# 8 S.C.R. 486 M/S. J.G. ENGINEERS PVT. LTD v. UNION OF INDIA AND ANR

- **Citation:** [2011] 8 S.C.R. 486
- **Court:** Supreme Court of India
- **Decided:** 2011-04-28
- **Case number:** Civil Appeal No. 3349 of 2005
- **Bench:** R.V. Raveendran, Markandey Kat Ju
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/8-s-c-r-486-m-s-j-g-engineers-pvt-ltd-v-union-of-india-and-anr-27846
- **Pages:** 34

## Headnote

Arbitration and Conciliation Act, 1996 - ss.34 and 28 -
Respondents had awarded works contract to the appellant -
C On ground of slow progress of the appellant-contractor, the
respondents terminated the contract - Dispute -Appointment
of sole arbitrator as per arbitration agreement contained in
contract - Appellant filed statement of claims before the
arbitrator - Respondents filed reply and also filed counter
D claims - Arbitrator awarded sum with interest and costs in
favour of the appellant and rejected the counter claims of the
respondents - Respondents filed application u/s.34 for setting
aside the award - District Judge affirmed the award - Order
reversed by the High Court in arbitration appeal filed by the
E respondents - The respondents' contention that the arbitrator
had considered and allowed some claims which were
'excepted matters' and therefore, inarbitrable, that grant of
some other claims by the arbitrator violated the express
provisions of clause 1 O(cc) of the contract, and that the
F counter-claims of respondents were erroneously rejected,
found favour with the High Court - Held: On facts, the
Arbitrator had the jurisdiction to try and decide all the claims
of the appellant-contractor as also the claims of the
respondents - Award of the Arbitrator on claims 1, 3 and 11
of the appellant-contractor has to be upheld and the
G conclusion of the High Court that award in respect of those
claims had to be set aside as they related to excepted matters,
cannot be sustained - Judgment of the High Court setting
aside the award in regard to claims 2,4,6, 7,8 and 9 of the
H
486
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 487
ANR.
appellant also cannot be sustained since the award on those
A
claims was upheld by the civil court and the High Court in
appeal did not find any infirmity in regard thereto - Claim No. 5
was for payment of escalation under clause 10(cc) of the
contract - The High Court erred in setting aside the award in
regard to claim No.5 a/so - Once the Arbitrator recorded the
B
finding that the contractor was not responsible for the delay
and that the termination was wrongful and that the respondents
were liable for the consequences arising out of the wrongful
termination of contract, the question of respondents claiming
any of the counter-claims from the contractor does not arise c
- Award of the Arbitrator rejecting the counter claims,
therefore, upheld - Government Contract - Works Contract.
Arbitration and Conciliation Act, 1996 - ss. 34 and 28 -
Arbitral award - Interference with - Jurisdiction of civil court
to examine. validity of arbitra/ award - Held: A Civil Court D
examining the validity of an arbitral award uls. 34 exercises
supervisory and not appellate jurisdiction - A court can set
aside an arbitral award, only if any of the grounds mentioned
in ss.34(2)(a)(i) to (v) or s.34(2)(b)(i) and (ii), or s.28(1)(a) or
28(3) read with s.34(2)(b)(ii), are made out - An award· E
adjudicating claims which are 'excepted matters' excluded
from the scope of arbitration, would violate s.34(2)(a)(iv) and
34(2)(b) - Making an award allowing or granting a claim,
contrary to any provision of the contract, would violate
s.34(2)(b)(ii) read with s.28(3).
F
Arbitration - Arbitra/ award dealing with and deciding
several claims - Challenge to - Held: If an award deals with
and decides several claims separately and distinctly, even .if
the court finds that the award in regard to some items is bad,
the court will segregate the award on items which did not suffer G
from any infirmity and uphold the award to that extent.
Contract - Breach of a condition of contract - Right to
adjudication - Held: The question whether the other party
committed breach cannot be decided by the party alleging
H
488
SUPREME COURT REPORTS
[2011] 8 S.C.R.
A breach - A contract cannot provide that one party will be the
arbiter to decide whether he committed breach or the other
party committed breach - That question can only be decided
by an a

## Text

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A
B
[2011) 8 S.C.R. 486
M/S. J.G. ENGINEERS PVT. LTD.
v.
UNION OF INDIA AND ANR.
(Civil Appeal No. 3349 of 2005)
APRIL 28, 2011
[R.V. RAVEENDRAN AND MARKANDEY KAT JU, JJ.]
