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Madhya Pradesh High Court · body

2009 DIGILAW 778 (MP)

Pawan Kumar Jain v. Union of India (UOI)

2009-07-07

RAJENDRA MENON

body2009
ORDER Rajendra Menon, J. 1. As common questions are involved in both these applications and as relief claimed are also for appointing an Arbitral Tribunal, they are being considered and decided by this common order. 2. Applicants have invoked jurisdiction of this Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short 'the Act') seeking referral of certain disputes to an Arbitral Tribunal. In MCC No. 1694/2007, petitioner was granted contract for construction of Jawahar Navodaya Vidyalaya, Badwara, District Katni vide Agreement No. 13/EE/JCD/2003-2004. Similarly, in Arbitration Case No. 34/2007, applicant was granted contract for construction of four number Type II, eight number Type III quarters; and, Principal's residence including installation of water supply and sanitary equipment at Jawahar Navodaya Vidyalaya, Badwara District vide Agreement No. 13/EE/JCD/2003-04. 3. In the execution of these agreements certain dispute arose between the parties and, therefore, invoking Clause 25 of the Agreement, Le., Document No. 1, filed in both the cases, applicant sought for constitution of an Arbitral Tribunal. Prayer of the applicant was allowed and in each of the cases Shri R. Gopal Krishnan was appointed as sole arbitrator. The dispute was pending adjudication before the sole arbitrator, when further dispute arose between the parties with regard to imposition of compensation (Le., liquidated damages) for delay in execution of the contract under Clause 7. In MCC No. 1694/2007, as per the terms and conditions of the contract, the work was to be completed by 10-7-2004. It could not be completed by the aforesaid time, but was completed only on 17-7-2007. According to the petitioner, the delay was attributable to the non-applicant and according to the non-applicant it is the applicant who was responsible for the delay. 4. Be that as it may, the Superintending Engineer invoking the provisions of Clause 2 of the Agreement imposed penalty by way of compensation to the tune of Rs. 5,87,104.00 for the delay. The aforesaid decision, document No. 3, was communicated to the applicant, who immediately protested and sought for waiver of the penalty vide document No. 4, dated 31-1-2007. The same was rejected vide document No. 5 on 15-2-2007, by the Superintending Engineer. As the other dispute with regard to execution of the contract was already pending, applicant sought reference of the dispute pertaining to liquidated damages to the same arbitrator on 22-3-2007 by invoking Clause 25 of the Agreement. The same was rejected vide document No. 5 on 15-2-2007, by the Superintending Engineer. As the other dispute with regard to execution of the contract was already pending, applicant sought reference of the dispute pertaining to liquidated damages to the same arbitrator on 22-3-2007 by invoking Clause 25 of the Agreement. When the request was not acceded to, applicant has filed this application under Section 11(6) of the Act. 5. In Arbitration Case No. 34/2007, certain disputes arose between the parties and the dispute in this case was also referred to Shri R. Gopal Krishnan, the sole arbitrator. Initially, six disputes were referred to this arbitrator. Applicant vide document No. 3, dated 12-10-2007 sought for referring two more claims. The second claim pertained to levy of compensation (i.e., liquidated damage) amounting to Rs. 5,87,104.00. The Chief Engineer vide document No. 4, dated 28-11-2007 referred the first claim, i.e., Claim No. 7 indicated in document No. 3 to the same arbitrator, but rejected the claim with regard to levy of compensation/penalty and, therefore, applicant is before this Court seeking constitution of the Arbitral Tribunal for resolution of the aforesaid dispute. 6. It is, therefore, clear that in both these applications, applicant wants constitution of Arbitral Tribunal for deciding the dispute pertaining to imposition of penalty/compensation (i.e., liquidated damages) to the tune of Rs. 5,87,104.00 in M.C.C. No. 1694/2007 and to the same extent in the second case also, i.e., Arbitration Case No. 34/2007. 7. Shri V.R. Rao, learned Senior Advocate, submitted that as the question of imposing liquidated damages is a disputed question which has to be adjudicated by an Independent Authority, therefore, the matter has to be referred for arbitration. 8. Refuting the aforesaid contention and inviting attention of this Court to Clauses 25 to 2 of the Agreement in question, filed by the respondent alongwith their objection, Shri S.K. Menon, learned Counsel for the respondent, argued that the question of imposition of liquidated damages and the right of the non-applicant to recover the same falls within the purview of excepted matters and, therefore, cannot be referred for arbitration. Placing reliance on judgments of the Supreme Court in the matters of Vishwanath Sood v. Union of India and Anr. (1989) 1 SCC 657 , Food Corporation of India v. Sreekanth Transport (1999) 4 SCC 491 , and General Manager, Northern Railways and Anr. Placing reliance on judgments of the Supreme Court in the matters of Vishwanath Sood v. Union of India and Anr. (1989) 1 SCC 657 , Food Corporation of India v. Sreekanth Transport (1999) 4 SCC 491 , and General Manager, Northern Railways and Anr. v. Sarvesh Chopra (2002) 4 SCC 45 , learned Counsel for the respondent submits that the dispute cannot be referred for arbitration now as the same falls in the excepted Clause of the agreement. 