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Saturday, September 20, 2014

Arbitration - whether the Arbitrator could have decided the issues which were not arbitrable. - No - Apex court held that Section 7(3) of the Act clearly specifies that the contract with regard to arbitration must be in writing. Thus, so far as the disputes which have been referred to in Clause 39 of the contract are concerned, it was not open to the Arbitrator to arbitrate upon the said disputes as there was a specific clause whereby the said disputes had been “excepted”. - In the instant case, the respondent authorities had raised an objection relating to the arbitrability of the aforestated issue before the Arbitrator and yet the Arbitrator had rendered his decision on the said “excepted” dispute. In our opinion, the Arbitrator could not have decided the said “excepted” dispute.- We, therefore, hold that it was not open to the Arbitrator to decide the issues which were not arbitrable and the award, so far as it relates to disputes regarding non-arbitrable disputes is concerned, is bad in law and is hereby quashed.-The Award was made on 21.9.2002 and therefore, we uphold the portion of the award so far as it pertains to the disputes which were arbitrable, but so far as the portion of the arbitral award which determines the rate for extra work done by the contractor is concerned, we quash and set aside the same.- Needless to say that it would be open to the contractor to take appropriate legal action for recovery of payment for work done, which was not forming part of the contract because the said issue decided by the Arbitrator is now set aside.= CIVIL APPEAL NO.534 OF 2007 M/s Harsha Constructions … Appellant Versus Union of India & Ors. … Respondents = 2014 - Sept.Month - http://judis.nic.in/supremecourt/filename=41883

  Arbitration -  whether  the  Arbitrator  could  have decided the issues which were not arbitrable. - No - Apex court held that Section 7(3) of the Act clearly specifies that the contract with  regard  to arbitration must be in writing.  Thus, so far as  the  disputes  which  have been referred to in Clause 39 of the contract  are  concerned,  it  was  not open to the Arbitrator to arbitrate upon the said disputes as  there  was  a specific clause whereby the said disputes  had  been  “excepted”. - In  the instant case, the respondent authorities had raised  an  objection  relating to the arbitrability of the aforestated issue before the Arbitrator and  yet the Arbitrator had rendered his decision on  the  said  “excepted”  dispute. In our opinion, the Arbitrator could not have decided  the  said  “excepted” dispute.- We, therefore, hold that it was not open to the  Arbitrator  to  decide the issues which were not arbitrable and the award, so far as it relates  to disputes regarding non-arbitrable disputes is concerned, is bad in  law  and is hereby quashed.-The Award was made on 21.9.2002 and  therefore,  we  uphold  the portion of the award so far as  it  pertains  to  the  disputes  which  were arbitrable,  but  so  far  as  the  portion  of  the  arbitral  award  which determines the rate for extra work done by the contractor is  concerned,  we quash and set aside the same.- Needless to say that it would  be  open  to  the  contractor  to  take appropriate legal action for recovery of payment for work  done,  which  was not forming part of the contract because  the  said  issue  decided  by  the Arbitrator is now set aside.=


 The Union of India had entered into a contract for construction  of  a  road
bridge at a  level crossing and in the said  contract  there  was  a  clause
with regard to arbitration.
The issue with which we are  concerned  in  the
instant case, in a nutshell, is as under:-
“When  in  a  contract  of  arbitration,  certain  disputes  are   expressly
“excepted”, whether the Arbitrator can arbitrate  on  such  excepted  issues
and what are the consequences if the Arbitrator decides such issues?”

For the purpose of considering the issue, in our  opinion,  certain  clauses
incorporated in the contract are relevant and those clauses  are  reproduced
hereinbelow :-

“Clause 39.  Any  item  of  work  carried  out  by  the  Contractor  on  the
instructions of the Engineer which is not included in the accepted  schedule
of rates shall be executed at the  rates  set  forth  in  the  “Schedule  of
Rates, South Central Railway” modified by the tender  percentage  and  where
such items are not contained in the latter at the rates agreed upon  between
the Engineer and the Contractor before the execution of such items  of  work
and the Contractor shall be bound to notify  the  Engineer  at  least  seven
days before the necessity arises for the execution of  such  items  of  work
that the accepted schedule of rates does not include a  rate  or  rates  for
the extra work involved.

