BGS SGS SOMA JV Vs. NHPC Ltd-10/12/2019

SUPREME COURT OF INDIA JUDGMENTS

SEAR FOR ARBITRATION: The fact that in all the three appeals before us the proceedings were finally held at New Delhi, and the awards were signed in New Delhi, and not at Faridabad, would lead to the conclusion that both parties have chosen New Delhi as the “seat” of arbitration under Section 20(1) of the Arbitration Act, 1996. This being the case, both parties have, therefore, chosen that the Courts at New Delhi alone would have exclusive jurisdiction over the arbitral proceedings. Therefore, the fact that a part of the cause of action may have arisen at Faridabad would not be relevant once the “seat” has been chosen, which would then amount to an exclusive jurisdiction clause so far as Courts of the “seat” are concerned.

SUPREME COURT OF INDIA

BGS SGS SOMA JV Vs. NHPC Ltd.

[Civil Appeal No. 9307 of 2019 arising out SLP (Civil) No. 25618 of 2018]

[Civil Appeal No. 9308 of 2019 arising out SLP (Civil) No. 25848 of 2018]

[Civil Appeal No. 9309 of 2019 arising out SLP (Civil) No. 28062 of 2018]

ACT: Section 37 of the Arbitration and Conciliation Act, 1996 and Section 13(1) of the Commercial Courts Act, UNCITRAL Arbitration Rules.

Continue Reading

Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd-26/11/2019

SUPREME COURT OF INDIA JUDGMENTS

ARBITRATION- whether the arbitration in the present case would be an International Commercial Arbitration or not. In case, it is not, then this Court cannot deal with the application under Section 11(6) read with Section 11(12)(a) of the Act. The second issue is whether a case is made out for exercise of power by the Court to make an appointment of an arbitrator.

In exercise of the power conferred by Section 11(6) of the Act, we appoint Dr. Justice A.K. Sikri, former Judge of this Court as the sole arbitrator to decide all the disputes arising out of the Agreement dated 22.05.2017, between the parties, subject to the mandatory declaration made under the amended Section 12 of the Act with respect to independence and impartiality and the ability to devote sufficient time to complete the arbitration within the period as per Section 29A of the Act.

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

ARBITRATION APPLICATION NO.32 OF 2019

Perkins Eastman Architects DPC & Anr. …Applicants

VERSUS

HSCC (India) Ltd. …Respondent

ACTS: 1 The Arbitration and Conciliation Act, 1996
2 The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996

JUDGMENT

Uday Umesh Lalit, J.

1. This application under Section 11(6) read with Section 11(12)(a) of Act1 and under the Scheme2 prays for the following principal relief:

“(a) appoint a sole Arbitrator, in accordance with clause 24 of the Contract dated 22nd May, 2017 executed between the parties and the sole Arbitrator so appointed may adjudicate the disputes and differences between the parties arising from the said Contract.”


1 The Arbitration and Conciliation Act, 1996
2 The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996


2. The application has been filed with following assertions: –

(A) As an executing agency of Ministry of Health and Family Welfare, the respondent was desirous of comprehensive architectural planning and designing for the works provided under Pradhan Mantri Swasthya Suraksha Yojna (PMSSY). Therefore a request for Proposals bearing RFP No.HSCC/3-AIIMS/Guntur/2016 was issued on 15.07.2016 for appointment of Design Consultants for the “comprehensive planning and designing, including preparation and development of concepts, master plan for the campus, preparation of all preliminary and working drawings for various buildings/structures, including preparation of specifications and schedule of quantities’ for the proposed All India Institute of Medical Sciences at Guntur, Andhra Pradesh”.

(B) In response to the RFP, the consortium of the Applicants, namely,

(i) Perkins Eastman Architects DPC, an Architectural firm having its registered office in New York and (ii) Edifice Consultants Private Limited, having its office in Mumbai submitted their bid on 28.09.2016. Letter of Intent was issued on 31.01.2017 awarding the project to the Applicants, the consideration being Rs.15.63 crores. A letter of award was issued in favour of the Applicants on 22.02.2017 and a contract was entered into between the Applicants and the respondent on 22.05.2017, which provided inter alia for dispute resolution in Clause 24. The relevant portion of said Clause was as under:

“24.0 DISPUTE RESOLUTION

24.1 Except as otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, design, drawings and instructions herein before mentioned and as to the quality of services rendered for the works or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, design, drawings, specifications estimates instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the cancellation, termination, completion or abandonment thereof thereof shall be dealt with as mentioned hereinafter:

(i) If the Design Consultant considers any work demanded of him to be outside the requirements of the contract or disputes on any drawings, record or decision given in writing by HSCC on any matter in connection with arising out of the contract or carrying out of the work, to be unacceptable, he shall promptly within 15 days request CGM, HSCC in writing for written instruction or decision. There upon, the CGM, HSCC shall give his written instructions or decision within a period of one month from the receipt of the Design Consultant’s letter. If the CGM, HSCC fails to give his instructions or decision in writing within the aforesaid period or if the Design Consultant(s) is dissatisfied with the instructions or decision of the CGM, HSCC, the Design Consultants(s) may, within 15 days of the receipt of decision, appeal to the Director (Engg.) HSCC who shall offer an opportunity to the Design Consultant to be heard, if the latter so desires, and to offer evidence in support of his appeal. The Director (Engg.), HSCC shall give his decision within 30 days of receipt of Design Consultant’s appeal. If the Design Consultant is dissatisfied with the decision, the Design Consultant shall within a period of 30 days from receipt of this decision, give notice to the CMD, HSCC for appointment of arbitrator failing which the said decision shall be final, binding and conclusive and not referable to adjudication by the arbitrator.

(ii) Except where the decision has become final, binding and conclusive in terms of sub-Para (i) above disputes or difference shall be referred for adjudication through arbitration by a sole arbitrator appointed by the CMD HSCC within 30 days form the receipt of request from the Design Consultant. If the arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office due to any reason, whatsoever another sole arbitrator shall be appointed in the manner aforesaid. Such person shall be entitled to proceed with the reference from the reference from the stage at which it was left by his predecessor. It is a term of this contract that the party invoking arbitration shall give a list of disputes with amounts claimed in respect of each such dispute along with the notice for appointment of arbitrator and giving reference to the rejection by the CMD, HSCC of the appeal. It is also a term of this contract that no person other than a person appointed by such CMD, HSCC as aforesaid should act as arbitrator. It is also a term of the contract that if the Design Consultant does not make any demand for appointment of arbitrator in respect of any claims in writing as aforesaid within 120 days of receiving the intimation from HSCC that the final bill is ready for payment, the claim of the Design Consultant shall be deemed to have been waived and absolutely barred and HSCC shall be discharged and released of all liabilities under the contract and in respect of these claims. The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory modifications or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause.”

(C) Within six days of the signing of the said contract, in letter dated 26.5.2017 the respondent alleged failure on part of the Applicants which was followed by stop work notice dated 03.11.2017. It is the case of the Applicants that officials of the respondents were deliberately trying to stall the project and were non-co-operative right from the initial stages.

(D) Later, a termination notice was issued by the respondent on 11.01.2019 alleging non-compliance of contractual obligations on part of the Applicants, which assertions were denied. However, termination letter was issued on 20.02.2019. On 11.04.2019 a notice was issued by the Advocate for the applicants invoking the dispute resolution Clause namely Clause 24 as aforesaid raising a claim of Rs.20.95 crores.

According to the Applicants, a decision in respect of the notice dated 11.04.2019 was required to be taken within one month in terms of Clause 24 of the contract but a communication was sent by the respondent on 10.05.2019 intimating that a reply to the notice would be sent within 30 days.

(E) An appeal was filed by the Applicants before the Director (Engineering) in terms of said Clause 24 but there was complete failure on part of the Director (Engineering) to discharge the obligations in terms of said Clause 24. Therefore, by letter dated 28.06.2019 the Chief Managing Director of the respondent was called upon to appoint a sole arbitrator in terms of said Clause 24. However, no appointment of an arbitrator was made within thirty days but a letter was addressed by Chief General Manager of the respondent on 30.07.2019 purportedly appointing one Major General K.T. Gajria as the sole arbitrator.

(F) The relevant averments in para 3 of the application are:-

“z. The 30 (thirty) day time period for appointment of a sole arbitrator stood expired on 28th July, 2019 and yet the CMD of the respondent failed to appoint a sole arbitrator or even respond to the letter dated 28th June, 2019 (received on 29th June, 2019).

aa. Shockingly, in continuance of its highhanded approach and in contravention to its own letter dated 24th June, 2019, the CGM of the Respondent addressed the Purported Appointment Letter dated 30th July, 2019 to one Major General K.T. Gajria thereby purportedly appointing him as a sole arbitrator in the matter. On the same date, the CGM of the Respondent also addressed a letter to the Applicants inter alia informing about the purported appointment of Mr. Gajria”

3. In the aforesaid premises the Applicants submit:-

(a) The Applicants had duly invoked the arbitration clause;

(b) The Chairman and Managing Director was the competent authority to appoint a sole arbitrator;
(c) But the Chief General Manager of the respondent wrongfully appointed the sole arbitrator;
(d) Such appointment was beyond the period prescribed;

(e) In any case, an independent and impartial arbitrator is required to be appointed.

4. In response to the application, an affidavit-in-reply has been filed by the respondent denying all material allegations. It is accepted that the contract entered into between the parties contains Clause 24 regarding dispute resolution. It is, however, disputed that there was any inaction on part of the respondent in discharging their obligations in terms of Clause

24. It is submitted, inter alia, that

(a) The appointment of Major General K.T. Gajria was in consonance with Clause 24 of the contract;
(b) Such appointment could not in any way be said to be illegal;

(c) There was no occasion to file an application seeking appointment of any other person under the provisions of Section 11(6) read with Section 11(12)(a) of the Act; and
(d) In any case, the arbitration in the present matter would not be an International Commercial Arbitration within the meaning of Section 2(1)(f) of the Act.

5. We heard Mr. Amar Dave, learned Advocate for the Applicants and Mr. Guru Krishna Kumar, learned Senior Advocate for the respondent.

It was submitted by Mr. Dave, learned Advocate that on account of failure on part of the respondent in discharging its obligations in terms of Clause 24, the applicants would be entitled to maintain the present Application and seek appointment of an arbitrator as prayed for. It was further submitted that the appointment process contemplated in Clause 24 gave complete discretion to the Chairman and Managing Director of the respondent to make an appointment of an arbitrator of his choice, the Chairman and Managing Director of the respondent would naturally be interested in the outcome or decision in respect of the dispute, the pre-requisite of element of impartiality would, therefore, be conspicuously absent in such process; and as such it would be desirable that this Court makes an appropriate appointment of an arbitrator. Reliance was placed on the decisions of this Court in Walter Bau AG, Legal Successor of the Original Contractor, Dyckerhoff and Widmann, A.G. v. Municipal Corporation of Greater Mumbai and another3 and TRF Limited v. Energo Engineering Projects Limited4 in support of the submissions. Mr. Dave, learned Advocate also relied upon the decision of this Court in Larsen and Toubro Limited SCOMI Engineering BHD v. Mumbai Metropolitan Region Development Authority5 to bring home the point that


3 (2015) 3 SCC 800

4 (2017) 8 SCC 377

5 (2019) 2 SCC 271


the arbitration in the present matter would be an International Commercial Arbitration.

Mr. Guru Krishna Kumar, learned Senior Advocate appearing for the respondent submitted that no case was made out to maintain the instant application. He submitted that two basic submissions were raised in para 3 in sub-para (z) and (aa) of the application that the Chairman and Managing Director failed to appoint the sole arbitrator within 30 days of the requisition dated 28.06.2019 and that it was the Chief General Manager of the respondent who purportedly made the appointment of a sole arbitrator on 30.07.2019. The infirmities thus projected were on two counts, namely, for over-stepping the limit of 30 days; and secondly the appointment was not made by the Chairman and Managing Director of the respondent. He pointed out that the period in terms of requisition dated 28.06.2019 expired on Friday and the appointment was made on the first available working day. Secondly, the appointment was actually made by the Chairman and Managing Director but was conveyed by the Chief General Manager, and as such the alleged infirmities were completely non-existent. He further submitted that arbitration, if any, in the instant matter would not be an International Commercial Arbitration.

6. The present application, therefore, raises two basic issues; first whether the arbitration in the present case would be an International Commercial Arbitration or not. In case, it is not, then this Court cannot deal with the application under Section 11(6) read with Section 11(12)(a) of the Act. The second issue is whether a case is made out for exercise of power by the Court to make an appointment of an arbitrator.

7. During the course of hearing, reliance was placed by the Applicants on the Consortium Agreement entered into between the Applicant No.1 and the Applicant No.2 on 20.09.2016 which described the Applicant No.1 as the lead member of the Consortium. The relevant recital and the Clause of the Agreement were as under:
“1. WHEREAS all the Parties agree that Perkins Eastman will be the focal point for the agreement and interaction with the client.”

“9. Perkins Eastman and M/s. Edifice Consultants are jointly and severally responsible for the execution of the project”

In terms of requirements of the bid documents and RFP a “Declaration for Lead Member of the Consortium (Form E)” was also submitted. The declaration was as under:

“WHEREAS M/s. HSCC (India) Ltd. (HSCC) (the Client) has invited Bids/Bids from the interested parties for providing Comprehensive Planning and Designing of the Proposed All India Institute of Medical Sciences at Mangalagiri, Guntur (AP).

AND WHEREAS, the members of the Consortium are interested in bidding for the Project and implementing the Project in accordance with the terms and conditions of the Request for Bid (RFP) document, Terms of Reference, Client’s Requirement, Notice Inviting Bid, Instructions to Bidders, Conditions of Contract and other connected documents in respect of the Project, and

AND WHEREAS, it is necessary under the RFP document for the members of the Consortium Bidder to designate one of them as the Lead Manager with all necessary power and authority to do for and on behalf of the Consortium bidder, all acts, deeds and things as may be necessary in connection with the Consortium Bidder’s proposal for the Project.

NOW THIS DECLARATION WITNESSETH THAT; We, Perkins Eastman Architects DPC, and having its registered office at 115 5th Ave Floor 3, New York, NY 10003-10004, USA and M/s. Edifice Consultants Private Limited having its registered office at Srirams Arcade, 3rd Floor, Opp. Govandi P.O., Off Govandi Station Road, Govandi East, Mumbai, Maharashtra 400088 do hereby designate Perkins Eastman Architects DPC being one of the members of the Consortium, as the Lead Member of the Consortium, to do on behalf of the Consortium, all or any of the acts, deeds of things necessary or incidental to the Consortium’s Application/Bid for the Project, including submission of Application/Bid, participating in conferences, responding to queries, submission of information/documents and generally to represent the Consortium in all its dealings with HSCC, any other Government Agency or any person, in connection with the Project until culmination of the process of bidding and thereafter till the completion of the Contract.”

8. It is not disputed by the respondent that it was a requisite condition to declare a lead member of the Consortium and that by aforesaid declaration the applicant No.1 was shown to be the lead member of the Consortium. The reliance is however placed by the respondent on Clause 9 of the Consortium Agreement by virtue of which both the Applicants would be jointly and severely responsible for the execution of the project. It is clear that the declaration shows that the Applicant No.1 was accepted to be the lead member of the Consortium. Even if the liability of both the Applicants was stated in Clause 9 to be joint and several, that by itself would not change the status of the Applicant No.1 to be the lead member. We shall, therefore, proceed on the premise that Applicant No.1 is the lead member of the Consortium.

9. In Larsen and Toubro Limited SCOMI Engineering BHD5 more or less similar fact situation came up for consideration. The only distinction was that the lead member in the consortium was an entity registered in India. Paragraphs 2, 3, 4, 15, 17, 18 and 19 of the decision are as under:

“2. Since disputes arose between the parties to the agreement, various interim claims had been made by the Consortium of M/s Larsen and Toubro, an Indian company, together with Scomi Engineering Bhd, a company incorporated in Malaysia, for which the Consortium has filed this petition under Section 11 of the Act to this Court, since according to them, one of the parties to the arbitration agreement, being a body corporate, incorporated in Malaysia, would be a body corporate, which is incorporated in a country other than India, which would attract Section 2(1)(f)(ii) of the Act.

3. Shri Gopal Jain, learned Senior Counsel appearing on behalf of the Consortium, has taken us through the agreement, in which he strongly relies upon the fact that the two entities, that is, the Indian company and the Malaysian company, though stated to be a Consortium, are jointly and severally liable, to the employer. The learned Senior Counsel has also relied upon the fact that throughout the working of the contract, separate claims have been made, which have been rejected by the Mumbai Metropolitan Region Development Authority (hereinafter referred to as “MMRDA”). He has also further relied upon the fact that by at least three letters, during the working of the agreement, the claims have in fact been rejected altogether and that, therefore, there is no impediment in invoking the arbitration Clause under Section 20.4 of the general conditions of contract (hereinafter referred to as “GCC”), as the procedure outlined by Clauses 20.1 to 20.3 had already been exhausted.

4. On the other hand, Mr Shyam Divan, learned Senior Counsel appearing on behalf of MMRDA, the respondent, has relied upon both the contract dated 9-1-2009 as well as the actual consortium agreement dated 4-6-2008 between the Indian company and the Malaysian company, which, when read together, would show that they are really an unincorporated association and would, therefore, fall within Section 2(1)(f)(iii) as being an association or a body of individuals, provided the central management and control is exercised in any country other than India.

… … …

15. Section 2(1)(f)(iii) of the Act refers to two different sets of persons: an “association” as distinct and separate from a “body of individuals”. For example, under Section 2(31) of the Income Tax Act, 1961, “person” is defined as including, under sub-clause (v), an association of persons, or body of individuals, whether incorporated or not. It is in this sense, that an association is referred to in Section 2(1) (f)(iii) which would therefore include a consortium consisting of two or more bodies corporate, at least one of whom is a body corporate incorporated in a country other than India.

… … …

17. Law Commission Report No. 246 of August 2014, which made several amendments to the Arbitration and Conciliation Act, 1996, gave the following reason for deleting the words “a company or”:

“(iii) In sub-section (1), clause (f), sub-clause (iii), delete the words “a company or” before the words “an association or a body of individuals”.

[Note.—The reference to “a company” in sub-section (iii) has been removed since the same is already covered under sub-section (ii). The intention is to determine the residence of a company based on its place of incorporation and not the place of central management/control. This further re-enforces the “place of incorporation” principle laid down by the Supreme Court in TDM Infrastructure (P) Ltd. v. UE Development India (P) Ltd.6, and adds greater certainty in case of companies having a different place of incorporation and place of exercise of central management and control.]”

It would become clear that prior to the deletion of the expression “a company or”, there were three sets of persons referred to in Section 2(1)(f)(iii) as separate and distinct persons who would fall within the said sub-clause. This does not change due to the deletion of the phrase “a company or” for the reason given by the Law Commission. This is another reason as to why “an association” cannot be read with “body of individuals” which follows it but is a separate and distinct category by itself, as is understood from the definition of “person” as defined in the Income Tax Act referred to above.

18. This being the case, coupled with the fact, as correctly argued by Shri Divan, that the Indian company is the lead partner, and that the Supervisory Board constituted under the consortium agreement makes it clear that the lead partner really has the determining voice in that it appoints the Chairman of the said Board (undoubtedly, with the consent of other members); and the fact that the Consortium’s office is


6 (2008) 14 SCC 271


in Wadala, Mumbai as also that the lead member shall lead the arbitration proceedings, would all point to the fact that the central management and control of this Consortium appears to be exercised in India and not in any foreign nation.

19. This being the case, we dismiss the petition filed under Section 11 of the Act, as there is no “international commercial arbitration” as defined under Section 2(1)(f) of the Act for the petitioner to come to this Court. We also do not deem it necessary to go into whether the appropriate stage for invoking arbitration has yet been reached.”

10. It was thus held that “Association” and “Body of individuals” referred to in Section 2(1)(f) of the Act would be separate categories. However, the lead member of the Association in that case being an Indian entity, the “Central Management and Control” of the Association was held to be in a country other than India. Relying on said decision we conclude that the lead member of the Consortium company i.e. Applicant No.1 being an Architectural Firm having its registered office in New York, requirements of Section 2(1)(f) of the Act are satisfied and the arbitration in the present case would be an “International Commercial Arbitration”.

11. That takes us to the second issue, namely, whether a case has been made out for exercise of power by the Court for an appointment of an arbitrator.

