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Judgment
S. Rajeswaran, J.—Original petition No. 469/2002 has been filed u/s 34 of the Arbitration and Conciliation Act, 1996, hereinafter called ''the Act'', to set aside the interim award dated 27.1.2001 passed by respondents 2 to 4 pertaining to the disputes between the petitioner and 1st respondent in relation to the agreement No. CAO/CN/71117/A dt. 4.8.1999.
O.P. No. 315/2006 has been filed u/s 34 of the Act, 1996 to set aside the award of respondents 2 to 4 dated 21.1.2005 pertaining to disputes arising out of the contract awarded to the 1st respondent bearing agreement No. CAO/CN/71171/A dated 4.8.1999 insofar as the award pertains to the scope and applicability of the vitiation clause.
The brief facts are as under:
A contract for constructing a road under bridge near Lottegollahalli, between Yeshwanthpur and Yellahanka was awarded to 1st respondent and an agreement was entered into on 4.8.1999. Certain disputes arose between the parties and with regard to one of the disputes namely, the scope and applicability of the vitiation clause 1st respondent approached this Court by filing O.A. No. 535/2000 u/s 9 of the Act, 1996, seeking an order of injunction restraining the railway administration from invoking vitiation clause and recovering monies from 1st respondent''s bills pending conclusion of arbitration proceedings. O.A. No. 535/2000 was dismissed by the learned Single Judge on 12.7.2000, against which 1st respondent filed O.S.A. No. 233/2000.
The Division Bench by order dated 28.9.2000 directed interim payment of a sum of Rs. 10 lakhs to 1st respondent and directed the arbitral tribunal to consider the scope and applicability of the vitiation clause along with other disputes. The arbitral tribunal consisting of respondents 2 to 4 passed an interim award on 27.2.2001 with regard to vitiation clause only and held that the recoveries made towards vitiation from 1st respondent for the work done so far be refunded without interest for the period withheld and further payments be regulated as per the rates agreed to between 1st respondent and the railways without invoking vitiation clause.
Aggrieved by the interim award dated 27.2.2001 O.P. No. 469/2002 has been filed u/s 34 of the Act 1996. When O.P. No. 469/2002 was pending before this Court the petitioner terminated the contract at risk and cost on 26.6.2001 and the remaining work was entrusted to another contractor. The arbitral tribunal made the final award on 21.1.2005 and a total sum of Rs. 8,83,085/- has been awarded to 1st respondent in respect of the nine claims raised by them. In respect of the scope and applicability of the vitiation clause, the tribunal held that the interim award dated 27.2.2001 forms part of the final award also. The petitioner is accepting the award in relation to rest of the claims in and under which a sum of Rs. 8,83,085/- has been awarded without prejudice and subject to the challenge to the award in relation to the scope and applicability of the vitiation clause.
Hence the petitioner filed O.P. No. 315/2006 challenging the portion of the award in relation to the scope and applicability of the vitiation clause as pronounced in the interim award dated 27.2.2001 and confirmed in the final award dated 21.1.2005.
The 1st respondent entered appearance through their counsel and filed a counter statement in O.P. No. 469/2002 supporting the interim award passed by the tribunal.
Heard the learned Counsel for the petitioner and the learned Counsel for 1st respondent. I have also perused the documents filed and the judgments referred to by them in support of their submissions.
The learned Counsel for the petitioner contended that the arbitral tribunal has no jurisdiction to hold that the vitiation clause would not apply at all, when there is a clear provision in Clause 24.6 in the special conditions of contract. The learned Counsel further submitted that the arbitral tribunal exceeded in its jurisdiction by going into the applicability of the vitiation clause when the dispute before them is whether the vitiation clause would apply during the course of the contract or after the contract is completed. The learned Counsel for the petitioner wound up his argument by submitting that as the interim award has been passed contrary to Clause 24.6, the interim award dated 27.2.2001 and the final award dated 21.1.2005 to that effect are vitiated and are liable to set aside. The learned Counsel for the petitioner relied on an unreported decision of the Karnataka High Court dated 12.4.2001 made in W.P. No. 27840/2000 (B.N. Kappanna & Sons v. The Union of India rep., by its Secretary, Ministry of Railways, New Delhi and 2 Ors.) to submit that the vitiation clause contained in the contract is valid and binding. He relied on the decisions of the Supreme Court reported in Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., and Hindustan Zinc Ltd. Vs. Friends Coal Carbonisation, for the proposition that when the award is in direct conflict with a specific clause contained in the contract, the award is liable to be set aside u/s 34 of the Act 1996.
