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Judgment
S.RAVINDRA BHAT, J.
The parties to this proceeding entered into a contract on 14.07.2010 for execution of work of ""Detailed Engineering survey, Soil survey, Cadastral
survey & Providing services for establishing ROU in ROW of “Paradip-Haldia-Durgapur LPG Pipeline Project"" by the respondent (hereafter
“the Instituteâ€) within 28 months from the date of issuance of letter of acceptance, issued by the appellant (hereafter “IOLâ€). The present
appeal challenges an order of the learned single judge, rejecting IOL’s petition, under Section 34 of the Arbitration and Conciliation Act, 1996
(hereafter “the Actâ€).
The facts are that disputes arose between the parties, and the Institute filed a petition under Section 11(6) of the Act seeking appointment of an
Arbitrator. On 18.10.2011 in Arb. Pet. 42/2011, this court noted the submissions of the IOC that the Institute had to first apply to the General Manager
of IOC in terms of the arbitration clause. The parties agreed the General Manager would consider the application and pass an appropriate order in
accordance with law. The petition was withdrawn in view of this direction; the Institute approached the General Manager of the petitioner and made
the following claims: -
“(1) Claim of Rs.51,19,898/- for work done plus the service tax;
(2) Claim for refund of Rs.4,20,0001/- deposited by IGPL towards security deposit;
(3) Claim of Rs.18,22,493 /- towards loss of profit suffered by IGPL; Claim for Rs.8,00,000/- for de-mobilization of equipment, machinery and man
force from the work site; and
(4) Interest@ 16% per annum on the total sum of Rs.81,62,391/-claimed under 1to 4 above with effect from 01.01.2011.â€
The General Manager by order dated 12.03.2012 held that claim Nos. 1, 3, 4 and 5 are not notified claims and are not arbitrable. Claim No. 2 for
refund of security deposit and interest thereon was held to be arbitrable under Clause 9.0.1.0 of GCC. Steps were taken for the appointment of an
arbitrator from a panel of three persons from whom the Institute was to select an arbitrator. This led to the Institute filing a petition under Section
11(6) of the Act before this court (Arb. Pet. No. 175/2012). This court disposed of the petition with a direction that the petitioner shall forward a panel
of three names to the respondent within four weeks. The respondent was on the panel to select a name to be appointed as a sole arbitrator. The
Arbitrator so selected would be within his/her right to arbitrate upon claim No.2 and interest, if any, thereon along with the counter claim, if any, of the
petitioner. The Tribunal passed an award in favour of the Institute, allowing its claims. IOC’s objections to the award under Section 34 were
rejected, together with the contention that excluded claims had been considered on merits and were part of the award.
It is urged by Mr. Abhinav Vashisht (in FAO (Comm) 189/2017) that in spite of Claims No.1, 3, 4 and 5 being expressly “excepted matters†in
terms of clause 9 of the Agreement between the parties, and were not specifically referred to the tribunal by the court in its judgment dated
19.05.2015, the Arbitrator proceeded and passed the Award on those claims. He argues that the learned Tribunal mis-read the judgment of this court
and held that it could decide upon the arbitrability of those claims. Learned senior counsel has relied upon the judgment of the Supreme Court in the
case of SBP & Co. vs. Patel Engineering Ltd. and Anr., (2005) 8 SCC 618 to contend that the learned Arbitrator could not have ignored the order of
this court as there was finality to the conclusions of this court. It was argued that if the award with respect to excluded matters were set aside, there
is no finding, except that the IOC is liable to pay the Institute Rs. 420,000/- on which the tribunal, for no rhyme or reason, directed payment of an
enormous amount as costs (i.e. Rs. 32,89,924/-) which is entirely unjustified.
Mr. Jay Salva, learned counsel for the Institute submitted that this court in its judgment dated 19.05.2015 had left the issue as to whether the
matters in question were excepted subject matter or not, open. It was submitted that the tribunal discussed the pleadings and evidence led by the
parties to the dispute and based on its conclusions, made the award. In these circumstances, it could not be said that the award is vitiated. Learned
counsel submitted that the tribunal gave good and valid reasons why the so called excepted matters were arbitrable and consequently, the learned
Single Judge erred in holding otherwise. He urged that the Institute’s appeal (FAO (Comm) 197/2017) should be allowed and the award of the
tribunal be allowed to stand.
