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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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