Per contra, the learned Counsel for 1st respondent submitted that the arbitral tribunal has got the jurisdiction to decide the very scope and applicability of the vitiation clause as per the direction of the Division Bench of this Court made in O.S.A. No. 233/2000 on 28.9.2000 and having accepted to refer the clause for the tribunal''s decision, it is not open to the petitioner to find fault with their interpretation. The learned Counsel relied on the following decisions for the proposition that interpretation of contract is a matter for arbitrator to determine even if it gives right to determination of question of law:
1) D.D. Sharma Vs. Union of India (UOI),
2) Continental Construction Ltd. Vs. State of U.P.,
3) State of U.P. Vs. Allied Constructions,
4) Pure Helium India Pvt. Ltd. Vs. Oil and Natural Gas Commission,
5) Himachal Pradesh State Electricity Board Vs. R.J. Shah and Company,
6) Sudarsan Trading Co. Vs. Government of Kerala and Another,
I have carefully considered the rival submissions with regard to facts and citations.
It is not in dispute that there is a vitiation clause in the special conditions of contract in Clause 24.6 which reads as under:
24.6. Whenever vitiation of contract is likely to occur either due to increase or decrease in the quantities of certain item(s) the tenderer/contractor shall be paid for such items at a rate which being the one quoted by the other tenderer(s) whose offer would become the lowest due to the vitiation.
This was further modified and the modified clause reads as under:
In the event of vitiation occurring due to increase or decrease in quantities amongst first, second and third lowest tenderers, the total value of the works as done shall be calculated at the rate offered by the three lowest tenderers and the amount payable shall be limited to the lowest aggregate value as worked out.
On the basis of the above vitiation clause when the petitioner recovered monies from the bills of 1st respondent, 1st respondent approached this Court and the Division Bench by its order dated 28.9.2000 ordered as under:
In the facts and circumstances we are of the considered opinion that the ends of justice will be met by passing the following order:
(i) The first respondent, General Manager, Southern Railway, Park Town, Chennai. 600 003 shall pay a sum of Rs. 10,00,000/- to the applicant within ten days from the date of receipt of the order and this is by way of interim arrangement.
(ii) The dispute between the parties has already been referred to Arbitration Tribunal consisting of three arbitrators. One week time from the date of receipt of the copy of this order is granted to enter reference. The arbitrators shall complete the proceedings within a period of six weeks therefrom.
(iii) Apart from the matters of dispute framed as terms of reference referred to the arbitrators, the arbitrators shall also consider the scope and applicability of the vitiation clause that is available in the agreement.
Whatever findings given by the learned single Judge with regard to the scope of the vitiation clause is hereby vacated, the arbitrators shall consider the matter uninfluenced by the findings of the learned Single Judge in that regard.
From the above it is very clear that the Division Bench directed the tribunal to consider the scope and applicability of the vitiation clause that is available in the agreement, uninfluenced by the findings of the learned Single Judge in this regard. Therefore it cannot be said that the arbitral tribunal has no jurisdiction to decide the scope and applicability of the vitiation clause as contended by the learned Counsel for the petitioner.
In D.D. Sharma Vs. Union of India (UOI), , the Hon''ble Supreme Court held that interpretation of the contract is a matter for the arbitrator to determine, even if it gives rise to determination of question of law and once it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.
In Continental Construction Ltd. Vs. State of U.P., , the Hon''ble Supreme Court held that the matter relating to construction of contract and application thereof, when fell for consideration before the arbitrators determination of the said question was clearly within the jurisdiction of the arbitrators.
