Madhya Pradesh High Court
Union Of India (Uoi) vs Khullar on 21 August, 2006
Author: Dipak Misra
Bench: Dipak Misra, U.C. Maheshwari
ORDER Dipak Misra, J.
1. The Union of India through the Commandar Works Engineer, Bhopal has invoked the appellate jurisdiction of this Court under Section 39 of the Indian Arbitration Act, 1940 (for brevity 'the Act') questioning the defensibility and soundness of the order dated 18-8-1993 passed by the learned District Judge, Bhopal, whereby he has declined to entertain the objections preferred by the appellant under Sections 30 and 33 of the Act and made the award dated 17-12-1992 passed by the learned arbitrator rule of the Court.
2. The respondent M/s. S.N. Khullar had entered into an agreement No. CWE/BPL/05 of 1982-83 with the appellant for construction of certain quarters at Bhopal. The construction work began on 3-3-1983 and it was completed on 2-9-1984. The final bill was submitted by the respondent on 28-7-1984 and the payment was made on 16-10-1984. As per the special condition No. 17 of the agreement the respondent submitted his Claim for the reimbursement/refund for the variation in prices of materials and fuels as per formula stated therein. The respondent submitted that bill as this Claim could not be submitted earlier due to non-availability of authenticated price indices. The Claim of Rs. 70,217/- was made on 10-9-1985 which was rejected by Garrison Engineer on 15-11-1985 on the ground that as per condition No. 65 of IAFW -General Conditions of Contract forming part of the agreement 'no further Claims shall be made by the contractor after submission of the final bill and there shall be deemed to have been waived and extinguished'. The Superintending Engineer by letter dated 17-5-1986 confirmed the order of the rejection passed by Garrison Engineer. The respondent invoked the arbitration clause as incorporated in the condition No. 70 of IAFW 2249 and the Chief Engineer, Jabalpur Zone and appointed Shri R.P. Mathur, SE as the arbitrator. He passed an award on 30-4-1987. The said award was set aside by the Vth Additional District Judge, Bhopal by order dated 30-8-1990. The pLalntiff applied afresh for appointment of the arbitrator for decision of the dispute. The Chief Engineer vide his letter dated 20-12-1991 appointed Shri N. Wadhwani. S.O. (I)(E/M) as arbitrator for adjudication of the dispute. The items of the dispute were listed in Appendix A to this letter, which included (1) underpayment made in the final bill on account of escalation refund of additional security deposit, interest, cost of reference and cost of arbitration.
3. The arbitrator entered upon reference and passed the award on 17-12-1992 allowing Rs. 69,183.06 paise as 'reimbursement of under-payment towards the escalation on the prices of material and fuel as per special condition 17, Rs. 8,750/- as refund of additional security deposit. Rs. 47,217.43 paise as interest from 13-4-86 to 19-12-1991 at the rate of 12% per annum on award against Claim item No. 1.
4. Before the learned District Judge the award was challenged by the Union of India by filing an application under Sections 30 and 33 of the Act on the ground of legal misconduct of the arbitrator and determination of the Claim which were not arbitrable. It was contended before the Court below that as per condition No. 65 of IAFW no further Claims could be made after submission of the final bill and it would be deemed to have been waived or extinguished and as per Note 5 of the Special Condition No. 17 any dispute arising out of interpretation of the said special condition could be referred to the Accepting Officer whose decision would be final and binding and the decision of the Accepting Officer (SE) was communicated to the pLalntiff by the letter dated 17-5-1986 and hence, the arbitrator had no jurisdiction to decide the controversy. It was put forth that the Claim as raised by the Claimant was barred by limitation and hence, could not be decided by the learned arbitrator.
5. The pLalntiff-respondent, in support of the award submitted that his Claim for escalation as per condition No. 17 could not have been preferred before the submission of the final bill as the authenticated price indices were not available till then and, therefore, they were not included in the running bills. It was urged by the respondent pLalntiff that there had been a mistake in not preferring the Claim for escalation in prices in the running bills and the arbitrator considered this aspect and passed the award. It was urged by the pLalntiff that condition 17 did not apply to his Claim and the decision of the Accepting Officer was not binding as he did not give any opportunity of hearing to the pLalntiff before rejecting his Claim and further did not ascribe any reasons in that regard except stating that it could not be entertained because it was made after submission of the final bill.
6. After consideration of the material brought on record, contentions raised by the learned Counsel for the parties and taking note of various decisions in the field the Rule making Court came to hold that the Claim of the pLalntiff for escalation in prices as per condition No. 17 did subsist even after the payment of the final bill and the award was not liable be set aside on that ground; and that the decision of the Accepting Officer was not final and hence, the arbitrator had the jurisdiction to decide the arbitrability of the dispute. Being of the aforesaid view the learned District Judge made the award rule of the Court.