12. The communication invoking arbitration in terms of Clause 24 was sent by the Applicants on 28.06.2019 and the period within which the respondent was to make the necessary appointment expired on 28.07.2019. The next day was a working day but the appointment was made on Tuesday, the 30th July, 2019. Technically, the appointment was not within the time stipulated but such delay on part of the respondent could not be said to be an infraction of such magnitude that exercise of power by the Court under Section 11 of the Act merely on that ground is called for.

13. However, the point that has been urged, relying upon the decision of this Court in Walter Bau AG3 and TRF Limited4, requires consideration. In the present case Clause 24 empowers the Chairman and Managing Director of the respondent to make the appointment of a sole arbitrator and said Clause also stipulates that no person other than a person appointed by such Chairman and Managing Director of the respondent would act as an arbitrator. In TRF Limited4 , a Bench of three Judges of this Court, was called upon to consider whether the appointment of an arbitrator made by the Managing Director of the respondent therein was a valid one and whether at that stage an application moved under Section 11(6) of the Act could be entertained by the Court. The relevant Clause, namely, Clause 33 which provided for resolution of disputes in that case was under:

“33. Resolution of dispute/arbitration

(a) In case any disagreement or dispute arises between the buyer and the seller under or in connection with the PO, both shall make every effort to resolve it amicably by direct informal negotiation.

(b) If, even after 30 days from the commencement of such informal negotiation, seller and the buyer have not been able to resolve the dispute amicably, either party may require that the dispute be referred for resolution to the formal mechanism of arbitration.

(c) All disputes which cannot be settled by mutual negotiation shall be referred to and determined by arbitration as per the Arbitration and Conciliation Act, 1996 as amended.

(d) Unless otherwise provided, any dispute or difference between the parties in connection with this agreement shall be referred to sole arbitration of the Managing Director of buyer or his nominee. Venue of arbitration shall be Delhi, and the arbitration shall be conducted in English language.

(e) The award of the Tribunal shall be final and binding on both, buyer and seller.”

14. In TRF Limited4, the Agreement was entered into before the provisions of the Amending Act (Act No.3 of 2016) came into force. It was submitted by the appellant that by virtue of the provisions of the Amending Act and insertion of the Fifth and Seventh Schedules in the Act, the Managing Director of the respondent would be a person having direct interest in the dispute and as such could not act as an arbitrator. The extension of the submission was that a person who himself was disqualified and disentitled could also not nominate any other person to act as an arbitrator. The submission countered by the respondent therein was as under: –

“7.1. The submission to the effect that since the Managing Director of the respondent has become ineligible to act as an arbitrator subsequent to the amendment in the Act, he could also not have nominated any other person as arbitrator is absolutely unsustainable, for the Fifth and the Seventh Schedules fundamentally guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence and impartiality of the arbitrator. To elaborate, if any person whose relationship with the parties or the counsel or the subject-matter of dispute falls under any of the categories specified in the Seventh Schedule, he is ineligible to be appointed as an arbitrator but not otherwise.

The issue was discussed and decided by this Court as under:-

50. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned Senior Counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned Senior Counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor impartiality nor any such other circumstance. We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the “named sole arbitrator” and he has also been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction. In this regard, our attention has been drawn to a two-Judge Bench decision in State of Orissa v. Commr. of Land Records & Settlement7. In the said case, the question arose, can the Board of Revenue revise the order passed by its delegate. Dwelling upon the said proposition, the Court held: (SCC p. 173, para 25)

“25. We have to note that the Commissioner when he exercises power of the Board delegated to him under Section 33 of the Settlement Act, 1958, the order passed by him is to be treated as an order of the Board of Revenue and not as that of the Commissioner in his capacity as Commissioner. This position is clear from two rulings of this Court to which we shall presently refer. The first of the said rulings is the one decided by the Constitution Bench of this Court in Roop Chand v. State of Punjab8. In that case, it was held by the majority that where the State Government had, under Section 41(1) of the East Punjab Holdings (Consolidation and Prevention of Fragmentation) Act, 1948, delegated its appellate powers vested in it under Section 21(4) to an “officer”, an order passed by such an officer was an order passed by the State Government itself and “not an order passed by any officer under this Act” within Section 42 and was not revisable by the State Government. It was pointed out that for the purpose of exercise


7 (1998) 7 SCC 162

8 AIR 1963 SC 1503


of powers of revision by the State under Section 42 of that Act, the order sought to be revised must be an order passed by an officer in his own right and not as a delegate of the State. The State Government was, therefore, not entitled under Section 42 to call for the records of the case which was disposed of by an officer acting as its delegate.”

(emphasis in original)

51. Be it noted in the said case, reference was made to Behari Kunj Sahkari Awas Samiti v. State of U.P.9, which followed the decision in Roop Chand v. State of Punjab8. It is seemly to note here that the said principle has been followed in Indore Vikas Pradhikaran10.

52. Mr Sundaram has strongly relied on Pratapchand Nopaji11. In the said case, the three-Judge Bench applied the maxim “qui facit per alium facit per se”. We may profitably reproduce the passage: (SCC p. 214, para 9)

“9. … The principle which would apply, if the objects are struck by Section 23 of the Contract Act, is embodied in the maxim: “qui facit per alium facit per se” (what one does through another is done by oneself). To put it in another form, that which cannot be done directly may not be done indirectly by engaging another outside the prohibited area to do the illegal act within the prohibited area. It is immaterial whether, for the doing of such an illegal act, the agent employed is given the wider powers or authority of the “pucca adatia”, or, as the High Court had held, he is clothed with the powers of an ordinary commission agent only.”

53. The aforesaid authorities have been commended to us to establish the proposition that if the


9 (1997) 7 SCC 37

10 Indore Vikas Pradhikaran v. Pure Industrial Coke & Chemicals Ltd., (2007) 8 SCC 705
11 Pratapchand Nopaji v. Kotrike Venkata Setty & Sons, (1975) 2 SCC 208


nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself. According to the learned counsel for the appellant, ineligibility strikes at the root of his power to arbitrate or get it arbitrated upon by a nominee.

54. In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so.”

15. It was thus held that as the Managing Director became ineligible by operation of law to act as an arbitrator, he could not nominate another person to act as an arbitrator and that once the identity of the Managing Director as the sole arbitrator was lost, the power to nominate someone else as an arbitrator was also obliterated. The relevant Clause in said case had nominated the Managing Director himself to be the sole arbitrator and also empowered said Managing Director to nominate another person to act as an arbitrator. The Managing Director thus had two capacities under said Clause, the first as an arbitrator and the second as an appointing authority. In the present case we are concerned with only one capacity of the Chairman and Managing Director and that is as an appointing authority.

We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited4 where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second category, the Managing Director is not to act as an arbitrator himself but is empowered or authorised to appoint any other person of his choice or discretion as an arbitrator. If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases. If the interest that he has in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present irrespective of whether the matter stands under the first or second category of cases. We are conscious that if such deduction is drawn from the decision of this Court in TRF Limited4, all cases having clauses similar to that with which we are presently concerned, a party to the agreement would be disentitled to make any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator.

16. But, in our view that has to be the logical deduction from TRF Limited4. Paragraph 50 of the decision shows that this Court was concerned with the issue, “whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator” The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited4.

17. We must also at this stage refer to the following observations made by this Court in para 48 of its decision in Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd.12, which were in the context that was obtaining before Act 3 of 2016 had come into force: –

“48. In the light of the above discussion, the scope of Section 11 of the Act containing the scheme of appointment of arbitrators may be summarised thus:

(i) Where the agreement provides for arbitration with three arbitrators (each party to appoint one arbitrator and the two appointed arbitrators to appoint a third arbitrator), in the event of a party failing to appoint an arbitrator within 30 days from the receipt of a request from the other party (or the two nominated arbitrators failing to agree on the third arbitrator within 30 days from the date of the appointment), the Chief Justice or his designate will exercise power under sub-section (4) of Section 11 of the Act.

(ii) Where the agreement provides for arbitration by a sole arbitrator and the parties have not agreed upon any appointment procedure, the Chief Justice or his designate will exercise power under sub-section (5) of Section 11, if the parties fail to agree on the


12 (2009) 8 SCC 520


arbitration within thirty days from the receipt of a request by a party from the other party.

(iii) Where the arbitration agreement specifies the appointment procedure, then irrespective of whether the arbitration is by a sole arbitrator or by a three-member Tribunal, the Chief Justice or his designate will exercise power under sub-section (6) of Section 11, if a party fails to act as required under the agreed procedure (or the parties or the two appointed arbitrators fail to reach an agreement expected of them under the agreed procedure or any person/institution fails to perform any function entrusted to him/it under that procedure).

(iv) While failure of the other party to act within 30 days will furnish a cause of action to the party seeking arbitration to approach the Chief Justice or his designate in cases falling under sub-sections (4) and

(5), such a time- bound requirement is not found in sub-section (6) of Section 11. The failure to act as per the agreed procedure within the time-limit prescribed by the arbitration agreement, or in the absence of any prescribed time-limit, within a reasonable time, will enable the aggrieved party to file a petition under Section 11(6) of the Act.

(v) Where the appointment procedure has been agreed between the parties, but the cause of action for invoking the jurisdiction of the Chief Justice or his designate under clauses (a), (b) or (c) of sub-section
(6) has not arisen, then the question of the Chief Justice or his designate exercising power under sub-section (6) does not arise. The condition precedent for approaching the Chief Justice or his designate for taking necessary measures under sub-section (6) is that

(i) a party failing to act as required under the agreed appointment procedure; or
(ii) the parties (or the two appointed arbitrators) failing to reach an agreement expected of them under the agreed appointment procedure; or

(iii) a person/institution who has been entrusted with any function under the agreed appointment procedure, failing to perform such function.

(vi) The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause.

(vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else.”

18. Sub para (vii) of aforesaid paragraph 48 lays down that if there are justifiable doubts as to the independence and impartiality of the person nominated, and if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, such appointment can be made by the Court. It may also be noted that on the issue of necessity and desirability of impartial and independent arbitrators the matter was considered by the Law Commission in its report No.246. Paragraphs 53 to 60 under the heading “Neutrality of Arbitrators” are quoted in the Judgment of this Court in Voestapline Schienen Gmbh v. Delhi Metro Rail Corpn. Ltd.13, while paras 59 and 60 of the report stand extracted in the decision of this Court in Bharat Broadband Network


13 (2017) 4 SCC 665


Limited v. United Telecoms Limited14. For the present purposes, we may rely on paragraph 57, which is to the following effect:-

“57. The balance between procedural fairness and binding nature of these contracts, appears to have been tilted in favour of the latter by the Supreme Court, and the Commission believes the present position of law is far from satisfactory. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the Arbitral Tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles

— even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties’ apparent agreement. A sensible law cannot, for instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the parties agreed. The Commission hastens to add that Mr P.K. Malhotra, the ex officio member of the Law Commission suggested having an exception for the State, and allow State parties to appoint employee arbitrators. The Commission is of the opinion that, on this issue, there cannot be any distinction between State and non-State parties. The concept of party autonomy cannot be stretched to a point where it negates the very basis of having impartial and independent adjudicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator is that much more onerous

— and the right to natural justice cannot be said to have been waived only on the basis of a “prior” agreement between the parties at the time of the contract and before arising of the disputes.”


14 (2019) 5 SCC 755


19. In Voestalpine3, this Court dealt with independence and impartiality of the arbitrator as under:
“20. Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi-judicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator’s appointment is deduced from the agreement entered into between the parties, notwithstanding the same non-independence and non-impartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Hashwani v. Jivraj15 in the following words: (WLR p. 1889, para 45)

“45. … the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties.”


15 (2011) 1 WLR 1872; 2011 UKSC 40


21. Similarly, Cour de Cassation, France, in a judgment delivered in 1972 in Consorts Ury, underlined that:

“an independent mind is indispensable in the exercise of judicial power, whatever the source of that power may be, and it is one of the essential qualities of an arbitrator.”

22. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration proceedings.

……. ….. ……

30. Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the Law Commission also in its report, duty becomes more onerous in government contracts, where one of the parties to the dispute is the Government or public sector undertaking itself and the authority to appoint the arbitrator rests with it. In the instant case also, though choice is given by DMRC to the opposite party but it is limited to choose an arbitrator from the panel prepared by DMRC. It, therefore, becomes imperative to have a much broadbased panel, so that there is no misapprehension that principle of impartiality and independence would be discarded at any stage of the proceedings, specially at the stage of constitution of the Arbitral Tribunal. We, therefore, direct that DMRC shall prepare a broadbased panel on the aforesaid lines, within a period of two months from today.”

20. In the light of the aforestated principles, the report of the Law Commission and the decision in Voestapline Schienen Gmbh13, the imperatives of creating healthy arbitration environment demand that the instant application deserves acceptance.

21. The further question that arises is whether the power can be exercised by this Court under Section 11 of the Act when the appointment of an arbitrator has already been made by the respondent and whether the appellant should be left to raise challenge at an appropriate stage in terms of remedies available in law. Similar controversy was gone into by a Designated Judge of this Court in Walter Bau AG3 and the discussion on the point was as under:-

“9. While it is correct that in Antrix16 and Pricol Ltd.17, it was opined by this Court that after appointment of an arbitrator is made, the remedy of the aggrieved party is not under Section 11(6) but such remedy lies elsewhere and under different provisions of the Arbitration Act (Sections 12 and 13), the context in which the aforesaid view was expressed cannot be lost sight of. In Antrix16, appointment of the arbitrator, as per the ICC Rules, was as per the alternative procedure agreed upon, whereas in Pricol Ltd.17., the party which had filed the application under Section 11(6) of the Arbitration Act had already submitted to the jurisdiction of the arbitrator. In the present case, the situation is otherwise.

10. Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court


16 (2014) 11 SCC 560

17 (2015) 4 SCC 177


exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law. In the present case, the agreed upon procedure between the parties contemplated the appointment of the arbitrator by the second party within 30 days of receipt of a notice from the first party. While the decision in Datar Switchgears Ltd. 18 may have introduced some flexibility in the time frame agreed upon by the parties by extending it till a point of time anterior to the filing of the application under Section 11(6) of the Arbitration Act, it cannot be lost sight of that in the present case the appointment of Shri Justice A.D. Mane is clearly contrary to the provisions of the Rules governing the appointment of arbitrators by ICADR, which the parties had agreed to abide by in the matter of such appointment. The option given to the respondent Corporation to go beyond the panel submitted by ICADR and to appoint any person of its choice was clearly not in the contemplation of the parties. If that be so, obviously, the appointment of Shri Justice A.D. Mane is non est in law. Such an appointment, therefore, will not inhibit the exercise of jurisdiction by this Court under Section 11(6) of the Arbitration Act. It cannot, therefore, be held that the present proceeding is not maintainable in law. The appointment of Shri Justice A.D. Mane made beyond 30 days of the receipt of notice by the petitioner, though may appear to be in conformity with the law laid down in Datar Switchgears Ltd18., is clearly contrary to the agreed procedure which required the appointment made by the respondent Corporation to be from the panel submitted by ICADR. The said appointment, therefore, is clearly invalid in law.”

22. It may be noted here that the aforesaid view of the Designated Judge in Walter Bau AG3 was pressed into service on behalf of the appellant in TRF Limited4 and the opinion expressed by the Designated


18 (2000) 8 SCC 151


Judge was found to be in consonance with the binding authorities of this Court. It was observed:-

“32. Mr Sundaram, learned Senior Counsel for the appellant has also drawn inspiration from the judgment passed by the Designated Judge of this Court in Walter Bau AG3, where the learned Judge, after referring to Antrix Corpn. Ltd16. , distinguished the same and also distinguished the authority in Pricol Ltd. v. Johnson Controls Enterprise Ltd.17 and came to hold that: (Walter Bau AG case3, SCC p. 806, para 10)

“10. Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law. …”

33. We may immediately state that the opinion expressed in the aforesaid case is in consonance with the binding authorities we have referred to hereinbefore.”

23. In TRF Limited4, the Managing Director of the respondent had nominated a former Judge of this Court as sole arbitrator in terms of aforesaid Clause 33(d), after which the appellant had preferred an application under Section 11(5) read with Section 11(6) of the Act. The plea was rejected by the High Court and the appeal therefrom on the issue whether the Managing Director could nominate an arbitrator was decided in favour of the appellant as stated hereinabove. As regards the issue about fresh appointment, this Court remanded the matter to the High Court for fresh consideration as is discernible from para 55 of the Judgment. In the light of these authorities there is no hindrance in entertaining the instant application preferred by the Applicants.

24. It is also clear from the Clause in the instant case that no special qualifications such as expertise in any technical field are required of an arbitrator. This was fairly accepted by the learned Senior Counsel for the respondent.

25. In the aforesaid circumstances, in our view a case is made out to entertain the instant application preferred by the Applicants. We, therefore, accept the application, annul the effect of the letter dated 30.07.2019 issued by the respondent and of the appointment of the arbitrator. In exercise of the power conferred by Section 11(6) of the Act, we appoint Dr. Justice A.K. Sikri, former Judge of this Court as the sole arbitrator to decide all the disputes arising out of the Agreement dated 22.05.2017, between the parties, subject to the mandatory declaration made under the amended Section 12 of the Act with respect to independence and impartiality and the ability to devote sufficient time to complete the arbitration within the period as per Section 29A of the Act. A copy of the Order be dispatched to Dr. Justice A. K. Sikri at 144, Sundar Nagar, New Delhi – 110003 (Tel. No.:- 011 – 41802321). The arbitrator shall be entitled to charge fees in terms of the Fourth Schedule to the Act. The fees and other expenses shall be shared by the parties equally.

26. Before we part, we must say that the appointment of an arbitrator by this Court shall not be taken as any reflection on the competence and standing of the arbitrator appointed by the respondent. We must place on record that not even a suggestion in that respect was made by the learned counsel for the Applicants. The matter was argued and has been considered purely from the legal perspective as discussed hereinabove.

27. This application is allowed in aforesaid terms.

ARBITRATION APPLICATION NO.34 OF 2019

Perkins Eastman Architects DPC & Anr. …Applicants
VERSUS
HSCC (India) Ltd. …Respondent

28. The basic facts in this application are more or less identical except that the request for proposal in this case pertains to “comprehensive planning and designing, including preparation and development of concepts, master plan for the campus, preparation of all preliminary and working drawings for various buildings/structures, including preparation of specifications and schedule of quantities’ for the proposed All India Institute of Medical Sciences at Kalyani, West Bengal.”. Clause No.24 titled as “Dispute Resolution” in this case and the communication addressed by the Applicants are also identical and the response by the respondent was also similar. In this case also, appointment of a sole arbitrator was made by the respondent vide communication dated 30.07.2019.

Since the facts are identical and the submissions are common, this application is disposed of in terms similar to the main matter.

29. In the aforesaid circumstances, we accept the application, annul the effect of the letter dated 30.07.2019 issued by the respondent and of the appointment of the arbitrator. In exercise of the power conferred by Section 11(6) of the Act, we appoint Dr. Justice A.K. Sikri, former Judge of this Court as the sole arbitrator to decide all the disputes arising out of the Agreement dated 22.05.2017, between the parties, subject to the mandatory declaration made under the amended Section 12 of the Act with respect to independence and impartiality and the ability to devote sufficient time to complete the arbitration within the period as per Section 29A of the Act. A copy of the Order be dispatched to Dr. Justice A. K. Sikri at 144, Sundar Nagar, New Delhi – 110003 (Tel. No.:- 011 – 41802321). The arbitrator shall be entitled to charge fees in terms of the Fourth Schedule to the Act.

The fees and other expenses shall be shared by the parties equally.

ARBITRATION APPLICATION NO.35 OF 2019

Perkins Eastman Architects DPC & Anr. …Applicants
VERSUS
HSCC (India) Ltd. …Responden

30. The basic facts in this application are more or less identical except that the request for proposal in this case pertains to “comprehensive planning and designing, including preparation and development of concepts, master plan for the campus, preparation of all preliminary and working drawings for various buildings/structures, including preparation of specifications and schedule of quantities’ for the proposed All India Institute of Medical Sciences at Nagpur, Maharashtra.” Clause No.24 titled as “Dispute Resolution” in this case and the communication addressed by the Applicants are also identical and the response by the respondent was also similar. In this case also, appointment of a sole arbitrator was made by the respondent vide communication dated 30.07.2019.

Since the facts are identical and the submissions are common, this application is disposed of in terms similar to the main matter.