    The rates payable for such items     shall be decided at the meeting  to
be held between the Engineer and the contractor in  as  short  a  period  as
possible after the need for the special item has come  to  the  notice.   In
case the contractor fails to attend the meeting after being notified  to  do
so or in the event of no settlement being arrived at the  Railway  shall  be
entitled to execute the extra works by other means and the contractor  shall
have no claim for loss or  damage  that  may  result  from  such  procedure.
Provided that if the Contractor commences work or incurs any expenditure  in
regard thereto before the rates are determined and  agreed  upon  as  lastly
mentioned, then and in such a case the Contractor shall only be entitled  to
be paid in respect of the work carried out or expenditure  incurred  by  him
prior to the date of the rates as aforesaid according to the rates as  shall
be fixed by the Engineer.  However, if the contractor is not satisfied  with
the decision of the Engineer in this respect he  may  appeal  to  the  Chief
Engineer within 30 days of getting the decision of  the  Engineer  supported
by the analysis of the rates claimed. The Chief  Engineer's  decision  after
hearing both the parties in the matter would be final  and  binding  on  the
contractor and the Railway.”

“Clause-63.  All disputes and differences of  any  kind  whatsoever  arising
out of or in connection with the contract whether  during  the  progress  of
the  work  or  after  its  completion  and  whether  before  or  after   the
determination of the contract shall be referred by  the  Contractor  to  the
Railway and the Railway shall within a reasonable time after receipt of  the
contractor's presentation make and notify decisions on all matters  referred
to by the contractor in writing provided that matters  for  which  provision
has been made in Clause  18,  22(5),  39,  45(a),  55,  55-A(5),  61(2)  and
62(1)(xiii)(B)(e)(b) of the General Conditions of contract or in any  Clause
of the Special conditions of the  contract  shall  be  deemed  as  'Excepted
matters'  and  decisions  thereon  shall  be  final  and  binding   on   the
contractor; provided further that excepted matters shall stand  specifically
excluded from the purview  of  the  arbitration  clause  and  shall  not  be
referred to arbitration.” =

Upon perusal of Clause 63 of the aforestated contract, it is  quite  clear
that the matters for which provision had been made  in  Clauses  18,  22(5),
39, 45(a), 55,  55-A(5),  61(2)  and  62(1)(xiii)(B)(e)(b)  of  the  General
Conditions of Contract were “excepted matters”  and  they  were  not  to  be
referred to the arbitrator. =

 In the instant case, we are concerned with  a  dispute  which  had  arisen
with regard to the amount payable to the contractor  in  relation  to  extra
work done by the contractor.=

The learned Arbitrator decided all  the  disputes  under  his  Award  dated
21.9.2002 though  the  contractor  had  objected  to  arbitrability  of  the
disputes which were not referable to the Arbitrator as per Clause 39 of  the
Contract.   
Being aggrieved by the Award, Union of India  had  preferred  an
appeal before the Chief Judge, City Civil Court, Hyderabad under Section  34
of the Arbitration and Conciliation Act, 1996 (hereinafter  referred  to  as
“the Act”) and the said appeal  was  allowed,  whereby  the  Award  was  set
aside.

Before the City Civil Court, in the appeal filed under  Section  34  of  the
Act, the following two issues had been framed :-

(a)   Whether the dispute was in relation to an “excepted  matter”  and  was
not arbitrable?

(b)  Whether the claimant  was  entitled  to  the  amounts  awarded  by  the
Arbitrator?

