentioned, then and in such a case the Contractor shall only be entitled to be paid in respect of the work carried out or expenditure incurred by him prior to the date of the rates as aforesaid according to the rates as shall be fixed by the Engineer. However, if the contractor is not satisfied with the decision of the Engineer in this respect he may appeal
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to the Chief Engineer within 30 days of getting the decision of the Engineer supported by the analysis of the rates claimed. The Chief Engineer's decision after hearing both the parties in the matter would be final and binding on the contractor and the Railway.” “Clause-63. All disputes and differences of any kind whatsoever arising out of or in connection with the contract whether during the progress of the work or after its completion and whether before or after the determination of the contract shall be referred by the Contractor to the Railway and the Railway shall within a reasonable time after receipt of the contractor's presentation make and notify decisions on all matters referred to by the contractor in writing provided that matters for which provision has been made in Clause 18, 22(5), 39, 45(a), 55, 55-A(5), 61(2) and 62(1) (xiii)(B)(e)(b) of the General Conditions of contract or in any Clause of the Special conditions of the contract shall be deemed as 'Excepted matters' and decisions thereon shall be final and binding on the contractor; provided further that excepted matters shall stand specifically excluded from the purview of the arbitration clause and shall not be referred to arbitration.”
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4. Upon perusal of Clause 63 of the aforestated
contract, it is quite clear that the matters for
which provision had been made in Clauses 18,
22(5), 39, 45(a), 55, 55-A(5), 61(2) and 62(1)
(xiii)(B)(e)(b) of the General Conditions of
Contract were “excepted matters” and they were
not to be referred to the arbitrator.
5. In the instant case, we are concerned with a
dispute which had arisen with regard to the
amount payable to the contractor in relation to
extra work done by the contractor.
6. Upon perusal of Clause 39, we find that in
the event of extra or additional work entrusted
to the contractor, if rates at which the said
work was to be done was not specified in the
contract, the amount payable for the additional
work done was to be discussed by the contractor
with the concerned Engineer and ultimately the
rate was to be decided by the Engineer. If the
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rate fixed by the Engineer was not acceptable to
the contractor, the contractor had to file an
appeal to the Chief Engineer within 30 days of
getting the decision of the Engineer and the
Chief Engineer’s decision about the amount
payable was to be final.
7. It is not in dispute that some work, which
was not covered under the contract had been
entrusted to the contractor and for determining
the amount payable for the said work, certain
meetings had been held by the contractor and the
concerned Engineer but they could not agree to
any rate. Ultimately, some amount was paid in
respect of the additional work done, which was
not acceptable to the contractor but the
contractor accepted the same under protest.
8. In addition to the aforestated dispute with
regard to determination of the rate at which the
contractor was to be paid for the extra work done
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by it, there were some other disputes also and in
order to resolve all those disputes, Respondent
No.5, a former Judge of the High Court of Andhra
Pradesh, had been appointed as an Arbitrator.
9. The learned Arbitrator decided all the
disputes under his Award dated 21.9.2002 though
the contractor had objected to arbitrability of
the disputes which were not referable to the
Arbitrator as per Clause 39 of the Contract.
Being aggrieved by the Award, Union of India had
preferred an appeal before the Chief Judge, City
Civil Court, Hyderabad under Section 34 of the
Arbitration and Conciliation Act, 1996
(hereinafter referred to as “the Act”) and the
said appeal was allowed, whereby the Award was
set aside.
10. Before the City Civil Court, in the appeal
filed under Section 34 of the Act, the following
two issues had been framed :-
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(a) Whether the dispute was in relation to an “excepted matter” and was not arbitrable? (b) Whether the claimant was entitled to the amounts awarded by the Arbitrator?
11. The Court decided the appeal in favour of
the respondent and against the contractor. Being
aggrieved by the order dated 8.4.2005 passed by
the XIVth Additional Chief Judge, City Civil
Court, Hyderabad, CMA No.476 of 2005 was filed by
the contractor before the High Court and the High
Court was pleased to dismiss the same by virtue
of the impugned judgment and therefore, the
contractor has filed this appeal.