31. In the aforesaid circumstances, we accept the application, annul the effect of the letter dated 30.07.2019 issued by the respondent and of the appointment of the arbitrator. In exercise of the power conferred by Section 11(6) of the Act, we appoint Dr. Justice A.K. Sikri, former Judge of this Court as the sole arbitrator to decide all the disputes arising out of the Agreement dated 22.05.2017, between the parties, subject to the mandatory declaration made under the amended Section 12 of the Act with respect to independence and impartiality and the ability to devote sufficient time to complete the arbitration within the period as per Section 29A of the Act. A copy of the Order be dispatched to Dr. Justice A. K. Sikri at 144, Sundar Nagar, New Delhi – 110003 (Tel. No.:- 011 – 41802321). The arbitrator shall be entitled to charge fees in terms of the Fourth Schedule to the Act. The fees and other expenses shall be shared by the parties equally.

J. (Uday Umesh Lalit)

J. (Indu Malhotra)

New Delhi;
November 26, 2019.


 

Whether a claim is barred by res judicata or whether a claim is “mala fide”, it will be decided by examining facts and relevant documents.

Supreme Court in Indian Oil Corporation Ltd. vs. S.P.S. Engineering Ltd.[ (2011) 3 S.C.C. 507 ]

“14. To find out whether a claim is barred by res judicata, or whether a claim is “mala fide”, it will be necessary to examine the facts and relevant documents.

What is to be decided in an application under Section 11 of the Act is whether there is an arbitration agreement between the parties. The Chief Justice or his designate is not expected to go into the merits of the claim or examine the tenability of the claim, in an application under Section 11 of the Act.

The Chief Justice or his designate may however choose to decide whether the claim is a dead (long-barred) claim or whether the parties have, by recording satisfaction, exhausted all rights, obligations and remedies under the contract, so that neither the contract nor the arbitration agreement survived. When it is said that the Chief Justice or his designate may choose to decide whether the claim is a dead claim, it is implied that he will do so only when the claim is evidently and patently a long time-barred claim and there is no need for any detailed consideration of evidence. We may elucidate by an illustration: if the contractor makes a claim a decade or so after completion of the work without referring to any acknowledgment of a liability or other factors that kept the claim alive in law, and the claim is patently long time-barred, the Chief Justice or his designate will examine whether the claim is a dead claim (that is, a long time-barred claim). On the other hand, if the contractor makes a claim for payment, beyond three years of completing of the work but say within five years of completion of work, and alleges that the final bill was drawn up and payments were made within three years before the claim, the Court will not enter into a disputed question whether the claim was barred by limitation or not. The Court will leave the matter to the decision of the Tribunal. If the distinction between apparent and obvious dead claims, and claims involving disputed issues of limitation is not kept in view, the Chief Justice or his designate will end up deciding the question of limitation in all applications under Section 11 of the Act.” ( emphasis supplied)

Parsa Kente Collieries Ltd. Vs. Rajasthan Rajya Vidyut Utpadan Nigam Ltd- 27/05/19

ARBITRATION AND CONCILIATION ACT- arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. It is further observed and held that construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do.

When a court is applying the “public policy” test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. It is further observed that thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score.

FROM: Commercial Appellate Court/Division Bench of the High Court of Judicature for Rajasthan u/S 37 of the Arbitration Act.

QUESTION ASKED: Division Bench of the High Court has exceeded in its jurisdiction in setting aside the arbitral award impugned before it.

SUPREME COURT OF INDIA

Parsa Kente Collieries Ltd. Vs. Rajasthan Rajya Vidyut Utpadan Nigam Ltd.

[Civil Appeal No. 9023 of 2018]

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 28.02.2018 passed by the Commercial Appellate Court/Division Bench of the High Court of Judicature for Rajasthan, Bench at Jaipur in D.B. Civil Miscellaneous Appeal No. 3785 of 2017, by which the High Court has allowed the said appeal preferred by the respondent herein – Rajasthan Rajya Vidyut Utpadan Nigam Limited and has quashed and set aside the award passed by the learned Arbitrator, confirmed by the Commercial Appellate Court at Jaipur, the appellant – the original claimant – Parsa Kente Collieries Limited has preferred the present appeal.

2. That in the month of March, 2006, the respondent floated a tender for joint venture to undertake coal block development, mining and transportation of coal and delivery. That one Adani Enterprises Limited (AEL) submitted a bid which was accepted on 12.05.2006. A Letter of Intent was issued to AEL by the respondent on 23.10.2006. Respondent and AEL entered into a joint venture, namely, Parsa Kente Collieries Limited, the appellant herein. A Coal Mining Service Agreement was entered into between the said Parsa Kente Collieries Limited and AEL. That a Coal Mining and Delivery Agreement (hereinafter referred to as ‘CMDA’) was executed between the appellant and the respondent on 16.07.2008 for supply of coal.

2.1 As per CMDA, the date of commencement of the contract was 25.06.2011. As per CMDA between the appellant and the respondent, the coal supply was to commence at the earliest within 42 months, or within 48 months from the date of allotment of coal blocks, i.e., by 25.06.2011. CMDA also provided a clause for extending the date of commencement. Clause 3.2.1 of the CMDA provided for scope of work; Clause 4.1.3 and 4.1.4 provided for responsibility of the respondent to inform the appellant as regards the requirement of coal in advance. Clause 4.5 provided for commencement of the date; clause 5.1 provided for contract of price; clause 5.2.2. provided for calculation of basic price; clause 5.4.3 provided for escalation in price; clause 7.1 provided for force majeure and clause 7.3 provided for effect of force majeure.

There was a delay of 21 months in obtaining the forest clearance and environmental clearance. The appellant started supply of coal to the respondent with effect from 25.3.2013, i.e., after a delay of 21 months. It appears that the date of commencement was extended by mutual agreement from 25.6.2011 to 25.3.2013. However, certain disputes arose between the parties, more particularly the escalation price, fixed costs, amount lying in Escrow account and cost of construction of railway siding. Therefore, the appellant invoked clause 10.2 of the CMDA and sought arbitration. A retired Hon’ble Judge of the 3 Rajasthan High Court was appointed as the sole arbitrator. The appellant submitted the statement of claim and thereafter filed another statement of claim.

2.2 Before the learned Arbitrator, the claim was bifurcated into four heads, namely,

(1) Price Adjustment;

(2) Fixed Costs;

(3) Escrow Account; and

(4) Construction of Railway Siding.

The learned Arbitrator passed an award dated 27.05.2015 allowing the claims under the heads of ‘Price Adjustment’, ‘Fixed Costs’ and ‘Escrow Account’ and rejected the claim under the head ‘Construction of Railway Siding’. While allowing the claim under the head ‘Price Adjustment’, the learned Arbitrator held that the date of commencement of the first operating year for the purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011. The learned Arbitrator further held that thus the Zero year for the purpose of price escalation has to be 2011-2012. The learned Arbitrator accordingly held that because the date of commencement of the agreement for the purpose of price escalation is 25.06.2011, the appellant shall be entitled to the enhanced amount as applicable in 2013-2014. Accordingly, the learned Arbitrator held that the appellant is entitled to the coal 4 price at Rs.837/- PMT in F.Y. 2013-14 and thereafter the escalated price in the subsequent years as per the relevant clauses of the contract – CMDA.

2.3 That while allowing the claim with respect to ‘Fixed Costs’, the learned Arbitrator held that the respondent could not take the required delivery of the coal from the appellant, thus causing loss to the appellant. The learned Arbitrator held that therefore the appellant is entitled to compensation as claimed for Rs.78 crores.

2.4 That while allowing the claim with respect to ‘Escrow Account’, the learned Arbitrator held that the undertaking given by the appellant was limited to a contingency where on account of failure of completion of mine closure activity by the appellant led to the forfeiture of any amount deposited in the escrow account, the respondent would be entitled to recover the same from the monthly running bills of the appellant. The learned Arbitrator observed, however, as no such occasion has arisen, the question of any deduction on the said count does not arise. Consequently, the learned Arbitrator directed the respondent to 5 return that amount which was lying in the escrow account which was deducted from the monthly running bills of the appellant.

2.5 As observed hereinabove, the learned Arbitrator rejected claim no.4, namely, under the head ‘Construction of Railway Siding’. The award declared by the learned Arbitrator came to be confirmed by the learned Commercial Court, Jaipur in an application under section 34 of the Arbitration and Conciliation Act.

3. Feeling aggrieved, the respondent preferred an appeal under Section 37 of the Arbitration Act before the Commercial Appellate Court/Division Bench of the High Court of Rajasthan at Jaipur. By the impugned judgment and order dated 28.02.2018, the High Court has allowed the said appeal and has set aside the award passed by the learned Arbitrator and confirmed by the Commercial Court, Jaipur.

4. Feeling aggrieved by the impugned judgment and order passed by the Division Bench of the High Court, the original claimant – the appellant has preferred the present appeal.

5. Shri Ranjit Kumar, learned Senior Advocate has appeared on behalf of the appellant and Shri Tushar Mehta, learned Solicitor General of India has appeared on behalf of the respondent.

5.1 Shri Ranjit Kumar, learned Senior Advocate appearing on behalf of the appellant has vehemently submitted that in the facts and circumstances of the case, the High Court ought not to have interfered with the concurrent findings of the learned sole Arbitrator and the learned Commercial Court under Section 34 of the Arbitration Act by giving an alternate construction to the CMDA. It is vehemently submitted that by passing the impugned judgment and order, the High Court has exceeded in its jurisdiction in interfering with the award passed by the learned Arbitrator, confirmed by the learned Commercial Court, while exercising the powers under Section 37 of the Arbitration Act.

5.2 It is further submitted by the learned Senior Advocate appearing on behalf of the appellant that under Section 37 of the Arbitration Act, the scope of judicial inquiry is narrow and does not entail giving own construction to the contract. It is submitted by disturbing the findings, the High Court has gone beyond the limited scope of inquiry contemplated under Section 37 of the Arbitration Act.

5.3 It is further submitted by the learned Senior Advocate appearing on behalf of the appellant that the Division Bench of the High Court has failed to appreciate that the interpretation made by the learned sole Arbitrator on the clauses of CMDA was plausible construction/interpretation and therefore the same could not have been substituted by the High Court in exercise of powers under Section 37 of the Arbitration Act. In support of his above submissions, Shri Ranjit Kumar, learned Senior Advocate has heavily relied upon the decisions of this Court in the cases of Associate Builders v. Delhi Development Authority, reported in (2015) 3 SCC 49; Steel Authority of India Limited v. Gupta Brother Steel Tubes Limited, reported in (2009) 10 SCC 63 and the recent decision of this Court in the case of Ssangyong Engineering & Construction Co. Limited v. National Highways Authority of India (NHAI), rendered on 08.05.2019 in Civil Appeal No. 4779 of 2019, reported in 2019 SCC Online SC 677.

5.1 It is further submitted by the learned Senior Advocate appearing on behalf of the appellant that admittedly there was a delay of 21 months in supply of coal, which was due to the force majeure as there was a delay in obtaining the forest clearance and environmental clearance. It is submitted that the price which was agreed by the appellant in the year 2008 to be paid in the year 2011 would never remain the same in the year 2013-14. It is submitted that therefore though the commencement date as per CMDA was extended due to an admitted fact of force majeure to 25.3.2013, the commencement date would remain as the date defined under the CMDA, i.e., 25.06.2011 and therefore the price escalation ought to be considered from that date.

5.2 It is further submitted by the learned Senior Advocate appearing on behalf of the appellant that though by mutual agreement the commencement date was extended due to an admitted fact of force majeure to 25.03.2013, there was no agreement to supply the coal at the same price which was to be supplied in the year 2011. It is submitted that there is a specific clause – clause 4.5.2 which allows extension of commencement date in cases of force majeure, however, no such corresponding clause has been provided in clause 5.4.3, which is a clause for price escalation. It is submitted that the intention of parties was never to unilaterally extend the first operating year referred to in clause 5.2.2. It is submitted that therefore the price escalation has to be necessarily applied from the contractually stipulated date, i., 25.06.2011.

5.3 It is submitted that in any case the interpretation by the learned Arbitrator was plausible and as such was equitable also. Merely because some other view was possible, the High Court is not justified in interfering with the interpretations/findings recorded by the learned sole Arbitrator and that too in exercise of powers under Section 37 of the Arbitration Act. It is submitted that the interpretation of the relevant clauses of the CMDA with respect to claim no.1 was actually in consonance with the relevant clauses of the CMDA. It is submitted therefore the High Court has erred in interfering with the award passed by the learned Arbitrator, confirmed by the learned Commercial Court.

5.4 Now so far as claim no.2 under the head ‘Fixed Costs’ is concerned, Shri Ranjit Kumar, learned Senior Advocate has heavily relied upon clause 8.2(iii) of the CMDA. It is submitted that due to the lapse on the part of the respondent, the respondent was unable to take delivery of the coal for the 10 financial year 2013-14. It is submitted that there was an event of default by the respondent as contemplated in clause 8.2(iii) of the CMDA.

5.4.1 It is submitted that due to inability of the respondent to take coal as per the stipulated delivery schedule, the appellant had to operate its plant at a sub-optimal level which resulted in incurring fixed costs. It is submitted that it was mandatory for the coal to be lifted within 3 months of production to prevent spontaneous combustion and to ensure that there is no hazard to the plant. It is submitted that despite this, the respondent failed to take delivery.

5.4.2 It is further submitted by the learned Senior Advocate appearing on behalf of the appellant that the High Court has committed an error by not granting the said claim on the ground that the loss was incurred by AMPL (sub-contractor) under Coal Mining Services Agreement to which the respondent was not a party and secondly that loss of Rs.78 crores is not substantiated beyond the Chartered Accountant’s certificate.

It is further submitted by the learned Senior Advocate appearing on behalf of the appellant that CMDA does not prohibit appointment of AMPL 11 as a sub-contractor and in fact any such appointment was approved by the appellant and therefore AMPL cannot be said to be a complete third party to the CMDA. It is submitted that therefore when the respondent failed to lift the fixed quantity of the coal and there was a delay in taking the delivery of the coal for the F.Y. 2013-14, the appellant shall be entitled to the loss suffered to the extent of Rs.78 crores. It is submitted therefore the High Court has committed a grave error in disallowing the said claim.

5.5 Now so far as claim no.3 under the head ‘Escrow Account’ is concerned, it is submitted by the learned Senior Advocate appearing on behalf of the appellant that the High Court has erroneously held that the respondent was entitled to make deductions from the appellant’s bills for payments made in the escrow account. It is submitted that as such the learned sole Arbitrator rightly came to a conclusion that the stage of closing of mines had not been arrived at and therefore the deductions to make the payments into escrow account were premature. It is submitted that the issue of deduction would arise only after a passage of 30 years at the time of closure of the mining plant. It is further submitted that the deposit of amount in the escrow account had arisen due to the guidelines issued by the Ministry of Coal, which was subsequent to the execution of the CMDA. It is submitted that therefore the said circular issued by the Ministry of Coal would not bind the parties to the CMDA. It is submitted therefore the High Court has committed a grave error in rejecting claim no.3.

5.6 Making the above submissions and relying upon the above decisions, it is prayed to allow the present appeal.

6. Shri Tushar Mehta, learned Solicitor General of India, while opposing the present appeal, has vehemently submitted that in the facts and circumstances of the case and having found that the claims allowed by the learned sole Arbitrator, confirmed by the learned Commercial Court, were just contrary to the relevant clauses of the CMDA, the High Court is justified in reversing the award passed by the learned Arbitrator, confirmed by the learned Commercial Court.

6.1. It is vehemently submitted by the learned Solicitor General that as per the settled proposition of law, the learned Arbitrator cannot substitute the terms of the contract and/or interpret the relevant clauses of the contract, which would make the relevant clauses of the contract nugatory. It is submitted that the award, by standing in complete contravention of clear and express provisions of the CMDA, is in conflict with the public policy of India. It is submitted that in the present case, according to the respondent, regarding the “commencement date”, there was only one possible interpretation that could have been accepted by the learned arbitrator.

It is submitted that however the interpretation that has been upheld by the learned arbitrator, apart from being devoid of any reasoning in its support, is wholly incompatible with the terms of the CMDA and the conduct of the parties. It is submitted that any award, by standing in complete contravention of clear and express provisions of the CMDA, is in conflict with the public policy of India and therefore is liable to be set aside. It is submitted therefore the High Court has rightly set aside the award in exercise of powers under Section 37 of the Arbitration Act.

In support of his above submissions, Shri Tushar Mehta, learned Solicitor General of India has heavily relied upon the decision of this Court in the case of ONGC v. Saw Pipes Limited, reported in (2003) 5 SCC 705; Hindustan Zinc Limited v. Friends Coal Carbonisation, reported in (2006) 4 SCC 445 and Associate Builders v. DDA, reported in (2015) 3 SCC 49.

6.2. Now so far as claim no.1, namely, price escalation is concerned, it is vehemently submitted by Shri Tushar Mehta, learned Solicitor General that the term “commencement date” has been defined in the agreement to have the same meaning as given to it in clause 4.5.1. It is submitted that as per clause 4.5.3 the date of commencement is the essence to the contract.

It is submitted that as per the relevant clauses of the CMDA, the commencement date was extendable and in fact with the mutual agreement the same was extended to 25.03.2013. It is submitted that the term “commencement date” is defined to be the date on which the actual supply of coal begins. It is submitted that in the present case, admittedly, the date of supply of the coal is 25.03.2013, and therefore, the appellant shall be entitled to escalation in price only after the completion of 12 months from the commencement date, i.e., 25.03.2013. It is submitted under the CMDA, the appellant is entitled to the escalation in price in each operating year provided that the first escalation shall occur only after completion of 12 months from the commencement 15 date, i.e., 25.03.2013. It is submitted that thus any escalation in price is linked to the date of commencement of coal supply.

It is submitted that thus if the coal supply is commenced as planned on 25.06.2011, the first operating year would have been 25.06.2011 to 31.03.2012. However, since coal supply only commenced on 25.03.2013, the first operating year ought to have been 25.03.2013 to 31.03.2013. It is submitted therefore that when the commencement date is 25.06.2011, the first price escalation would be applicable for the F.Y. 2013-14. It is submitted that however if the commencement date is held to be 25.03.2013 (which in fact was extended by mutual agreement), the first price escalation would occur in F.Y. 2014-15. It is submitted that it is evident from clause 5.4.3 of the CMDA that an escalation in price was to be made only after the delivery of coal had commenced and it is an admitted fact that actual supply of coal started on 25.03.2013. It is submitted therefore that there is no question of price escalation for F.Y. 2013-14.

It is submitted that therefore the award passed by the learned Arbitrator was just contrary to the relevant clauses of the CMDA and therefore the same is rightly set aside by the High Court.

6.3. It is further submitted by the learned Solicitor General of India that in fact the respondent lifted the full quantity of the fixed quantity and therefore there was no loss and in fact the appellant failed to adduce any evidence with respect to the actual loss either due to delay in lifting the coal and/or lifting the loss quantity of the coal than they agreed. The same is rightly set aside by the High Court.

6.4. It is further submitted by the learned Solicitor General appearing on behalf of the respondent that similarly the High Court has rightly set aside the claim with respect to “escrow account”. It is submitted that as such the “escrow account” was required to be opened as per the circular issued by the Ministry of Coal. It is submitted that, in fact, the appellant consented to open the escrow account which as such was required to be opened as per the guidelines issued by the Ministry of Coal.

It is submitted that therefore in fact the appellant consented that the money is being recovered from its running bills to be deposited in the escrow account. It is submitted that even the same is in consonance with clause 3.2.1 of the CMDA. It is submitted therefore the High Court has rightly disallowed the said claim made in escrow account. 6.5 Making the above submissions and relying upon the above decisions, it is prayed to dismiss the present appeal.

7. We have heard the learned counsel for the respective parties at length.

8. At the outset, it is required to be noted that by the impugned judgment and order, the Division Bench of the High Court in exercise of its powers under Section 37 of the Arbitration Act has set aside the award passed by the learned Arbitrator, confirmed by the learned Commercial Court. Therefore, the short question which is posed for consideration before this Court is, whether in the facts and circumstances of the case, the Division of the High Court is justified in interfering with the award passed by the learned Arbitrator, confirmed by the learned Commercial Court, in an appeal under Section 37 of the Arbitration Act?

9. While answering the aforesaid question, certain decisions of this Court and the law declared on the jurisdiction of the appellate Court while considering the award passed by the learned Arbitrator are required to be considered.