11.   The Court decided the appeal in favour of the respondent  and  against
the contractor.  
Being aggrieved by the order dated 8.4.2005 passed  by  the
XIVth Additional Chief Judge, City Civil Court,  Hyderabad,  CMA  No.476  of
2005 was filed by the contractor before the High Court and 
 the  High  Court
was pleased to dismiss the same by  virtue  of  the  impugned  judgment  and
therefore, the contractor has filed this appeal.=

whether  the  Arbitrator  could  have
decided the issues which were not arbitrable.

20.  Arbitration arises from a contract  and  unless  there  is  a  specific
written contract, a contract with regard to arbitration cannot be  presumed.
Section 7(3) of the Act clearly specifies that the contract with  regard  to
arbitration must be in writing.
Thus, so far as  the  disputes  which  have
been referred to in Clause 39 of the contract  are  concerned,  it  was  not
open to the Arbitrator to arbitrate upon the said disputes as  there  was  a
specific clause whereby the said disputes  had  been  “excepted”. 
 Moreover,
when the law specifically makes a provision with regard to  formation  of  a
contract in a particular  manner,  there  cannot  be  any  presumption  with
regard to a contract if the  contract  is  not  entered  into  by  the  mode
prescribed under the Act.

21.  If a non-arbitrable dispute is referred to an Arbitrator  and  even  if
an issue is framed by the Arbitrator in relation to such a dispute,  in  our
opinion, there cannot be a presumption or a conclusion to  the  effect  that
the parties had agreed to  refer  the  issue  to  the  Arbitrator.   In  the
instant case, the respondent authorities had raised  an  objection  relating
to the arbitrability of the aforestated issue before the Arbitrator and  yet
the Arbitrator had rendered his decision on  the  said  “excepted”  dispute.
In our opinion, the Arbitrator could not have decided  the  said  “excepted”
dispute.

22.  We, therefore, hold that it was not open to the  Arbitrator  to  decide
the issues which were not arbitrable and the award, so far as it relates  to
disputes regarding non-arbitrable disputes is concerned, is bad in  law  and
is hereby quashed.

23.   We also take note of the fact that the contract had been entered  into
by the parties on 24.4.1995 and the contractual work had been  finalised  on
31.3.1997.  The Award was made on 21.9.2002 and  therefore,  we  uphold  the
portion of the award so far as  it  pertains  to  the  disputes  which  were
arbitrable,  but  so  far  as  the  portion  of  the  arbitral  award  which
determines the rate for extra work done by the contractor is  concerned,  we
quash and set aside the same.

24.   Needless to say that it would  be  open  to  the  contractor  to  take
appropriate legal action for recovery of payment for work  done,  which  was
not forming part of the contract because  the  said  issue  decided  by  the
Arbitrator is now set aside.

25.   For the reasons recorded hereinabove, the  appeal  is  partly  allowed
with no order as to costs.
    
2014 - Sept.Month - http://judis.nic.in/supremecourt/filename=41883
                        REPORTABLE


                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                         CIVIL APPEAL NO.534 OF 2007





M/s Harsha Constructions          … Appellant







                 Versus


Union of India & Ors.             … Respondents





                               J U D G M E N T

1


2


3 ANIL R. DAVE, J.



Aggrieved by the judgment dated 9th September, 2005 delivered  by  the  High
Court of Judicature, Andhra Pradesh at Hyderabad, in  CMA  No.476  of  2005,
this appeal has been  filed  by  M/s  Harsha  Constructions,  a  contractor,
against Union of India and its authorities.  Hereinafter, the appellant  has
been described as a 'Contractor'.

The Union of India had entered into a contract for construction  of  a  road
bridge at a  level crossing and in the said  contract  there  was  a  clause
with regard to arbitration.  The issue with which we are  concerned  in  the
instant case, in a nutshell, is as under:-


“When  in  a  contract  of  arbitration,  certain  disputes  are   expressly
“excepted”, whether the Arbitrator can arbitrate  on  such  excepted  issues
and what are the consequences if the Arbitrator decides such issues?”