7. From the factual matrix that has been adverted to it is clear as crystal that the grounds of attack as regards the award are fundamentally on two scores, namely, the learned arbitrator entertained the Claims that have been waived and extinguished and second special condition No. 17 prohibits any Claim that had attained finality to be arbitrated upon. Submission of Mr. Nair, learned Senior Counsel is that when the Claimant respondent had accepted the final payment and declared that there would be no further Claim, no Claims could be arbitrated upon and the learned District Judge has fallen into grave error by expressing the opinion that the Claims were alive inasmuch as the Claims have been waived or not would still be a matter of adjudication by the arbitrator.
8. Per contra, Mr. Sujoy Paul, learned Counsel for the respondent would submit that despite the acceptance of the payment and certification of full and final settlement, the Claims would subsist in view of the decision rendered in the case of Union of India and another v. Mis. L.K. Ahuja and Co. .
9. Before we advert to the legal spectrum it is seemly to refer to Condition No. 65 of the Contract (IAFW-2249) which reads as under:
65. Final Bill (applicable only to measurement and Lump Sum Contracts):
The final bill shall be submitted by the contractor on IAFW-2262 in duplicate within three months of physical completion of the works to the satisfaction of the Engineer-in-Charge.
It shall be accompanied by all abstracts, vouchers, etc. supporting it and shall be prepared in the manner prescribed by the GE:
"No further Claims shall be made by the contractor after submission of the final bill and these shall be deemed to have been waived and extinguished".
The contractor shall be entitled to be paid the final sum less the value of payment already made on account, subject to the certification of the final bill by the GE.
No charges shall be allowed to the contractor on account of the preparation of the final bill.
10. In this context, it is appropriate to refer the certificate of settlement issued by the respondent contractor. On 28-7-1984 the respondent gave the following certificate:
I/We hereby certify that, I/we have performed the work under the conditions of the C.A. No. CWE/BPL/5 of 82-83 for which payment is Claimed and that I/we have no further Claim under this C.A. No. CWE/BPL/5 of 82-83 beyond the net amount of this final bill.
The certificate issued on 16-10-1984 by the respondent is in the following terms:
Received Rs. 142568.65 this payment is in full and final settlement of all the money due under C.A. No. CWE/BPL/5. of 82-83 and I/we have not further Claim in respect of the C.A. No. CWE/BPL/5 of 82-83.
11. In the case of L.K. Ahuja (supra) the Apex Court expressed the view as under:
...In order to be entitled to ask for a reference under Section 20 of the Act, there must be an entitlement to money and a difference or dispute in respect of the same. It is true that on completion of the work, right to get payment would normally arise and it is also true that on settlement of the final bill, the right to get further payment gets weakened but the Claim subsists and whether it does subsist, is a matter which is arbitrable....
12. In the case of Vishwanath Sood v. Union of India and Anr. , a two Judge Bench of the Apex Court interpreting the arbitration clause ruled that the compensation determined either by the Engineer-in-charge or any further reference by Superintending Engineer was not capable to be called in question before the arbitrator.
13. In the case of Trustees of the Port of Madras v. Engineering Constructions Corporation Limited , it has been held as under:
16. This was so observed in the context of the principle that "the jurisdiction of the arbitrator is limited by the reference and if the arbitrator has assumed jurisdiction not possessed by him, the award to the extent to which it is beyond the arbitrator's jurisdiction would be invalid and liable to be set aside.
17. In Hindustan Construction Co. Ltd. v. State of J & K, a three-Judge Bench comprising one of us (B.P. Jeevan Reddy, J.) dealing with a non-speaking award observed thus : "even if, in fact, the arbitrators had interpreted-the relevant clauses of the contract in making their award on the impugned items and even if the interpretation is erroneous, the Court cannot touch the award as it is within the jurisdiction of the arbitrators to interpret the contract. Whether the interpretation is right or wrong, the parties will be bound; only if they set out their line of interpretation in the award and that is found erroneous can the Court interfere. The above principle, of course, is subject to the proposition aforestated, viz., that the arbitrator being a creature of the contract must operate within the four corners of the contract and cannot travel beyond it either by misinterpreting the terms of the contract or otherwise.
14. In the case of Trustees of the Port of Madras v. Engineering Constructions Corporation Limited , the Apex court expressed that the arbitrator is a creature of the agreement itself and therefore is duty bound to enforce the terms of the agreement and cannot adjudicate a matter beyond the agreement itself.
15. In the case of Grid Corporation of Orissa Ltd. and Anr. v. Balasore Technical School (2000) 9 SCC 522, it has been held if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error.
