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TMI Blog2019 (11) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... ngineer shall be final. The finality clause in the contract in terms of Clause 2 makes the intention of the parties very clear that there cannot be any further dispute on the said issue between the parties; much less before the arbitrator. The intention of the parties to exclude some of the decisions of the Superintending Engineer from the purview of arbitration is clearly seen from the abovesaid clause. Claim No.6 made by the appellant is to declare that the penalty imposed by ONGC under Clause 2 was illegal and unwarranted and the amount withheld by ONGC was payable to the appellant. The very prayer to declare the amount levied by the Superintending Engineer as illegal is against the tenor of the terms of the contract (Clause 2) between the parties. By virtue of the finality clause in the contract, any decision taken by the Superintending Engineer in levying compensation cannot be referred to an arbitrator. A reading of the other terms of the contract would further indicate that under Clauses 13 and 14 of the agreement, the parties have agreed for payment of compensation and non-payment of compensation in certain situations. Significantly, Clauses 13 and 14 of the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JUDGMENT R. Banumathi, J. These two appeals arise out of the judgment dated 16.02.2009 passed by the High Court of Delhi in FAO(OS) No.6 of 2008 and FAO(OS) No.7 of 2008 in and by which the Division Bench of the High Court has set aside the order of the learned Single Judge and also of the learned Arbitrator by holding that the levy of liquidated damages is an excepted matter under Clause 2 read with Clause 25 of the contract and the same is not arbitrable. 2. Brief facts which led to filing of these appeals are as follows:- Appellant-M/s. Mitra Guha Builders (India) Company and the respondent-Oil and Natural Gas Corporation Limited (ONGC) entered into a contract on 05.01.1996 bearing No.DHL/Civil/NOIDA/6/94 for construction of Multi-storeyed Residential flats 28 Nos. C type guest house multipurpose hall service block underground water tank etc. and other work for ONGC. The appellant-claimant raised certain claims which were refuted by the respondent and thus, the claimant invoked the arbitration Clause 25 of the General Conditions of the contract vide letter dated 07.09.2001. The appellant-claimant had also ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 55,58,428/- Claim rejected by the Ld. Arbitrator 6. Declaration sought by the Petitioner that the penalty under Clause 2 imposed by ONGC was illegal and unwarranted and the amount withheld by ONGC was payable to the Petitioner with interest @ 24% ₹ 30,18,975/- [amount that was withheld by ONGC towards liquidated damages] Amount of ₹ 30,18,975/- withheld by ONGC as liquidated damages was to be refunded and adjusted towards payment of Claim No.1 and 2 7. Interest payable on final bill - - 8. Interest payable on withheld amount - - 9. Interest payable on escalation amount - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Declaration sought by the Petitioner that the penalty under Clause 2 imposed by ONGC was illegal and unwarranted and the amount withheld by ONGC was payable to the Petitioner with interest @ 24% ₹ 36,80,142/- [amount that was withheld by ONGC towards liquidated damages] Amount of ₹ 36,80,142/- withheld by ONGC as liquidated damages was to be refunded and adjusted towards payment of Claim No.1 and 2 7. Interest payable on final bill ₹ 9,84,680/- - 8. Interest payable on withheld amount ₹ 6,36,000/- - 9. Interest payable on escalation amount ₹ 18,91,910/- - 10. Interest payable on loose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Arbitrator presuming the same to be a penalty. 6. The issue involved before the Division Bench of the High Court was interpretation of Clause 2 of the contract regarding liquidated damages/compensation levied by the Superintending Engineer and the finality attached to it. Before the Division Bench, it was contended by the respondent-ONGC that the decision of the Superintending Engineer to levy liquidated damages under Clause 2 being final, the same was an excepted matter and not arbitrable. 7. The Division Bench set aside the findings of the award passed by the learned Arbitrator and the order of the learned Single Judge by holding that Clause 2 of the agreement provided that the decision of the Superintending Engineer on the question of levy of liquidated damages is final and that the same could not have been agitated in the arbitration proceeding. The Division Bench held that when the parties have consciously provided that the decision of the Superintending Engineer shall be final only to exclude the issue of excepted matter from the scope of the arbitration, the Arbitrator ought not to have dealt with the same and passed the award. The Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not a counter-blast or an afterthought and prayed for dismissal of the appeals. 10. We have carefully considered the contentions of both sides and perused the impugned judgment and materials on record. The following points arise for consideration in these appeals:- (i) Whether the levy of pre-estimated liquidated damages and reasonable compensation by the Superintending Engineer in terms of Clause 2 of the contract between the parties is arbitrable ? (ii) Whether the respondent-ONGC is right in contending that the levy of liquidated damages in terms of Clause 2 of the contract is final and an excepted matter not falling within the jurisdiction of the Arbitrator and whether the learned Arbitrator has travelled beyond the terms of the contract? 11. ONGC s claim of liquidated damages in terms of Clause 2 of the agreement:- The salient features of the contract in Arbitration Case No.297A/2002 are that the work was to commence on 22.02.1996 and was stipulated to be completed by 21.08.1997. But the work was completed only on 24.05.1999. Insofar as Arbitration Case No.297/2002, the work was to commence on 21.02.1996 and was sti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngle Judge held that the damages were payable by either of the parties. 14. The learned Single Judge, in our view, failed to note the implication of Clause 2 of the contract and also various correspondences between the parties, while affirming the award passed by the learned Arbitrator. In terms of Clause 2 of the agreement dated 05.02.1996 between the parties, the contractor is to proceed with the work with due diligence throughout the contract period. In case of delay or failure to ensure good progress during execution of the work, Clause 2 of the agreement provides for determination/quantification of compensation for delay or certain inactions, on the part of the contractor. In terms of Clause 2 of the agreement, the Superintending Engineer shall assess and quantify the compensation. By the terms of the agreement, the parties have consciously agreed that in case the contractor fails to comply with the conditions and complete the work with due diligence, the Superintending Engineer may decide the compensation in terms of Clause 2 of the agreement. 