2015 (1) TMI 16 - SC - Companies Law

Scope and power of arbitrator regarding the jurisdiction - Amount payable to the contractor in relation to extra work done by the contractor - Held that - The matters for which provision had been made in Clauses 18, 22(5), 39, 45(a), 55, 55-A(5), 61(2) and 62(1) (xiii)(B)(e)(b) of the General Conditions of Contract were excepted matters and they were not to be referred to the arbitrator - upon perusal of both the clauses included in the contract, it is crystal clear that all the disputes were not arbitrable - there was no finality so far as the amount payable to the contractor in relation to the extra work done by it is concerned, because the said dispute was never decided by the Chief Engineer - when the disputes had been referred to the Arbitrator, the disputes which had been among excepted matters had also been referred to the learned Arbitrator - before the learned Arbitrator, the contractor did object to the arbitrability of the disputes covered under Clause 39, but the Arbitrator had decided the issues by holding that the same were not excepted matters but arbitrable. Whether the Arbitrator could have decided the issues which were not arbitrable Held that - Arbitration arises from a contract and unless there is a specific written contract, a contract with regard to arbitration cannot be presumed - Section 7(3) of the Act clearly specifies that the contract with regard to arbitration must be in writing - the disputes which have been referred to in Clause 39 of the contract are concerned, it was not open to the Arbitrator to arbitrate upon the said disputes as there was a specific clause whereby the said disputes had been excepted - when the law specifically makes a provision with regard to formation of a contract in a particular manner, there cannot be any presumption with regard to a contract if the contract is not entered into by the mode prescribed under the Act - If a non-arbitrable dispute is referred to an Arbitrator and even if an issue is framed by the Arbitrator in relation to such a dispute, there cannot be a presumption or a conclusion to the effect that the parties had agreed to refer the issue to the Arbitrator - the respondent authorities had raised an objection relating to the arbitrability of the afore stated issue before the Arbitrator and yet the Arbitrator had rendered his decision on the said excepted dispute - the Arbitrator could not have decided the said excepted dispute thus, it was not open to the Arbitrator to decide the issues which were not arbitrable and the award, so far as it relates to disputes regarding non-arbitrable disputes is concerned, is set aside decided partly in favour of appellant.

Summary

Issues involved:
1. Arbitrability of disputes specifically excepted in the contract.
2. Authority of the Arbitrator to decide disputes not arbitrable.

Detailed Analysis:
1. The judgment concerns a dispute arising from a construction contract for a road bridge. The key issue revolves around whether an Arbitrator can arbitrate on disputes explicitly excepted in the contract. The contract contained Clause 63, which specified certain disputes as "excepted matters" not subject to arbitration.

2. The contractor was dissatisfied with the amount payable for extra work done, as per Clause 39 of the contract. The disputes included determining rates for additional work not covered in the contract. The Arbitrator, a former Judge, decided on all disputes, including those objected to by the contractor as non-arbitrable under Clause 39.

3. The contractor challenged the Arbitrator's decision, claiming that disputes under Clause 39 were not arbitrable. The City Civil Court set aside the Arbitration Award, leading to an appeal before the High Court. The High Court upheld the dismissal, prompting the contractor to file an appeal before the Supreme Court.

4. The Supreme Court analyzed the clauses in the contract, emphasizing that disputes identified in Clause 39 as "excepted matters" were non-arbitrable. The Court noted that unresolved disputes, such as determining payment for extra work, were not finalized by the Chief Engineer, rendering them non-arbitrable.

5. The Court highlighted that for disputes to be arbitrable, they must be explicitly included in the contract as per Section 7(3) of the Arbitration and Conciliation Act, 1996. The Court concluded that the Arbitrator exceeded authority by deciding on non-arbitrable disputes, as parties did not agree to refer such disputes for arbitration.

6. Ultimately, the Supreme Court partially allowed the appeal, quashing the Arbitrator's decision on non-arbitrable disputes but upholding arbitrable issues. The Court set aside the determination of rates for extra work, allowing the contractor to pursue legal action for payment recovery concerning work not covered in the contract.