12. The learned counsel appearing for the
appellant-contractor had mainly submitted that as
per Clause 39 of the contract, the Engineer of
the respondent authorities was duty bound to
decide the rate at which payment was to be made
for the extra work done by the contractor,
through negotiations between the parties. A
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final decision on the said subject was taken by
the respondent authorities without the
contractor's approval and therefore, there was a
dispute between the parties. He had further
submitted that no specific decision was taken by
the Engineer and therefore, there was no question
of filing any appeal before the Chief Engineer
and as the Chief Engineer did not take any
decision, the aforestated clauses, viz. Clauses
39 and 64 would not apply because clause 64 would
“except” a decision of the Chief Engineer, but as
the Chief Engineer had not taken any decision,
there was no question with regard to “referring
to” clause 39. He had, therefore, submitted that
the Award in toto was correct and the High Court
had wrongly upheld the dismissal of the Award by
the trial Court.
13. The learned counsel had, thereafter,
referred to the judgments delivered by this Court
in General Manager, Northern Railway and another
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v. Sarvesh Chopra [(2002) 4 SCC 45] and Madnani
Construction Corporation (P) Limited v. Union of
India & ors.[(2010) 1 SCC 549] to substantiate
his case.
14. The learned counsel had, thereafter,
submitted that the appeal deserved to be allowed
and the judgment delivered by the High Court
confirming the order passed by the City Civil
Court deserved to be quashed and set aside.
15. There was no representation on behalf of
the Union of India and therefore, we are
constrained to consider the submissions made by
learned counsel for the appellant only.
16. Upon perusal of both the clauses included
in the contract, which have been referred to
hereinabove, it is crystal clear that all the
disputes were not arbitrable. Some of the
disputes which had been referred to in Clause 39
were specifically not arbitrable and in relation
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to the said disputes the contractor had to
negotiate with the concerned Engineer of the
respondent and if the contractor was not
satisfied with the rate determined by the
Engineer, it was open to the contractor to file
an appeal against the decision of the Engineer
before the Chief Engineer within 30 days from the
date of communication of the decision to the
contractor.
17. In the instant case, there was no finality
so far as the amount payable to the contractor in
relation to the extra work done by it is
concerned, because the said dispute was never
decided by the Chief Engineer. In the aforestated
circumstances, when the disputes had been
referred to the Arbitrator, the disputes which
had been among “excepted matters” had also been
referred to the learned Arbitrator.
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18. Upon perusal of the case papers we find that
before the learned Arbitrator, the contractor
did object to the arbitrability of the disputes
covered under Clause 39, but the Arbitrator had
decided the said issues by holding that the same
were not “excepted matters” but arbitrable.
19. The question before this Court is whether
the Arbitrator could have decided the issues
which were not arbitrable.
20. Arbitration arises from a contract and
unless there is a specific written contract, a
contract with regard to arbitration cannot be
presumed. Section 7(3) of the Act clearly
specifies that the contract with regard to
arbitration must be in writing. Thus, so far as
the disputes which have been referred to in
Clause 39 of the contract are concerned, it was
not open to the Arbitrator to arbitrate upon the
said disputes as there was a specific clause
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whereby the said disputes had been “excepted”.
Moreover, when the law specifically makes a
provision with regard to formation of a contract
in a particular manner, there cannot be any
presumption with regard to a contract if the
contract is not entered into by the mode
prescribed under the Act.
21. If a non-arbitrable dispute is referred to
an Arbitrator and even if an issue is framed by
the Arbitrator in relation to such a dispute, in
our opinion, there cannot be a presumption or a
conclusion to the effect that the parties had
agreed to refer the issue to the Arbitrator. In
the instant case, the respondent authorities had
raised an objection relating to the arbitrability
of the aforestated issue before the Arbitrator
and yet the Arbitrator had rendered his decision
on the said “excepted” dispute. In our opinion,
the Arbitrator could not have decided the said
“excepted” dispute.
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22. We, therefore, hold that it was not open to
the Arbitrator to decide the issues which were
not arbitrable and the award, so far as it
relates to disputes regarding non-arbitrable
disputes is concerned, is bad in law and is
hereby quashed.
23. We also take note of the fact that the
contract had been entered into by the parties on
24.4.1995 and the contractual work had been
finalised on 31.3.1997. The Award was made on
21.9.2002 and therefore, we uphold the portion of
the award so far as it pertains to the disputes
which were arbitrable, but so far as the portion
of the arbitral award which determines the rate
for extra work done by the contractor is
concerned, we quash and set aside the same.
24. Needless to say that it would be open to
the contractor to take appropriate legal action
for recovery of payment for work done, which was
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not forming part of the contract because the said
issue decided by the Arbitrator is now set aside.
25. For the reasons recorded hereinabove, the
appeal is partly allowed with no order as to
costs.
…………...........................J. (ANIL R. DAVE)
…..........................................J. (VIKRAMAJIT SEN)
New Delhi September 05, 2014.