For the purpose of considering the issue, in our  opinion,  certain  clauses
incorporated in the contract are relevant and those clauses  are  reproduced
hereinbelow :-

“Clause 39.  Any  item  of  work  carried  out  by  the  Contractor  on  the
instructions of the Engineer which is not included in the accepted  schedule
of rates shall be executed at the  rates  set  forth  in  the  “Schedule  of
Rates, South Central Railway” modified by the tender  percentage  and  where
such items are not contained in the latter at the rates agreed upon  between
the Engineer and the Contractor before the execution of such items  of  work
and the Contractor shall be bound to notify  the  Engineer  at  least  seven
days before the necessity arises for the execution of  such  items  of  work
that the accepted schedule of rates does not include a  rate  or  rates  for
the extra work involved.

    The rates payable for such items     shall be decided at the meeting  to
be held between the Engineer and the contractor in  as  short  a  period  as
possible after the need for the special item has come  to  the  notice.   In
case the contractor fails to attend the meeting after being notified  to  do
so or in the event of no settlement being arrived at the  Railway  shall  be
entitled to execute the extra works by other means and the contractor  shall
have no claim for loss or  damage  that  may  result  from  such  procedure.
Provided that if the Contractor commences work or incurs any expenditure  in
regard thereto before the rates are determined and  agreed  upon  as  lastly
mentioned, then and in such a case the Contractor shall only be entitled  to
be paid in respect of the work carried out or expenditure  incurred  by  him
prior to the date of the rates as aforesaid according to the rates as  shall
be fixed by the Engineer.  However, if the contractor is not satisfied  with
the decision of the Engineer in this respect he  may  appeal  to  the  Chief
Engineer within 30 days of getting the decision of  the  Engineer  supported
by the analysis of the rates claimed. The Chief  Engineer's  decision  after
hearing both the parties in the matter would be final  and  binding  on  the
contractor and the Railway.”

“Clause-63.  All disputes and differences of  any  kind  whatsoever  arising
out of or in connection with the contract whether  during  the  progress  of
the  work  or  after  its  completion  and  whether  before  or  after   the
determination of the contract shall be referred by  the  Contractor  to  the
Railway and the Railway shall within a reasonable time after receipt of  the
contractor's presentation make and notify decisions on all matters  referred
to by the contractor in writing provided that matters  for  which  provision
has been made in Clause  18,  22(5),  39,  45(a),  55,  55-A(5),  61(2)  and
62(1)(xiii)(B)(e)(b) of the General Conditions of contract or in any  Clause
of the Special conditions of the  contract  shall  be  deemed  as  'Excepted
matters'  and  decisions  thereon  shall  be  final  and  binding   on   the
contractor; provided further that excepted matters shall stand  specifically
excluded from the purview  of  the  arbitration  clause  and  shall  not  be
referred to arbitration.”






  Upon perusal of Clause 63 of the aforestated contract, it is  quite  clear
that the matters for which provision had been made  in  Clauses  18,  22(5),
39, 45(a), 55,  55-A(5),  61(2)  and  62(1)(xiii)(B)(e)(b)  of  the  General
Conditions of Contract were “excepted matters”  and  they  were  not  to  be
referred to the arbitrator.

  In the instant case, we are concerned with  a  dispute  which  had  arisen
with regard to the amount payable to the contractor  in  relation  to  extra
work done by the contractor.

  Upon perusal of Clause  39,  we  find  that  in  the  event  of  extra  or
additional work entrusted to the contractor, if  rates  at  which  the  said
work was to be done was not specified in the contract,  the  amount  payable
for the additional work done was to be discussed by the contractor with  the
concerned Engineer and  ultimately  the  rate  was  to  be  decided  by  the
Engineer. If the rate fixed by  the  Engineer  was  not  acceptable  to  the
contractor, the contractor had to file  an  appeal  to  the  Chief  Engineer
within 30 days of getting  the  decision  of  the  Engineer  and  the  Chief
Engineer’s decision about the amount payable was to be final.

