IMPORTANT POINTS
The tender clause making quantification of liquidated damages final and binding cannot be construed to be unfettered.
A party who knows that a requirement under the arbitration agreement has not been complied with and still proceeds with the arbitration without raising an objection, as soon as possible, waives their right to object.

JUDGMENT

Tarun Chatterjee, J. —

1. Leave granted.

2. This appeal is directed against the judgment and final order dated 26th of October, 2006 of the High Court of Kerala at Ernakulam in AR No 18 of 2006 whereby, the High Court had allowed the prayer for appointment of the arbitrator at the instance of the respondents and directed the parties to submit their disputes to arbitration.

3. The pivotal questions that need to be decided in this appeal are:

i) Whether the levy of liquidated damages under clause 16.2 of the tender document is an “excepted matter” in terms of clause 20.1 of the said document so that the same cannot be referred to arbitration or looked into by the arbitrator.

ii) Whether clause 62 of the special conditions of the tender document will prevail over clause 16.2 of the general conditions of the contract.

4. The relevant facts, which would assist us in appreciating the controversy involved are narrated in a nutshell, which are as follows:

The appellant had issued a notice inviting tender dated 4th of January, 2001, calling upon the eligible bidders for turn key project on planning, engineering, supply, installation and commissioning of Indian Mobile Personal Communications System in the telecom circles of Kerala, Karnataka, Tamil Nadu and Andhra Pradesh. The respondent submitted its bid in response to the notice inviting tender and after the technical, commercial and financial bid evaluation, the respondent was awarded the tender and an Advance Purchase Order (APO) dated 5th of September, 2001 for phase I and Phase II was issued to it by the appellant. The purchase order provided, inter alia, the terms for payment and the schedule for delivery of the goods. It also provided for liquidated damages in the event of failure on the part of the respondent to meet with the delivery schedule. Clause 16.2 of the general conditions of the tender document provided for liquidated damages to the extent of 0.5% of the value of the delayed quantity of the goods and services for each week of delay or the part thereof for a period of upto 10 weeks and thereafter charge 0.7% of the value of delayed quantity or part thereof, for a period of upto 10 weeks thereafter. It is the case of the appellants that the respondent had failed to complete phase I and phase II of the project within the schedule as provided in the tender document, and therefore, liquidated damages were imposed by the Tamil Nadu Circle of the appellant on 21st of May, 2004 under clause 16.2 of the tender document, quantification of which was beyond the purview of the arbitration agreement. There was an exchange of correspondence between the Tamil Nadu Circle of the appellant alleging the delay in the purchase of goods and the respondents denying any such delay and objecting to the levy of liquidated damages. On 24th of March, 2006, the respondent invoked the arbitration clause by sending a letter through its counsel to the appellants to which they did not concede and justified the imposition of liquidated damages. The respondent filed an arbitration application before the High Court of Kerala at Ernakulam for the appointment of arbitrator under section 11 of the Arbitration and Conciliation Act, 1996 in respect of the liquidated damages assessed by the appellant. In the counter affidavit filed in the High Court, the appellant alleged that the liquidated damages assessed and quantified by the appellant under clause 16.2 of the tender document was an excepted matter as per clause 20.1 of the said document and, therefore, not arbitrable. The High Court, as noted herein earlier, by the impugned judgment allowed the arbitration request of the respondents holding that the imposition of liquidated damages by the appellant was not an “excepted matter” and therefore, subject to arbitration. It is this judgment of the High Court, which is impugned in this appeal, in respect of which leave has already been granted.

5. Before proceeding further, we deem it appropriate to no