REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 3994-3995 of 2018 (Arising out of Special Leave Petition Nos. 9743-9744  OF 2013)

  Union of India                                ….Appellant(s)  

    Versus

M/s. Varindera Constructions Ltd. Etc.    …. Respondent(s)

    J U D G M E N T R.K. Agrawal, J.

1) Leave granted.

2) These two appeals are preferred against the impugned

common judgment  and order  dated 28.05.2012 passed by

the High Court of Delhi at New Delhi in FAO (OS) Nos. 238

and 239 of  2012 whereby the  Division Bench of  the  High

Court  dismissed  the  appeals  filed  by  the  appellant  herein

while upholding the decision of learned single Judge of the

High Court. Since the moot question is same in these two

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appeals,  both  would  be  disposed  off  by  this  common

judgment.

3) Brief facts:-

(a) The  appellant  herein  is  the  Union  of  India  and  the

respondent  herein  is  the  Contractor.  On  30.10.2006,  the

appellant  floated  two  tenders  for  the  construction  of  the

residential accommodations at Hissar. Pursuant to that, the

appellant received tenders of various companies.

(b) Being  the  lowest  quotation  of  the  respondent-

Contractor,  its  tender  was  accepted  by  the  appellant.  The

lump  sum  amount  of  these  two  contracts  were  Rs.

39,09,80,362.61  and  Rs.  35,21,99,854.30  respectively.

Consequently, the appellant and the respondent-Contractor

entered  into  formal  contract  and  laid  down  terms  and

conditions of the contract by which it was decided that both

would be bound and also added the clause of arbitration in

case of dispute.

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(c)  As per the terms of the contract, respondent started the

work of construction as per the schedule on 20.03.2007 and

finally  completed  the  work  within  the  stipulated  extended

time  period  of  completion.  At  this  juncture,  respondent

submitted the final  bill  along with some additional  claims.

The claim of additional amount was rejected by the appellant.

As a result,  the respondent invoked the arbitration clause

and the dispute was referred to learned Arbitrator Shri Sunil

Chopra,  Chief  Engineer  (Contract)  as  provided  under  the

Contract.

(d)  Learned Arbitrator made the Award dated 24.08.2011.

It is pertinent to note here that the respondent referred total

12 claims in the arbitration proceeding. Out of these claims,

two  were  rejected  by  learned  Arbitrator  and  one  claim  is

partly  withdrawn  by  the  respondent  and  the  remaining

claims were decided in favour of the respondent.

(e) Feeling aggrieved, the appellant filed OMP Nos. 890 and

891 of 2011 before the High Court of Delhi.  Learned single

Judge  of  the  High  Court,  vide  common  order  dated

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16.03.2012,  dismissed  both  the  petitions  and  upheld  the

Award passed by learned Arbitrator.

(f) Being  aggrieved  with  the  said  order,  the  appellant

preferred two separate first appeals being FAP (OS) Nos. 238

and  239  of  2012  respectively.   However,  the  same  two

appeals also got dismissed by the Division Bench of the High

Court in limini vide judgment and order dated 28.05.2012.

(g) As a result, the appellant has filed these two appeals by

way of special leave before this Court.

4)  We  have  given  our  thoughtful  consideration  to  the

submissions  of  learned  senior  counsel  for  the  parties  and

perused the material on record placed before us.

Point(s) for consideration:-

5) The present case is confined only to the extent  as to

whether the Award of the arbitrator and the findings of the

High Court are contrary to the express provision of Clause

19, according to which no escalation is  permissible to the

contractor for,  inter alia, increase in wages of labour due to

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statutory  hike,  which  the  contractor  may  have  to  incur

during the execution of the work on any account?

Rival contentions:-  

6) At  the  outset,  learned  senior  counsel  for  the

appellant-Union of India contended that the relationship of

the appellant and respondent is governed by the terms and

conditions of the contract and as per Clause 19 of the special

conditions,  it  is  clearly  mentioned  that  “No  escalation,

reimbursement whatsoever shall be made to the contractor for

increase in, inter-alia, wages of the labor during the execution

of the contract”. Hence, the Notification issued by the State of

Haryana which increased the minimum wages of the labour

during the subsistence of the contract does not vest any right

to the contractor to claim any extra amount on account of

labour  wages.  Hence,  the  impugned  decision  of  the  High

Court is liable to be set aside.