   It is not in dispute that some work, which  was  not  covered  under  the
contract had been entrusted  to  the  contractor  and  for  determining  the
amount payable for the said work, certain meetings  had  been  held  by  the
contractor and the concerned Engineer but they could not agree to any  rate.
 Ultimately, some amount was paid in respect of the  additional  work  done,
which was not acceptable to the contractor but the contractor  accepted  the
same under protest.

  In addition to the aforestated dispute with  regard  to  determination  of
the rate at which the contractor was to be paid for the extra work  done  by
it, there were some other disputes also and in order to  resolve  all  those
disputes, Respondent No.5, a former  Judge  of  the  High  Court  of  Andhra
Pradesh, had been appointed as an Arbitrator.

 The learned Arbitrator decided all  the  disputes  under  his  Award  dated
21.9.2002 though  the  contractor  had  objected  to  arbitrability  of  the
disputes which were not referable to the Arbitrator as per Clause 39 of  the
Contract.   Being aggrieved by the Award, Union of India  had  preferred  an
appeal before the Chief Judge, City Civil Court, Hyderabad under Section  34
of the Arbitration and Conciliation Act, 1996 (hereinafter  referred  to  as
“the Act”) and the said appeal  was  allowed,  whereby  the  Award  was  set
aside.

Before the City Civil Court, in the appeal filed under  Section  34  of  the
Act, the following two issues had been framed :-

(a)   Whether the dispute was in relation to an “excepted  matter”  and  was
not arbitrable?

(b)  Whether the claimant  was  entitled  to  the  amounts  awarded  by  the
Arbitrator?




11.   The Court decided the appeal in favour of the respondent  and  against
the contractor.  Being aggrieved by the order dated 8.4.2005 passed  by  the
XIVth Additional Chief Judge, City Civil Court,  Hyderabad,  CMA  No.476  of
2005 was filed by the contractor before the High Court and  the  High  Court
was pleased to dismiss the same by  virtue  of  the  impugned  judgment  and
therefore, the contractor has filed this appeal.

 The learned counsel  appearing  for  the  appellant-contractor  had  mainly
submitted that as per Clause  39  of  the  contract,  the  Engineer  of  the
respondent authorities was duty bound to decide the rate  at  which  payment
was to  be  made  for  the  extra  work  done  by  the  contractor,  through
negotiations between the parties.  A final decision on the said subject  was
taken by the respondent authorities without the  contractor's  approval  and
therefore,  there  was  a  dispute  between  the  parties.  He  had  further
submitted  that  no  specific  decision  was  taken  by  the  Engineer   and
therefore, there was no question of  filing  any  appeal  before  the  Chief
Engineer  and  as  the  Chief  Engineer  did  not  take  any  decision,  the
aforestated clauses, viz. Clauses 39 and 64 would not apply  because  clause
64 would “except” a decision  of  the  Chief  Engineer,  but  as  the  Chief
Engineer had not taken any decision, there was no question  with  regard  to
“referring to” clause 39.  He had, therefore, submitted that  the  Award  in
toto was correct and the High Court had wrongly upheld the dismissal of  the
Award by the trial Court.

13.   The  learned  counsel  had,  thereafter,  referred  to  the  judgments
delivered by this Court in General Manager, Northern Railway and another  v.
Sarvesh Chopra [(2002) 4 SCC 45] and Madnani  Construction  Corporation  (P)
Limited v. Union of India & ors.[(2010)  1  SCC  549]  to  substantiate  his
case.

14.   The  learned  counsel  had,  thereafter,  submitted  that  the  appeal
deserved to be  allowed  and  the  judgment  delivered  by  the  High  Court
confirming the order passed by the City Civil Court deserved to  be  quashed
and set aside.

15.    There was no representation on behalf  of  the  Union  of  India  and
therefore, we are constrained to consider the submissions  made  by  learned
counsel for the appellant only.