9. Shri V.R. Rao, learned Senior Advocate, refuted the aforesaid and invited attention of this Court to a recent judgment of the Supreme Court in the case of Bharat Sanchar Nigam Limited and Anr. v. Motorola India Pvt. Ltd. 2008 Arb.W.L.J. 639 (SC) : (2009) 2 SCC 37, submitted that after considering both the judgments relied upon by respondents, the Supreme Court in the case of BSNL (supra), has held that the matter can be referred for arbitration. 10. On this objection of the learned Senior Advocate, learned Counsel for the respondent again referred to the agreements in question so also the agreements, which was subject matter of consideration before the Supreme Court, in the case of BSNL (supra), and distinguished the judgment by contending that in an agreement where a procedure and system for resolution of dispute is provided, the matter would fall in the excepted category and, therefore, beyond reference to an Arbitration Tribunal. 11. I have heard learned Counsel for the parties and have perused the record. There is no dispute with regard to factual aspects of the matter. However, the main controversy involved in these applications pertain, to the effect of 'excepted clause' available in an agreement and its consequential effect on the arbitration Clause? 12. Before adverting to consider the legal question decided by the Supreme Court in the cases referred to hereinabove, it would be appropriate to take note of the Clauses in the agreement in question, relevant to the dispute in hand. Under Clause 5 of the agreement, a contractor is mandated to maintain a particular progress of the work and failure to complete the work in accordance to the terms stipulated in Clause 5 entitles the department to recover an agreed compensation commonly known as the liquidated damages. Clause 2 of the agreement in this regard reads as under: Clause 2. Under Clause 5 of the agreement, a contractor is mandated to maintain a particular progress of the work and failure to complete the work in accordance to the terms stipulated in Clause 5 entitles the department to recover an agreed compensation commonly known as the liquidated damages. Clause 2 of the agreement in this regard reads as under: Clause 2. If the contractor fails to maintain the required progress in terms of Clause 5 or to complete the work and clear the site on or before the contract or extended date of completion, he shall, without prejudice to any other right or remedy available under the law to the Government on account of such breach, pay as agreed compensation the amount calculated at the rates stipulated below or such smaller amount as the Superintending Engineer (whose decision in writing shall be final and binding) may decide on the amount of tendered value of the work for every completed day/week (as applicable) that the progress remains below that specified in Clause 5 or that the work remains incomplete. That apart, the relevant provision pertaining to reference of dispute for arbitration is contained in Clause 25, which reads as under: Clause 25. Except where otherwise provided in the contract all questions and dispute relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work as to any other question, claim, right matter or thing whatsoever in any way arising out of or relating to the contract, designs, 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 shall be dealt with as mentioned hereinafter: *** *** *** *** *** *** A perusal of these two Clauses would show that if a contractor fails to maintain the required progress of work in terms of Clause 5, then Clause 2 enables the Government to recover compensation or damages and the Superintending Engineer is delegated the power of adjudication and his decision is final. 13. 13. Clause 25 pertains to reference of dispute for arbitration and the same begins with the words "Except where otherwise provided in the contract...." Similar Clause and the effect of the same has been considered in the cases relied upon by learned Counsel for the parties. In the case of Vishwanath Sood (supra), Clause 2 and Clause 25 of the agreement therein are pari materia with Clauses 2 and 25 involved in this petition. The Clauses are reproduced in Paragraph 4 of the said judgment and after evaluating the said Clauses in Paragraph 6, the contentions as advanced are reproduced and finally the conclusion drawn is contained in Paragraph 9 of the judgment, which reads as under: 9. The Division Bench has construed the expression in Clause 2 in parenthesis that "the Superintending