This court finds that the Single Judge, by the impugned order, observed that the dispute inter se between the parties was with respect to
interpretation of its previous order. The learned Single Judge discussed this aspect as follows:
“….basic controversy is that as to whether this court by its order dated 19.05.2015 had withheld reference of claims No. 1, 3, 4 to 5 from
arbitration. Reference may be had to paras 7, 12, 16, 17 and 18 of the said judgment which read as follows:-
“7. Mr.Vivek Singh, learned counsel appearing for the petitioner, would state, that the General Manager should have notified all the claims raised
by the petitioner in its letter dated November 16, 2010. He would say, the reasoning is totally untenable. That apart, he would state that even this Court
while exercising jurisdiction under Section 11 of the Act necessarily has to refer all the claims which have been raised by the petitioner in the
aforesaid communication. He would rely upon the judgments of the Supreme Court in the case of Arasmeta Captive Power Company Private Limited
and Anr. Vs. Lafarge India Private Ltd., AIR 2014 SC 525 and Union of India and Anr. Vs. Raunaq International Ltd., 2008 (7) SCALE 355 in
support of his contention.
xxx
Having considered the submissions made by learned counsel for the parties and on a perusal of clause 9.0.1.0, it is clear that any dispute arising out
of any notified claim of the contractor, included in the final bill of the contractor in accordance with the provisions of clause 6.6.3.0 shall be referred to
the arbitration of the Sole Arbitrator selected in accordance with the provisions of the clause 9.0.1.1.
The General Manager, insofar as the claim No. 1 is concerned, which is a claim towards the value of the work done upto the date of termination,
was of the view that the claim for the first time, was made by the petitioner on November 16, 2010, addressed to the Engineer In- Charge and invoice
dated November 15, 2010 do not satisfy the requirement of a notified claim since it has neither been made within ten days of November 2, 2010 nor
has been addressed or copied to the Site Engineer. This stipulation has been so laid down in clause 6.6.1.0, which I reproduce as under:
6.6.1.0 Should the CONTRACTOR consider that he is entitled to any extra payment of compensation in respect of the works over and above the
amounts due in terms of the contract as specified in clause 6.3.1.0 hereof or should the CONTRACTOR dispute the validity of any deductions made
or threatened by the OWNER from any running account bills, the CONTRACTOR shall forthwith give notice in writing of his claim in this behalf of
the Engineer-in-Charge and the Site Engineer within 10 days from the date of the issue of orders or instructions relative to any works for which the
CONTRACTOR claims such additional payment or compensation or of the happening of other event upon which the contractor bases such claim, and
such notice shall give full particulars of the nature of such claim, grounds on which it is based, and the amount claimed. The OWNER shall not
anywise be liable in respect of any claim by the CONTRACTOR unless notice of such claim shall have been given by the CONTRACTOR to the
Engineer-in-charge and the Site Engineer in the manner and within the time aforesaid and the CONTRACTOR shall be deemed to have waived any
and all claims and all his rights in respect of any claim not notified to the Engineer-in-Charge and the Site Engineer in writing in the manner and within
the time aforesaid"".
Insofar as the claim No. 3 is concerned, the same is a claim for loss of profit. Here also, the General Manager has not notified the claim on an
identical ground on which he did not notify claim No. 1.
Similarly, the claim No. 4 was also rejected on the same ground. Insofar as the submission of the learned counsel for the petitioner that de-hors the
provisions in the contract, the claims need to be referred to the arbitration, is concerned, suffice to state, that the matters specifically excluded under
clause 9.0.2.0 cannot form the subject matter of the arbitration. The decision in this regard of the General Manager is final. Even if the claims, not
notified, were subject matter of the final bill, the reasoning given by the General Manager was, the same were not made within ten days of the
termination on November 2, 2010. The learned counsel for the petitioner was unable to show, how notwithstanding above clauses of the contract,
which are binding on the parties, the petitioner can seek reference of all the claims through arbitration.
xxx
Further, on a reading of para 42(ii) of the said judgment, it is clear that the Chief Justice or his designate, in an application under Section 11(6) of
the Act, on an issue raised with regard to the 'excepted matters' cannot address the same on merit, whether such a matter is an 'excepted matter'
under the agreement in question or not. In the present case, it would be beyond the jurisdiction of the Court while exercising the power under Section
11 ( 6) of the Act to conclude whether the General Manager was right in not notifying the claim Nos. 1, 3, 4 & 5.