Arbitration and Conciliation Act, 1996 - ss.34 and 28 -
Respondents had awarded works contract to the appellant -
C On ground of slow progress of the appellant-contractor, the
respondents terminated the contract - Dispute -Appointment
of sole arbitrator as per arbitration agreement contained in
contract - Appellant filed statement of claims before the
arbitrator - Respondents filed reply and also filed counter
D claims - Arbitrator awarded sum with interest and costs in
favour of the appellant and rejected the counter claims of the
respondents - Respondents filed application u/s.34 for setting
aside the award - District Judge affirmed the award - Order
reversed by the High Court in arbitration appeal filed by the
E respondents - The respondents' contention that the arbitrator
had considered and allowed some claims which were
'excepted matters' and therefore, inarbitrable, that grant of
some other claims by the arbitrator violated the express
provisions of clause 1 O(cc) of the contract, and that the
F counter-claims of respondents were erroneously rejected,
found favour with the High Court - Held: On facts, the
Arbitrator had the jurisdiction to try and decide all the claims
of the appellant-contractor as also the claims of the
respondents - Award of the Arbitrator on claims 1, 3 and 11
of the appellant-contractor has to be upheld and the
G conclusion of the High Court that award in respect of those
claims had to be set aside as they related to excepted matters,
cannot be sustained - Judgment of the High Court setting
aside the award in regard to claims 2,4,6, 7,8 and 9 of the
H
486
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 487
ANR.
appellant also cannot be sustained since the award on those
A
claims was upheld by the civil court and the High Court in
appeal did not find any infirmity in regard thereto - Claim No. 5
was for payment of escalation under clause 10(cc) of the
contract - The High Court erred in setting aside the award in
regard to claim No.5 a/so - Once the Arbitrator recorded the
B
finding that the contractor was not responsible for the delay
and that the termination was wrongful and that the respondents
were liable for the consequences arising out of the wrongful
termination of contract, the question of respondents claiming
any of the counter-claims from the contractor does not arise c
- Award of the Arbitrator rejecting the counter claims,
therefore, upheld - Government Contract - Works Contract.
Arbitration and Conciliation Act, 1996 - ss. 34 and 28 -
Arbitral award - Interference with - Jurisdiction of civil court
to examine. validity of arbitra/ award - Held: A Civil Court D
examining the validity of an arbitral award uls. 34 exercises
supervisory and not appellate jurisdiction - A court can set
aside an arbitral award, only if any of the grounds mentioned
in ss.34(2)(a)(i) to (v) or s.34(2)(b)(i) and (ii), or s.28(1)(a) or
28(3) read with s.34(2)(b)(ii), are made out - An award· E
adjudicating claims which are 'excepted matters' excluded
from the scope of arbitration, would violate s.34(2)(a)(iv) and
34(2)(b) - Making an award allowing or granting a claim,
contrary to any provision of the contract, would violate
s.34(2)(b)(ii) read with s.28(3).
F
Arbitration - Arbitra/ award dealing with and deciding
several claims - Challenge to - Held: If an award deals with
and decides several claims separately and distinctly, even .if
the court finds that the award in regard to some items is bad,
the court will segregate the award on items which did not suffer G
from any infirmity and uphold the award to that extent.
Contract - Breach of a condition of contract - Right to
adjudication - Held: The question whether the other party
committed breach cannot be decided by the party alleging
H
488
SUPREME COURT REPORTS
[2011] 8 S.C.R.
A breach - A contract cannot provide that one party will be the
arbiter to decide whether he committed breach or the other
party committed breach - That question can only be decided
by an adjudicatory forum, that is, a court or an Arbitral
Tribunal - Arbitration.
8
The respondents had awarded the works contract of
"extension of terminal building" at Guwahati airport to the
appellant. On ground of slow progress of the appellantcontractor, the respondents terminated the contract.
C
The appellant filed writ petition. The High Court
referred the parties to arbitration as per the arbitration
clause contained in the works contract. The appellant filed
its statement of claims before the arbitrator. The
respondents filed reply and also filed four counter claims.
D By award dated 5.9.2001 (as amended on 22.9.2001) the
Arbitrator awarded a sum of Rs.1,04,58,2981- with interest
and costs in favour of the appellant and rejected the
counter claims of the respondents.
The respondents filed an application under Section
E 34 of the Arbitration and Conciliation Act, 1996 in the
District Court for setting aside the aforesaid arbitral
award. The District Judge dismissed the petition holding
that none of the grounds under section 34(2) were made
out. This order was reversed by the High Court in
F arbitration appeal filed by the respondents. The
respondents' contention that the arbitrator had
considered and allowed some claims which were
'excepted matters' and therefore, inarbitrable, that grant
of some other claims by the arbitrator violated the
G express provisions of clause 10(cc) of the contract, and
that the counter-claims of respondents were erroneously
rejected, found favour with the High Court.
In the instant appeal, the appellant contended that
H the respondents had committed breach and its counter-
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 489
ANR.
claims were rightly rejected and further that the arbitral
A
award was legal and not open to challenge under any of
the grounds under section 34 of the Act.
On the contentions urged in the instant appeal, the
following questions arose for consideration :
8
(i)
Whether the High Court was justified in setting
aside the award in respect of claims 1, 3, and
11 on the ground that they related to 'excepted
matters'?
(ii)
Whether the High Court was justified in setting
aside the award in regard to Claim Nos. 2, 4,
· 6, 7, 8 and 9?
c
(iii)
Whether High Court was justified in holding
D
that claim 5 for escalation was barred by
clause 10(cc) of the contract?