Engineer's decision shall be final" as referring only to a finality qua the department; in other words, that it only constitutes a declaration that no officer in the department can determine the quantification and that the quantum of compensation levied by the Superintending Engineer shall not be, changed without the approval of the Government. After referring to certain judicial decisions regarding the meaning of the word "final" in various statutes, the Division Bench concluded that the finality cannot be construed as excluding the jurisdiction of the arbitrator under Clause 25. We are unable to accept this view. Clause 25 which is the arbitration Clause starts with an opening phrase excluding certain matters and disputes from arbitration and these are matters or disputes in respect of which provision has been made elsewhere or otherwise in the contract. These words in our opinion can have reference only to provisions such as the one in parenthesis in Clause 2 by which certain types of determinations are left to the Administrative Authorities concerned. If that be not so, the words "except where otherwise provided in the contract" would become meaningless. We are, therefore, inclined to hold that the opening part of Clause 25 clearly excludes matters like those mentioned in Clause 2 in respect of which any dispute is left to he decided by a higher official of the Department. If that be not so, the words "except where otherwise provided in the contract" would become meaningless. We are, therefore, inclined to hold that the opening part of Clause 25 clearly excludes matters like those mentioned in Clause 2 in respect of which any dispute is left to he decided by a higher official of the Department. Our conclusion, therefore, is that the question of awarding compensation under Clause 2 is outside the purview of the arbitrator and that the compensation, determined under Clause 2 either by the Engineer-in-charge or on further reference by the Superintending Engineer will not be capable of being called in question before the arbitrator. (Emphasis supplied) It is, therefore, clear that in the case of Vishwanath Sood (supra), similar Clauses have been interpreted by the Supreme Court and a decision rendered in favour of the department and if the said principle is followed, then the objection of the respondent has to be accepted. 14. The matter was again considered in the case of Sreekanlh Transport (supra), and the meaning and import of 'excepted matters' is dealt with in the following manner in Paragraphs 2 and 3: 2. At the outset, it is pertinent to note that in the usual Government contracts, the reference to which would be made immediately hereafter, there is exclusion of some matters from the purview of arbitration and a Senior Officer of the Department usually is given the authority and power to adjudicate the same. The Clause itself records that the decision of the Senior Officer, being the adjudicator shall be final and binding between the parties- this is what popularly known as 'excepted matters' in a Government or Governmental agencies' contract. 3. 'Excepted matters' obviously, as the parties agreed, do not require any further adjudication since the agreement itself provides a named adjudicator- concurrence to the same obviously is presumed by reason of the unequivocal acceptance of the terms of the contract by the parties and this is where the Courts have found out lacking in its jurisdiction to entertain an application for reference to arbitration as regards the disputes arising therefrom and it has been the consistent view that in the event the claims arising within the ambit of excepted matters, question of assumption of jurisdiction of any arbitrator either with or without the intervention of the Court would not arise. The parties themselves have decided to have the same adjudicated by a particular officer in regard to these matters; what are these exceptions, however, arc questions of fact and usually mentioned in the contract documents and forms part of the agreement as such there is no ambiguity in the matter of adjudication of these specialised matter and termed in the agreement as the excepted matters. If the aforesaid two judgments are evaluated in the backdrop of the Clauses in the agreement applicable in the present case, there is, no, deviating away from the fact that the objection raised by the respondent has to be upheld. 