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7) Per  contra,  learned  counsel  for  the  respondent

submitted that this Court need not interfere with the order

passed by the High Court and the arbitral Award under the

question as the challenge in the instant appeal does not fall

within  the  contours  of  Section  34  of  the  Arbitration  and

Conciliation  Act,  1996  (for  brevity  “the  Act”).  The  alleged

challenges pertain to certain claims relating to interpretation

of  the  contract  which  falls  within  the  jurisdiction  of  the

Arbitrator and findings of facts which are final and binding

between the parties, hence, this Court ought not to interfere

if  the  interpretation  taken  is  plausible  one  and  does  not

shocks  the  conscience  of  this  Court.  Further,  it  was

submitted  that  the  impugned  decision  of  learned  single

Judge as well  as the Division Bench of  the High Court  is

well-reasoned and based on the cannon of laws which does

not  call  for  interference  by  this  Court.  Therefore,  these

appeals being devoid of merits and deserve to be dismissed.   

Discussion:-

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8) The primary object of the arbitration is to reach a final

disposition in a speedy, effective, inexpensive and expeditious

manner. In order to regulate the law regarding arbitration,

legislature  came  up  with  legislation  which  is  known  as

Arbitration  and  Conciliation  Act,  1996.  In  order  to  make

arbitration process more effective,  legislature restricted the

role  of  courts  in  case  where  matter  is  subject  to  the

arbitration.  Section  5  of  the  Act  specifically  restricted  the

interference of the courts to some extent. In other words, it is

only in exceptional circumstances, as provided by this Act,

the  court  is  entitled  to  intervene  in  the  dispute  which  is

subject  matter  of  arbitration.  Such  intervention  may  be

before, at or after the arbitration proceeding, as the case may

be. In short, court shall not intervene with the subject matter

of  arbitration  unless  injustice  is  caused  to  either  of  the

parties.

9) It is well-settled cannon of law that parties are free to

decide their own terms and conditions in case of a contract.

In the instant case, Clause 19 of the special conditions deal

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with issue of bar on reimbursement of certain payments on

account of escalation. It is apt to re-produce the said clause

19 herein below:

“19.  Reimbursement/Refund  of  Variation  in Prices:-  No  escalation,  reimbursement  what  so ever shall be made to the contractor for increase in price  of  materials  and fuels  and wages  of  labour which  the  contractor  may  have  to  incur  during execution  of  the  work  on  any  account.  The contractor shall quote their rates accordingly.”

On a plain reading of abovementioned clause, prima facie, it

appears that the appellant made it clear that the contractor

shall quote their rate after having regard to this clause that

no  reimbursement  regarding  any  escalation  whatsoever  be

made to  the  contractor  if  any such escalation takes place

during the subsistence of the contract which the respondent

with open eyes had agreed. The word  “whatsoever” as used

in Clause 19 suggests that even any escalation takes place

due  to  the  action  of  the  government  would  also  not  be

reimbursed.  

10) At  this  juncture,  we  would  also  like  to  mention  that

Clause 6.3 of special conditions, particularly, deals with the

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present issue. For the sake of convenience, it is reproduced

herein below:

“Minimum Wages Payable: 6.1.  Refer  condition  51  of  DG MAP general  conditions  of contracts.  The Contractor shall  not  pay wages  lower  than minimum wages of labour as fixed by the Govt of India/State Govt/Union Territory whichever is higher.

6.2  The fair  wage referred  to  in condition  51 of  DG MAP general  conditions  of  contracts  will  be  deemed  to  be  the same as the minimum wages payable as referred to above.

6.3. The contractor shall have no claim whatsoever, if on account of local factor and /or regulations he is required to  pay  the  wages  in  excess  of  minimum  wages  as described above during the execution of work.”