9.1. In the case of Associate Builders (supra), this Court had an occasion to consider in detail the jurisdiction of the Court to interfere with the award passed by the Arbitrator in exercise of powers under Section 34 of the Arbitration Act. In the aforesaid decision, this Court has considered the limits of power of the Court to interfere with the arbitral award. It is observed and held that only when the award is in conflict with the public policy in India, the Court would be justified in interfering with the arbitral award. In the aforesaid decision, this Court considered different heads of “public policy in India” which, inter alia, includes patent illegality.

After referring Section 28(3) of the Arbitration Act and after considering the decisions of this Court in the cases of McDermott International Inc. v. Burn Standard Co. Ltd., reported in (2006) 11 SCC 181 (paras 112-113) and Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran, reported in (2012) 5 SCC 306 (paras 43-45), it is observed and held that an arbitral tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. It is further observed and held that construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do.

It is further observed by this Court in the aforesaid decision in paragraph 33 that when a court is applying the “public policy” test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. It is further observed that thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score.

9.2 Similar is the view taken by this Court in the cases of National Highways Authority of India v. ITD Cementation India Limited, reported in (2015) 14 SCC 21(para 25) and Steel Authority 20 of India Limited v. Gupta Brother Steel Tubes Limited, reported in (2009) 10 SCC 63 (para 29).

10. Applying the law laid down by this Court, we have to examine whether the Division Bench of the High Court has exceeded in its jurisdiction in setting aside the arbitral award impugned before it.

11. For convenience, we shall deal with the impugned judgment and order passed by the High Court claim-wise. The first claim is with respect to “price adjustment/escalation”; the second claim is with respect to “fixed costs” and the third claim is with respect to “escrow account”.

11.1 Now so far as the claim with respect to “price adjustment/escalation” is concerned, the learned arbitrator held that the date of commencement of the first operating year for the purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011 and therefore zero year for the purpose of price escalation has to be 2011-12. Accordingly, the learned arbitrator considered the escalated price in F.Y. 2013-14 at Rs.895/- per MT. However, according to the respondent, as the date of commencement was changed from 25.06.2011 to 25.03.2013, the zero year for the purpose of price escalation would be 2013-14. It is required to be noted that it is not in dispute that price escalation is permissible under the contract/agreement itself and there shall be price escalation every year as per the formulae mentioned in the agreement, commencing from the date of commencement.

However, it is true that the initial date of commencement, i.e., 25.06.2011 came to be extended to 25.03.2013 by mutual agreement. However, the same was due to force majeure as there was a delay of 21 months in obtaining the forest clearance and environmental clearance. The price was quoted in the year 2007- 08, applicable from 2011. However, there was a delay in obtaining the forest clearance and environmental clearance and therefore the date of commencement of supply came to be changed. In between there would be hike in labour charges, transportation charges, etc. Though the date of commencement of supply was extended, there was no corresponding amendment in the relevant clauses of the agreement with respect to price escalation.

There was no specific agreement that in the year 2013, the appellant would supply the coal at the same price, without any price escalation. Therefore, considering the overall facts and circumstances of the case and by giving cogent reasons, the learned arbitrator interpreted the relevant clauses of the contract and specifically held that the date of commencement of the first operating year for the purposes of clauses 5.2.2 read with 5.4.3 would be 25.06.2011 and accordingly the zero year for the purpose of price escalation would be 2011-12 and therefore the appellant shall be entitled to the enhanced amount as is applicable in the year 2013-14 (the price escalation). Having considered the reasoning given by the learned arbitrator, we are of the opinion that the interpretation by the learned arbitrator was both possible as well as plausible. Therefore, merely because some other view could have been taken, the High Court is not justified in interfering with the interpretation made by the arbitrator which as observed was possible and plausible.

Therefore, in the facts and circumstances of the case, we are of the opinion that the High Court has clearly exceeded in its jurisdiction in interfering with the award passed by the learned arbitrator with respect to claim no.1 – price adjustment/escalation. At this stage, it is required to be noted that though the High Court has observed that the award passed by the learned arbitrator with respect to claim no.1 was against the public policy, with respect, we do not see any element of public policy. It was pure and simple case of interpretation of the relevant clauses of the agreement which does not involve any public policy. Therefore, we are of the opinion that the impugned judgment and order passed by the High Court for quashing and setting aside the award passed by the learned arbitrator with respect to claim no.1 – price adjustment/escalation cannot be sustained and the same deserves to be quashed and set aside.

11.2 Now so far as claim no.2 – “fixed costs” and an amount of Rs.78 crores awarded by the learned arbitrator with respect to compensation of loss is concerned, having gone through the relevant material on record, we are of the opinion that the High Court has rightly set aside the award passed by the learned arbitrator with respect to claim no.2. Except the CA’s certificate, no further evidence had been led with respect to actual loss. Considering the material on record, it is on the contrary found that in the relevant year the quantity of the coal lifted by the respondent was much above the fixed quantity. Thus, the award passed by the learned arbitrator with respect to claim no.2 was contrary to the evidence on record and therefore is rightly set aside by the High Court.

11.3 Similarly, even with respect to claim no.3 – “Escrow Account” is concerned, the High Court has rightly interfered with the award passed by the learned arbitrator with respect to claim no.3.

It is required to be noted that the escrow account was required to be opened as per the guidelines issued by the Ministry of Coal, Government of India for the preparation of mine closure plant. The guidelines required, inter alia, the mining company to open an escrow account with any schedule bank. Accordingly, the respondent opened an escrow account and executed an escrow agreement. From the correspondence between the parties, it appears that even the appellant consented for opening the escrow account. The appellant also agreed that the amount to be deposited in the escrow account will be recovered by the respondent from immediate next payment of the coal bills of the joint venture company – PKCL raised towards dispatches of coal from appellant’s coal blocks. Thus, thereafter it was not open for the appellant to claim the amount lying in the escrow account.

If the amount lying in the escrow account is returned to the appellant, the purpose and object of opening the escrow account which was as per the guidelines of the Ministry of Coal would be frustrated. The object and purpose of opening the escrow account was to see that the appellant company fulfils the contract as per the agreement and till the closure of the coal blocks. Therefore, the High Court has rightly interfered with the award passed by the learned arbitrator with respect to claim no.3 – escrow account by observing that the reasoning is perverse or so irrational that no reasonable person could have arrived at on the material/evidence on record. We are in complete agreement with the view taken by the learned Division Bench of the High Court.

12. In view of the above and for the reasons stated above, the present appeal succeeds in part. The impugned judgment and order passed by the High Court insofar as quashing and setting aside the award passed by the learned sole arbitrator, confirmed by the learned Commercial Court, insofar as claim no. 1 – price adjustment/escalation is hereby quashed and set aside and the award passed by the learned arbitrator with respect to claim no.1 is hereby restored. The impugned judgment and order passed by the High Court insofar as quashing and setting aside the award passed by the learned arbitrator with respect to rest of the claims, namely, claim no.2 – fixed costs and claim no.3 – escrow account is hereby confirmed. The present appeal is partly allowed to the aforesaid extent only. However, in the facts and circumstances of the case, there shall be no order as to costs.

J. [ARUN MISHRA]

J. [M.R. SHAH]

NEW DELHI;

MAY 27, 2019.

HELD: Therefore, we are of the opinion that the impugned judgment and order passed by the High Court for quashing and setting aside the award passed by the learned arbitrator with respect to claim no.1 – price adjustment/escalation cannot be sustained and the same deserves to be quashed and set aside.

Difference between an award which is executable as decree and award which is required to be made a Rule of Court.

There is a difference between an award which is executable as decree and award which is required to be made a Rule of Court. An award made under Arbitration and Conciliation Act of 1996 is executable as a decree in view of Section 36 of the said Act and therefore it may fall in Explanation II of Section 44A. However, an award passed under Arbitration Act of 1940 is required to be made rule of the Court and such decree can always be executed under Section 44A of the Code of Civil Procedure, 1908. The provisions of Sections 15, 16 and 17 of the Arbitration Act, 1940 are similar to the provisions made in English Arbitration Act, 1996. The provisions of Sections 15, 16 and 17 of the Arbitration Act, 1940 are considered by the Hon’ble Supreme Court in the case of Manager, M/s. Jain and Associates, in which in pare 10 to 13, the Hon’ble Supreme Court observed as under:

“10. We would further refer to Sections 15, 16, 17, 30 and 33 of the Act, which read as under:

15. Power of Court to modify award.(1) The Court may by order modify or correct an award

(a) where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred; or

(b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision; or

(c) where the award contains a clerical mistake or an error arising from an accidental slip or omission.

16. Power to remit award.(1) The Court may from time to time remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks fit-

(a) where the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred; or

(b) where the award is so indefinite as to be incapable of execution; or

(c) where an objection to the legality of the award is apparent upon the face of it.

(2) Where an award is remitted under sub-section (1) the Court shall fix the time within which the arbitrator or umpire shall submit his decision to the Court:

Provided that any time so fixed may be extended by subsequent order of the Court.

(3) An award remitted under sub-section (1) shall become void on the failure of the arbitrator or umpire to reconsider it and submit his decision within the time fixed.

17. Judgment in terms of award. Where the Court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the Court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow, and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with the award.

Grounds for setting aside award. An award shall not be set aside except on one or more of the following grounds, namely-

(a) that an arbitrator or umpire has misconducted himself or the proceedings;

(b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Section 35;

(c) that an award has been improperly procured or is otherwise invalid.

33. Arbitration agreement or award to be contested by application. Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits:

Provided that where the Court deems it just and expedient, it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit.

In view of the aforequoted Sections, it can be stated that–

(a) after receipt of an award, the Court can suo motu refuse to make award rule of the Court on the ground that (I) part of the award is upon a matter not referred to arbitration; and (ii) the award is imperfect in form or contains any obvious error. The Court can also remit the award to arbitrator in case (i) where the award has left undetermined any matter referred to arbitration; or (ii) where it has determined any matter not referred to arbitration; or (iii) the award is so indefinite as to be incapable of execution; or (iv) is on the face of it illegal. This is also provided under parenthesis clause of section 17 which provides Where the Court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the Court shall proceed to pronounce judgment Therefore, it cannot be stated that in case where objections under Section 30 or 33 are not filed the Court is bound to pass decree in terms of the award.

(b) Section 5 of Limitation Act gives discretion to the Court to extend the time for filing application under Section 30 or 33 raising objections to the award.

(c) The Civil Procedure Code including Order IX Rule 13 is applicable to the proceedings initiated by producing award before the Court for passing a decree.

(d) The power of the Court to modify the award under Section 15 or to remit the award to the arbitrator for reconsideration under Section 16 varies from the jurisdiction of the Court to set aside the award under Section 30 or to determine the validity of the arbitration agreement or an award under Section 33.

Sri K. Marappan (D) through Sole LR. Balasubramanian Vs. The Superintending Engineer, T.B.P.H.L.C., Circle Anantapur

Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount of independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes – or refer the dispute as to interest as such – to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view

SUPREME COURT OF INDIA

Sri K. Marappan (D) through Sole LR. Balasubramanian Vs. The Superintending Engineer, T.B.P.H.L.C., Circle Anantapur

DATE: March 27, 2019

ACT: Arbitration Act, 1940

[Civil Appeal Nos.159-170 of 2010]

K.M. JOSEPH, J.

1. These appeals are directed against the judgment rendered by the High court in Civil Miscellaneous Appeal Nos.479, 93, 94, 480, 481 and 95 of 1990 and Civil Revision Petitions Nos.303, 304, 305, 1039, 1040 and 1041 of 1990. The appeals arise out of arbitration proceedings conducted under the Arbitration Act, 1940 hereinafter referred to as ‘the Act’. By the impugned judgment, the High Court set aside the orders passed by the Sub-Court granting the decree in terms of the Arbitration Award though in a modified way in respect of certain claims raised by the appellant. The Court also rejected the petitions filed by the appellant challenging the decision of the sub-Court refusing to make the Award decree of the Court in regard to certain claim. In short, by the impugned judgment the High court found that the arbitration awards were totally unsustainable in view of Clause 59 of the Agreement.

2. A tender was invited on 18.9.1978 by the respondent- State for carrying out irrigation works. The appellant having quoted the lowest rates which ranged between about 10-12% less than the standards specified rate, appellant entered into Agreement No.10/78-79 on 10/03/1979. Equally, the appellant entered into Agreement No. 11/78-79 on 10/03/1979. He also entered into Agreement No.14/79-80 on 28/06/1979. The work was to be completed within 18 months from the date of handing over the possession. It would appear that the site was handed over to the appellant in regard to Agreement No.10/78-79 on 16.11.1979.

As far as the Agreement No.11/78-79 is concerned, the site was handed over on 21.4.1979. The site was handed over to the appellant in regard to Agreement No.14/78-79 on 28.06.1979. Under the agreements, raising various claims, the appellant originally filed claim on 28.11.1983 before a panel of three arbitrators. The panel rendered its awards. The awards came to be challenged by the appellant and the awards were set aside. An arbitrator came to be appointed on petition filed by the appellant. He entered upon reference on 26.4.1988 and passed three awards on 19.8.1988.

The appellant had, in fact, raised 9 claims. The arbitrator rejected claim Nos.6 and 8 whereas he awarded various sums in regard to 3 the other claims. Claim No.9, no doubt, related to interest. The respondent-State filed the applications for setting aside the award under Section 30 and 33 of the Act. The appellant moved suits for making the award decree of the Court under the Act. Certain claims which were awarded by the Arbitrator, however, did not meet with approval of the learned sub-Judge and he agreed with the respondent-State. It is this judgment which generated the appeals and revision petitions before the High Court which stand decided by the High Court by completely agreeing with the contentions of the respondent-State and holding mainly that the awards are in the teeth of clause 59 of the Contract.

3. We heard Mr. Ramamoorthy, the learned senior counsel for the appellant and we also heard Ms. Prerna Singh, learned counsel for the respondent.

4. Though various claims have been raised in the appeals, the appellant has finally chosen to press before us only the contentions in regard to Claim Nos.1,3,4,7 and 9. The awards relate to 3 different agreements entered into by the appellant with the respondents but the claims are all identical in their content in regard to all the three agreements though different amounts have been awarded under the same. Therefore, we may set out the claims with which we are to deal with.

Claim No.1 – towards extra lead of 4 kms/6 kmsstone and metal.

Claim No.3 – Non-supply of food grains as per the conditions of the agreement.

Claim No.4 – Reimbursement of short supply of cement.

Claim No.7 – Claim on account of stock of materials accumulated by the contractor for work in the project. Claim No.9 – Interest of 18% per annum under the Interest Act.

5. Learned senior counsel for the appellant would contend that the appellant is certainly entitled to the amounts as awarded by the Arbitrator under these claims. He would submit that the award of the arbitrator is immune from judicial interference unless it be that the arbitrator has misconducted himself or it be that an error apparent on the face of the record is betrayed by the award. It is for the arbitrator to construe the contract and sift the materials before him. His finding on facts cannot be rendered vulnerable in proceedings under Sections 30 and 33 of the Act. As far as Clause 59 is concerned it is his contention that the said Clause would not stand in the way of the claims as awarded and which are pressed before us being countenanced in law.

6. Per contra learned counsel for the respondent would support the judgment of the High Court and would contend that Clause 59 of the 6 agreement would bar the claims canvassed by the appellant. Before we deal with Clause 59 it is appropriate to appreciate what happened before the arbitrator, the sub-Court and finally in the High Court.

PROCEEDING BEFORE THE ARBITRATOR

Claim No.I-Extra lead

7. The case of the appellant was that the appellant was to quarry and take stones and metal from a specified quarry which was located at a shorter distance than from where the appellant contractor had to actually quarry the stones and metal and thereafter transport the materials to the work site. This resulted in extra rate and therefore extra expenditure. The claim of the appellant was Rs. 15 per cubic meter. The arbitrator rejected the arguments of the respondent that the appellant on his own went ahead and carried out quarrying from the quarry located further away. The arbitrator also found that the claim was tenable under Section 70 of the Contract Act. It is accordingly that the arbitrator awarded compensation at the rate of Rs.15 cubic meter for the amounts as claimed.

Claim No.III

8. Claim No.3 related to default on the part of department in making supply of food grains. In short, under the food for work programme of the Central Government, food grains were to be made available by the respondent and part of the wages of the works was to be supplied by the appellant in food grains as part of the contractual obligation and it is the case of the appellant that the food grains were not supplied though it was available. Consequently, the appellant had to supply food grains to his workers by procuring the food grains at higher prices from the open market. The arbitrator noted the argument of the State to be that the relevant clause only contemplated making available food grains, if it was available. The arbitrator relied 8 on the correspondence to arrive at the conclusion that though food grains were available it was still not supplied to the appellate. The arbitrator proceeded to award various sums under the three contracts on the basis that the appellant was constrained to expend money for supplying his workers by purchasing food grains from the open market.

Claim No. IV

9. As far as claim No.4 is concerned, it related to short supply of cement. Under the contract the arbitrator noted that the department was to supply cement to the contractor. The value of the cement was fixed at Rs.416/- per tonne. It was the case of the appellant-contractor that in breach of its contractual obligation, the department however did not make sufficient supply of cement. In order to achieve progress in the works it is the case of the appellant that he procured cement from outside. He also appears to have pointed out recoveries were made as though supply of cement was effected by the department when it was not the case.

The department contended that cement was in fact supplied as per the contract and the contractor was not authorized to purchase cement from outside. Department further contended that contractor did not produce any vouchers. Department further relied on Clause 10 of the contract. Clause 10 provided that no claim for compensation for non-supply of cement would lie. The arbitrator, however, rejected all the contentions of the department and relied on Section 70 of the Contract Act. The non-production of the cement issue register and unstamped receipt by the department led the arbitrator to raise an adverse inference against the department. The arbitrator proceeded to award varying sums under the three contracts.

Claim No.VII

10. Claim No.7 which is pressed before us related to a claim on account of material accumulated by the appellant for the work in the project was particularly awarded by the arbitrator. The claim of the appellant was that he had purchased various materials and stocked at the work site for carrying out the work but the department prevented appellant from carrying out the work and, therefore, the appellant was entitled to the value of the materials which he had collected at his expense. The arbitrator after excluding sand awarded certain sums under the 3 contracts.

Claim No.IX

11. Finally, under Claim No.9 which related to interest at 18% under the Interest Act, the interest was awarded at the rate of 12% per annum on all claims from the date of the claim petition namely 23.11.1983. Proceedings before Court under Sections 30/33 and 17 of the Act.

12. The sub-Court held inter alia as follows: As far as Claim No.I is concerned, namely, extra lead, the sub-Court proceeded to agree with the arbitrator that the appellant is entitled to extra lead. As far as the quantum of extra lead is concerned, the court found that the arbitrator was not correct in fixing the extra lead at Rs.15 per cubic meter. The reasoning in this regard was that there was no material in support of the same. On the other hand, the Court reasoned that there was a procedure for settling such claims for extra items.

As per correspondence, the court found that the difference would only be Rs.3.23 whereas it was found that the arbitrator has awarded at the rate of Rs.15 which would amount to giving Rs.24 for extra lead of 6 kilometers. This was found to be an error apparent and having regard to the fact that the matter was pending for a long time and the present proceedings constituted the second round of litigation, the court proceeded to modify the amount and direct that the extra lead would be calculated as per the procedure extant.

13. As far as Claim No.III is concerned namely, the breach found by the arbitrator in the matter of supply of food grains, the court proceeded to set aside the award of the arbitrator. It was found that the misconstruing the contract, the arbitrator had awarded a sum of Rs.93 lakhs in all the three contracts put together which is without any justification as the arbitrator has exceeded his jurisdiction. Contrary to the finding recorded by the arbitrator the court found that there was no evidence to show that the food grains were available. The Court reappraised A-22 and A-25 and took the view that it did not support the finding by the arbitrator that the food grains were actually available. It was further found that there is no evidence to show that the appellant had given extra wages for non-supply of food grains by the department. There is no evidence according to the court to show that the appellant had purchased food grains at the open market rates as the appellant had not produced the register to show that he had procured and supplied food grains from outside. The appellant was bound to pay fair wages.

14. As far as the claim No.IV is concerned, which related to short supply of cement to the appellant, the Court set aside the award passed by the arbitrator.

