State of West Bengal vs Ram Developments (P) Ltd.

Amitava Lala, J.—This is an application u/s 30 of the Arbitration Act, 1940, made by the Petitioner, challenging the Award of the Arbitrator dated October 11, 1996.

Although three several points were raised by the Petitioner, but ultimately the Petitioner confined its submissions to the first point which is dealt with by this Court in the subsequent paragraphs herein.

Three several points are as follows:

(a) The Arbitration Clause ceased to operate by the end of the contract;

(b) (i) Award is based on no evidence ; and

(ii) There was no admitted document as stated in the Award and, therefore, the Award is net outcome of non-application of mind;

(c) All issues were not answered.

As I have indicated before, the legal battle between Mr. Tapan Chandra Dutta, learned Advocate appearing for the Petitioner, and Mr. P.K. Roy, learned Senior Advocate appearing for Respondents is restricted to the first point as to whether the Arbitrator can proceed in respect of the arbitration arising out of the contract which has been ended before referring the dispute to him.

Mr. Dutta contended that Petitioner raised this issue before the Arbitrator by saying that the contract was not properly extended keeping its Clauses alive beyond the specified twenty-month contract period making it applicable to either of the parties to the contract. The contract had lost its validity by efflux of time and the contractor continued execution of the work and the Respondent took the benefit of that under mistaken belief that the contract was still subsisting.

The Petitioner had further contended before the Arbitrator that the contract as per the terms of the agreement had a provision for enlargement of the stipulated contract period in a manner as is prescribed in the agreement within the lifetime of the contract period. Therefore, the contract period has to be extended as per the said terms within its lifetime as was specified and in the manner thereof. Any extension contary thereto is de hors the contract provision. The contract did not provide for retrospective extension. Neither the claimant nor the dipartmental officer concerned did get any authority to extend the contract period beyond the contract period retrospectively, nor the terns of the agreement were so. The contract having not been extended within the stipulated period lost its validity by efflux of time and the work was carried on under a mistaken belief that the contract was alive. Now, there may be a question if the contract is gone, what happens to the arbitration clause or in other words, the arbitration agreement is the. self-same agreement though it is embodied in the agreement as a oarticuiar clause. But can the Arbitrator have jurisdiction, to adjudicate present or future disputes arising out of and/or relating to the contract, and secondly, when any recourse to the contract is required to settle the disputes arising out of and/or relating to the contract; does the contract become alive for the purpose of the arbitration agreement?

The Petitioner further contended before the Arbitrator that the Contract had lost its validity by efflux of time and u/s 70 of the Contract Act, which relates to the obligation of a person enjoying benefit of non-gratuitous act, as soon as the contract period is over both the parties to the contract had their option either to say good-bye and we are not proceeding with the contract, or the contract had the scope to execute the work and the Respondent not to accept the benefit thereof.

But as it happened the contractor/claimant had executed and completed the work and the Respondent had taken the full benefit thereof. Therefore, the Petitioner u/s 70 of the Contract Act made themselves liable to compensate the contractor for each and every loss and damage sustained thereby. Section 70 of the Contract Act contemplates equitable principle of restitution which is intended to prevent unjust enrichment.

In support of his contentions, Mr. Dutta on behalf of the Petitioner relied upon decisions reported in A.M. Mair and Co. Vs. Gordhandass Sagarmull, , M/s. Ravi Engineering Works Vs. Firm Narang Steel Rolling Mills and another, and ultimately The Union of India Vs. Kishorilal Gupta and Bros., By citing such decisions, Mr. Duita wanted to clarify that by the end of contract period and by doing work after expiry of the period of such contract activities of the contractor can be construed ae quesicontractual activities. Therefore, thera was a novation of Contract. Hence by such novation a new contract was substituted in the place and stead of the old one and arbitration clause under the old contract was automatically evaporated.

Mr. P.K. Ray, Learned Senior Counsel appearing for the Respondent joined issues therein. He, firstly, placed reliance on passages 2-008 to 2-011 from Russel on Arbitration (21st Edn,) which stated on a question of ''The Survival of the Arbitration Clause''. According to him, the question arises ; what happsns to the arbitration clause if the contract in which it is contended, is brought to an end. In answering his own question, Mr. Roy stated that arbitration clause is to be treated as a separate and independent agreement which generally survives by the termination of the underlying contract and doctrine of separability will be applicable in such case.