(iv) Whether the High Court was justified in setting
aside the award rejecting counter-claims 1 to
4?
E
Allowing the appeal, the Court
HELD:1. A Civil Court examining the validity of an
arbitral award under section 34 of the Arbitration and
Conciliation Act, 1996 exercises supervisory and not
F
appellate jurisdiction over the awards of an arbitral
tribunal. A court can set aside an arbitral award, only if
any of the grounds mentioned in sections 34(2)(a)(i) to (v)
or section 34(2)(b)(i) and (ii), or section 28(1)(a) or 28(3)
read with section 34(2)(b)(ii) of the Act, are made out. An
G
award adjudicating claims which are 'excepted matters'
excluded from the scope of arbitration, would violate
section 34(2)(a)(iv) and 34(2)(b) of the Act. Making an
award allowing or granting a claim, contrary to any
provision of the contract, would violate section 34(2)(b)(ii)
H
490
SUPREME COURT REPORTS
[2011] 8 S.C.R.
A read with section 28(3) of the Act. [Para 7] [501-E-G]
Re: Question (i)
2.1. As per the arbitration agreement (contained in
Clause 25 of the contract) all questions and disputes
B relating to the contract, execution or failure to execute the
work, whether arising during the progress of the work or
after the completion or abandonment thereof, "except
where otherwise provided in the contract", had to be
referred to and settled by arbitration. The High Court held
C that claims 1, 3 and 11 of the contractor were not
arbitrable as they related to excepted matters in regard
to which the decisions of the Superintending Engineer
or the Engineer-in-Charge had been made final and
binding under clauses (2) and (3) of the contract. Clauses
D (2) and (3) of the contract relied upon by the respondents,
no doubt make 'certain decitions by the Superintending
Engineer and Engineer-in-Charge final/final and binding/
final and conclusive, in regard to certain matters. But
what is made final and conclusive by clauses (2) and (3)
E of the agreement, is not the decision of any authority on
the issue whether the contractor was responsible for the
delay or the department was responsible for the delay or
on the question whether termination/rescission is valid
or illegal. What is made final, is the decisions on
F consequential issues relating to quantification, if there is
no dispute as to who committed breach. That is, if the
contractor admits that he is in breach, or if the Arbitrator
finds that the contractor is in breach by being responsible
for the delay, the decision of the Superintending Engineer
G will be final in regard to two issues. The first is the
percentage (whether it should be 1 % or less) of the value
of the work that is to be levied as liquidated damages per
day. The second is the determination of the actual excess
cost in getting the work completed through an alternative
agency. The decision as to who is responsible for the
H
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 491
ANR.
delay in execution and who committed breach is not A
made subject to .any decision of the respondents or its
officers, nor excepted from arbitration under any
provision of the contract. [Paras 11, 13 and 14) [503-D-E;
507-F-G; 510-D-G]
2.2. The question whether the other party committed
breach cannot be decided by the party alleging breach.
8
A contract cannot provide that one party will be the
arbiter to decide whether he committed breach or the
other party committed breach. That question can only be
decided by only an adjudicatory forum, that is, a court or C
an Arbitral Tribunal. The question whether appellant was
responsible or respondents were responsible for the
delay in execution of the work, was arbitrable. The
arbitrator examined the said issue and recorded a
categorical finding that the r~spondents were responsible . D
for the delay in execution of the work and the contractor
was not responsible. The arbitrator also found that the
respondents were in breach and the termination of
contract was illegal. Therefore, the respondents were not
entitled to levy liquidated damages nor entitled· to claim
from the contractor. the extra cost (including any
escalation in regard to such· extra cost) in getting the work
completed through an alternative agency. Therefore even
though the decision as to the rate of liquidated damages
and the decision as to what was the actual excess cost
F
in getting the work completed through an alternative
agency, were excepted matters, they were not relevant
E
for deciding claims 1, 3 and 11, as the right to levy
liquidated damages or claim excess costs would arise
only if the contractor was responsible for the delay and
G
. was in breach. In view of the finding of the arbitrator that
the appellant was not responsible for the delay and that .
the respondents were responsible for the delay, the
question of respondents levying liquidated damages or
claiming the excess cost in getting the work completed
H
492
SUPREME COURT REPORTS
[2011] 8 S.C.R
A as damages, does not arise. Once it is held that thf
contractor was not responsible for the delay and the
delay occurred only on account of the omissions and
commissions on the part of the respondents, it follows
that provisions which make the decision of the
8 Superintending Engineer or the Engineer-in-Charge fina'
and conclusive, will be irrelevant Therefore, the Arbitrator
would have jurisdiction to try and decide all the claims
of the contractor as also the claims of the respondents.
Consequently, the award of the Arbitrator on items 1, 3
c and 11 has to be upheld and the conclusion of the High
Court that award in respect of those claims had to be set
aside as they related to excepted matters, cannot be
sustained. [Paras 15, 17] [510-H; 511-A; 513-G-H; 514-AF]
D
State of Karnataka vs. Shree Rameshwara Rice Mills
(1987 (2) SCC1601: 1987 (2) SCR 398; Bharat Sanchar
Nigam Ltd. vs. Motorola India Ltd. (2009 (2) SCC 337: 2008
(13) SCR 445 - referred to.