Insofar as the judgment in the case of Raunaq International Ltd. (supra) is concerned, even this judgment of the Supreme Court will not help the
petitioner. In the said judgment, the Supreme Court referred to its earlier judgment in the case of General Manager, Northern Railway and Anr. Vs.
Sarvesh Chopra, 2002 (2) SCR 156, wherein, it is clearly held that even if it is a matter excepted from the arbitration agreement, the Court shall be
justified in withdrawing the reference. Since the General Manager was of the view that the claim Nos. 1, 3, 4 & 5 not notified claims, the same are
not arbitrable.
I may only state here, the reliance placed by the learned counsel for the respondents on some other judgments of this Court and the Supreme
Court are not referred to in view of my conclusion above. Suffice to state, in terms of clause 9. 0 .1.1, the respondents shall forward panel of three
names to the petitioner within four weeks from the receipt of copy of this order to enable the petitioner to select an Arbitrator. The petitioner, on
receipt of such a panel, within 30 days thereafter, select a name to be appointed as an Arbitrator. The Arbitrator so selected, would be within his/her
right to arbitrate the claim No.2 and the interest, if any thereon along with the counter claim(s) if any of the respondents."" (Emphasis Supplied)â€
A perusal of the judgment of this court dated 19.05.2015 would clearly show that the court has noted the submissions of the respondent that the
General Manager should have notified all the claims raised by the respondent and that his reasoning is untenable. The court records that the
respondent has been unable to show how in view of the clauses of the contract, the respondent can seek reference of all the claims to arbitration. It
records that it would be beyond the jurisdiction of the court to adjudicate about the act of the General Manager in not notifying the claims No. 1, 3, 4
and 5. It concludes that the said claims No. 1, 3 , 4 and 5 are not arbitrable.
It is quite clear that the disputes which are subject matter of claims No. 1, 3, 4 and 5 were not arbitrable. This court while disposing of the
arbitration petition under Section 11(6) of the Act on 19.05.2015 had specifically held so. In the light of this, there was no reason for the learned
Arbitrator to have gone ahead and adjudicated upon those disputes. The impugned Award to the extent that it deals with claims No. 1, 3, 4 and 5 is
held to be entirely illegal. The same has been passed contrary to the provisions of the Act. The Award to the extent it deals with claims No.1, 3, 4 & 5
is set aside. Rest of the Award is upheld.
Petition stands disposed of. Liberty is granted to the respondent to take steps as per law regarding its claims No.1, 3, 4 & 5.â€
The IOC, which is the appellant, urges that though its argument with respect to arbitration by the tribunal of excluded matters, succeeded, the result
is piquant; it is left facing an adverse award to the tune of Rs. 4.2 lakh and costs in excess of Rs. 32 lakhs, for which no reason is ascribed by the
tribunal. Learned counsel for the respondent Institute urged that the IOC’s submissions were long drawn and it was compelled to engage counsel
and incur significant expense. He also urged that the tribunal, in the award has indicated sufficient reasons for granting the costs in this case.
This court notices that there was practically no controversy with respect to the phraseology of the subject matter exclusion; clearly the plain words
of the terms (of contract) and the interpretation given by this court referring the dispute, precluded any adjudication in arbitration. If the claimant
Institute had a grievance, it was well within its right to have sought remedies in accordance with law. The tribunal’s reasoning in brushing aside
the non arbitrability conditions were specious; the learned Single Judge therefore was justified in holding otherwise, as the findings amounted to patent
illegalities within Sections 28 (3) and 34 of the Act. The tribunal unfortunately proceeded to ignore the clear and express terms and gloss over this
court’s order; in doing so, and in adjudicating claim nos.1,3,4 and 5, it fell into error, because it never had the jurisdiction to decide those in
arbitration. Such being the case, it was not justified at all in penalizing IOC with substantial and heavy costs for such adjudication - to the extent of Rs.
32,89,924/-; the same is hereby set aside. The appeal FAO (Comm) Â 189/2017 is allowed to the above extent. FAO (Comm) 197/2017 is for the
above reasons, dismissed.