In State of U.P. Vs. Allied Constructions, , the Hon''ble Supreme Court held that once it is found that the view of the arbitrator is a plausible one, the court will refrain itself from interfering and it is within the jurisdiction of the arbitrator to interpret the clause contained in the agreement.
In Pure Helium India Pvt. Ltd. Vs. Oil and Natural Gas Commission, , the Hon''ble Supreme Court held that construction of a contract agreement was within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement.
In Himachal Pradesh State Electricity Board Vs. R.J. Shah and Company, , the Hon''ble Supreme court held that when the dispute referred to arbitrators related to the construction of the contract, the decision thereon even if it be erroneous, cannot be said to be without jurisdiction. The relevant portion of the above decision is extracted below:
In this case the arbitration clause is widely worded. The dispute which was referred to the arbitrators, inter alia, related to the construction of the contract. The contract did visualise the contractor raising a claim for revision of rates. The dispute was as to when such a claim could be raised. According to the appellant herein this being an item rate contract the revision of rates could take place only in accordance with Clause 12-A when there was a deviation of more than 20 per cent with regard to individual items. On the other hand the terms of the contract, according to the claimant, permitted a claim being made of revision in rates if there was an increase of 20 per cent of the total value of the contract. The dispute before the arbitrators, therefore, clearly related to the interpretation of the terms of the contract. The said contract was being read by the parties differently. The arbitrators were, therefore, clearly called upon to construe or interpret the terms of the contract. The decision thereon, even if it be erroneous, cannot be said to be without jurisdiction. It cannot be said that the award showed that there was an error of jurisdiction even though there may have been an error in the exercise of jurisdiction by the arbitrators.
In AIR 1989 SC 890 (cited supra), the Hon''ble Supreme Court held that by purporting to construe the contract the court cannot take upon itself the burden of saying that it was contrary to the contract and as such beyond jurisdiction.
From the above decisions, it is very clear that when the disputes referred to arbitrators include the interpretation of a particular clause in the contract, then it is within their jurisdiction to interpret a particular clause and the determination of the arbitrators is binding on the parties even if it is erroneous as the arbitrator has been chosen by the parties voluntarily to interpret a particular clause.
In the present case, the vitiation clause, its scope and applicability was referred to the tribunal''s decision by the Division Bench of this Court and this order was accepted by both the parties. While interpreting the vitiation clause in the interim award the arbitrators held that a general reading of these clauses would give an impression that the railways had not made up their mind to indicate their intention in clear and definite terms to the tenderers. The tribunal further found that the railways could not produce any documentary evidence regarding policy, rules and guidelines as to what constitutes vitiation in a contract, when does it occur, how to avoid it and if it does not occur during the execution of the contract, how to regulate it. Taking the totality of circumstances, the tribunal held that the recoveries made through vitiation is to be refunded and further payments is to be regulated without invoking the vitiation clause.
In the light of the above discussions, I do not find any grounds enumerated u/s 34 of the Act 1996 to interfere with the interim award u/s 34 of the Act 1996. In the unreported decision of the Karnataka High Court, dated 12.4.2001 (cited supra), the Karnataka High Court after following Tata Cellular case reported in Tata Cellular Vs. Union of India, held that the writ court shall not interfere with the terms and conditions in the tender notifications or efficiency of persons for awarding the contract as they are all the administrative exercise of power by the Government and the writ court shall not exercise its extraordinary discretionary power under Article 226 of the Constitution of India. Therefore the above decision is not helpful to the petitioner. The other decisions relied on by the learned Counsel for the petitioner are not useful to him as it cannot be said that the tribunal purposely ignored the vitiation clause before making the interim award. In fact, the tribunal very much considered the vitiation clause and only after finding that it is too vague and indefinite, passed the award. This formed part of the final award also.
In such circumstances, I do not find any merits in the above petitions and the same are dismissed upholding both the interim and final awards of the tribunal.
In the result, both the O.Ps., are dismissed. No costs.