“REPORTABLE”

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1735 OF 2006

Durga Charan Rautray …. Appellant

Versus

State of Orissa & Anr. …. Respondents

J U D G M E N T

JAGDISH SINGH KHEHAR, J.

1. The appellant was entrusted with the construction of balance work of  

earth  dam  in  connection  with  the  Kharkhai  Irrigation  Project  upto  RL  

316.50  on 31.12.1975.  The estimated cost of the said balance work was  

Rs.13,78,810/-.   As  per  the  contract  agreement,  the  work  was  to  

commence on 1.1.1976 and was to be completed on or before 31.7.1976.  

For  some  reasons  including  change  in  design,  the  work  could  not  be  

completed within the prescribed time.  The appellant eventually completed  

the  assigned  work  in  July,  1978.   This  delay  in  completion  of  work,  

according to the appellant, resulted in financial loss to the appellant.  In  

addition to the aforesaid, the appellant had some other grievances as well.  

Illustratively, the appellant sought payment towards some additional work  

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executed by him, and also, refund of royalty deducted on account of the  

supply of “morum”.  All these disputes were raised by the appellant, with  

the concerned respondent(s).   The respondent(s) chose not to entertain  

the claims raised by the appellant.  In fact, all communications addressed  

by the appellant to the respondents remained unanswered.  The appellant  

then sought reference of his claims for adjudication before an arbitrator.  

This  request  of  the  appellant  was  also  not  heeded  to.   The  appellant  

thereafter obtained a Court order dated 15.5.1981, whereby the disputes  

raised by the appellant were referred to an arbitral tribunal.  The arbitral  

tribunal examined nine items of claim raised by the appellant.

2. The  award  rendered  by  the  arbitral  tribunal  dated  15.9.1998,  

adjudicated claim item nos. 4, 5, 6 and 9, in favour of the appellant.  In so  

far  as  claim  item  no.4  is  concerned,  the  appellant  had  demanded  an  

additional amount of Rs.2 lakhs on account of price escalation.  This claim  

was based on the fact, that after the work was assigned to him, the State  

Government  had revised minimum wages  of  labour,  and increased the  

same by 16%.  The appellant, accordingly, claimed extra payment of 16%  

over the gross amount paid in the final bill.  The arbitral tribunal held the  

appellant entitled to Rs.24,380/- towards price escalation.  In claim item  

no.5,  the  appellant  claimed  Rs.5,51,173/-  towards  cost  of  “morum”  

supplied, but for which no payment had been released.  In this behalf, the  

appellant claimed carriage of 47,106 cubic meters with 15 kilometers lead,  

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at the rate of  Rs.21.35 per cubic meter.   While adjudicating the instant  

claim,  the  arbitral  tribunal  found the  appellant  entitled  to  the  difference  

between the cost of supply of “morum”, as against the cost of supply of  

“earth”.  In respect of claim item no.5, the appellant was held entitled to a  

sum of Rs.78,667/-.  In claim item no.6, the appellant demanded a refund  

of  Rs.20,727/-  deducted  towards  royalty  from  his  bills.   The  aforesaid  

royalty was allegedly charged on the “morum” supplied by the appellant.  

The appellant was held entitled to refund of the entire sum of Rs.20,727/-  

deducted from his bills towards royalty.   In so far as claim item no.9 is  

concerned, the appellant claimed interest at the rate of 18% per annum on  

the principal claim amount, from the due date till the date of final payment.  

The arbitral tribunal held the appellant entitled to interest at the rate of 10%  

per annum on the principal awarded amount of Rs.1,23,724/-, with effect  

from 19.8.1981 (i.e., the date with effect from which the Interest Act, 1978  

came  into  force)  till  5.4.1992.   Calculated  in  the  aforesaid  terms,  the  

arbitral tribunal awarded interest of Rs.1,31,544/- to the appellant.

3. Notice to make the arbitral award dated 15.9.1998 “rule of the court”  

was issued on 22.2.1999.   In March, 1999, the respondents were served  

with  the said  notice.   On 21.12.1999,  the Government  Pleader  entered  

appearance  on  behalf  of  the  respondents,  and  sought  time  to  file  

objections.  Objections on behalf of the respondents were filed before the  

Civil  Judge, Senior Division, Bhubaneswar on 6.3.2000.  To contest the  

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arbitral  award  dated  15.9.1998,  the  respondents  filed  objections  under  

sections 30 and 33 of the Arbitration Act, 1940 by filing a “Miscellaneous  

Case”.   It  would  be  relevant  to  mention  that  section  30  aforesaid,  

postulates the grounds for setting aside an award,  whereas,  section 33  

lays down the course to be adopted for challenging, inter alia, the validity  

of an arbitral award.