16.   Upon perusal of both the clauses included in the contract, which  have
been referred to hereinabove, it is crystal  clear  that  all  the  disputes
were not arbitrable.  Some of the disputes which had  been  referred  to  in
Clause 39 were specifically not arbitrable  and  in  relation  to  the  said
disputes the contractor had to negotiate with the concerned Engineer of  the
respondent and if the contractor was not satisfied with the rate  determined
by the Engineer, it was open to the contractor to  file  an  appeal  against
the decision of the Engineer before the Chief Engineer within 30  days  from
the date of communication of the decision to the contractor.

17.  In the instant case, there  was  no  finality  so  far  as  the  amount
payable to the contractor in relation to  the  extra  work  done  by  it  is
concerned,  because  the  said  dispute  was  never  decided  by  the  Chief
Engineer. In the aforestated  circumstances,  when  the  disputes  had  been
referred to the Arbitrator, the disputes  which  had  been  among  “excepted
matters” had also been referred to the learned Arbitrator.

18.  Upon perusal of the  case  papers  we  find  that  before  the  learned
Arbitrator, the contractor  did object to the arbitrability of the  disputes
covered under Clause 39, but the Arbitrator had decided the said  issues  by
holding that the same were not “excepted matters” but arbitrable.

19.  The question before this Court is whether  the  Arbitrator  could  have
decided the issues which were not arbitrable.

20.  Arbitration arises from a contract  and  unless  there  is  a  specific
written contract, a contract with regard to arbitration cannot be  presumed.
Section 7(3) of the Act clearly specifies that the contract with  regard  to
arbitration must be in writing.  Thus, so far as  the  disputes  which  have
been referred to in Clause 39 of the contract  are  concerned,  it  was  not
open to the Arbitrator to arbitrate upon the said disputes as  there  was  a
specific clause whereby the said disputes  had  been  “excepted”.  Moreover,
when the law specifically makes a provision with regard to  formation  of  a
contract in a particular  manner,  there  cannot  be  any  presumption  with
regard to a contract if the  contract  is  not  entered  into  by  the  mode
prescribed under the Act.

21.  If a non-arbitrable dispute is referred to an Arbitrator  and  even  if
an issue is framed by the Arbitrator in relation to such a dispute,  in  our
opinion, there cannot be a presumption or a conclusion to  the  effect  that
the parties had agreed to  refer  the  issue  to  the  Arbitrator.   In  the
instant case, the respondent authorities had raised  an  objection  relating
to the arbitrability of the aforestated issue before the Arbitrator and  yet
the Arbitrator had rendered his decision on  the  said  “excepted”  dispute.
In our opinion, the Arbitrator could not have decided  the  said  “excepted”
dispute.

22.  We, therefore, hold that it was not open to the  Arbitrator  to  decide
the issues which were not arbitrable and the award, so far as it relates  to
disputes regarding non-arbitrable disputes is concerned, is bad in  law  and
is hereby quashed.

23.   We also take note of the fact that the contract had been entered  into
by the parties on 24.4.1995 and the contractual work had been  finalised  on
31.3.1997.  The Award was made on 21.9.2002 and  therefore,  we  uphold  the
portion of the award so far as  it  pertains  to  the  disputes  which  were
arbitrable,  but  so  far  as  the  portion  of  the  arbitral  award  which
determines the rate for extra work done by the contractor is  concerned,  we
quash and set aside the same.

24.   Needless to say that it would  be  open  to  the  contractor  to  take
appropriate legal action for recovery of payment for work  done,  which  was
not forming part of the contract because  the  said  issue  decided  by  the
Arbitrator is now set aside.

25.   For the reasons recorded hereinabove, the  appeal  is  partly  allowed
with no order as to costs.


                                   …………...........................J.
                                           (ANIL R. DAVE)


                              …..........................................J.
                                                      (VIKRAMAJIT SEN)
New Delhi
September 05, 2014.

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