16. In the case at hand the real crux is whether the arbitrator could have adjudicated upon the dispute despite certificates issued by the Claimant. The Court below, as has been indicated earlier, did not interfere with the award passed by the arbitrator on the ground that the contractor could not submit the final bill as the authenticated price indices were not available till the time of presentation of the final bill and could be made available subsequently and that is why the Claim for escalation in prices could not be included in the running bills. It is worthnoting here that the Court below observed that the contractor was required to sign the bill and there had been mistake on his part. The Court below has been influenced by the factum that the same being non-speaking award the scope for interference was quite limited.
17. We have referred to the conditions of the contract and the certificates issued by the contractor. The learned Counsel for the respondent would base its entire case on the ratio decidendi of L.K Ahuja (supra). The decision rendered in the case of L.K. Ahuja (supra) was analysised and distinguished in the case of Union of India v. Ajit Mehta and Associates, Pune and Ors. , wherein Sawant, J. (as his Lordship then was) speaking for the Court expressed the view as under:
In Union of India v. L.K Ahuja and Co. four agreements were entered into between the contractor and the Union of India for the construction of certain quarters. All the four contracts were executed and completed by the contractor on diverse dates. The contractor accepted the four final bills and gave no Claim declaration in respect of the four contracts as in our case. Thereafter the contractor wrote a letter stating that a certain amount was due on account of the work executed and requested the authority to refer dispute to the arbitrator. A reply was sent stating that no dispute was left between the parties, and hence, there was no question of appointment of any arbitrator. The contractor subsequently filed an application under Section 20 of the Act. The Trial Court held that the application was barred by time and dismissed it. The High Court allowed the contractor's appeal. The question before the Supreme Court was whether the reference under Section 20 of the Act was time-barred. The Court while holding that the application under Section 20 was not barred by limitation held that "in order to be entitled to ask for a reference under Section 20, there must be an entitlement to money and a difference or dispute in respect of the same. It is true that on completion of the work, right to get payment normally arises and it is also true that on settlement of the final bill, the right to get further payment gets weakened but the Claim subsists and whether it does subsist, is a matter which is arbitrable." This authority no doubt states that even in a case where the payment is received on settlement of the final bill, the Claim can be made and it subsists for arbitration. However, it is not clear from the decision whether in that case the contract or had alleged that there was no accord and satisfaction in spite of the full settlement because the settlement was vitiated on one or the other ground.
18. It is worthnoting here that in the said case the Bombay High Court referred to the decision, rendered in the case of Damodar Valley Corporation v. K.K. Kar , and opined that in the said case the termination of the contract was unilateral and the contractor had not given full and final settlement. In the aforesaid case alter referring to the decisions rendered in the cases of Vipinbhai R. Perakh v. General Manager, Western Railway, Bombay and Cochin Refineries Ltd. v. C.S. Company, Engineering Contractors, Kottayam, held as under:
Thus the authorities discussed above can be said to lay down the law that in spite of full and final settlement of the Claim, the arbitration clause in the contract may subsist where the party invoking it alleges that in fact there was no accord and satisfaction for some reasons such as the final bill was submitted or receipt was given under coercion, mistake or misrepresentation, without prejudice, under protest etc. For then that itself becomes a dispute arbitrable under the clause. However, when there is no such allegation made when invoking the arbitration clause, and it is invoked simpliciter, it will have to be held that the contract itself had come to an end and with it the arbitration clause which is a part and parcel of it. We have come across, no decision which has taken a contrary view. On the other hand the decisions discussed above support our conclusion.
19. If the condition No. 65 is read in juxta-position with certificates granted, irrefragable conclusion would be that contract including the arbitration clause lost its life-spark. It is worthnoting here that the certificates were issued on two dates. The said certificates were not issued under protest and without prejudice to the rights of the contractor. There has been no material on record to show that they were issued because of any kind of coercion. There is also no mention that full and final settlement was arrived at on a note of discord. The grounds for appointment of arbitrator was that the price indices were not available to the contractor. In our considered opinion once there has been a mutual accord and satisfaction, a note of discord cannot be raised on such a ground as the same is fundamentally a Claim simpliciter. Lack of knowledge and non-availability of price indices cannot be ground to wriggle out of certificates issued. We are in respectful agreement with the view taken by the Division Bench of Bombay High Court in the case of Ajit Mehta & Associates (supra).
20. In view of the aforesaid preceding analysis, we conclude and hold that in the obtaining factual matrix, no dispute could be arbitrated upon by the arbitrator as the contract had come to an end and the invocation of the arbitration clause of the contract being Claim simpliciter was not tenable and hence, the award passed by the learned arbitrator is totally without jurisdiction and could not have been made rule of the Court.
21. Consequently, the appeal is allowed. The judgment and decree passed by the rule making Court are set aside. In the facts and circumstances of the case parties shall bear their respective costs.