4. The “Miscellaneous Case”, filed by the respondents was contested  

by the appellant inter alia by raising a preliminary objection.  It was sought  

to be asserted,  that  the “Miscellaneous Case” was barred by limitation.  

The “Miscellaneous Case” filed by the respondents was rejected by the  

Civil  Judge,  Senior  Division,  Bhubaneshwar  by  accepting  the  plea  of  

limitation  raised  by  the  appellant.   The  suit  filed  by  the  appellant  was  

decreed on 30.4.2002.  The award of the arbitral tribunal dated 15.9.1998  

was made “rule of the court”.  The respondents were directed to pay the  

awarded amount to the appellant, failing which, the appellant was granted  

liberty to recover the same through Court.   

5. Dissatisfied  with  the  order  passed  by  the  Civil  Judge,  Senior  

Division, Bhubaneshwar, the respondents preferred an appeal before the  

High Court of Orissa under section 39 of the Arbitration Act, 1940.  In the  

said appeal, the respondents raised two contentions.  Firstly it was sought  

to be asserted, that the objections filed by the respondents through the  

“Miscellaneous Case” filed under sections 30 and 33 of the Arbitration Act,  

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1940,  were  wrongly  rejected  by  the  Civil  Judge,  Senior  Division,  

Bhubaneshwar, on the ground of limitation.  Secondly it was asserted, that  

the controversy raised by the appellant could not have been referred for  

adjudication by way of arbitration, after the appellant had received the final  

bill without raising any objection.   

6. The  determination  by  the  Civil  Judge,  Senior  Division,  

Bhubaneshwar, on the issue of limitation was upheld by the High Court.  

Yet the contention advanced at the hands of the respondents, that it was  

not open to the appellant to have sought adjudication of his claims, by way  

of arbitration, after the appellant had received payments on the preparation  

of the final bill without raising any objections, was accepted.  In sum and  

substance, therefore, by its order dated 22.12.2003 it was concluded by  

the High Court, that the appellant could not reap the benefits of the award  

rendered by the arbitral tribunal in his favour on 15.9.1998.

7. Dissatisfied  with  the judgment  rendered  by the  High Court  dated  

22.12.2003,  the  appellant  filed  a  petition  for  special  leave  to  appeal  

bearing  no.12183  of  2004.   Leave  was  granted  on  20.3.2006.  

Consequently, the matter came to be renumbered as civil appeal no.1735  

of 2006.

8. Since  the  plea  of  limitation  had  been  decided  in  favour  of  the  

appellant and against the respondents, the only question to be adjudicated  

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upon,  in  the  present  appeal  filed  by  the  appellant,  is,  whether  the  

disputes/claims  raised  by  the  appellant  could  have  been  referred  for  

arbitration, after the appellant had received payment after the preparation  

of the final bill, without raising any objections.  The answer to the instant  

query  must  necessarily  flow from the relevant  clause of  the agreement  

which  entitled  the  appellant  to  seek  redressal  of  disputes  through  

arbitration,  as  it  is  the  arbitration  clause  alone  which  defines  the  

parameters of the disputes which rival parties can raise for adjudication  

before an arbitrator (or arbitral tribunal).  In so far as the instant aspect of  

the matter is concerned, clause 23 of the agreement dated 31.12.1975 is  

relevant.  The same is being extracted hereinbelow:

“Clause 23 – Except where otherwise provided in the contract  all  questions  and  disputes  relating  to  the  meaning  of  the  specifications,  designs,  drawings  and  instructions  hereinbefore mentioned and as to the quality of workmanship  of materials used on the work, or as to any other questions,  claim, right matter, or thing whatsoever, if any way arising out  of,  or  relating  to  the  contract,  designs,  drawings,  specifications,  estimates  instructions,  orders  or  these  conditions, or otherwise concerning the work or the execution,  or  failure  to  execute  the  same,  whether  arising  during  the  progress of the work, or after the completion or abandonment  thereof  shall  be  referred  to  the  sole  arbitration  of  a  Superintending  Engineer  of  the  State  Public  Works  Department  unconnected  with  the  work  at  any  stage  nominated by the concerned Chief Engineer.  If there be no  such  Superintending  Engineer,  it  should  be  referred  to  the  sole arbitration of the Chief Engineer concerned.  It will be no  objection  to  any  such  appointment  that  the  arbitrator  so  appointed  is  a  Government  Servant.   The  award  of  the  Arbitrator so appointed shall be final, conclusive and binding  on all parties to these contract.”