15. It was found inter alia by the Court that the appellant did not mention the source through which he had obtained the cement. There was no evidence before the arbitrator to show that the appellant was permitted to bring his own cement and use it in his work. As per the terms of the agreement the appellant was not allowed to use the cement other than the cement supplied by the Government. There is no evidence before the arbitrator to show any check/measurement taken at the time of alleged use by the Contractor. The tabular statement produced before the arbitrator by the appellant was found to be only theoretical requirement of the quantity of cement for such work.

16. The contractual provisions were ignored by the arbitrator. In none of the letters written by the officers referred to by the arbitrator in the awards, the Engineers admitted about the alleged use of cement brought from outside by the appellant.

17. There was no clause in the contract permitting the contractor to use his own cement and claim reimbursement. The arbitrator exceeded his jurisdiction.

18. As regards Claim No.VII is concerned, which related to claim for value of the material stored by the appellant at his site, the court proceeded to set aside the award. The case of the appellant appears to have been that he collected the materials on the basis of the assurance of the department that further construction work will be entrusted to him but no letter of assurance was produced. The provisions of the agreement were only for finished work. The Additional Advocate General’s argument that the Government had no objection in the contractor selling away material after paying royalty charges etc. to the Government was noted. Under Section 70 of the Contract Act, the Government has got option either to pay compensation or restore the material to the contractor.

19. As far as the claim for interest is concerned, the court relying on the judgment of this Court in Gujarat Water Supply & Sewerage Board vs. 16 Unique Erectors (Gujarat) (P) Ltd. & Anr. reported in AIR 1989 SC 973 and taking the date on which the arbitrator entered upon the reference as 26.4.1988 and the date of the awards as 23.8.1988, it was found that for the said period, the arbitrator did not have the power to grant interest on the amount found due. Therefore, the Court set aside the award of interest for the period 26.4.1988 till 23.8.1988 in regard to the rest the award of interest was sustained by the Court. The net result was the Court, partially, allowed the suits and passed modified awards in favour of the appellant whereas it also allowed the petitions filed by the respondent for setting aside the awards in the manner which we have indicated above.

The findings of the High Court

20. In the impugned order, the Court has proceeded to allow the appeals filed by the 17 respondent-State and dismiss the revisions filed by the appellant.

21. As far as Claim No.III is concerned which related to non-supply of food grains, it was found as follows: “Apart from the fact that there is no such total liability on the part of the Government to supply the food grains without which he could have proceeded with. The very clause which has been relied upon by the contractor for supply of the food grains reduced to the effect that clearly such supply would be made only if available, and therefore, it is not the case of the Contractor that though food grains were available it is not supplied by Government. There is no mention or any evidence in this regard let in on behalf of the contractor. Therefore, it is again the compensation which comes within the bar of Clause 59.”

22. In regard to Claim No.IV, the following is the finding by the High court: “In the Claim No.4 the reimbursement of nonsupply of cement is again is similar such obligation as the one stated to be in the earlier claim and even on this account, nothing has been pointed out on behalf of the contractor on facts or in details as to how it can be taken out from the claim for compensation as barred under Clause 59.”

23. As regards Claim No.I relating to extra lead, the High Court proceeded to hold as follows: “The Claim No.1 relates to extra lead of 4 K.m for stone and metal is again attributable to the alleged delays, laches and breach on the department as complained by the contractor and therefore, such claim once again amounts to a compensation within the parameters of the bar as provided under Clause 59. Since we have found that the claims under item 2,5,3,4 and 1 exfacie squarely come under the bar of Clause 59 in view of the very maintainability which go to the very root itself, these claims are squarely barred under Clause 59 as held in the aforesaid decision of the Supreme Court in the case of Ramnath International Construction Pvt. Limited (2 Supra).”

24. It is found that claim No.2,5,3,4,1 is exfacie case under the bar of Clause 59 and finally it was held as follows: “Having regard to the reasons as given, especially, the authoritative pronouncement by the Apex Court on the very question, we hold that the claims of the contractor are not sustainable and accordingly both the awards of Arbitrator dated 19-06-1985 and 19-06-1968 and the judgement and decree in O.P. No.118 of 1988 dated 07-10-1988 to the extent of awarding claims in respect of the Claims Nos.1,2,3,4,5,7 are set aside and consequently we hold since the very claim being held to be 19 not entitled, question of awarding any interest does not arise.”

Decisions and Findings

25. Since the impugned decision is based on Clause 59, it is now necessary to refer to the same. It reads as follows:

“59. Delays and extension of time: No claim for compensation on account of delays or hindrances to the work from any cause whatever shall lie, except, as hereinafter defined. Reasonable extension of time will be allowed by the executive Engineer or by the officer competent to sanction the extension for unavoidable delays, such as may result from causes, which, in the Opinion of the Executive Engineer, are undoubtedly beyond the control of the contractor. The Executive Engineer shall assess the period of delay or hindrance caused by any written instructions issued by him, at twenty five per cent in excess of the actual working period so lost. In the event of the Executive Engineer failing to issue necessary instructions and thereby causing delay and hindrance to the contractor, the latter shall have the right to claim an assessment of such delay by the superintending Engineer of the Circle whose decision will be final and binding.

The contractor shall lodge in writing with the Executive Engineer a statement of claim for any delay or hindrance referred to above, within fourteen days from its commencement, otherwise, no extension of time will be allowed. Whenever authorized alterations or additions made during the progress of the work are of such a nature in the opinion of the Executive Engineer as to justify an extension of time in consequence thereof, such extension will be granted in writing by the Executive Engineer or other competent authority when ordering such alterations or additions.”

26. It is our view that it will not be open to a contractor to claim compensation which arises on account of the fact that the work is delayed or hindrance caused to the work from any cause whatsoever. To demystify this further, it means that should the work be delayed on account of reasons which are attributable either partially or entirely to the employer namely the respondent herein, the claim for compensation is barred. Equally, the clause interdicts raising claim for compensation by the contractor if the employer poses hindrance to the work. If work gets delayed on account of the contractor himself, it is axiomatic that he cannot claim compensation as it would amount to a person taking advantage of his own wrong.

Delay from any cause cannot found a claim for compensation. It may also happen that the work may get delayed not due to the fault of the employer. There may be natural causes such as natural calamities which may cause delay in carrying out the work. Even in such cases, in our view, Clause 59 would cast an embargo against a claim by the contractor. This interpretation gives full play to the words ‘delays from any cause whatsoever’. Equally, if there is hindrance to the work from any cause whatever, a claim for compensation would not lie.

27. The heading of Clause 59 is ‘delays and extension of time’. While compensation on account of delay and hindrance is impermissible, what Clause 59 provides however, is that reasonable extension of time be allowed. Request for extension of time must arise from causes beyond the control of the contractor. It is further provided in clause 59 that if delay or hindrance is caused by any written instruction by the Executive Engineer then the period 22 of the delay or hindrance is to be assessed at 25% in excess of the actual working period so lost. It is further provided that if delay and hindrance is caused to the contractor as a result of the Executive Engineer failing to issue necessary instructions, the contractor will have the right to claim and assessment of the delay by the Superintending Engineer of the Circle.

The contractor is to lodge a statement of claim for any delay or hindrance within 14 days from its commencement, failing which no extension for time will be allowed. Still further Clause 59 declares that whenever authorised alterations or additions which are made during the progress of the work are of such a nature which justify an extension of time, extension can be granted in writing by the Executive Engineer or other competent authority when ordering such alterations or additions. In short, under clause 59 while extension of time on account of delay or hindrance can be granted. Claim for compensation on account of delay or hindrance on account of any cause will not lie.

28. Now that we have elucidated the true scope of Clause 59, we must ponder whether the High Court was right in placing Clause 59 side by side with Claim No.I and find that claim is in the teeth of Clause 59.

29. Claim No.I as we have already noted relates to claim for extra lead for carrying out the work of quarrying stone and metal from a quarry located at a greater distance from the work site. As far as the said claim is concerned, we would think that it cannot be associated with a delay to the work for any cause whatever within the meaning of Clause 59.

What is involved in the claim is the right to claim compensation by reason of the fact that the appellant-contractor though had to quarry from the 24 specified quarry under the contract which was located nearer to the work site was compelled to carry out the work of quarrying, both stone and metal, from a quarry located at a greater distance and to transport the same to the work site. The claim is based on the expenditure which the appellant had purported to incur on this score. Though case of delay within the meaning of Clause 59 is sought to be set up, there is no support sought to be drawn from the second limb of Clause 59 which deals with hindrance to the work from any cause whatsoever. Therefore, we can safely confine our focus on the question whether the claim stands barred by virtue of Clause 59 on account of it arising out of delay.

In this case, we must further notice that, in fact, before the arbitrator apparently Clause 59 was not as such pressed or at any rate seriously pressed. Before the civil court, in the counter affidavit filed, the State did not lay store by the said contention. It is in the additional counter affidavit filed that the contention based on Clause 59 was apparently raised by the State. Be that as it may, since the arbitrator is the creature of the contract, and therefore, he is bound by the contract, though late in the day, it may be, that the objection was raised, we cannot rule out the said contention as it is a matter that goes to the root of the matter. In fact, we would approve of the view taken by the High Court in regard to effect of Clause 59 qua Claim Nos.2 and 5.

The appellant has, also, not pressed these claims before us. The only aspect which remains is the contention which is urged on behalf of the respondent that Clause 59 would be infringed as escalated amounts are given beyond original period are canvassed by the appellant.

30. We would think that while it is true that the case under Claim No.I extends to the period beyond the original period of the contract (namely 18 months from the date of handing over of site), the 26 claim cannot be one which is on account of delay from any cause whatsoever.

The claim, on the other hand is, on account of the appellant carrying out work of quarrying from a site which was located further away than the site which was specified under the contract. Be it for the original period of the contract or for the period beyond the contract, the appellant has had to quarry from the site located further away. Necessarily in regard to expenses, he must be paid for the difference in the rate. The last area of inquiry would be whether having regard to the fact that the civil court has agreed with the arbitrator that appellant is entitled to extra lead at which rate it should be paid? It is here that we must remind ourselves of the jurisdiction to interfere with an award under the Act. In calculating compensation at the rate of Rs.15/- per cubic meter, has the arbitrator acted without any material?

Has he overlooked any contractual injunction? Does the Civil Court have the power to re-appraise the materials in substituting or modifying the award on merits?

31. In this regard, we must notice the provisions in the Act relating to the power of the court when an award is challenged. Section 15 of the Arbitration Act, 1940 reads as follows:

“15.Power of Court to modify award. The Court may by order modify or correct an award-

(a) where it appears that a part of, the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred; or

(b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision; or (c) where the award contains a clerical mistake or an error arising from an accidental slip or omission.”

32. Section 16 of the Arbitration Act deals with the power to remit the matter. We may straight away rule out the question of remitting the award having regard to the efflux of time and also improbability 28 the arbitrator being available even otherwise for the purpose of redoing the matter. Coming to Section 15 of the Act, the power available to the Court to modify the award was available inter alia when a part of the award is not referred to arbitration and such part can be separated from the other part and clearly Clause (a) is applicable as it is not the case of either party that the matter relating to the amount to be paid by way of extra lead was not a matter which was referred to arbitration.

33. Under Clause (c), an award can be modified if it contains a clerical mistake or there is an error which arises from an accidental slip or omission. There cannot be any doubt that this is not a case where there is clerical mistake or an error arises from an accidental slip or omission. Lastly, the power of the court to modify extend to a case where the award is imperfect in form. Certainly, it is not the situation in the facts of the case. Of course, where the award contains an obvious error which can be amended without affecting such decision. Court has power to modify. When the Sub court modified the sale at which the amount is to be calculated would affect the ‘decision’ of the ‘arbitrator’. It is not the sale of Rs. 15/- C.M., not an essential part of the ‘decision’ of the arbitrator.

34. In the light of the above discussion and proceeding on the basis that there is no power to modify the award we would consider the legality and correctness of the civil court decreeing the claim in regard to Claim No.1 by modifying the award of the arbitrator.

35. In the award, it is the case of the appellant that the Executive Engineer has clearly given the rates and arbitrator has found as follows:

“2.4 the claimant has claimed Rs.15/ cu.m. The Ld. Arbitrator at vol.2 page 283 has noted: “In fact the Department itself recommended to the Government vide 87 letter of C.E. to Government for sanctioning enhanced rates because of escalation of costs. The Department had not disputed correctness of extra rate claimed by contractor. On the other hand by its representation and conduct it has accepted the rate as workable rate. The claim is also tenable and legally tenable and legally grantable, applying the principles of Sec.70 of the Contract Act. Hence I find the claim of the contractor for higher rates at Rs.15/- C.M. is just reasonable and legal..” For Agreement No.10, Rs.7,68,825/- is awarded. For Agreement No.11, Rs.12,38,250 is awarded and For Agreement No.14, Rs.9,59,325 is award. The total is Rs.29,66,400/-“

36. The further case of the appellant is that the standard rate for the period stated by the Executive Engineer is Rs.13.75 cu.m. and the contractor has claimed Rs.15/-cu.m. which is accepted by the Department. It is contended by the appellant that as per the finding of the arbitrator the sub-Court, the extra lead would relate to beyond the agreement period.

37. He had claimed at the rate of Rs.15/- cu.m. which was accepted by the department as is clear from letter dated 23/11/1982 written by the Executive Engineer to the Superintending Engineer.

38. Appellant drew support from letter dated 23.11.1982 written by the Executive Engineer to the Superintendent Engineer. We may also notice the following statement however in the said letter. “After gaining practical experience it has been found possible to utilize this quarry only for major quantities of two contracts of Sri DV. Krishna Reddy & Co., against the total No. of seven works for which the stone from that quarry is proposed to be utilized. The quarry from which the stone is being obtained by Sri K. Marappan is at a distance 3.45 KM MR + 1.447 KM CT. He is obtaining the entire metal and stone totally from this quarry.”

39. The sub Court, on the other hand, has found that the assumption made by the arbitrator about Rs.15/- cu.m. over and above the quoted rates is without any basis. The sub-Court relied on the provisions in the agreement relating to the manner in which the rates were to be derived. The sub Court proceeded to make reference to the clause in the agreement. The Clause reads as follows:

“VII.

a) Procedure for working out rates for supplemental items: The contractor is bound to execute all supplemental items that are found essential, incidental and inevitable during execution of main works at the rates to be worked out as detailed below:-

i) Supplemental items directly deducible from similar items in the original agreement:- The rates shall be derived by adding to or subtracting from the agreement rate of such similar items, the cost of difference in quantity of materials or labour between the new item and the similar item in the agreement worked out with reference to the schedule of rates adopted in the sanctioned estimate with which the tenders were compared plus or minus overall tender percentage.

ii) New items (a) similar items, the rates of which cannot be directly deduced from the original agreement.

b) Purely new items which do not correspond to any item in the agreement. The rates shall be estimate rate plus or minus overall tender percentage.

NOTE: The term estimate rate used in (i) and (ii) and (a) & (II) (b) above means the rate of sanctioned estimate with which the tenders were compares, or if no such rate is available in the estimate the rate derived with reference to the scheduled of rates adopted in the sanctioned estimate with which tenders are compared. Whether the need for execution of excess quantity beyond the quantities stipulated in the agreement is noticed, the contractor should give notice in writing to the Exe. Engineer, who will in turn shall obtain orders of the competent authority before commencing execution of the excess quantity of work.

For all items of work in excess of the quantities shown in Schedule ‘A’ of the tender the rate payable for such item shall be either tender rate or SS rates for the items plus or minus overall tender excess accepted by the competent authority whichever is less. The SS rates means the rates with which estimate is prepared for comparing the tender.

40. Thereafter, the sub court referred to the actual calculation made in Exhibit B.3 the letter dated 23.11.1982 written by the Executive Engineer to the Superintending Engineer which is in fact relied upon by the appellant himself. The sub Court 34 proceeded to find that the difference in rates for 2 kms and 6 kms works out to 3.23 per cu.m. and that the cost of conveyance of material of all kinds RR stones and spass as provided in the estimate is Rs.9.81 per cu.m. which was in accordance with the standard schedule rate for 2 km. lead. The rate fixed for 6 kms lead was Rs.15/- over and above the quoted rates of Rs.8.80 which is arrived apparently after deducting actual rate by which the appellant had quoted his rates which was nearly 10-12% less than the estimated rates.

The result was that the arbitrator gave Rs.24/- per cu.m. as against Rs.13.75 which is without deduction. In the written submission before us, the appellant has not questioned the applicability of the clause relating to supplemental item in regard to the extra lead. Therefore, we need not be detained by the question whether the provision as such is applicable in respect of claim based on extra lead. If that be so, the question would be whether it is a case whether 35 arbitrator has awarded Rs.15/- in place of Rs.13.75 in which case we would be inclined to agree with the appellant that the award in this regard should be sustained in its entirety. But the question is whether the arbitrator has actually awarded Rs.15/- cu.m. over and above the amount which the appellant already received on the basis of the actual lead in the contract.

41. The arbitrator, in fact, found that the claim of the appellant for higher rates at Rs.15/- per cu.m. is reasonable and legal and on the basis of the tabular statement which was prepared by the appellant and awarded different sums under the three different contracts. It would appear that the claim for Rs.15/- per cu.m. is based on abnormal increase in transport charges due to increase in cost of fuel, automobile spare parts etc. If escalated rates are claimed, then it may attract the wrath of Clause 59. We would think that the claim of extra lead 36 cannot be denied.

The claim of Rs.15/- per cu.m., if it is over and above the amount which is already received will be in the teeth of the contractual provision which is relied on by the sub Court for which he has not taken any exception to in which case we would think that the amount as ordered by the sub Court is to be awarded to him under this claim. This means the amount is to be worked out as provided in the letter dated 13.11.1982. In other words, the amount must be awarded on the basis of the cost of conveyance being calculated at the rate of Rs.13.75 and the amount must be calculated and paid. Mindful though we are of the limitation under Section 15 (b) of the Act to modify, we would in the facts of the case, rely on Article 142 to sustain the decision of the Sub Court under this claim.

CLAIM NO.III

42. Coming to Claim No.III, namely, on account of non-supply of food grain, we have already found that while the arbitrator has awarded the amount of 37 compensation, the sub Court has set aside the award. The main contention of the State which found favour with the sub Court is that the clause actually provided for supply of food grain provided it is available. The arbitrator found that food grains were not supplied despite the fact that they were available and this finding by the arbitrator was found to be perverse. The claim of the appellant was that under the agreement, the appellant was to supply the labourers a certain quantity of foodgrains as part of the wages. The labourers were also making such demand as it would be beneficial to them also.

The appellant therefore had to supply food grains from the market at the market value which led him to incur extra expenditure. The labourers according to appellant were not willing to work otherwise. It is necessary to advert to the actual contractual provisions in relation to supply of food grain. The clause in one of the contract relating to food grains reads as follows:

“FOOD GRAINS:

1. The cost of the work is estimated to be Rs.1,16,15,713/- approximately. Against this estimate 17,500 quintals of wheat at Rs.115/- per quintal, if available, will be supplied to the contractor for being issued as wages to labourers employed on the work.

2. The tenderer shall bear the transport and other incidental charges for the transportation of wheat from nearest F.C.I. Wheat godown to the site of the work. He shall be responsible for the safe custody and storage of wheat at his own cost and ensure issue to the labourers of the quantity of wheat calculated at a price not exceeding Rs.1-25 per K.G. in lieu of the amount of wages payable to them.

3. The contractor shall be responsible to produce the Accounts of receipts, distribution etc., of what to the labourers as and when required by the Engineer incharge of the work.

4. The supply of wheat to the contractor for issue to the labourers will be regulated from time to time according to the assessment of the Engineer in-charge of the work.

5. The department is not liable for any compensation on account of any fluctuation of market price of wheat or deterioration in quality of the wheat. The contractor is bound to accept the agreed quantity of wheat at the stipulated rate, if offered. Similarly, he shall have no claim for the supply of extra quantity of wheat on the ground of excess or enlarged scope of work and where the Department declines to supply extra wheat, no claim for compensation on this account shall be entertained by the Department.

6. The tender will be deemed to have satisfied himself about the availability of wheat and the rates quoted by him in the tender should take into account that aspect for completing the work according to the specifications and conditions incorporated in the agreement.”

43. It was further provided that the labourers were to be supplied wheat at a rate not exceeding Rs.125 per quintal but the quantity to be supplied to the labourers and rates are subject to the approval of the Executive Engineer.

44. The appellant relied particularly on the contents under the heading ‘Negotiation’.

It reads as under:

“NEGOTIATIONS.