E Re : Question (ii)
3. The High Court did not find any error in regard to
the awards on claims 2, 4, 6, 7, 8 and 9, but nevertheless
chose to set aside the award in regard to these six items,
only on the ground that in the event of counter claims 1
F to 4 were to be allowed by the arbitrator on
reconsideration, the respondents would have been
entitled to adjust the amounts awarded in regard to claims
2, 4, 6, 7, 8 and 9 towards the amounts that may be
awarded in respect of counter claims 1 to 4; and that as
G the award on counter claims 1 to 4 was set aside by it
and remanded for fresh decision, the award in regard to
claim Nos. 2, 4, 6, 7, 8 and 9 were also liable to be set
aside. It is now well-settled that if an award deals with
and decides several claims separately and distinctly, even
H if the court finds that the award in regard to some items
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 493
ANR.
is bad, the court will segregate the award on items which
A
did not suffer from any infirmity and uphold the award to
that extent. As the awards on items 2, 4, 6, 7, 8 and 9 were
upheld by the civil court and as the High Court in appeal
did not find any infirmity in regard to the award on those
claims, ttie judgment of the High Court setting aside the
B
award in regard to claims 2,4,6,7,8 and 9 of the appellant,
cannot be sustained. The judgment to that extent is liable
to be set aside and the award has to be upheld in regard
to claims 2, 4, 6, 7, 8 and 9. [Para 18) [514-G-H; 515-A-D]
Re : Question (iii)
c
4.1. Section 28(3) of the Act provides that in all cases
the arbitral tribunal shall decide in accordance with the
terms of the contract and shall also take into account the
usages of the trade applicable to the transaction. SubD
section (1) of section 28 provides that the arbitral tribunal
shall decide the disputes submitted to arbitration in
accordance with the substantive law for the time being
in force in India. [Para 18) [515-E-F]
4.2. Where the contract in clear and unambiguous
terms, bars or prohibits a particular claim, any award
made in violation of the terms of the contract would
violate section 28(3) of the Act, and would be considered
to be patently illegal and therefore, liable to be set aside
under section 34(2)(b) of the Act. Claim No.(5) is for
payment of escalation under clause 10(cc) of the contract
E
F
for work done beyond July, 1995 till the date of
termination. However, escalation in price shall be
available only for the work done during the stipulated
period of contract including such period for which the
G
contract was validly extended under the provisions of
clause (5) of the contract, without any action under
clause (2) of the contract. The respondents contend that
as the Superintending Engineer levied penalty (at 10% of
•the estimated cost of the work) for the period 10.1.1995
H
494
SUPREME COURT REPORTS
[2011] 8 S.C.R.
A to 14.3.1996 under clause (2) of the contract, the
contractor was not entitled to payment of escalation
under clause 10(cc). The arbitrator held that the
contractor was not responsible for the delay and the
respondents were responsible for the delay. If so, the
B contractor will be entitled to a valid extension under the
provisions of the contract, without levy of any liquidated
damages. If the contractor is entitled to such extension
without levy of penalty, then it follows that under clause
10(cc), the contractor would be entitled to escalation, in
c terms of the contract for the work done during the period
of extension. [Para 20] [516-B-H; 517-A-B]
4.3. The stipulated date for completion was 9.1.1995.
The respondents granted the first extension upto
31.7.1995 without levy of liquidated damages, vide letter
D dated 24.8.1995. In fact the respondent had paid the
escalation in prices under clause 10(cc) upto June 1995.
The contractor was however permitted to continue the
work without levy of any liquidated damages, until
termination on 14.3.1996. It was only on 30.9.1999 after
E the contractor had submitted its statement of claim .on
17.4.1997, the respondents chose to levy liquidated
damages for the period 1.10.1995 to 14.3.1996. In view of
the finding of the Arbitrator that the contractor was not
responsible for the delay, the contractor was entitled to
F second extension from 1.8.1995 also without levy of
penalty. In fact, having extended the time till 31.7.1995
without any levy of liquidated damages, the respondents
could not have retrospectively levied liquidated damages
on 30.9.1999 from 10.1.1995. The High Court committed
G an error in setting aside the award in regard to claim No.5
on the ground that it violates clause 1 O(cc) of the
contract. [Paras 21, 22] [517-B-E; 518-A-B]
Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.
H 2003 (5) SCC 705: 2003 (3) SCR 691 - referred to.
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 495
ANR.