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A perusal  of  clause  23  of  the  contractual  agreement  extracted  above,  

leaves no room for any doubt that the appellant could claim arbitration on  

account  of  disputes  arising  from  the  contract  “except  where  otherwise  

provided”.  It is not the case of the respondents, that the appellant was  

precluded  by  any  clause  in  the  contractual  agreement  from  seeking  

settlement of claims raised by the appellant (which have been allowed in  

favour of the appellant by the arbitral tribunal).  Clause 23 includes within  

the purview of arbitration, disputes whether arising during the progress of  

the work  or after  the completion or  abandonment  thereof.   There is no  

restraint  whatsoever  expressed  in  clause  23,  which  would  deprive  the  

appellant from seeking redressal by way of arbitration, merely because he  

had received payments after the preparation of the final bill, without raising  

any objections.  Accordingly, we are of the view, that even after the receipt  

of payment on the preparation of the final bill, it was open to the appellant  

to seek redressal of his disputes by way of arbitration, even though he had  

not raised any objections.  Secondly, in so far as the instant aspect of the  

matter is concerned, the issue in hand stands concluded by this Court in  

Bharat Coking Coal Ltd. v. Annapurna Construction (2003) 8 SCC 154  

wherein it has been held as under:

“Only because the respondent has accepted the final bill, the  same would  not  mean that  it  was  not  entitled to  raise  any  claim.  It is not the case of the appellant that while accepting  the final bill, the respondent had unequivocally stated that he  would  not  raise  any  further  claim.   In  absence  of  such  a  

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declaration, the respondent cannot be held to be estopped or  precluded from raising any claim…”.

In  the instant  case also the appellant,  while  accepting payment  on the  

preparation of the final bill, did not undertake that he would not raise any  

further claims.  As such, we are satisfied that the judgment rendered in  

Bharat  Coking  Coal  Ltd.,  case  (supra)  leads  to  the  irresistible  

conclusion, that despite receipt of payment on the preparation of the final  

bill, it was still open to the appellant to raise his unsatisfied claims before  

an arbitrator, under the contract agreement.  Thirdly, it was no longer open  

to the respondents to contest the claim of the appellant on the instant issue  

after  the appellant  had obtained the court  order dated 15.5.1981 which  

referred the disputes raised by the appellant to an arbitral tribunal.  The  

Court order dated 15.5.1981 referring the disputes raised by the appellant  

to  arbitration,  attained  finality  inasmuch  as  the  same  remained  

uncontested  at  the  hands  of  the respondents.   The respondents  were,  

thereafter precluded from asserting that the claims raised by the appellant  

could not be adjudicated upon by way of arbitration.  Once the disputes  

raised by the appellant were referred for arbitration and the rival parties  

submitted  to  the  arbitration  proceedings  without  any  objection,  it  is  no  

longer open to either of them to contend that arbitral proceedings were not  

maintainable.   And  fourthly,  the  order  passed  by  the  High  Court  is  

contradictory  in  terms.   Once  the  High  Court  had  concluded,  that  the  

Miscellaneous Case filed by the respondents raising objections was barred  

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by limitation,  it  was  not  open to the High Court  to consider  one of  the  

objections raised by the respondents and to uphold the same, so as to  

disentitle  the appellant  from reaping the fruits  of  the arbitral  award.   In  

other words, once the plea of limitation had been upheld, the objection(s)  

filed by the respondents, irrespective of the merit(s) thereof were liable to  

be rejected.

9. For the reasons recorded hereinabove, we are of the view that the  

High Court erred in concluding that the appellant having received payment  

after preparation of the final bill, without having raised any objection, could  

not have initiated arbitral proceedings.  The judgment rendered by the High  

Court dated 22.12.2003 is, accordingly, set aside.  The order passed by  

the Civil Judge, Senior Division, Bhubaneshwar dated 30.4.2002 is upheld.  

The instant appeal is accordingly allowed. The respondents are directed to  

pay the appellant the awarded amount, failing which, the appellant shall be  

at liberty to recover the same through Court.   

10. There will be no order as to costs.

…………………………….J. (R.M. Lodha)

…………………………….J. (Jagdish Singh Khehar)

New Delhi; November 1, 2011.

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