                    (Emphasis supplies by us)

On a plain reading of Clause 6.3 read with Clause 19, it is

evident that it was particularly made clear that no escalation

would be reimbursed even in the case of Regulation. Hence,

in  the  presence  of  such  clauses,  which  respondent

voluntarily  agreed  before  accepting  the  contract,  any

departure  cannot  be  allowed.  In  other  words,  now  the

respondent  cannot  claim  reimbursement  of  excess  of

minimum wages on account of hike due to the Notification of

the  Government  of  Haryana.  If  any  departure  would  be

allowed from the terms and conditions of the contract, then it

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would  destroy  the  basic  purpose  of  the  contract  provided

such conditions shall not be arbitrary.

11) In  the  impugned  decision,  the  Division  Bench of  the

High Court, at Para 6 & 7 held as under:

“6. Suffice would it be to state that clause 19 and 25 have to be  read  harmoniously.  Whereas  Clause  19  prohibits escalation to be paid with respect  to the wages of labour, Clause  25  requires  minimum  wage  increase  to  be reimbursed to  the contractor  upon there  being  an impact thereon  by  a  law  declared  by  the  State  Government.  The minimum  wages,  as  we  all  know,  are  statutorily  notified under  the  Minimum  Wages  Act,  1948.  We  note  that  the learned arbitrator has granted the benefits under the said head, but not fully recompensing the contractor the 37.46% increase  in  minimum  wages.  The  reasoning  given  by  the learned  arbitrator  is  that  the  contractor  could  have envisaged  that  there  would  be  some  increase  in  wages during the period of contract.

7.  The interpretation by the learned arbitrator,  if  at  all  is faulty, is to the detriment of the contractor, for the reason Clause 25, which commences with the expression? However? is required to be read as an exception to Clause 19 and, if so read,  the  entire  increase  in  minimum  wages  which  was result  of  a  government  notification  was  required  to  be recompensed.”

12) It is a settled law that the process of interpretation is

based on the objective view of a reasonable person, given the

context  in  which  the  contracting  parties  made  their

agreement. On a perusal of the said two paragraphs of the

impugned  judgment,  we  fail  to  understand  that  on  what

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parameters the High Court has interpreted Clause 19 in light

of  Clause  25  of  the  Contract.  Both  the  clauses  stand  on

different footing. Clause 19 deals,  inter alia, with the matter

of wages whereas Clause 25 deals with the matter of Octroi

Sales Tax and other Duties. Such interpretation adopted by

the High Court is against the cardinal principle of law which

says that the terms of the contract shall be construed by the

courts  after  having  regard  to  the  intention  of  the  parties.

Courts  ought  not  to take any hypothetical  view as it  may

cause prejudice to either of the parties.

13) It is pertinent to note here that Clause 19 does not start

with  any  word  “Subject  to”. Moreover,  there  is  no  other

provision  in  the  contract  which  specifically  allow  the

reimbursement of wages in case of escalation. In the absence

of these things, we are of the considered view that it is not

permissible in law that Clause 19 ought to be interpreted in

light of Clause 25. Also in the impugned judgment, the High

Court  without  having  regard  to  the  title  and  first  part  of

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Clause 25, interpreted Clause 19, along with the second part

of Clause 25, which is against the cannons of law.

14) To sum up, Clause 19 cannot be read in the light of

second Part of Clause 25 as both stands on different footing

i.e.,  deal  with  separate  issues.  Hence,  the

respondent-Contractor in the present case is not entitled to

claim  any  escalation  in  minimum  wages  as  it  would  be

against the condition of Clause 19 read with Clause 6.3.  

15)  In view of the above detailed discussion, we are of the

considered  view  that  the  High  Court  erred  in  law.

Accordingly, we are inclined to allow these appeals and set

aside  the  decision of  the  courts  below as  also  the  Award.

Parties to bear their own cost.  

                                          ...…………….………………………J.                               (R.K. AGRAWAL)

                                         .…....…………………………………J.                     (ASHOK BHUSHAN)

NEW DELHI; APRIL 19, 2018.  

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