7Re : Question Civ)
A
5.1. Once the Arbitrator recorded the finding on
consideration of the evidence/material, that the contractor
was not responsible for the delay and that the termination
was wrongful and that the respondents were liable for the
8
consequences arising out of the wrongful termination of
contract, the question of respondents claiming any of the
counter-claims from the contractor does not arise. [Para
23] [518-C]
5.2. The High Court proceeded on the erroneous C
assumption that when clauses (2) and (3) of the contract
made the decisions of the Superintending Engineer/
Engineer-in-Charge final as to the quantum of liquidated
damages and quantum of extra cost in getting the
balance work completed, the said provisions also made
D
the decision as to the liability to pay such liquidated
damages or extra cost or decision as to who committed
breach final and therefore, inarbitrable; and that as a
consequence, the respondents were entitled to claim the
extra cost in completing the work (counter claims 1 and
E
. 3) and levy liquidated damages (counter claim No.2) and
the arbitration costs (counter claim No.4). Once it is held
that the issues relating to who committed breach and
who was responsible for delay were arbitrable, the
findings of the arbitrator that the contractor was not
F
responsible for the delay and that the termination of
contract is illegal are not open to challenge. Therefore,
the rejection of the counter claims of the respondents is
unexceptionable and the High Court's finding that
arbitrator ought not to. have rejected them becomes G
unsustainable. The award of the Arbitrator rejecting the
counter claims is therefore, upheld. Consequently, the
order of the High Court is set aside and the order of the
District Court is restored. [Para 23 and 24] [519-A-F]
H
A
B
496
SUPREME COURT REPORTS
Case Law Reference:
1987 (2) SCR 398
2008 (13) SCR 445
2003 (3) SCR 691
referred to
referred to
referred to
(2011] 8 S.C.R.
Para 15
Para 16
Para 19
. CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3349 of 2005.
From the Judgment and Order dated 08.02.2005 of the
c Gauhati High Court (the High Court of Assam, Nagaland,
Meghalaya, Manipur, Tripura, Mizoram and Arunachal Pradesh
in Arbitration Appeal No. 1 of 2004.
A.K. Ganguly, Pranab Kumar Mullick for the Appellant.
D
T.S. Doabia, Kiran Bhardwaj, Sushma Suri and V.K.
Verma for the Respondents.
The Judgment of the Court was delivered by •
E
R.V.RAVEENDRAN, J. 1. This appeal is directed against
the judgment dated 8.2.2005 of the Guwahati High Court
allowing Arbitration Appeal No.1/2004 filed by the respondents
and setting aside the judgment dated 12.12.2003 passed by
Additional District Judge, Kamrup, Guwahati (by which the
~. District court had dismissed the petition filed by respondents
F filed under section 34 of Arbitration & Conciliation Act, 1996
and affirmed the Award passed by the Arbitrator dated
5.9.2001, with clerical corrections made on 22.9.2001 ).
2. On 26.3.1993 the respondents awarded the work of
G "extension of terminal building" at Guwahati airport to the
appellant. As per the contract, the date of commencement of
work was 10.4.1993 and the period of completion of the work
was 21 months, to be completed in different stages. As the
appellant (also referred to as the 'contractor') did not complete
H the first phase of the work within the stipulated time, the
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 497
ANR. [R.V. RAVEENDRAN, J.]
respondents terminated the contract by order dated 29.8.1994.
A
The termination was challenged by the appellant in a writ
petition filed before the Gawahati High Court. By judgment
dated 27.9.1994, the High Court set aside the termination and
directed the respondents to grant time to the appellant till the
end of January 1995 for completion of the first phase reserving
B
liberty to the appellant to apply for further extension of time. As
the work was not compfeted, the respondents granted an
extension upto 31.7.1995 by letter dated 24.8.1995, without
levying any liquidated damages. The contractor proceeded with
the work even thereafter. However, as the progress was slow, c
the respondents terminated the contract on 14.3.1996 on the
. ground of non-completion even after 35 months. The appellant
filed a writ petition, challenging the cancellation. The High Court
by order dated 25.6.1996, noticed the existence of the
arbitration agreement and referred the parties to arbitration. In
D
pursuance of it, on a request by the appellant, the respondents
appointed Mr. C.Vaswani as the sole arbitrator on 14.2.1997.
3. On 17.4.1997, the appellant filed its statement of claims.
Claims 1 to 11 aggregated to Rs.2,38,86, 198.31 (subsequently,
reduced to Rs.2,06,70,495/-). Claim 12 was for interest at 18%
E
per annum on the total claim amount from 20.5.1996 to date of
realization. Claim 13 was for Rs.2, 13, 729/- as cost of
arbitration. On 3.2.1999, the respondents filed their reply and
also filed their four counter claims before the arbitrator
aggregating to Rs. 279,54,225/-.
F
4. By award dated 5.9.2001 (as amended on 22.9.2001)
the Arbitrator awarded a sum of Rs.1,04,58,298/- with interest
and costs in favour of the appellant and rejected the counter
claims of the respondents. The particulars of the amounts
G
claimed and the awards thereon are as under:
H
498
SUPREME COURT REPORTS
[2011) 8 S.C.R.
