IMPORTANT POINT
Arbitration – Applicability of excepted or prohibitory clauses would primarily depend upon the agreement between the parties, which alone is the guiding principle for Arbitral Tribunal.

JUDGMENT :

1. In view of our opinion that Bharat Drilling & Foundation Treatment Pvt. Ltd. v. State of Jharkhand and Ors., (2009) 16 SCC 705. is not an authority for the proposition that an excepted clause or a prohibited claim in a contract applies only to the employer and not to the Arbitral Tribunal, for the reasons to follow, in order to obviate uncertainty and for clear declaration of law, we are referring Bharat Drilling (supra) to a larger bench for reconsideration and authoritative decision. The context in which we have referred the matter to a larger bench is as follows.

2. State of Jharkhand is in appeal against the judgment of the High Court of Jharkhand allowing Section 3 7²[In Arbitration Appeal No. 17 of 2007 dated 11.05.2012] appeal under Arbitration and Conciliation Act, 1996³[Hereinafter referred to as the ‘Act’]. The appeal was filed by the respondent-claimant against the judgment of the Civil Court⁴[Sub-Judge-1, Jamshedpur in Misc. Arbitration Case No. 01/2004 dated 19.04.2007.] setting aside the arbitral award allowing the objections filed by State under Section 3 4 . By its award dated 19.04.2007, the Arbitral Tribunal allowed certain claims but the Civil Court set aside the claims 3, 4 and 6 on the ground that they were specifically prohibited under the contract between the parties.

3. Mr. Rajiv Shankar Dwivedi, learned counsel appearing for the State of Jharkhand has made a short submission that the High Court committed a serious error in allowing the appeal on the ground that the issue arising for consideration is covered by decision of this Court in Bharat Drilling (supra). Mr. Dwivedi has expressed a serious concern that the decision in Bharat Drilling (supra) is being applied, regularly and wrongly, to interpret prohibitory claim clauses in all Government contracts. He would therefore submit that even if the Court may not interfere in the facts of this case, there is a compelling necessity to clarify the position of law. On the other hand, Mr. Manoj C. Mishra, learned counsel appearing for the respondent, supported the decision of the High Court.

4. In view of the concern expressed by Mr. Dwivedi, we agreed to examine the question of law and the principle in Bharat Drilling (supra). Before we proceed any further, it is necessary to examine the relevant clauses under the agreement, which are extracted hereinbelow for ready reference;

“4.20.0 CLAIMS:

4.20.2: No claim for idle labour, idle machinery, etc. on any account will be entertained…

4.20.4: No claim shall be entertained for business loss or any such loss.”

5. It is submitted that the Arbitral Tribunal committed a serious error in allowing claim no. 3 (relating to underutilised overheads) when that claim is barred under clause 4.20.2, claim no. 4 (relating to loss due to underutilised tools, plants and machinery) when such claim is clearly barred under contractual clause 4.20.2. Further, it is also contended that claim no. 6 (relating to loss of profit) could not have been granted in the teeth of clause 4.20.4, which specifically declares that “no claim shall be entertained for business loss or any such loss”.

6. This submission, however, found favour with the Civil Court accepting Section 3 4 objections of the State and setting aside the award on claim nos. 3, 4 and 6. When we peruse the judgment of the High Court under Section 3 7 , we find that there is no discussion whatsoever as regards to claim nos. 3, 4 and 6, except for reference and reliance on the order of this Co