15. In order to appreciate the claim of ONGC in levying the damages in terms of Clause 2, it is necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be final. The finality clause in the contract in terms of Clause 2 makes the intention of the parties very clear that there cannot be any further dispute on the said issue between the parties; much less before the arbitrator. 16. Clause 25 of the agreement Settlement of disputes by Arbitration, reads as under:- Clause 25 Settlement of disputes by Arbitration If any dispute, difference, question or disagreement shall, at any time, hereafter arises between the parties hereto or the respective representatives or assigns in connection with or arising out of the contract, or in respect of meaning of specifications, design, drawings, estimates, scheduled, annexures, orders, instructions, the construction, interpretation of this agreement, application of provisions thereof or anything hereunder containing or arising hereunder or as to rights, liabilities or duties of the said parties hereunder or arising hereunder any matter whatsoever incidental to this contract or otherwise concerning the works of execution or failure to execute the same whether during the progress of work or stipulated/extended period or before or after the complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eer in levying compensation cannot be referred to an arbitrator. The parties have consciously agreed to have finality to the decision of the Superintending Engineer and the same cannot be frustrated by challenging the same as illegal. Any other meaning to the finality clause in the contract and allowing further adjudication by another authority would make the agreed Clause 2 and Clause 25 of the agreement meaningless and redundant. 17. As held by the Division Bench of the High Court, whether there was delay in completion of work and the levy of liquated damages, could not have been determined by the arbitrator. Vide letters dated 08.12.1999, 09.12.1999, 17.12.1999, 11.02.2000 and 17.04.2000, ONGC called upon the respondent/contractor to remove the defects failing which it would get the defects remedied at his cost. According to ONGC, the completion time was extended without prejudice to the right of ONGC to recover compensation in accordance with Clause 2 of the agreement. The contention of ONGC is that by the letter dated 15.05.2001, the contractor was put on notice that in exercise of the power conferred on the Superintending Engineer under Clause 2, the contractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of delay on the part of the contractor in completing the contract as per the time schedule agreed to between the parties. The decision of the Superintending Engineer, it seems to us, is in the nature of a considered decision which he has to arrive at after considering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause. In our opinion the question regarding the amount of compensation leviable under clause 2 has to be decided only by the Superintending Engineer and no one else. 9. ..After referring to certain judicial decisions regarding the meaning of the word final in various statutes, the Division Bench concluded that the finality cannot be construed as excluding the jurisdiction of the arbitrator under Clause 25. We are unable to accept this view. Clause 25 which is the arbitration clause starts with an opening phrase excluding certain matters and disputes from arbitration and these are matters or disputes in respect of which provision has been made elsewhere or otherwise in the contract. These words in our opinion can have reference only to provisions such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . [Underlining added] The ratio of the above decision squarely applies to the present case. Once the parties have decided that certain matters are to be decided by the Superintending Engineer and his decision would be final, the same cannot be the subject matter of arbitration. 20. In this regard, reliance was also placed upon Food Corporation of India v. Sreekanth Transport (1999) 4 SCC 491 wherein, the Supreme Court interpreted Clause 12 of the agreement thereon. Clause 12 of the agreement in Food Corporation of India reads as under:- The decisions of the Senior Regional Manager regarding such failure of the contractors and their liability for the losses etc. suffered by the Corporation shall be final and binding on the contractors . . 21. While interpreting the clause on excepted matters , in Food Corporation of India, the Supreme Court held as under:- 3. Excepted matters obviously, as the parties agreed, do not require any further adjudication since the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ascertaining as to who was responsible for the delay, such an issue will be within the jurisdiction of the arbitrator. The learned ASG however, submitted that in the present case, Clause 2 of the agreement is not only a mechanism for quantification of liquidated damages, but Clause 2 also makes the contractor liable for payment of the same and in terms of Clause 2 of the agreement, the decision of the Superintending Engineer is final and the present case is therefore, distinguishable from BSNL s case. 23. As rightly contended by the learned ASG, in BSNL s case, Clause 16(2) of the agreement does not create any kind of liability to pay liquidated damages; but only provides for entitlement of BSNL to collect the damages in case of any delay in supply on the part of the supplier under Clause 16(2). While interpreting Clause 16(2) and Clause 21 of the contract which was under consideration in BSNL s case, in paras (23) and (26), the Supreme Court held as under:- 23. The question to be decided in this case is whether the liability of the respondent to pay liquidated damages and the entitlement of the appellants, to collect the same from the respondent is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Superintending Engineer, the same is final and binding. The parties have also consciously agreed that for the delay caused, the Superintending Engineer shall levy the compensation of the amount equal to half per cent and the said amount shall not exceed from 10% of the cost of the work and the determination by the Superintending Engineer is final and cannot be the subject matter of arbitration. In claim No.6, the prayer sought for by the contractor to declare the compensation levied by the Superintending Engineer as illegal is contradictory to the agreed terms between the parties. So far as the liquidated damages determined and levied, by virtue of Clause 2, is out of the purview of the arbitration especially in view of the fact that under the very same clause, the parties have agreed that the decision of the Superintending Engineer shall be final. 25. Learned Single Judge erred in proceeding under the presumptive footing that the compensation levied by the Superintending Engineer was in the nature of penalty. It was actually levy of liquidated damages/compensation in terms of Clause 2 of the agreement. Levy of compensation of ₹ 32,79,828/- in Arbitration Case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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