During further investigation I do hereby agree for the supply of rice in place of wheat. I also agree to receive either wheat or rice or both to the quantity of 17,500 quintals. I also agree for a rate of Rs.115/- per quintal of coarsed rice and Rs.130/- per quintal for fine rice. I also agree to supply coarsed rice at a rate not exceeding Rs.125/- and fine rice not exceeding Rs.140/- per quintal to the labourers. The other conditions and clauses covered by the tender relating to the supply of food grains remain unchanged. 40 In case of short supply of either wheat or rice compared to the quantity of 17,500 quintals, I shall have claim for compensation on this account.”

45. The first thing we have to deal with is whether the High court was wrong in rejecting the said claim. The reason for rejecting the claim by the High Court are as follows:

1. There is no such total liability on the part of the Government to supply the food grains without which he (apparently the appellant) could proceeded with.

2. The very clause which has been relied upon by the contractor for supply of food grains reduced to the fact that such supply would be made only if available and therefore it is not the case of the contractor that though foodgrains were available it is not supplied by the Government.

3. There is no mention of any evidence in this regard let in on behalf of the contractor. It is thereafter that the High Court holds that therefore it is again the compensation which comes within the bar of Clause 59.

46. At first blush, the claim relating to food grain even as understood by the High court does not appear to have anything to do with compensation for delay. The case based on hindrance also does not appear to be made. We shall, however, consider the matter in some detail.

47. The High Court has not adverted to the clause in the contract under the heading ‘negotiation’ which we have referred to. Instead the High court has proceeded on the clause which undoubtedly contemplated supply of food grain only subject to availability. The clause after the negotiation was carried out however brought about the following changes: In place of wheat, the appellant agrees to take either wheat or rice and the price at which it was to be supplied to the workers was also stipulated. The other conditions in the contract relating to the food grain remained unchanged.

This means that it could be said that it was subject to availability and we have also referred to clause which provides that appellant is bound to accept the quantity at the stipulated rate, if offered. However, a significant change which was brought about was that in case of short supply of either wheat or rice compared to a specific quantity of 17,500 quintals, the appellant was given the right to claim for compensation. Therefore, this clause, in our view, brings about the change which has not been considered by the High court. Since the sub Court has given other reasons, it may be necessary to consider what sub Court has held.

48. The sub Court takes note of the provisions under the heading ‘negotiation’ which we have referred to except the condition that in case of short supply the appellant will have the right to claim compensation on this account. The sub Court proceeds to hold the conditions are incorporated with a view to cast a duty to receive a particular quantity of food grain in lieu of cash and to supply them to labourers at a stipulated rate and it is for the benefit of the State as the State would receive the food grains under the food for work programmes under the Government of India scheme free of cost. Further, it is for the benefit of the labourers.

The sub Court proceeded to further hold that the purpose of the food for work programme was to create employment and the contractor is not to get any benefit out of this condition. The contractor is bound to make record of the food grains received from the Government and supplied to the labourers at the specified rate. He cannot sell the food grains at the market rate. He is the happiest person and need not discharge the burden cast under the condition relating to food grains if food grains are not supplied. The appellant was trying to take advantage of this.

There is no promise to supply a particular quantity of food grain. The appellant has no obligation to supply food grains to the labourers if the Government did not provide him food grains. The Sub Court also did not find favour with the contention of the appellant that taking the attractive clause of supply at subsidized rate, he quoted lesser rate and, therefore, for non-supply he is entitled to be compensated. It is found that the appellant is not entitled to compensation as it is not an attractive clause. The Court further found that the arbitrator was carried away by the letters written by the Engineers wherein they have opined that the contractor quoted lesser rates on account of this attractive clause. It would become an attractive clause only if the Engineers concerned permitted the appellant to misutilise the grain by selling the food grain by the contractor in the open market. The appellant is bound to pay fair wages under the contract (It is true that under the contract clause the appellant shall not pay less than the fair wages).

49. It is found that department officers misunderstood the food for work in their letters. The arbitrator relied on such letters as if the Engineers are the master to interpret the term of the contract. It was further found that there is absolutely no basis that food grains were in plenty with the Government. The sub Court further finds that the reliance placed by the arbitrator at Exhibit A.22 for availability was not justified. He referred to Exhibit A.22 with annexure also. The contention of the appellant was that he promised to the labourers that he would pay a portion of their wages by way of food grain at specified rate and he had to supply the food grains at the subsidized rates as promised by purchasing the food grains at higher rates.

The sub Court finds that there is no evidence produced before the arbitrator to show that he purchased food grains from the open market and supplied those food grains to the labourers at the subsidized rates. In case of supply of food grains, the appellant was bound to maintain record of proper distribution but the appellant has not produced any such register, it is reasoned by the sub Court. Next it is found that the appellant even it is true that he agreed that the workers are to be supplied a certain portion of the wages in food grains, he cannot fix wages in such a manner that the contractor would get any advantage out of it as it is not contemplated under the scheme. He has to pay the fair wages and besides fair wages he had to provide additional facilities by providing food grains at the subsidized rates. The question of supply of food grains to worker by appellant in the event of nonsupply of the same by the Government did not arise. It is further found that there is no provision in the agreement to the effect that in case of failure to supply food grains the Government is liable to compensate the loss that may be sustained on account of failure of the department to supply food grains, and the arbitrator patently exceeded jurisdiction.

50. The first thing that stands out in the reasoning of the sub-Court is the absence of any reference to the clauses specifically under the heading ‘negotiation’ which specifically confers a right of compensation in case of short supply of either wheat or rice compared to the quantity of 17,500 quintals (Agreement NO.11/78-79). This means that while the parties contemplated that a part of the wages was to be paid by way of supply of food grains at the stipulated price, the obligation of the appellant was to take the food grain supply from the Food Corporation godown and carry it to the work site. He was to further supply the said food grains to the workers at a higher specified rate in view of the fact that he would incur certain expenses. This undoubtedly was subject to availability. But introduction of the clause in the contract that in case of short supply of either wheat or rice in comparison to the actual quantity which was agreed to be supplied, the appellant will have a claim for compensation on the said count has been missed by the sub Court as also the High Court.

51. The sub-court has proceeded to find that the case of the contractor appellant that the clause providing for supply of food grains was an attractive clause, was not correct. We are inclined to agree with the said finding. In the claim filed by appellant what is stated inter alia is as follows:

“(ii)…………The tender documents provided for supply of wheat at the quantities mentioned above. It also provides that the charges on account of the storage, transportation, the cost of the container as fixed by the Government, and sales tax have to be borne by the contractor. The contract condition also further stipulates that the contractor has to supply the wheat to the labourers consistent with their requirement and at the rates not exceeding Rs.125/- per quintal. It is also mentioned in the contract that a particular quantity of wheat at Rs.115/- per quintal, will be supplied to the contractor for being issued as wages to labourers employed on the work.

On the representation made by the contractor on this clause there was negotiation and agreement was arrived at between the contractor and the Department to the effect that the contractor will receive the quantity of grains to be supplied either as wheat or as rice or both, further stipulating the rate at which it is to be supplied fixing the rate at Rs.115/- per quintal for coursed rice and at Rs.130/- per quintal for fine rice and also stipulating the rates at which the contractor is to pay to the labourers, retaining the other conditions and clauses covered by the contract relating to the supply of food grains.

(iii) In short the agreement stipulates that the food grains will be supplied by the Department to the contractor at the specific rates, which of course are competitive rates as against the rates of the grains to be acquired from the open market. The contractor took this important and attractive aspect into consideration and submitted his tender at the most competitive rate only on account of the advantage he would derive from the department supplying the food grains at specific rates which he would pass on to the labourers.”

52. A perusal of the aforesaid averments will reveal that the tender document contemplated supply 50 of wheat of a particular quantity at Rs. 115/- per quintal and the contractor was to supply at Rs.125/- per quintal to workers. Thereafter, it is stated that on a representation made by the contractor there was negotiation and an agreement was arrived at between the contractor and the department. The contractor was to receive the quantity of food grains either as wheat or rice or both. In other words, reference is made to the clause coming under negotiation. It is thereafter stated that in short, the agreement stipulated that the food grains will be supplied at specific rate which were competitive rates as against the rates in the open market. It is further alleged that the contractor took this important and attractive aspect into consideration and submitted his tender at the most competitive rate only on account of the advantage he would derive from the department.

53. It is to be noted that even according to the appellant, the tender documents provided for supply of wheat. The contract was settled by calling tenders. The appellant submitted his tender which turned out to be the lowest. At the time of submitting his tender the condition relating to the negotiated settlement could not have been there. If that is so, the original tender conditions contemplated supply of wheat at Rs.115/- per quintal, if available. The appellant was to supply the food grains only if the food grains were made available by the Government.

Therefore, it is totally untenable for the appellant to set up a case that attracted by the clause which resulted from the representation and negotiation, he submitted his tender. May be at the time of entering into the contract following his representation and negotiation the clause was incorporated which provided for supply of rice or wheat and other terms. In other words, at the time when appellant submitted his tender which may havebeen lesser than the estimated rate by about 10 to 12%, the negotiated clause was not there. On this score, the case sought to be built up around the clause being attractive cannot be accepted.

54. Secondly, as regards the supply of food grains, the appellant is not correct in having contended that the appellant was duty bound to supply food grain even if the food grains were not supplied by the department. The sub-Court is correct in concluding that appellant was duty bound to supply food grains only if it was supplied to him by the department. This is because despite the clause resulting from negotiation, the other conditions remained intact. A perusal of the clause relating to supply of food grain would show that food grains would be supplied, if available. Again, the words “if offered” is conspicuous. The words in the clause which provided that the appellant shall supply food 53 grain to the labourers is not to be considered in isolation.

55. The sub-Court is not correct in coming to the conclusion that the appellant was bound to pay the fair wages to the workers and he was also liable to offer food grains apart from fair wages. A perusal of the clause makes it clear that what was contemplated was if the food grains were available and supplied, the appellant was to make use of the same supplied it to the workers ‘in lieu of wages’.

56. There are a few aspects which remain. Firstly, what is urged before us is that the under the negotiated clause the department agreed to supply a definite quantity of food grains. In agreement No.11, it was 17500 quintals. We proceed on the basis that in other two agreements, different quantities as claimed by the appellant was mentioned. We notice that in the claim while the appellant has referred to the negotiated clause relating to supply of rice and also providing for the quantity, there is no reference to the clause that appellant will be entitled to compensation if there is short supply of food grains. This clause is also not considered either by the sub court or by the High Court. Very interestingly this is what the arbitrator has said.

“It is argued for the Department that agreement clause is that contractor is not entitled for compensation even if there is non supply of food grains. I do not agree with this submission because the words used in the agreement are ‘short supply’. The agreement does not state that the contractor has no claim in case of non supply of food grains. The counsel for the contractor submits that his clause was subsequently negotiated because intention of the parties was that contractor cannot insist on wheat alone or rice alone and if there is short supply either of rice or wheat, then for that short supply contractor has no claim for compensation. I am inclined to agree with the submission of the counsel of the contractor that so called clause in the agreement does not apply and it is not a bar to the contractor claiming compensation.”

57. However, in the contractual provision which we have extracted, we notice that right to claim compensation is reserved to the contractor in case of 55 short supply. But then, the case of the appellant is not of short supply but of non-supply. The appellant in his written submission also in paragraph 3 stated as follows: “The Agreement at Vol.3, Pg.71, 72 refers to this head. At Pg.72 after the head ‘Negotiations’ the clause reads as under: “….In case of short supply of either wheat or rice compared to the quantity of 17,500 quintals, I shall have claim for compensation on this account.”

58. Further, it is relevant for us to notice the discussion by the arbitrator regarding the quantum of compensation. The arbitrator relies upon the Statement No.3 appended to claim No.III wherein he has shown the prevailing rate of rice in the open market during the period November 1979 to October 1982. The amount which he has paid for the labourers for purchase of food grain on the basis of rates in the open market, the price of food grain payable to labourers for purchase of food grain as per the 56 agreement condition and the extra amount involved due to non supply of food grain by the department. The arbitrator found that the statement shows that the extra amount paid varies between Rs.162/- and Rs.211/- per quintal in the said period. On striking an average, it came roughly to about Rs.185/- per quintal which the appellant paid to the workers for non supply, finds the arbitrator. Further the arbitrator found that the labourers cannot purchase rice from the fair price shops because they were not rice card holders.

The arbitrator referred to the communication to the Executive Engineer dated 23.7.1987 wherein he has stated that 1000 to 1200 workers work daily in each works and the rates for the food grain in the open market are increasing day by day, therefore he has no hesitation in awarding price increase by restricting it to 180% though the contractor’s statement shows 185%. Thereafter, the arbitrator awarded as follows: “The quantity agreed to be supplied by the Department namely rice to the contractor 57 under agreement No.10 is 13,200 quintals, under agreement No.11, it is 17,500 quintals and under agreement No.14, it is 20,000 quintals.

In the tabular statement contractor claimed difference of rates for 15,521 quintals under agreement No.10 and 20,804 quintals under agreement No.11 and 22,195 quintal under agreement No.14. Thus he claimed higher rates for 58,520 quintals where as the Department agreed to supply him a total quantity of 50,700 quintals is multiplied by Rs.180.00 being the difference in price he has incurred an additional expenditure of Rs.91,26,0000.00. Accordingly he is entitled to compensation for Rs.23,70,000.00 under agreement No.10/1978- and Rs.31,50,000.00 under agreement No.11/1978-79 and Rs.26,00,000.00 under agreement No.14/1979-80.”

59. The arbitrator refers to Exhibit P.1 to P.4 letters. Arbitrator also refers to Exhibit B.3 to B.7 letters wherein it is stated that contractor was suffering as he has incurred expenditure on this account as there was a condition in the agreement to give food grains as part of the wages and his aspirations and objectives were not fulfilled because he has quoted less rates. The arbitrator make reference to the negotiations where rice took the place of wheat and thereafter the arbitrator enters the finding that the rice was available.

He relies on Ex.A-27 where the Executive Engineer speaks about 1000 to 1200 workers working daily at each work and the rates for food grains in the local market was increasing day by day. According to the arbitrator, there is correspondence that abundant quantity of food grains was available but no adequate arrangements were made to supply the food grains to the contractor. In the letter written by the Chief Engineer to the State Secretary, he notes the case of the appellant that the appellant has quoted lesser rates relating to supply of food grain at stipulated issue rates. The quantum in the three contracts is noted as also the rate and the amount, the value in rupees is noted. The Superintending Engineer has agreed that the food grain could not be supplied since allotment was not received even though there is stipulation in the agreement to supply food grain if available. The aspirations of the appellant could not be fulfilled, it is stated. It is noted that the price structure of various materials is increased from the date of tender i.e. 10.11.1978. In relation to wheat it is shown an increase of 147%. There is an increase in the case of rice to the extent of 178%. This letter is written on 30.11.1982 Exhibit B-7.

60. First letter written by appellant is dated 30/06/1979. In the said letter this is what he says: “I had requested on several times for the supply of food grains but so far no food grains were supplied to me. I request to make arrangement for the early supply of food grains. In this connection, I wish to state that I had engaged labours on the term that food grains will be supplied to them as a part of their wages and I am supplying food grains to them by purchasing in the local market. Hence, urgent action may be taken for the supply of food grains early otherwise, I have to invest extra finance…”

61. Therefore, the case set up by him is that he has purchased food grains from local market and supplied. In the letter dated 27/08/1980 he states inter alia that he had engaged labourers on terms 60 that rice or wheat will be supplied to them as a part of their wages. He complains that no food grains was supplied. Then he says on the terms agreed to by him he had paid the price of the quality of rice that was cheapest in the market. As can be seen in the second letter the case appears to be that he was paying the labourers the price of rice and he is departing from the case that he was supplying the food grains.

62. In the next letter dated 16/07/1981 he states that he had to go in for additional finance on account of non-supply of food grains. He repeats the same complaint about huge financial outlay on account of non-supply at the specific rate of Rs.115/- per quintal which was actually available, in the last letter dated 07/10/1982.

63. We are of the view that the sub Court is right in holding that the correspondence referred to by the arbitrator did not show that the food grains were actually available with the department and department was only trying to get the food grains from the administration with which the food grains was available. As long as there is some material which substantiated appellants claim before the Arbitrator, the Court hearing the petition under Article 30 and 32 would not reappraise the material to come to the conclusion that the arbitrator went wrong in arriving at a finding of fact. At the same time, if virtually there were no material then it becomes a case of no evidence.

No doubt the contractual provision which provides that the appellant is to keep accounts and produce accounts relating to receipts and distribution may assume relevance when appellant receives food grains from the department and distributes. But at the same time the appellant is putting up the claim for compensation and that too a claim which runs into a fairly large sum. There would certainly be material to evidence the actual purchase and further actual supply to the workers or payment as alleged.

Even 62 assuming everything that the appellant says is correct about the fact of the negotiated settlement, there is virtually no material except the appellants statement that the appellant paid for the price of food grains to the workers. Further, the claim involves payment of price of rice at escalated rates for period beyond the contract also and it invites the wrath of Clause 59. We would therefore think that the award of the claim by the arbitrator cannot be sustained.

CLAIM NO.IV

64. As regards, claim No. 4 is concerned, it arises from alleged short supply of cement. First of all, we have to find as to whether it is hit by the embargo contained in Clause 59 and also advert to the finding of the High Court. In this regard, the High Court holds that the obligation is similar in nature to the earlier claim, namely, claim no. 3 and nothing is pointed out on behalf of the appellant on facts or in details as to how it can be taken out of Clause 63 59. We have to ascertain what exactly is the claim raised by the contractor.

65. The claim in brief is as follows: Cement is one of the items to be supplied by the Department at specific issue rates. The appellant, accordingly, perceiving the same as attractive quoted 10 to 12% lesser than the estimate rate. Cement was to be supplied at the issue rate of Rs.416/- per metric tonne. Right from the beginning, there was short supply. The appellant had no other option but to get cement from other sources. Large quantities were so brought from other sources. The Department being aware agreed specifically and by conduct that they will recoup the cement. The appellant had no intention to give cement free to the Department. The quantity of cement used by the contractor for the project had been quantified and noted in the measurement book and the USR (Unstamped Receipt). The quantity of cement supplied by the Department is correctly noted in the cement issue register maintained by the Department.

Recoveries had been effected without the actual issue of such quantity by the Department as evidenced by the document like USR and other entries. The appellant appended a tabular statement of quantity of cement used for the work, the quantity which was issued by the Department and the balance quantity which constituted the basis of the claim.

66. The arbitrator in regard to the said claim finds inter alia that in the letter dated 17.08.1980, the Engineer had stated that there is short supply and he was bringing cement from other sources and action may be taken to return the extra quantity of cement. He notes that in the counter of the Department, there is no denial about the quantity of work done by the appellant and also the quantity of cement used by him by bringing from other sources. He further finds that it is stated that the exact short supply of cement can be shown only after taking all measurements. The details in the claim statement which also include, apparently, the tabular details was not denied in the counter.

Though, the cement issue register and the USR were called for by the appellant, they were not produced. Adverse inference was drawn. The arbitrator further noted that in the bill the quantity of cement used has been recovered, though the quantity has not been issued and in the last bill, more quantity was given representing part reimbursement. The letters of the Department were also found to support the case of the appellant. Referring to the objection in the counter that no vouchers were produced by the appellant, it was brushed aside as immaterial as it is found that it is proved that he was bringing cement from other sources to complete the work except a small quantity under Agreement No.14. Reliance is placed on Section 70 of the Contract Act.

The argument without a plea in the counter by the Government pleader that the appellant 66 was saving cement out of the quantity supplied by the Department was found untenable on the basis that engineers would not have permitted it. As far as, clause 10 of the Agreement prohibiting any claim for compensation for non-supply or delayed supply, the arbitrator found that appellant is only asking for return of cement brought by him and used in the construction on the assurance of the Department that it will be reimbursed. In total 3790 metric tonnes of cement were found to be brought by the appellant. Rejecting the claim of the appellant for market rate and applying the departmental issue rate of Rs.416/- per tonne different amounts were awarded under the three different contracts.

67. We would think that this claim cannot be said to be hit by clause 59 as appellant is not claiming compensation for any delay. On the other hand, his case is that, contrary to the agreement that he would be supplied the cement it was not supplied and he had to use cement by spending money 67 from his pocket and he only wanted that cement actually used which is in excess of the cement issued to be given to him. More importantly, the amount awarded is at the rate fixed in the original contract and no escalation is given.

