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1989 (1) TMI 314 - SC - Companies LawWhether the compensation determined under clause 2 is excluded from the scope of arbitration under clause 25? Whether the contractor is responsible for the default? Held that - Appeal allowed. Loss or damage which it may be open to the Government to lay against the contractor, not in terms of clause 2 but under the general law or under the Contract Act. As pointed out at the very outset so far as this case is concerned the claim of the Government has obviously proceeded in terms of clause 2 and that is the way in which both the single Judge as well as the Division Bench have also approached the question. Reading clauses 2 and 25 together we think that the conclusion is irresistible that the amount of compensation chargeable under clause 2 is a matter which has to be adjudicated in accordance with that clause and which cannot be referred to arbitration under clause 25.
Issues Involved:
1. Claims by the contractor (Items 1, 8, and 9). 2. Counter-claim by the respondents under Clause 2 of the contract. 3. Jurisdiction of the arbitrator under Clause 25 of the contract. Detailed Analysis: 1. Claims by the Contractor (Items 1, 8, and 9): - Item 1: Rs. 12,720 for Delay in Handing Over Site - The contractor claimed Rs. 12,720 for losses due to the Department's delay in handing over the site. The learned single Judge, after examining the evidence, found no error apparent on the face of the record and upheld the arbitrator's rejection of this claim. The Division Bench concurred, noting that the award was a non-speaking award and did not disclose any error of law. The Supreme Court affirmed this view, stating that the High Court was justified in affirming the award regarding this claim. - Item 8: Rs. 6,172 for Security Deposit - The contractor claimed Rs. 6,172 being the amount kept as security with the respondent. The learned single Judge, after reviewing the evidence, concluded that the security amount had been properly adjusted by the Department, which had undertaken the work at the contractor's cost and risk. The Division Bench agreed, and the Supreme Court upheld this conclusion, reiterating that the award did not show any error on its face. - Item 9: Rs. 30,000 for Purchase of Truck - The contractor claimed Rs. 30,000 as compensation for purchasing a truck for the work. The learned single Judge found that no material was placed before the arbitrator to substantiate this claim. The Division Bench upheld the rejection, and the Supreme Court affirmed, noting that the contractor had no arguable case. 2. Counter-claim by the Respondents under Clause 2 of the Contract: - Rs. 20,000 for Delay in Execution - The respondents claimed Rs. 24,000 as 10% compensation for the contractor's delay in executing the work, and the arbitrator awarded Rs. 20,000. The learned single Judge held that under Clause 2, only the Superintending Engineer or the Development Commissioner could adjudicate such compensation, not the arbitrator. The Division Bench disagreed, stating that Clause 2 did not exclude arbitration under Clause 25. They reasoned that the determination of whether the contractor was responsible for the delay could be arbitrated since Clause 2 did not specify the authority or procedure for such determination. - The Supreme Court, however, found that Clause 2 envisaged the determination of compensation for delay by the Superintending Engineer, whose decision would be final. The Court held that the opening words of Clause 25 ("Except where otherwise provided in the contract") excluded disputes under Clause 2 from arbitration. Therefore, the arbitrator had no jurisdiction to award compensation under Clause 2, and the amount of Rs. 20,000 awarded by the arbitrator was deleted. 3. Jurisdiction of the Arbitrator under Clause 25 of the Contract: - Interpretation of Clauses 2 and 25 - The Supreme Court interpreted Clause 2 as a penalty clause requiring the Superintending Engineer to determine compensation for delay. The Court emphasized that the Superintending Engineer's decision was final and not subject to arbitration under Clause 25. The Court noted that the opening phrase of Clause 25 excluded matters provided for elsewhere in the contract, such as those under Clause 2, from arbitration. - The Court clarified that while the decision regarding compensation under Clause 2 was not arbitrable, this did not extend to other claims for loss or damage under general law or the Contract Act. The Court restored the judgment of the learned single Judge, deleting the Rs. 20,000 compensation awarded by the arbitrator. Conclusion: The Supreme Court allowed the appeal, deleting the Rs. 20,000 compensation awarded by the arbitrator to the Government. The amount of interest payable to the contractor would be recalculated based on the modified award. No order as to costs was made.
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