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1999 Supreme(SC) 1163
1999(8) Supreme 513
Supreme Court of India
(From Bombay High Court)
S.B. Majmudar and S.N. Phukan, JJ.
M/s. Shetty’s Construction Company Pvt. Ltd. -Appellant
versus
M/s. Konkan Railway Corpn. Ltd. & Anr. -Respondents
Civil Appeal Nos. 5816-5817 of 1999
(Arising out of SLP (Civil) Nos. 1238-39 of 1997)
With
C.A. Nos. 5818-5819/1999 @ SLP (C) Nos. 1240-1241/1997,
C.A. Nos. 5820-5821/1999 @ SLP (C) Nos. 1242-43/1997 and
C.A. Nos. 5822-5823/1999 @ SLP (C) Nos. 1244-45/1997.
Decided on 7-10-1999
Counsel for the Parties :
For the Appellant : Dushyant A. Dave, Sr. Advocate, Ms. Meenakshi Arora, Naseer Kabir, Advocates.
For the Respondents : Dr. A.M. Singhvi, Sr. Advocate, Sunil Dogra, Ms. Monica Sharma, Mohit Mehta, Advocates, for M/s. Suresh A. Shroff & Co., Advocates.
Headnote:Arbitration Act, 1940-Section 20 r/w Section 8-Arbitration with intervention of Court-Power of Court to appoint arbitrator-Arbitration agreement stipulated procedure as to how demand can be raised for referring dispute to arbitration-Arbitrators in terms of arbitration clause would be appointed by Contractor Corporation-Procedure laid down in arbitration clause stated that contractor was to submit his ‘final claim’ and after expiry of 90 days he could within 90 days demand for reference of dispute to arbitration - Appellant contractor made claim-After expiry of 90 days demanded reference of dispute to arbitration-In that demand letter contractor put forward new claim partly reiterating earlier claims - Respondent Corporation rejected claims on merit-Within month thereafter appellant moved High Court seeking arbitration by independent arbitrator on ground that corporation failed to comply with contractual obligation - Corporation’s case was that contractor did not comply with time frame stipulated in arbitration clause and Court cannot appoint independent contractor-Held, in letter demanding reference of dispute to arbitration contractor did not stick to his original claim but made additional claims, contractor did not treat earlier claim as final but instead raised a new substituted claim-That claim amounted to final claim statement-It could not be said contractor raised demand in writing for referring dispute originally raised for reference-Again contractor had to wait for time gamout contained in arbitration clause-It was contractor who breached contractual obligation and not Corporation-Corporation not forfeited their right to resort to machinery of arbitration under terms of contract-Corporation was directed to refer dispute to arbitrators to be appointed by Corporation-Appellants request for appointment of independent arbitrator rejected.
Held : In the context of Clause 63.1.1 of the Contract, it must be held that ‘final claims’ envisaged therein must be crystallised and complete claims on disputed matters to be lodged with the authorities by the contractor who wants the authorities to decide upon these claims and to consider whether they are worth granting wholly or in part or worth rejecting and that play would be available to the respondent-authorities for a period of 90 days from lodging of such final claims on disputed matters by the contractor for the consideration of the authorities. This locus paenitentiae of 90 days is essential for the authorities to consider whether the final and crystallised claims on disputed matters either during the pendency of the contract or after its termination or even after the final bills get prepared are required to be granted wholly or partly or not at all and once the authorities do not respond favourably during these 90 days after the lodging of final claims, then it would be open to the contractor raising those claims to demand arbitration in writing in connection with these final claims within further three months, that is within the upper limit of six months from the date of raising of such final claims. It is also not possible to agree with learned senior counsel for the appellant-contractor, Shri Dave, that ‘final claims’ mentioned in Clause 63.1.3 have to be read into the phraseology of the term ‘final claims’ as mentioned in Clause 63.1.1. It is easy to visualise that ‘final claims’ on disputed matters may arise during the pendency of contract as laid down by Clause 62 or may arise at the end of the contract when final bills are submitted as contemplated by Clause 63.1.3. In both these cases, which broadly are governed by Clause 62, after lodging of final claims the time schedule laid down by Clause 63.1.1 would obviously apply to cover both these types of final claims. In short, the final claims must be definite, certain and crystallised under diverse heads either flowing from the final bill or even earlier arising out of the working of the contract even when the final bill is still not prepared by the authorities. Therefore, instead of reading down the term ‘final claims’ on disputed matters as found in Clause 63.1.1 to mean only ‘final claims’ arising out of final bills, it must be held that the term ‘final claims’ on disputed matters as employed by Clause 63.1.1 would cover final claims on disputed matters either lodged during the currency or even after its termination or even after preparation and submission of final bills by the authorities. In all these cases, the final claims on disputed matters contemplated by Clause 63.1.1 must be crystallised and firm final claims which are required to be considered by the authorities for giving their response. In other words, the claims should not be in a fluid state and the appellant-contractor should not consider them to be not final but tentative to be revised or reconsidered at his end in future for raising ultimate claims on the relevant heads of dispute. If the appellant-contractor himself treats these claims at an earlier stage to be in a fluid state and not final, neither he can expect the authorities to respond thereto nor can he treat the authorities to have filed to respond thereto so as to lose the benefit of the procedure of arbitration binding between the parties as per the contractual terms. (Para 19)