Mr. Ray also relied on a dicision reported in Heyman v. Darwins Ltd. 1942(1) All F.R. 337 where the House of Lords in explaining such position held that the dispute between the parties is a dispute within the arbitration clause. Where there is a total breach of a contract by one party so as to relieve the other of his obligations under it, an arbitretion clause, if its terms are wide enough, still remains effective. This is so even where the injured party has accepted the repudiation, and in such circumstances, either party may rely on the clause,

In a Single Bench decision of this Court, reported in Rajkumar Chowdhury v. Union of India 1998 (1) C.L.J. 319, the court has accepted the similar view.

Apart from the Judgments cited by him, Mr. Ray, distinguished the Judgments as placed by Mr. Dutt. Distinguishing feature, according to Mr. Ray, is that the Judgments, mainly the Supreme Court Judgment, holding the view that where the dispute is whether the said contract is void ab initio, the arbitration clause cannot operate all those dispute, for its operative force depends on the existence of the contract and its validity. So, too, if the dispute is whether the contract is wholly superseded or not by a new contract between the parties, such a dispute must fall outside the arbitration clause. But this case is depending upon a different situation.

The crux of the case herein is whether by virtue of the implied extension of the period of performance a new contract was formed or not.

It is an admitted position that the Respondent acted on the basis of the contract, not only within the prescribed period but also outside the prescribed period, and the Petitioner has earned benefit of such work and as such liable for the compensation. Section 70 of the Contract Act clearly states that where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so come or delivered.

The Supreme Court in its Judgment, reported in Union of India v. Kishrilal Gupta (Supra) headnote (d), has clearly indicated that if the arbitration clause is cauched in widest terms, the dispute, whether there is a frustration or repudiation of the contract, will be covered by it. It is not because the arbitration clause survives but because though such repudiation ends the liability of the parties to perform the contract, it does not put an end to their liability to do damages for any breach of the contract. The contract is still in existence for certain purpose. Therefore, as because the period of performance is extended by implied agreement between the parties, it cannot be said to be novation of the contract, but an extension of the period of performance by the parties on the basis of the implied contract.

If we go through the Section 62 of the Indian Contract Act we shall found the complete answer. Section 62 says, if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. Therefore, if the performance in terms of the original contract continues after the expiry period it can not be said that novation was effected in otherwords there is no case of novation.

Mr. Ray placed other Judgments in support of his contention. Relying on the decision of the Supreme Court, The Naihati Jute Mills Ltd. Vs. Khyaliram Jagannath, he stated that the question as to-whether the contract becomes impossible of performance and is discharged under the doctrine of frustration will still have to be decided under the arbitration clause which operates in respect of such purposes.

Mr. Ray also relied upon another decision of the Supreme Court, Union of India v. Salween Timber & Construction Co. (India) and Ors. AIR 1969 S.C. 438, at page 491 para. 5 and Ruby General Insurance Co. Ltd. Vs. Pearey Lal Kumar and Another, to establish that the test for determining the question is whether recourse to the contract by which both the parties are bound is necessary for the pnrpose of determining whether the claim of the ''responosnt firm'' is justified or otherwise. If it is necessary to take recourse to the terms of the contract for the purpose of deciding the matter in dispute, it must, be held that the matter is within the scope of the arbitration clause and the arbitrators have jurisdiction to decide the case.

In the instant case, the only dispute is the expiry of the period, but there is no dispute with regard to the performance of the contract arising out of or in relation to such agreement after the expiry of such period. Although the question of acquiescence was placed before the Court with or without protest, but I am not concerned with the same because of the reason that the arbitration clause was rightly invoked, since the dispute is with regard to the performance of the contract. Hence, I hold that this is not a novation of the contract or complete supersession of the earlier agreement in which the arbitration clause was provided.

Therefore, this application fails.

Hence, the application for setting aside the award is dismissed.

As a consequential effect for dismissal of the application for setting aside the award, there will be decree in terms of the Award. The decree will carry interest 12% per annum from the date of the decree till the date of realisation, but at a simple rate of interest. The cost is assessed at Rs. 5,000.00. Let the decree be drawn up expeditiously.

So far as the application for setting aside the award is concerned there will be no order as to costs.

The department and all parties shall act on a signed copy of the minutes of the operative part of this order upon usual undertaking.