68. The Sub-Court, however, set aside the award. The Sub-Court finds as follows: – Cement is a controlled commodity and it could not be purchased from outside, without valid permit. It was found that the appellant did not produce any document to show that cement was actually purchased from outside. The source was not mentioned. The appellant did not produce any permission from the Department for purchasing cement from outside. Even if purchased, it was to be checked by check measure but there was no check measurement.

The tabular statement shown by the appellant, only represents the theoretical requirement in the quantity of cement. He referred to the contractual provisions in this regard 68 which we will refer to. In the letters of the Officers, there is no reference about the use of cement by the appellant which was brought from outside. The letters written by the appellant also complained only of inadequacy of supply of cement and there is no mention of use of cement which he brought from outside. More importantly, he referred to the contractual provision to find that the Government is entitled to recover the cost of theoretical quantity which is not used and use of any lesser amount in comparison to theoretical amount would only enure to the Department.

69. We must refer to the contractual provision which has not been referred to by the Arbitrator. The contract provides that cement will be supplied at cost by the Department inter alia and the cost of cement issued will be recovered from the contractor’s bill at the rate specified. The contract also contains the theoretical requirement of important materials which include cement which are set out. The rate of recovery is shown as Rs.416/- per metric tonne. However, the important aspects which weighed with the Sub-Court are contained in the following provisions relating to the scarce materials like cement. It reads as follows:-

“The contractor is expected to use the scarce materials like cement and steel as per the theoretical requirements shown above. A schedule of quantities of important materials like steel cement etc., required for execution in accordance with the requisite specifications is appended hereto for which recovery will be affected. If these materials drawn according to a schedule are short used, the excess quantity so drawn should be returned to the Department in good condition and no payment will be made to the contractor therefore. If they are not so returned to the department, their cost will be recovered at the market rate prevailing at the time of supply or the issue rate whichever is greater plus storage charges plus sales tax if leviable.

If materials are drawn in excess of theoretical requirements indicated in the appended schedule, the excess quantity should be returned to the Department in good condition. If they are not so returned to the Department their cost will be recovered at issue rate plus 100% surcharge or market rate whichever is higher plus storage and sales tax if leviable. If materials are either short drawn or short used (though drawn according to schedule) (1) the savings due to short drawal/ use should be secured to Government by recovering the cost 70 thereof at issue rate from the Contractor. In the case of materials short used, though drawn according to schedule this recovery will be in addition to the recovery to be made for the cost of materials not returned as stipulated above. The Executive Engineer will decide the approximate requirements of explosives.

If they are drawn in excess of the same, the excess quantity should be returned in the Department in good condition. If they are not so returned to the Department their cost will be recovered at issue rate plus 100% surcharge over from the contracting bill. The Contractor should maintain separate ledgers for each of the items which are either supplied by the Department or required to be procured by the Contractor and permit the Exec. Engineer or his authorized subordinate or scrutinize the Registers any time and note in account of the materials on hand.”

(Emphasis supplied)

70. Let us see what the contract has really provided for. We are doing this for the reason that the Sub-Court set aside the award in regard to this claim. The appellant filed revisions against the judgment of the Sub-Court. We have noticed that essentially, the High Court proceeded based on the Bar under Clause 59. The matter has not been dealt with as such by the High Court. Here also after finding that Clause 59 will not come in the way of 71 the claim, we could have remitted back the matter to the High Court for consideration of the matter. Having regard to the long efflux of time, we are undertaking the task of considering the matter.

71. A perusal of the contractual provisions which we have referred to yields the following inevitable result. Cement is a scarce material to be supplied by the Department. The appellant was to maintain separate ledger for the item for which cement was supplied by the Department. The issue price was Rs.416/- per metric tonne. The cost of cement at the said rate was to be recovered from the appellant’s bill at the issue rate. Thus, if the value of the work is Rs.100/- and the value of the cement is Rs.5/-, the appellant would get only Rs.95/-.

72. The next question is the effect of the other provisions which we have quoted. We have already noted that there are theoretical requirements in regard to the use of cement. It is not unnatural for the Department to prescribe for the theoretical requirement. This is to ensure that it is used exactly as per the theoretical requirement so that the structure on the one hand is built in a safe manner and at the same time nothing in excess is used so as to avoid wastage of scarce material. There are three situations which are contemplated.

In the first situation, it is provided that if materials are drawn according to the schedule and are short used then the excess quantity is to be returned to the Department in good condition and for the same the contractor will not get any payment. Furthermore, if the shortused material is not returned to the Department, their cost will be recovered at the market rate or at the issue rate which is greater plus wastage charges and sales tax. An example which we may take, would be if the requisite specifications is that 10 metric tonnes of cement is to be drawn and he draws 10 metric tonnes but he actually used only 8 metric tonnes there will be a short use of 2 metric tonnes which he would have to return to the Department.

73. The second situation is where the materials are drawn in excess of theoretical requirements. The contract contemplates that in such a situation, the excess drawn quantity must be returned to the Department in good condition and otherwise there will be recovery at the issue rate plus 100% surcharge or market rate whichever is higher plus storage and taxes.

74. The third situation contemplated is that if the materials are short drawn or short used it is specifically provided that in such a situation, the saving due to short drawal/ use should be secured to 74 the Government by recovering the cost thereto at issue rate from the contractor. Thus, in the example, we have taken if 10 metric tonnes is actual quantity as per the specifications which can be drawn but if only 8 metric tonne is drawn by the contractor while he was to use 10 metric tonnes, the saving due to short drawal was secured to the Government by recovering the cost thereto at the issue rate from the contractor.

This means that instead of 10 metric tonnes, if 8 metric tonnes is drawn, the contractor would still be liable for recovery from his bill for the entire 10 metric tonnes, though, he has actually drawn only 8 metric tonnes. In respect of short used material, though, properly drawn the recovery would be in addition to the recovery for the cost of materials which is returned as we have noted above. Further, the contract contemplates that if materials are required to be procured by the contractor, he must maintain separate ledger for each of the item which are so required to be procured by the contractor.

75. This would mean that if the appellant had indeed secured cement from outside, the appellant was obliged under the Contract to maintain a separate ledger. Further the Contract contemplates that there could be recovery from the bill of the Contractor for the cost of cement which is actually not supplied to the contractor and it will be based on the theoretical requirement as we have already referred to above. Thus, the mere fact that there has been excess recovery meaning thereby that without issuing the cement to the appellant the amounts have been recovered would not mean that the appellant would be able to substantiate his claim that there was inadequate supply of cement. That is a matter which must be substantiated with reference to other material.

76. But there are two situations which can arise. Cement may be available with the Department and the Contractor draws only lesser quantity than provided in the specifications which is based on technical requirements. In such a case, undoubtedly the Clauses which we have adverted to would apply. What however would be the position if cement is not available and consequently the Contractor is not supplied and he is not in a position to draw cement. In such a scenario also, will it be a case of drawal of cement by the Contractor which is less than the specified quantum? It would be so, but it may have different implications.

77. At this juncture, we may look at the correspondence which may throw light. In the letter dated 30.06.1979 written by the appellant to the Executive Engineer, we find there is no mention even about the inadequate supply of cement. Next letter is dated 26.07.1980. This is a letter where reference is made to all the three contracts. There is a reference in this letter no doubt about the purchase of cement from other sources. He seeks return of the cement so that extra quantity of cement may be reimbursed. There is no reference to any particular quantity and there is no reference to which the other sources are.

78. The next letter is dated 16.07.1981. Here the reference is made to Agreement No.10/78-79. In this letter there is no complaint about the cement. Finally, there is letter dated 07.10.1982 which is addressed by the appellant to the Superintending Engineer. Here the reference is made to the Agreement No.11/78-

79. No doubt in the body of the letter he also adverts to the other contracts. Substantially, the letter is one where he makes various complaints and finally, he makes a claim for enhancement. Here he says in this letter that there is inadequate and irregular supply of cement which affected his steady progress of work during 1979, 1980 and 1981. He says inadequate supply caused him substantial loss to the work done. A look at the correspondence by the departmental officers at this juncture may be not out of place. Letter dated 13.11.1982 written by the Executive Engineer to the Superintending Engineer inter alia reads as follows:

“It is a fact that there was difficulty in obtaining and procuring cement for the project. The enclosed table indicates the available cement in the division. The total cement is used on this project alone for the works of Sri K. Marappan. It can also be seen from the statement the maximum percentage of cement available was spared to the works of Sri K. Marappan. Extreme efforts have been made for additional allotment of cement with great difficulty some additional allotment have been obtained as clarified in the statement. On the face of the overall shortage of cement and the possibilities of securing the full requirement of cement being bleak, the contractor could not be forced to increase the rate of progress which he was capable of managing, since most of the work carried out upto March, being at lower levels of the dam. This shortage of cement was felt continuously. Reference is invited to the letter of Superintending Engineer No. 1230 CE dt. 13.6.81 and 831 CE dt. 27.4.79 wherein request for additional quantity of cement was made to Chief Engineer.

79. In letter dated 18.11.1982 written by the Superintending Engineer to the Chief Engineer within 5 days of letter dated 13.11.1982 Superintending Engineer recommended completion through the same contractor with enhancement.

In letter dated 30.11.1982 written by Chief Engineer to the Special Secretary to Government, Irrigation Department, it is inter alia stated: “It is a fact that there was a difficulty in procuring the cement for this project. Overall shortage of cement and the possibilities of securing the full requirement of cement being bleak, the contractor could not be forced to increase the rate of progress which he was capable of managing. The shortage of cement was felt continuously from the starting of the work till to-day.”

80. From the correspondence, it would appear that the officers proceeded on the basis that there is a shortage of cement. Therefore, this appears to be a case where sufficient cement may not have been supplied to the appellant. However, it is to be remembered under Clause 10 of the agreement no right 80 to compensation lies for short supply of cement. Here the case of the contractor appellant which is accepted by the arbitrator is that this is not a case where compensation for short supply of cement is made by the appellant. All that the appellant is seeking is to be given, is the quantity of cement, which he brought from other sources or the monetary equivalent.

81. We proceed on the basis that the claim for return of the cement does not involve infraction of Clause 10 which forbids compensation on account of short supply of cement. The question, however, arises whether the arbitrator has misconducted himself in arriving at the amount of cement supposedly brought from other sources by the appellant to carry out the work. As far as the monetary equivalent is concerned as we have already noted it is at the issue price fixed under the contract itself and it is not an escalated amount so 81 the measure of the amount of reimbursement may not attract Clause 59. The only point, therefore, which remains is whether there was any basis for the arbitrator to have found that the appellant had indeed brought the quantity of cement from other sources and used it for the works in question.

82. The arbitrator has proceeded on the basis of the admitted correspondence between the officers to find that there is shortage of cement. The sub-court on the other hand finds that none of the correspondence by the officers indicate that the appellant was given permission to buy cement from outside. There is no indication in any of the letters written by the appellant which the other sources were from which he was procuring cement. The most important obstacle for the appellant is the clause in the contract which has been referred to by us and which is referred to by the sub-Court, namely, for procuring cement by the contractor, he must maintain ledger and which may be open to scrutiny by the officer as and when demanded. In this case, the appellant has not produced any ledger showing purchase of cement from other sources. There is no written permission produced to purchase cement from other sources. No voucher has been produced by the appellant to establish purchase of cement from outside.

83. The arbitrator, however, has found that even non-production of vouchers is not material as it is proved that appellant has purchased cement from outside. There are two things which apparently the arbitrator has taken note of. The arbitrator finds that there is no denial about the quantity of the work done by the contractor and also about the quantity of cement used for bringing from other sources. It is stated in the counter affidavit that exact short supply of cement can be shown only after taking over of measurement. It is further found that measurement was already taken.

The second aspect is arbitrator finds that as the unstamped receipt and the cement issue register though called for by the appellant was not produced, adverse inference must be drawn. If the matter as alleged is not denied or is admitted then it may not be necessary to adduce evidence to prove the same. This principle is equally applicable before the arbitrator as it is before the court of law. Perhaps it is all the more applicable in the case of proceedings before an arbitrator.

84. We are in one sense handicapped by the fact that the appellant has not produced the counter affidavit filed by the State before the arbitrator. It is true that if the case pleaded by the State amounts to admission that the cement was brought from outside by the appellant and the matter was only regarding the measurement to be carried out that may give the impression that the arbitrator particularly having regard to the non-production of the unstamped receipt and cement issue register despite being 84 called for had some justification for coming to the conclusion that the appellant had procured cement from outside. Then the further question would be the only quantity of cement which was purported to be bought from outside by the appellant.

85. State definitely has a case, however, that there is no evidence by the appellant having procured cement from outside sources as he has not produced vouchers as that is seen dealt with by the arbitrator. The exact quantity of cement purchased from outside is not pleaded. Instead what the appellant contended for and what was accepted by the arbitrator was that the quantum of cement which was used could be found out from the quantum of work done. This is clear from the statement even on the basis that when a particular quantum of work is done, as per the theoretical requirement for cement involved in such work, the quantity of cement actually used by the appellant has been arrived at and after deducting the quantum of cement which was actually issued, the balance amount of cement which the appellant has used for the work from outside source has been arrived at. We have referred to the contractual provision and it would be hazardous to arrive at the amount of cement, used from other sources based on quantum of work done.

86. But arbitrator overlooks the fact that under the contract the appellant was supposed to make entries in the ledger. A party is supposed to produce the best evidence or rather the evidence which under the contract is contemplated. The failure on the part of the appellant to produce the ledger has fatal consequences. The matter becomes further aggravated by the failure on the part of the appellant to even produce vouchers or bills in support of the claim to purchase the cement from outside sources. This is even if we are to ignore the fact that there is no written permission for purchase of cement from outside. We proceed on the basis that a contractor may without written permission but for the purpose of the work purchased cement from outside. But certainly, the fact that there are neither vouchers nor any ledger entries nor bills produced which persuades us to hold that the matter may warrant interference with the award under Section 30. We are not inclined to accept the claim.

CLAIM NO.VII

87. As regards this claim, the claim appears to be that appellant collected materials and it was lying at the site. Admittedly, the appellant has not used this material for the purpose of doing the work. Only the case set up by the appellant is that he was given an assurance that he will be permitted to carry out the work and therefore, since he has spent money for the same, he must get the amount which is claimed for having spent on the material. We are of the view that insofar as the appellant has not used any of the materials to carry out the work and sets up the claim only on the basis of assurance which has not been admitted, the action of the appellant in purchasing the materials cannot result in establishing his claim for compensation. It is to be noticed that the appellant raised a claim for enhanced compensation. He alleged that there was delay on the part of the respondent on various grounds.

This is apart from alleging other factors like breakout of malaria, unfavourable weather and delay in taking decision by the departmental officers, which contributed to escalation in cost. Correspondence was exchanged with the Executive Engineer and the Superintending Engineer, the Superintending Engineer and the Chief Engineer and finally between the Chief Engineer and the Government. It appears that at that stage appellant invoked the arbitration clause and a panel of arbitrators gave their award. In fact, the work itself was stopped. Clause 59 prevents the Court from awarding compensation on account of any factor relating to the delay which may be due to any cause whatsoever. In such circumstances, we are of the 88 view that the appellant has also not made out any cause for compensation in regard to this claim.

CLAIM NO.IX

88. As far as the question relating to interest is concerned, the arbitrator has awarded interest at 12% from the date of the claim but excluded interest from commencement of proceeding till date of award. The question relating to interest is no longer res integra as we find that the issue has been dealt with in a recent judgment of this Court in Assam State Electricity Board & Ors. v. Buildworth (P) Ltd. reported in 2017 (8) SCC 146 to which one of us was a party. As long as the agreement between the parties does not prohibit grant of interest and the matter is referred to the arbitrator, arbitrator would have power to grant interest pendente lite. The Court inter alia held as follows:

“21. The next aspect of the matter relates to the award of interest for the period from 7-3-1986 to 31-12-1997. The arbitrator awarded a lump sum of Rs.20 lakhs for a period of 11 years. The High Court set aside the award of interest on the ground that Section 29 of the Arbitration Act, 89 1940 contemplates the award of interest only from the date of the decree. The issue as to whether interest could be awarded for the pre-reference period and pendente lite under the Act of 1940 is not res integra. In Irrigation Deptt., State of Orissa and Ors. v. G.C. Roy (1992) 1 SCC 508, a Constitution Bench of this Court held that: (SCC pp.533-34, para 44)

“44….. Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount of independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes – or refer the dispute as to interest as such – to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view.”

89. The sub Court set aside the award of interest for the period from 26.4.1988 till the date of the award namely 19.8.1988 which is the pendente lite interest. This is on the basis that arbitrator has no power to award interest on amounts found due. This is purportedly followed in the judgment of this Court in Smt. Aruna Kumari vs Government Of Andhra Pradesh And Anr. reported in AIR 1988 SC 873. This Court took the view that entering upon reference is to be taken as the date of commencement of arbitration proceedings for calculation of interest. And this Court took the view therein that there is no power to grant interest from the date of commencement of arbitration.

However, in view of the decision in Jugal Kishore Prabhatilal Sharma vs. Vijayendra Prabhatilal Sharma 1992 (1) SCC 508 as followed in The National Highways Authority vs. Afcons-Apil Joint Venture 2017 (8) SCC 146, the sub Court was not justified in setting aside interest and the interest as awarded by the arbitrator is restored.

90. Accordingly, we partly allow the appeals. The award in so far as it relates to Claim No.I, as accepted by the sub-Court is restored along with interest on the same as awarded by the arbitrator. The amount shall be calculated and paid within two months of production of certified copy of this judgment.

CJI. (Ranjan Gogoi)

J. (Sanjay Kishan Kaul)

J. (K.M. Joseph)

New Delhi;

March 27, 2019


CASE REFERRED

  1. Irrigation Deptt., State of Orissa and Ors. v. G.C. Roy (1992) 1 SCC 508
  2. Assam State Electricity Board & Ors. v. Buildworth (P) Ltd. reported in 2017 (8) SCC 146
  3. Jugal Kishore Prabhatilal Sharma vs. Vijayendra Prabhatilal Sharma 1992 (1) SCC 508
  4. The National Highways Authority vs. Afcons-Apil Joint Venture 2017 (8) SCC 146
  5. Smt. Aruna Kumari vs Government Of Andhra Pradesh And Anr. reported in AIR 1988 SC 873

INDIAN OIL CORPORATION LTD. Vs. INDIAN CARBON LTD

SUPREME COURT OF INDIA JUDGMENTS

That the arbitrator is not required to give detailed judgement for his award – Recording of short intelligible indications of the grounds speaking the mind of arbitrator held to be sufficient compliance. The arbitrator has made his mind known on the basis of which he has acted; that, in our opinion, is sufficient to meet the requirements even if it be reasons should be stated in the award. It is one thing to say that reasons should be stated and another thing to state that a detailed judgement be given in support of an award. Even if it be held that it is obligatory to state the reasons, it is not obligatory to give a detailed judgement.

SUPREME COURT OF INDIA

DIVISION BENCH

( Before : Sabyasachi Mukherjee, J; S. Ranganathan, J )

INDIAN OIL CORPORATION LTD. — Appellant

Vs.