It is interesting to note that, after the final claims regarding disputed items as mentioned in the letter dated 6.3.1995 were lodged, when the Corporation in its reply dated 3.7.1995 turned them down, 90 days after lodging the final claims on 6.3.1995 were already over. Therefore, when the respondent-authorities rejected these claims on 3.7.1995 and, when the appellant-contractor naturally was aggrieved, thereby a stage was reached for him as required by Clause 63.1.1 to have demanded in writing reference to arbitration for adjudication of all the final claims mentioned in the letter of 6.3.1995. He was required to do so within 180 days of raising of the final claims of 6.3.1995. Meaning thereby, he could legitimately demand in writing from the respondent-authorities that they should prefer disputed claims referred to in the letter of 6.3.1995 for adjudication to the arbitrators as per the provisions of the relevant clause. He could have, therefore, followed the procedure as laid down by Clause 63.1.1 and raised demand in writing for arbitration on or before 6th September, 1995. Instead of doing so, he rushed to the Court on 24.8.1995 on the assumption that the respondent-authorities had not complied with the requirements of Clause 63.1.1 and had not responded to the demand in writing as per the said provisions and, therefore, had lost the benefit of the said provisions and had committed breach of the relevant terms of the clauses of the arbitration agreement regarding the procedure for arbitration and, therefore, it was open to the Court to appoint independent arbitrators. For the present purpose, we will assume that in the application under Section 20(4) read with Section 8 of the Act, the Court had jurisdiction to appoint independent arbitrators if it was shown that the respondent-authorities have not complied with their contractual obligations under the relevant clauses of the contracts pertaining to arbitration. But even on that assumption which would not require us to consider various decisions pressed in service by senior counsel for the parties in connection with the Court’s power in such cases, we find that on the facts of these cases, the appellant’s claim for appointment of independent arbitrators is rightly rejected by the High Court. The aforesaid conclusion, in the light of the documentary evidence on record as seen by us earlier, requires us to hold that the appellant-contractor had not complied with the procedure to be followed within the time schedule laid down by Clause 63.1.1 for raising demand for reference to arbitrators by the authorities and had not demanded in writing that the disputes mentioned in the final claim dated 6.3.1995 should be referred to arbitration by the respondent-authorities. Hence, it could not be said that the respondent-authorities have failed to carry out their corresponding contractual obligation under the very same clause and, therefore, had forfeited their right to resort to the machinery of arbitration under the terms of the contract and, consequently, it was open to the Court to appoint independent arbitrators. (Para 20)
Judgment
S.B. Majmudar, J.-Leave granted in all these appeals.
2. By consent of parties, these appeals were heard together as they arise out of a common judgment passed by the Division Bench of the High Court in original side appeals as well as out of identical orders passed in review petitions arising from the same common judgment. A few relevant facts leading to these appeals are required to be noted at the outset.
Background Facts :
3. The common appellant is a contractor and common respondents are the Konkan Railway Corporation and its officers. The contractor entered into four contracts for executing the work of the respondent No. 1 corporation, which had issued an advertisement inviting tenders for the contruction of the “Mangalore-Udupi New Broad Gauge Railway Line Earthwork” and for other ancillary works. Four different contracts were entered into by the appellant-contractor with the respondent-corporation in connection with the laying of the aforesaid broad gauge railway line. It is not in dispute between the parties that the contractor did proceed with the work for some time, but ultimately all the four contracts giving rise to these appeals were terminated by the respondent-authorities. We are not concerned with the merits or demerits of the said exercise undertaken by the respondent-authorities in the present proceedings at this stage. All these contracts were terminated in the first half of the year 1992. It has to be noted at this stage that these contracts were entered into by the appellant-contractor with the respondent-authorities in the closing months of the year 1990. After the said termination of contracts and handing over the incomplete work of the contracts by the respondent-authorities to other contractors, the appellant-contractor raised certain disputes arising out of the working of the said contracts in the closing months of the year 1994. It has also to be noted that, by that time, no final bills were prepared by the respondent-authorities in connection with the work actually done by the appellant-contractor under these four contracts. It is the case of the appellant-contractor that despite the raising of these disputes which were not favourably responded to by the respondent-authorities, when the appellant-contractor demanded reference to arbitration pursuant to the terms of the contractual agreement, the respondent-authorities did not comply with the said demand and, on the contrary, wrongly rejected the claims put forward by the appellant-contractor and did not refer the disputes for adjudication by the arbitrators as laid down by the terms of the contracts. As the respondent-authorities did not comply with the procedure for appointment of arbitrators for resolving these disputes, the appellant-contractor moved the High Court of Bombay on its original side under Section 8 read with Section 20 of the Indian Arbitration Act, 1940 (hereinafter referred to as `the Act’). After hearing the parties, the learned Single Judge of the High Court directed the respondent-authorities to comply with the procedure of appointment of arbitrators as per the contracts agreed to between the parties. However, the learned Judge did not accept the further prayer of the appellant-contractor that arbitration should be entrusted to independent arbitrators as the respondent-authorities had failed to carry out their contractual obligations under the contracts by appointing arbitrators as per the said provisions. Identical directions issued in all the four suits by the learned Single Judge to the respondent-authorities to refer the disputes for appointment of arbitrators as per the terms of the contract after following the machinery provided therein, were accepted by the respondent-authorities by not challenging the said Orders partially granting the prayers of the appellant. However, the appellant-contractor in search of appointment of independent arbitrators filed original side appeals before the Division Bench of