A
Claims by appellant
Claim Particulars of Claim
Amount
Amoun
No.
claimed
awarded
by appellant by Arbitrator
B
1
Claim for the balance
Rs.11,26,518 Rs.11,26,518
paymen~ of 34th Running account
2,4,5 2) Claim for the payment due
under 35th Running Account bill
Rs.8,70,517
c
4) Claim for the payment for Extra
Rs.65,64,544
items of work executed
Rs.3,27,335
5) Claim for escalation in rates for
works executed after July 1995 till
Rs.14,59,320
D
the date of termination
3
Claim for the refund of Security
Rs.1,00,000
Rs. 1,00,000
Deposit
6
Claim for the difference in scale
Rs. 37,608
Rs. 37,608
weight and sectional weight of
E
steel
7&8 7) Claim for "on site' overheads and
establishment expenses during the
extended period of 14 months
beyond the stipulated date of
completion.
Rs.25,57,295 Rs.17,50,000
F
8) Claim for 'off-site' overheads and
establishment expenses during the
extended period of 14 months
beyond the stipulated date of
completion.
9
Claim for loss of hire charges of
Rs.30,79,160 Rs.8,75,000
machinery, shuttering materials etc.
G
engaged for execution of the
work for the period beyond the
stipulated date of completion.
10
Claim for compensation for the
Rs.18,01, 701
Nil
H
unutilized proportionate expenses
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 499
ANR. [R.V. RAVEENDRAN, J.]
incurred for establishing the site,
and setting-up of infrastructure
required for performance of full
. value of work.
11
Claim for the loss of anticipatory Rs.54,03,669
Rs.39, 12,000
profit @ .15% on the value of
balance work which could not be
executed due to termination of
Contract
Total
Rs.2,06, 70,495 Rs.104,58,298
Counter Claims by respondents
Counter Particulars of Counter Claim
Amount
Amount
Claim
claimed
~warded
No
by
by Arbitrator
Respondents
1.
Excess cost of getting the work
Rs.1,46,69,227
Nil
executed through an alternative
agency - recoverable as per
clause (3) of the agreement
2.
Liquidated damages levied under Rs.56,84,998
Nil
clause (2) of the agreement
3.
Escalation that would be payable Rs.75,00,000
Nil
to the alternative agency in
regard to execution of remaining
work (tentative).
4.
Cost of Arbitration
Rs.1,00,000
Nil
Total
Rs.2, 79,54,225
Nil
A
B
c
D
E
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The Arbitrator awarded to the contractor, simple interest @ 9%
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per annum on Rs.38,21,298 for the period 14.9.1996 to
31.3.1997 and simple interest @ 15% per annum on
Rs.1,04,58,298 for the period 1.4.1997 to date of payment
(under Claim No.12). The Arbitrator also awarded Rs.39,610/
H
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SUPREME COURT REPORTS
[2011] 8 S.C.R.
A - towards costs (under Claim No. 13). All the counter claims of
respondents were rejected.
5. On 12.12.2001, the respondents filed an application
(Misc. Arbn. Case No.590/2001) under Section 34 of the
8 Arbitration and Conciliation Act, 1996 (for short, 'the Act') in
the District Court, Guwahati for setting aside the aforesaid
award. The respondents filed an additional petition in the said
proceedings, under section 34 of the Act on 27.1.2003, raising
additional grounds of challenge. The learned District Judge,
C Guwahati dismissed the petition vide order dated 12.12.2003,
holding that none of the grounds under section 34(2) were
made out. This order was reversed by the Guwahati High Court,
by the impugned judgment dated 8.2.2005, in Arbitration
Appeal No.1/2004 filed by the respondents, recording· the
following findings: (i) The award on claim Nos.1, 3 and 11
D related to 'excepted matters' which were beyond the ccope of
the arbitration agreement and could not be adjudicated by the
Arbitrator. (ii)· The award on Claim No.5 was contrary to the
terms of price escalation clause (clause 10(cc) of the contract)
and being patently illegal, required to be set aside. (iii) The
E rejection of the counter claims of respondent, by ignoring the
agreed terms of contract and the legal provisions, was also
patently illegal. As a consequence, the award was liable to be
set aside fully, as the respondents would have been entitled to
adjust the amounts found due and payable against claims 2,
F 4, 6, 7, 8, 9 against their counter-claims, if allowed. In view of
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the said findings the High Court directed as follows :
"In view of the above, the appeal filed by the appellants is
allowed. The award passed by the Arbitrator on 5.9.2001
and corrected on 22.9.2001 as well as the order dated
12.12.2003 passed by the learned.Adhoc Additional
District Judge No.2, Kamrup, Guwahati in Misc.
(Arbitration) Case No.590/2001, are set aside. The
arbitration proceeding is remitted back to the learned
arbitrator for reconsideration of the counter claims of the
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 501
ANR. [R.V. RAVEENDRAN, J.]
necessary adjustment of the amount payable to the
P.
contractor/claimant against his claim nos. 2,4,6,7,8,9 and
13 in terms of the finding recorded by this Court."