INDIAN CARBON LTD. — Respondent

Special Leave Petition (Civil) No. 4557 of 1988

Decided on : 06-04-1988

Arbitration Act, 1940 – Sections 30 and 33

Cases Referred

Dewan Singh Vs. Champat Singh and Others, AIR 1970 SC 967 : (1969) 3 SCC 447 : (1970) 2 SCR 903
Rohtas Industries Ltd. and Another Vs. Rohtas Industries Staff Union and Others, AIR 1976 SC 425 : (1976) 32 FLR 50 : (1976) 1 LLJ 274 : (1976) 2 SCC 82 : (1976) 3 SCR 12
Hindustan Steelworks Construction Ltd. Vs. C. Rajasekhar Rao, (1987) 2 ARBLR 200 : (1987) 3 JT 239 : (1987) 2 SCALE 218 : (1987) 4 SCC 93 : (1987) 3 SCR 653 : (1987) 2 UJ 468

Counsel for Appearing Parties

F.S. Nariman, B.D. Sharma and R.R. Kapur, for the Appellant; Soli J. Sorabjee, Harsh Mittre, Harish N. Salve, Jeel Peres and D.N. Mishra, for the Respondent

JUDGMENT

Sabyasachi Mukharji, J.—This petition under Article 136 of the Constitution challenges the judgment and order of the Division Bench of the High Court of Bombay dated 21st March, 1988. The petitioner in this case on 23rd June, 1961, had agreed to sell to the predecessor of respondent raw petroleum coke. There was a second agreement on 22nd April, 1971. The said agreement was arrived at between the parties whereunder it was provided that in case the respondent failed to lift raw petroleum coke as agreed, the petitioner would have right to shift raw petroleum coke at the risk and expense of the respondent. There was a third agreement providing that in case of delay in payment, the respondent would pay interest at 4 per cent over the I.O.C. Bank borrowing rate, on the value of the stock not uplifted. It appears that on 5th August, 1982, the respondent wrote a letter to the petitioner showing inability to pay the arrears of the price against delivery of raw petroleum coke. On 4th October, 1982 there was a stock of about 13,760 M.T.S. of saleable raw petroleum coke lying at Gauhati Refinery. The petitioner on 18th October, 1982 wrote to the respondent that unless the outstandings as on 1st September, 1982 and interest were paid, the petitioner would not make further supplies. Thereafter the petitioner filed Suit No. 2187 of 1982 for payment and for attachment before judgment. On 21st December, 1982, it appears that there was an order of attachment of stocks of raw petroleum coke to the extent of Rs. 6 crores of the respondent. The order was confirmed after notice. Respondent filed Appeal No. 858 of 1983. Thereafter respondent on 20th October, 1983 filed an application for stay of the suit u/s 34 of the Arbitration Act, 1940 (hereinafter called ‘the Act’). The petitioner on 11th July, 1983 terminated the agreement with effect from 31.8.83. The respondent thereafter filed Suit No. 122 of 1983 and applied for an order compelling the petitioner to make supplies. The learned District Judge passed an order on 28th April, 1984 for restoration of supplies. On 7th May, 1984 in petitioner’s appeal viz., Civil Appeal No. 2476 of 1984, this Court stayed the above order. On 24th May, 1984 this Court’s order setting aside the order of the learned District Judge dated 28th April, 1984 and recorded the compromise terms. Pursuant to the compromise, all proceedings were withdrawn by the parties. On 11th December, 1984 matter relating to the petitioner’s claims in respect of interest on stocks held from 1st October, 1982 onwards and expenses of shifting raw petroleum coke from 1st October, 1982 upto 31st August, 1983, were referred to arbitration of Shri A.K. Sarkar, a former Chief Justice of India. On 21st August, 1986 an interim award was passed by the learned arbitrator. Interim award was filed in the High Court of Bombay and the petitioner challenged the said award. The learned single Judge of the High Court dismissed the petition challenging the interim award. The Division Bench of the High Court of Bombay upheld the order of the learned single Judge. Hence this petition under Article 136 of the Constitution.

2. The main contention urged before us was that it was necessary in the present trend of law for the learned arbitrator to have given a reasoned award. The Arbitration Act, 1979 in England so enjoins. The arbitrator, according to the petitioner has failed to do so. Hence the award was bad and as such the decision of the High Court was wrong and leave should be granted from the said decision and the matter be referred to the Constitution Bench as several cases are pending on this point.

3. The learned single Judge of the High Court in his decision had observed that the award was undoubtedly not an elaborately reasoned award setting out all the reasons which prompted the learned arbitrator to arrive at the conclusion he did reach, but it was a speaking award. The learned Judge however, held that it was not necessary to examine this aspect since even if it was a speaking order, it was not bad in law. It is true that the law as it stands upto date since the decision of Champsey Bhara and Co. v. Jivraj Balloo Spinning and Weaving Co. Ltd. AIR 1923 P.C. 66 that it was not necessary that all awards should be speaking awards. See in this connection the observations of this Court in Hindustan Steelworks Construction Ltd. Vs. C. Rajasekhar Rao, .

4. Previously the law both in England and India was that an arbitrator’s award might be set aside for error of law appearing on the face of it, though the jurisdiction was not lightly to be exercised. Since question of law could always be dealt with by means of a special case this is one matter that could be taken into account when deciding whether the jurisdiction to set aside an award on this ground should be exercised or not. The jurisdiction was one that existed at common law independently of statute. In order to be a ground for setting aside the award, an error in law on the face of the award must be such that there could be found in the award, or in any document actually incorporated with it, some legal proposition which was the basis of the award and which was erroneous. See Halsbury’s Laws of England, 4th edition, paragraph 623, page 334. The law has undergone a sea change in England. It is obligatory in England now after the Arbitration Act, 979, that the award should give reasons.

5. In the instant case, the arbitrator has set out the history in the interim award. The arbitrator has stated that the agreement dated 22nd April, 1970 provided that I.C.L. will uplift all available coke produced at the Gauhati Refinery by which name also the Noonmati Refinery was called, the said up-liftmen being so regulated that the quantity uplifted every week was equivalent to the production of coke at the refinery in the previous week and that whereas it was thereby further provided that the upliftment by I.C.L. shall also be as regulated that the accumulated quantity of coke in the refinery coke yard does not fall below 2500 tons and does not exceed 4500 tons. The other history of the matter, it was recited that the order dated 24th May, 1984 was passed by consent of the parties by this Court that the claim of the Indian Oil Corporation for interest on stocks said to have been held in the Gauhati Refinery from 1st October. 1982 onwards and its claim for expenses of shifting the coke from 1st October, 1982 upto 31st August, 1983 would be referred to the arbitration of a retired Judge of the Supreme Court mutually acceptable to the parties. Two preliminary issues, the arbitrator framed were, namely (1) Is the claimant entitled to charge any interest on uplifted stock of raw petroleum coke in view of its letter dated October 18, 1982? and (2) Is the claimant entitled to any shifting charges in view of its letter dated 18th October, 1982? The gist of the letter dated 18th October, 1982 is set out in the arbitration agreement. The arbitrator in his award proceeded to observe as follows:

And whereas it is not in dispute between the parties that since the said letter of 18th October, 1982, I.O.C. had not delivered or offered to deliver any raw petroleum coke for I.C.L.

Now, therefore, having heard counsel for the parties and perused the documents and statements filed by them, the despatch and receipt of none of which is disputed, and having considered thereafter, I adjudge, hold and award as follows:

The letter dated 18th October, 1982 is no bar to Indian Oil Corporation’s claim for shifting charges and interest in respect of the period from 1st October, 1982 to 17th October, 1982.

Because of the said letter which has been admittedly acted upon by the Indian Oil Corporation Ltd. which had not delivered any coke to Indian Carbon Ltd. or made any offer to do so the Indian Oil Corporation Ltd. is not entitled to the interest claimed in respect of the period from 18th October, 1982 onwards nor to shifting charges in respect of any shifting done on or after 18th October, 1982.

6. The aforesaid grounds are the reasons of the arbitrator for making the award. The award is that the Indian Oil Corporation is not entitled to any interest nor any shifting charges. The reasons for the said conclusion are the aforesaid three factors mentioned by the arbitrator. How the arbitrator has drawn inference is apparent from the reasons. It is to be noted that this Court has been insisting on the arbitrators to give some indications to indicate how the mind of the arbitrator acts. this Court in the case of Siemens Engineering and Manufacturing Company of India Ltd. v. Union of India [1976] Su. S.C.R. 489 was concerned with the decision of the Collector of Customs. this Court observed that where an authority makes an order in exercise of a quasi-judicial function, it must record its reasons in support of the order it makes. this Court observed further that every quasi-judicial order must be supported by reasons.

7. In Rohtas Industries Ltd. and Another Vs. Rohtas Industries Staff Union and Others, , where this Court was concerned with an award u/s 10A of the Industrial Disputes Act, 1947. this Court observed that there was a need for a speaking order where considerable numbers are affected in their substantial rights. It was further reiterated that in such a situation a speaking Order may well be a facet of natural justice or fair procedure. In Dewan Singh Vs. Champat Singh and Others, , this Court reiterated that it was an implied term of the arbitration agreement that the arbitrators must decide the dispute in accordance with the ordinary law and they cannot decide disputes on the basis of their personal knowledge. The proceedings, it was held, before the arbitrators were quasi-judicial proceedings and they must be conducted in accordance with the principles of natural justice. It was, therefore, obligatory to give reasons. As mentioned hereinbefore there has been since then trend that reasons should be stated in the award and the question whether the reasons are necessary in ordinary arbitration agreement between the parties has been referred to the Constitution Bench.

8. In this case, however, we are in agreement with the High Court of Bombay that reasons were stated in the award. We have set out hereinbefore the three grounds, namely (1) The letter dated 18th October, 1982 is no bar to Indian Oil Corporation’s claim for shifting charges and interest in respect of the period from 1st October, 1982 to 17th October, 1982. (2) The inference drawn from the contents of the letter and (3) Because of the said letter which has admittedly been acted upon by the Indian Oil Corporation Ltd., and which had not delivered any coke to the Indian Carbon Ltd. or made any offer to do so. For these reasons, the arbitrator held that the Indian Oil Corporation Ltd., is not entitled to interest claimed in respect of the period from 18th October, 1982 onwards nor to shifting charges from 18th October, 1982. These are the reasons for giving the award. No error of law was pointed out in those reasons. Indeed no proposition of law was stated in the aforesaid reasons, which could be objected to as an error of law. There was, however, no error of fact. It was a possible view to take. It could not be urged that it was an impossible view to take. The arbitrator has made his mind known on the basis of which he has acted that, in our opinion, is sufficient to meet the requirements even if it be reasons should be stated in the award. It is one thing to say that reasons should be stated and another thing to state that a detailed judgment to be given in support of an award. Even if it be held that it is obligatory to state the reasons, it is not obligatory to give a detailed judgment. This question was considered by the Court of Appeal in England in Bremer Hand elsgesells chat v. Westzucker [1981] 2 LLR 130. There Lord Donaldson speaking for the court at pages 132 and 133 of the report observed as follows:

It is of the greatest importance that trade arbitrators working under the 1979 Act should realize that their whole approach should now be different. At the end of the hearing they will be in a position to give a decision and the reasons for that decision. They should do so at the earliest possible moment. The parties will have made their submissions as to what actually happened and what is the result in terms of their respective rights and liabilities. All this will be fresh in the arbitrators’ minds and there will be no need for further written submission by the parties. No particular form of award is required. Certainly no one wants a formal “Special Case”. All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is. This is all that is meant by a “reasoned award”.

For example, it may be convenient to begin by explaining briefly how the arbitration came about-“X sold to Y 200 tons of soybean meal on the terms of GAFTA Contract 100 at US. $Z per ton c.i.f. Bremen. X claimed damages for non-delivery and we were appointed arbitrators”. The award could then briefly tell the factual story as the arbitrators saw it. Much would be common ground and would need no elaboration. But when the award comes to matters in controversy, it would be helpful if the arbitrators not only gave their view of what occurred, but also made it clear that they have considered any alternative version and have rejected it, e.g., “The shippers claimed that they shipped 100 tons at the end of June. We are not satisfied that this is so”, or as the case may be. “We are satisfied that this was not the case”. The arbitrators should end with their conclusion as to the resulting rights and liabilities of the parties. There is nothing about this which is remotely technical, difficult or time consuming.

It is sometimes said that this involves arbitrators in delivering judgments and that this is something which requires legal skills. This is something of a half truth. Much of the art of giving a judgment lies in telling a story logically, coherently and accurately. This is something which requires skill, but it is not a legal skill and it is not necessarily advanced by legal training. It is certainly a judicial skill, but arbitrators for this purpose are Judges and will have no difficulty in acquiring it. Where a 1979 Act award differs from a judgment is in the fact that the arbitrators will not be expected to analyse the law and the authorities. It will be quite sufficient that they should explain how they reached their conclusion, e.g., “We regarded the conduct of the buyers, as we have described it, as constituting a repudiation of their obligations under the contract and the subsequent conduct of the sellers, also as described, as amounting to an acceptance of that repudiactory conduct putting an end to the contract”. It can be left to others to argue that this is wrong in law and to a professional Judge, if leave to appeal is given, to analyse the authorities. This is not to say that where arbitrators are content to set out their reasoning on questions of law in the same way as Judges, this will be unwelcome to the Courts. Far from it. The point which I am seeking to make is that a reasoned award, in accordance with the 1979 Act, is wholly different from an award in the form of a special case. It is not technical, it is not difficult to draw and above all it is something which can and should be produced promptly and quickly at the conclusion of the hearing. That is the time when it is easiest to produce an award with all the issues in mind.” See the observations in Russel on Arbitration, 20th Edn., page 291 Reasons for the Award and the decision referred to therein.

9. In a case of this nature, issues are simple, points are fresh and facts are clear, the reasons given by the arbitrator, in our opinion, meet the requirements of a reasoned award. It is apparent that the arbitrator has not acted irrelevantly or unreasonably. Arbitration procedure should be quick and that quickness of the decision can always be ensured by insisting that short intelligible indications of the grounds should be available to find out the mind of the arbitrator for his action. This was possible in the instant case. In the instant case the arbitrator has spoken his mind, and he is clear as to how he acted and why he acted in that manner.

10. The purpose of Section 12 of the English Tribunal and Inquiries Act which required the statutory tribunal to furnish a statement of the reasons if requested to do so before it gave its decision was to enable a person whose property or whose interests were affected to know if the decision was against him what the reasons were. Justice R.S. Bachawat in his Law of Arbitration, First Edition 1983, pages 320 and 321 states that the provision was read as meaning that proper and adequate reasons must be given. The reasons that are set out must be reasons which will not only be intelligible but also deal with the substantial points that have been raised. When the arbitration clause required the arbitrator to give a reasoned award and the arbitrator does give his reasons in the award, the sufficiency of the reasons depend upon the facts of the particular case. He is not bound to give detailed reasons. The Court does not sit in appeal over the award and review the reasons. The Court can set aside the award only if it is apparent from the award that there is no evidence to support the conclusions or if the award is based upon any legal proposition which is erroneous.

11. Judges in that light, the award in question was unassailable in the instant case.

12. In the aforesaid view of the matter, we are of the opinion that the High Court was right in the view it took. The SLP fails and is accordingly dismissed.


(1988) AIR(SC) 1340 : (1988) 1 ArbiLR 394 : (1988) 3 BCR 688 : (1988) 2 JT 212 : (1988) 1 KerLJ 797 : (1988) 1 SCALE 965 : (1988) 3 SCC 36 : (1988) 3 SCR 426 : (1988) 2 UJ(SC) 91

How to write an Arbitration Award

The arbitrator is not required to give a detailed judgment as courts give and is only to indicate his mind as to how he has arrived at the decision in the award. As held by the Supreme Court in Indian Oil Corporation Ltd. Vs. Indian Carbon Ltd.[AIR 1988 SC 1340 : (1988)  ] , it is not obligatory

“to give a detailed judgment. Short intelligible indications of the grounds should be available to find out the mind of the arbitrator for his action. The reasons should not only be intelligible but also deal with the substantial points that have been raised. When the arbitration clause required the arbitrator to give reasons and the arbitrator does give his reasons in the award, the sufficiency of the reasons depends upon the facts of the particular case. The Court does not sit in appeal over the award and review the reasons. The Court can set aside the award only if it is apparent from the award that there is no evidence to support the conclusions or if the award is based upon any legal proposition which is erroneous.”

6. The arbitrator has after setting out the history of the case mentioned various factors on the basis of which he has drawn his conclusions in the award. Thus, the reasons for the conclusions are those factors mentioned in the award which indicated how the arbitrator acted and why he acted in that manner. This is sufficient, as held by the Supreme Court, to meet the requirements, even if it be that reasons should be stated in the award. The learned counsel for the objector has not pointed out any error in those reasons. The only argument is that the reasons have not been given. On the facts I do not agree with the submissions of learned counsel for the objector. Indeed no proposition of law was stated in the reasons. However, the arbitrator was not required to so state propositions of law. In my view, the objections that no reasons have been given are without any substance.

United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958)

New York Convention

Article I
1. This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.

2. The term “arbitral awards” shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted.

3. When signing, ratifying or acceding to this Convention, or notifying extension under article X hereof, any State may on the basis of reciprocity declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State. It may also declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration.

Article II
1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

2. The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

Article III
Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.

Article IV
1. To obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply:

(a) The duly authenticated original award or a duly certified copy thereof;

(b) The original agreement referred to in article II or a duly certified copy thereof.

2. If the said award or agreement is not made in an official language of the country in which the award is relied upon, the party applying for recognition and enforcement of the award shall produce a translation of these documents into such language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.

Article V
1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or

(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or

(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or

(b) The recognition or enforcement of the award would be contrary to the public policy of that country.

Article VI
If an application for the setting aside or suspension of the award has been made to a competent authority referred to in article V (1) (e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.

Article VII
1. The provisions of the present Convention shall not affect the validity of multilateral or bilateral agreements concerning the recognition and enforcement of arbitral awards entered into by the Contracting States nor deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.

2. The Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927 shall cease to have effect between Contracting States on their becoming bound and to the extent that they become bound, by this Convention.

Article VIII
1. This Convention shall be open until 31 December 1958 for signature on behalf of any Member of the United Nations and also on behalf of any other State which is or hereafter becomes a member of any specialized agency of the United Nations, or which is or hereafter becomes a party to the Statute of the International Court of Justice, or any other State to which an invitation has been addressed by the General Assembly of the United Nations.

2. This Convention shall be ratified and the instrument of ratification shall be deposited with the Secretary-General of the United Nations.

Article IX
1. This Convention shall be open for accession to all States referred to in article VIII.

2. Accession shall be effected by the deposit of an instrument of accession with the Secretary-General of the United Nations.

Article X
1. Any State may, at the time of signature, ratification or accession, declare that this Convention shall extend to all or any of the territories for the international relations of which it is responsible. Such a declaration shall take effect when the Convention enters into force for the State concerned.

2. At any time thereafter any such extension shall be made by notification addressed to the Secretary-General of the United Nations and shall take effect as from the ninetieth day after the day of receipt by the Secretary-General of the United Nations of this notification, or as from the date of entry into force of the Convention for the State concerned, whichever is the later.

3. With respect to those territories to which this Convention is not extended at the time of signature, ratification or accession, each State concerned shall consider the possibility of taking the necessary steps in order to extend the application of this Convention to such territories, subject, where necessary for constitutional reasons, to the consent of the Governments of such territories.

Article XI
In the case of a federal or non-unitary State, the following provisions shall apply:

(a) With respect to those articles of this Convention that come within the legislative jurisdiction of the federal authority, the obligations of the federal Government shall to this extent be the same as those of Contracting States which are not federal States;

(b) With respect to those articles of this Convention that come within the legislative jurisdiction of constituent states or provinces which are not, under the constitutional system of the federation, bound to take legislative action, the federal Government shall bring such articles with a favourable recommendation to the notice of the appropriate authorities of constituent states or provinces at the earliest possible moment;

(c) A federal State Party to this Convention shall, at the request of any other Contracting State transmitted through the Secretary-General of the United Nations, supply a statement of the law and practice of the federation and its constituent units in regard to any particular provision of this Convention, showing the extent to which effect has been given to that provision by legislative or other action.

Article XII
1. This Convention shall come into force on the ninetieth day following the date of deposit of the third instrument of ratification or accession.

2. For each State ratifying or acceding to this Convention after the deposit of the third instrument of ratification or accession, this Convention shall enter into force on the ninetieth day after deposit by such State of its instrument of ratification or accession.

Article XIII
1. Any Contracting State may denounce this Convention by a written notification to the Secretary-General of the United Nations. Denunciation shall take effect one year after the date of receipt of the notification by the Secretary-General.

2. Any State which has made a declaration or notification under article X may, at any time thereafter, by notification to the Secretary-General of the United Nations, declare that this Convention shall cease to extend to the territory concerned one year after the date of the receipt of the notification by the Secretary-General.

3. This Convention shall continue to be applicable to arbitral awards in respect of which recognition and enforcement proceedings have been instituted before the denunciation takes effect.

Article XIV
A Contracting State shall not be entitled to avail itself of the present Convention against other Contracting States except to the extent that it is itself bound to apply the Convention.

Article XV
The Secretary-General of the United Nations shall notify the States contemplated in article VIII of the following:

(a) Signatures and ratifications in accordance with article VIII;

(b) Accessions in accordance with article IX;

(c) Declarations and notifications under articles I, X and XI;

(d) The date upon which this Convention enters into force in accordance with article XII;

(e) Denunciations and notifications in accordance with article XIII.

Article XVI
1. This Convention, of which the Chinese, English, French, Russian and Spanish texts shall be equally authentic, shall be deposited in the archives of the United Nations.

2. The Secretary-General of the United Nations shall transmit a certified copy of this Convention to the States contemplated in article VIII.