15. However, Shri V.R. Rao, learned Senior Advocate, had referred to a subsequent judgment in the case of BSNL (supra), and had tried to indicate that the principles followed in the case of Vishwanath Sood (supra) and Sreekanth Transport (supra), have been deviated from or diluted. If the case of BSNL (supra), is evaluated, it would be seen that the said case was decided in accordance to the Clauses available in the agreement, which was subject matter of adjudication before the Supreme Court. The relevant Clauses were 16.2 and 20.1. After analyzing the Clauses in the said case and after evaluating the principles laid down in the case of Vishwanath Sood and Sarvesh Chopra (supra), it has been held by the Supreme Court that the case of Vishwanath Sood (supra), will not apply in the case of BSNL (supra), due to some difference in the agreement concerned. It was held by the Supreme Court that when the agreement entered into between the parties does not provide for any adjudicatory process for deciding a question or dispute or difference, which is a condition precedent for imposing or quantification of damages, then arbitration has to be allowed. However, it is held that in case the contract itself provides for resolution, adjudication of a dispute, then the 'excepted clause' would be made applicable. In this regard, the observations and findings of the Supreme Court in Paragraph 12, of BSNL (supra), is relevant and the same reads as under: 12. The learned Senior Counsel for the appellant relied on the decisions of this Court in Vishwanalh Sood v. UOI (supra) and General Manager, Northern Railway v. Sarvesh Chopra (2002) 4 SCC 45 . In this regard, the observations and findings of the Supreme Court in Paragraph 12, of BSNL (supra), is relevant and the same reads as under: 12. The learned Senior Counsel for the appellant relied on the decisions of this Court in Vishwanalh Sood v. UOI (supra) and General Manager, Northern Railway v. Sarvesh Chopra (2002) 4 SCC 45 . These cases, we are afraid, will not be of any help to the appellants being distinguishable on facts and having different contractual clauses. We may note that Clause 16.2 cannot be treated as an excepted matter. This is because admittedly, it does not, provide for any adjudicatory process for decision on a question, dispute or difference, which is the condition precedent to lead to the stage of quantification of damages nor is it a no claim or no liability clause. In Vishwanalh Sood's case (supra), it was held by this Court that a particular claim of the Government was excluded because the Superintending Engineer acted as the Revisional Authority to decide disputes between the two parties by an adjudicatory process, there being a complete machinery for settlement of the disputes in the relevant Clause and most importantly, the Superintending Engineer had the discretion on consideration of the facts and circumstances including mitigating facts, held no damages was payable. Again in the case of Sarvesh Chopra, this Court had held that the claims covered by the no claims clause, Le., where the contractor had given up the right to make a claim for breach on the part of the Government was not arbitrable in terms of the arbitration Clause contained therein and Clause 63 of the General Conditions of the contract which provided for exclusion because no claim Clause was excepted as such claims were simply not entertainable. In view of the discussions made hereinabove, we hold that the disputes raised by the respondents are arbitrable and not excepted from scope of arbitration. (Emphasis supplied) It is clear from the aforesaid judgment of the Supreme Court that in the case of Vishwanath Sood (supra), the Superintending Engineer was authorized to decide the dispute between the parties by an adjudicatory process and there being a complete machinery for settlement of dispute in the agreement, it was held that the matter would fall in the category of 'excepted matters' and is beyond arbitration. 16. 16. In the present case, the agreements and the relevant Clauses are pari materia, in fact similar to the one in the case of Vishwanath Sood (supra). Clause 2 of the contract stipulates an adjudicatory process wherein the Superintending Engineer is empowered to decide the question of compensation in case of breach of Clause 5, his decision has to be in writing and is final. In the case of Vishwanath Sood (supra), this Clause is interpreted and if the findings recorded by the Supreme Court in Paragraph 9 of the said judgment is scrutinized, it would be seen that the dispute with regard to imposition of compensation under Clause 2 would fall in the 'excepted matter' category. 17. In the present case, Clause 2 of the agreement provides a detailed process and machinery for adjudicating disputes with regard to compensation for delay in execution of the contract and Clause 25, i.e., the arbitration clause, begins with the words "Except where otherwise provided in the contract...." thereby excluding from its purview excepted matters like those contemplated under Clause 2. 18. Thus, this Court is of the considered view that the dispute now sought to be referred to an Arbitral Tribunal for adjudication comes within the 'excepted clause' and in the light of the principles laid down by the Supreme Court, as indicated hereinabove, the same cannot be referred for arbitration. 19. Accordingly, finding the objection of the respondents to be sustainable, the same is upheld and holding that the dispute sought to be referred falls in a category, which is clearly termed as 'excepted matters' beyond the purview of arbitration under Clause 25 of the agreement in question, this application is dismissed without any order so as to costs.