6. The respondents' contention that the arbitrator has
considered and allowed some claims which were 'excepted
8
matters' and therefore, inarbitrable, that grant of some other
claims by the arbitrator violated the express provisions of clause
10(cc) of the agreement, and that the counter- claims of
respondents have been erroneously rejected, have found favour
with the High Court. The appellant contends that the award does
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not violate clauses (2) and (3) of the agreement making certain
decisions of Superintending Engineer/Engineer-in-Charge
final, nor clause 1 O(cc) of the agreement relating to escalations,
It is also contended that respondents committed breach and
the counter-claims were rightly rejected. The appellant contends
the award is legal and not open to challenge under any of the
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grounds under section 34 of the Act.
Questions for consideration
7. A Civil Court examining the validity of an arbitr-al award
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under section 34 of the Act exercises supervisory and not
appellate jurisdiction over the awards of an arbitral tribunal. A
court can set aside an arbitral award, only if any of the grounds .
mentioned in sections 34(2)(a) (i) to (v) or section 34(2)(b)(i)
and (ii), or section 28(1)(a) or 28(3) read with section 34(2)(b)(ii)
F
of th.e Act, are made out. An award adjudicating claims which
are .. excepted matters' excluded from the scope of arbitration,
would violate section 34(2)(a)(iv) and 34(2)(b) of the Act.
Making an award allowing or granting a claim, contrary to any
provision of the contract, would violate section 34(2)(b)(ii) read
with section 28(3) of the Act. On the contentions urged, the
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following questions arise for our consideration :
(i)
Whether the High Court was justified in setting
aside the award in respect of claims 1, 3, and 11
on the ground that they related to 'excepted. H
..
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A
matters'?
B
c
(ii)
Whether the High Court was justified in setting
aside the award in regard to Claim Nos. 2, 4, 6, 7,
8 and 9?
(iii)
Whether High Court was justified in holding that
claim 5 for escalation was barred by clause 10(cc)
of the contract?
(iv)
Whether the High Court was justified in setting
aside the award rejecting counter-claims 1 to 4?
Re : Question (i):
8. Claim No. (1) for Rs.11,26,518 relates to the payment
due in regard to the 34th running bill withheld by the respondent.
D It comprises Rs.5,90,000/- levied as compensation under
clause (2) of the agreement, Rs.3, 17,468 withheld towards
alleged risk cost in getting the work executed by an alternative
agency and Rs.2, 19,050 being the escalation in regard to the
period January 1995 to July 1995 which was admitted by the
E respondents to be due. The Arbitrator allowed the entire claim
holding that the appellant was not responsible for the delay and
consequently the rescission/termination was illegal and levy of
liquidated damages and recovery of excess cost in getting the
work completed through an alternative agency was not
F permissible, was bad.
9. Claim No.3 was for refund of security deposit of
Rs.100,000/-. The respondents had encashed the bank
guarantee for Rs.1 lakh which had been issued in lieu of security
G deposit and forfeited the same on the ground that the contractor
was in breach. The arbitrator held the contractor was not in
breach and the forfeiture was illegal and directed that the said
sum of Rupees one lakh should be refunded to the contractor.
1 O. Claim No.11 was for Rs.54,03,669 being the loss of
H anticipated profit in regard to the value of the unexecuted work
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 503
ANR. [R.V. RAVEENDRAN, J.]
which would have been executed by the contractor if the contract
A
had not been rescinded by the respondent~. The contractor
contended that the termination was in breach of the contract
and but for such termination the contractor would have
legitimately completed the work and earned a profit of 15%.
The arbitrator held that the respondents were responsible for
8
the delay, that the contractor was not in breach and the
termination was therefore illegal. He held that the value of the
work which could not be executed by the contractor due to
wrongful termination, was Rs.3,91,21,589 and 10% thereof
would be the standard estimate of the loss of profits and
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consequently awarded Rs.39, 12,000/- towards the loss of
profits, which the contractor would have earned but for the
wrongful termination of the contract by the respondents.
11. As per the arbitration agreement (contained in Clause
25 of the contract) all questions and disputes relating to the
D
contract, execution or failure to execute the work, whether
arising during the progress of the work or after the completion
or abandonment thereof, "except where otherwise provided in
the contract", had to be referred to and settled by arbitration.
The High Court held that claims 1, 3 and 11 of the contractor
E
were not arbitrable as they related to excepted matters in
regard to which the decisions of the Superintending Engineer
or the Engineer-in-Charge had been made final and binding
under clauses (2) and (3) of the agreement.
12. We may refer to the relevant provisions of the said
contract d'ocument, that is, clauses 2, 3(Part} and 25 (Part} to
decide whether the claims 1, 3 and 11 were excepted matters,
excluded from Arbitration:
Clause (2):
"The time allowed for carrying out the work as entered in
the tender.shall be strictly observed by the contractor and
shall be deemed to be essence of the' contract and shall
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be reckoned from the tenth day after the date on which the
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SUPREME COURT REPORTS
[2011] 8 S.C.R.
order to commence the work is issued to the contracto::.
