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HIMACHAL PRADESH HIGH COURT
R.L. Khurana, J.
SAB INDUSTRIES LIMITED - PLAINTIFF
v.
H.P. STATE ELECTRICITY BOARD AND OTHERS - DEFENDANTS.
Civil Suit No. 198 of 1995 and O.M.P. No. 373 of 1996
Decided on : August 1, 1997.
ARBITRATION - APPOINTMENT OF ARBITRATOR - DISPUTE ARISING OUT OF CONTRACT - TAKING OVER OF WORKS BY THE DEFENDANTS - WHETHER ARBITRABLE - CLAUSE 25 OF THE AGREEMENT - INTERPRETATION.
Fact of the Case:
The plaintiff, a construction company, entered into an agreement with the defendants for the construction of a hydro-electric project. The agreement contained an arbitration clause (Clause 25) providing for the reference of all disputes to arbitration. During the course of the work, the defendants took over some of the remaining works, alleging that the plaintiff was carrying out the work in an inefficient manner and that the work was not likely to be completed by the extended date of completion. The plaintiff disputed the taking over of the works and sought to refer the dispute to arbitration.
Finding of the Court:
The court held that the dispute was arbitrable under Clause 25 of the agreement. The court found that the act of the defendants in taking over the works fell squarely within the meaning of "questions and disputes relating to works, or the execution or failure to execute the same" as also within the meaning of "questions and disputes relating to termination or rescission or delay in the execution of work". The court also held that the question whether the order of the Chief Engineer passed under Clause 3 of the agreement was final or not, also pertained to "the meaning and interpretation of the terms of the contract" within the ambit of Clause 25 and, as such, was arbitrable.
Issues: Whether the dispute arising out of the taking over of the works by the defendants was arbitrable under Clause 25 of the agreement.
Ratio Decidendi: The court held that the dispute was arbitrable under Clause 25 of the agreement because: * The act of the defendants in taking over the works fell squarely within the meaning of "questions and disputes relating to works, or the execution or failure to execute the same" as also within the meaning of "questions and disputes relating to termination or rescission or delay in the execution of work". * The question whether the order of the Chief Engineer passed under Clause 3 of the agreement was final or not, also pertained to "the meaning and interpretation of the terms of the contract" within the ambit of Clause 25 and, as such, was arbitrable.
Final Decision: The court allowed the petition and directed the defendants to file the agreement and to appoint an arbitrator in terms of Clause 25 of the agreement within sixty days from the date of the order and to refer the dispute(s) between the parties for adjudication to such arbitrator.
R. L. Khurana, J. - This is petition under Section 20, Arbitration Act 1940, hereinafter referred to as the Act, for the appointment of an arbitrator for adjudicating upon the disputes between the parties.
2. Briefly stated, the facts of the present case are these. The plaintiff Messrs S.A. Builders Ltd., is a Company registered under the Indian Companies Act, 1956 and is engaged in the work of construction of various projects of various organisations of the Government of India and other State Governments. On and with effect from 15-9-1995 the name of the company was changed to S.A. Builders and Financiers Ltd. Pursuant to an order dated 28-12-1995 of BIFR, this Company was merged with Messrs. Steel Strips Alloy Ltd. renamed as SAB Industries Ltd.
3. In response to the notice issued by the defendants inviting tenders for the construction of Gaj Hydel Project (10.5 MW), the plaintiff submitted its tender for the said work. The tender submitted by the plaintiff was accepted and the work was allotted to it at a total cost of Rs. 4,83,41,977/-. The necessary agreement in respect thereto came to be executed between the parties on 13-2-1989. As per the terms of the agreement, the work was to be completed within a period of three years. The date stipulated for the start of the work was within thirty days after the issuance of Letter of Intent, that is, 7-3-1989. The stipulated date of completion of the work was thus 6-3-1992. The work was actually by the plaintiff on 26-5-1989 after mobilising their labour, machinery etc. worth rupees one crore.
4. The agreement entered into between the parties provided for certain essential requirements as to supply of materials, designs, maps and instructions from time to time by the defendants. The supply of material, plans, instruction etc. were considerably delayed by the defendants. At times even the payments were unreasonably withheld by the defendants. As a result, delay was caused in the execution of the work.
5. During the initial completion period, that is, upto 6-3-1992 work to the extent of Rs. 2.16 crores was executed by the plaintiff. Since the plaintiff could not complete the work for the reasons beyond its control, extension in time for completion of the work and price escalation variations were granted to the plaintiff by the defendants from time-to-time. Till the date of making of the present petition, work worth Rs. 8.2 crores had been executed by the plaintiff. This included the work(s) which was either not mentioned in the contract or was beyond the scope of deviations mentioned therein. The payments for such work were withheld by the defendants on firmly and baseless grounds Resultantly, the plaintiff had to take resort to arbitral proceedings. The arbitrator so appointed allowed the claim of the plaintiff to the tune of Rs. 23.5 lakhs, keeping in view the escalation clause in the agreement. The arbitrator allowed rates ranging from 60% to 90% over and above the rate allowed by the defendants. Another such dispute also stands referred to arbitrator for adjudication involving claims to the tune of Rs. 86 lakhs.
6. It has been averred by the plaintiff and its contractual obligation had come to an end since as against the tendered work worth Rs. 4.84 crores, it has executed the work to the extent of Rs. 8.2 crores. The plaintiff addressed a letter dated 27-9-1994 to defendant No. 1 in this regard stating that since the tender was accept to the extent of Rs. 4.48 crores, the work more than that had been accomplished and that since the rates of various inputes had gone up much beyond the scope of escalation clause in the agreement, the defendants were called upon to work out a fresh agreement for the work exceeding the tendered amount.
7. During the extended period for completion of the work till 31-3-1995, the plaintiff was served with two notices dated 30-3-1995 from the defendants calling upon it to show cause within seven days as to why :
(a) penalty should not be impos
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