The work shall throughout the stipulated period of the
contract be proceeded with· all due diligence and the
contractor shall pay as compensation an amount equed
to one percent or such smaller amount as thfJ
Superintending Engineer (whose decision in writing shall
be final) may decide on the amount of the estimated cost
of the whole work as shown in the tender, for every day·
that the work remains uncommenced or unfinished after the
proper dates. And further to ensure good progress during
the execution of the work, the contractor shall be bound in
all cases in which the time allowed for any work exceeds,
one month (save for special jobs) to complete one.,;eighth
of the whole of the work before one-fourth of the whole time
allowed under the contract has elapsed, three eighths of
the works, before one-half of such time has elapsed and
three-fourths of the work; before three-fourths of such time
has elapsed. However for special jobs if a time-schedule
has been submitted by the Contractor and the same has
been accepted by the Engineer-in-Charge. The contractor
shall comply with the said time schedule. In the event of
the contractor failing to comply with this condition, he shall ·
be liable to pay as compensation an amount equal to one
percent or such small amount as the Superintending
Engineer (whose decision in writing shall be final) may
decide on the said estimated cost of the whole work for
every day that the due quantity of work remains incomplete.
Provided always that the entire amount of compensation
to be paid under the provisions of this clause shall not
exceed ten per cent, on the estimated cost of the work as
shown in the tender."
Clause 3 :
"The Engineering-in-charge may without prejudice to his
right against the contractor in respect of any delay or
inferior workmanship or otherwise or to any claims for
J.G. ENGINEERS PVT. LTD. 11. UNION OF INDIA AND 505
ANR. [R.V. RAVEENDRAN, J.]
damage in respect of any breaches of the contract and
A
without prejudice to any rights or remedies under any of
the provisions of this contract or otherwise and whether the
date of completion has or has not elapsed by notice in
writing absolutely determine the contract in any of the
following cases:
B
(i) If the contractor having been given by the Engineer-incharge a notice in writing to rectify, reconstruct or replace
any defective work or that the work is being performed in
any inefficient or other improper or unworkmanlike manner,
C
shall omit to comply with the requirements of such notice
for a period of seven. days thereafter or if the contractor
shall delay or suspend the execution of the work so that
either in the judgment of the Engineer-in-charge (whose
decision shall be final and binding) he will be unable to
secure completion of the work by the date of completion
D
or he has already failed to complete the work by that
date ...
(ii) x x x x (not relevant) . ·
(iii) If the contractor commits breach of any of the terms
and conditions of this contract.
(iv) If the contractor commits any acts mentioned in Clause
21 hereof.
When the contractor has made himself liable for action
under any of the cases aforesaid, the Engineer-in-Charge
on behalf of the President of India shall have powers:
F
(a) To determine or rescind the· contract as aforesaid (of
which termination or rescission notice in writing to· the
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contractor under hand of the Engineer-in-Charge shall be
conclusive evidence) upon such determination or
rescission the security deposit of the contractor shall be
liable to be forfeited and shall be absolutely at the disposal H
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[2011) 8 S.C.R.
A
of Government.
B
c
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(b) xx x x (not relevant)
(c) After giving notice to the contractor to measure up the
work of the contractor and to take such part thereof as
shall be unexecuted out of his hands and to give it to
another contractor to complete in which case any expenses
which may be incurred in excess of the sum which would
have been paid to the original contractor if the whole work
had been executed by him (of the amount of which excess
the certificate in writing of the Engineer~in-Charge shall
be final and conclusive) shall be borne and paid by the
original contractor and may be deducted from any money
due to him by Government under this contract or on any
other account whatsoever or from his security deposit or
the proceeds of sales thereof or a sufficient part thereof
as the case may be."
In the event of any one or more of the above courses being
adopted by the Engineer-in-Charge the contractor shall
have no claim to compensation for any loss sustained by
him by reason of his having purchased or procured any
materials or entered into any engagements or made any
advances on account or with a view to the execution of the
work or the performance of contract. And in case action
is taken under any of provisions aforesaid. The contractor
shall not be entitled to recover or be paid any sum for any
work thereof or actually performed under this contract
unless and until the Engineer-in-Charge has certified in
writing the performance of such work and the value
payable in respect thereof and he shall only be entitled to
be paid the value so certified.
Clause 25:
"Except where otherwise provided in the contract all
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 507
ANR. [R.V. RAVEENDRAN, J.]
questions and disputes relating to the meaning of the
A
specifications, designs, drawings, and instructions
hereinbefore mentioned and as to the quality of
workmanship or materials used on the work or as to any
other question, claim, right, matter or thing whatsoever in
B
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 of failure to execute the same whether arising
during the progress of the work or after the completion or
abandonment thereof shall be referred to the sole c
arbitration of the person appointed by the Chief Engineer,
C.P.W.D. in charge of the work at the time of dispute or if
there be no Chief Engineer the administrative head of the
said C.P.W.D. at the time of such appointment. It will be
no objection to any such appointment that the arbitrator so
0
appointed is a Government servant, that he had to deal
with the matters to which the contract relates and that in
the course of· his duties as Government servant he has
expressed views on all or any of the matters in dispute or
difference."
{emphasis supplied)
E
13.