M/S. P. MANOHAR REDDY & BROS v. MAHARASHTRA KRISHNA VALLEY DEV. CORPN & Ors.

Judgment

17 S.C.R. 1217 M/S. P. MANOHAR REDDY & BROS. v. MAHARASHTRA KRISHNA VALLEY DEV. CORPN. & ORS. (Civil Appeal No. 7408-7409 of 2008) DECEMBER 18, 2008 [S.8. SINHA AND CYRIAC JOSEPH, JJ.] A B Arbitration Act, 1940- ss. 8, 20 and 37(4)-Appointment of arbitrator - Works contract - Claim for additional and extra C work - Rejection of claim as also appointment of arbitrator by Government - Trial court appointed arbitrator but High Court set aside the same - Correctness of - Held: Trial court not correct in directing appointment of arbitrator - Arbitration clause could not be invoked having regard to the limited application of clauses 37, 54, 55 of General Conditions of D Contract - Contractor did not raise claim for extra or additional work during the tenure of contract but after its completion and acceptance of final bill - He accepted the final bill without any demur - Contract came to an end and arbitration agreement which was part of it also perished - Jurisdiction of civil court E' could be invoked if disputes arising between parties was one to which arbitration agreement applied - More so, contractor did not seek extension of time uls. 37(4) and in any event no sufficient cause was made out. Respondent-government and the appellant- F contractor entered into a work contract. The General Conditions of Contract were specified. Clause 37 imposed an obligation upon the contractor to furnish to j:xecutive Engineer a release of claims against Government arising out of the contract other than the claims_ specified, after completion of the work and prior G t-o payment thereof. The work was completed. Respondent paid the final bill prepared and the appellant accepted the same without any protest. As the appellant was asked to do extra items of work, it raised the claim 1217 H "' 1218 SUPREME COURT REPORTS [2008] 17 S.C.R. .··,, .. · "A s appellant filed -appeal for the same but was rejected. Appellantissued notice·to the Executive Engineer of respondent Corporation. Respondent rejected the claim on the ground that the . stipulated period therefor expired and as such the matter could not be considered for arbitration. Aggrieved, thereagainst before the Superintending Engineer for arbitration but the same was rejected as the contractor did not submit their claim before expiry of 30 days after the defect liability period nor the arbitrator was appointed. Thereafter, Chief Engineer was issued notice for appointment of sole C arbitrator but was rejected. Appellant filed appHcation u/ s. 8 of the Arbitration Act, 1940 for appointment of . ·Arbitrator. Civil Judge appointed a retired Chief Engineer · ·as Arbitrator with regard to the additional and extra works carried out by appellant. Respondent filed Revision D ··Application which was a.llowed. Review Petition thereagainst was.· also dismissed. Hence the present appeals. Dismissing the appeals, the Court HELD:1.1. As arbitration clause could not be invoked E having regard to the limited application of clauses 37, 54 and 55 of the General Conditions of the Contract, the trial court was not correct in directing appointment of arbitrator. [Para 28] [1237-F]

1.2. The arbitration agreement is contained in a F commercial document. It must be interpreted having regard to the language used in it. A bare perusal of clauses 37, 54 and 55 of the General Conditions of Contract clearly shows that the arbitration agreement entered into by and between the parties is not of wide G amplitude. In a case where arbitration clause is of wide .amplitude, the same may cover also the claims arising during the tenure of contract or thereafter, provided the arbitration clause subsists. Clause 37 imposes an obligation upon the contractor to furnish to the Executive H Engineer a release of claims against the Government ->. P. MANOHAR REDDY & BROS. v. MAHARASHTRA 1219 KRISHNA VALLEY DEV. CORPN. & ORS. arising out of the contract other than the claims A specifically identified, evaluated and expected from the operation of the release by the Contractor only after completion of the work and prior to payment thereof. [Paras 15 and 16] [1230-D-F]

1.3. There is nothing on record to show that any claim B in relation to extra or additional work had been raised by the contractor prior to 27.2.1991 although final measurement had been recorded on 26.11.1990 and the bill was paid in full and final satisfaction on 4.12.1990. Clauses 54 and 55 of the arbitration agreement must be c read together. The contract has been entered into for works costing less than Rs. 50 lakhs and, thus, clause 54 would be attracted in the instant case. In terms of the said provision, the contractor has to raise a demand with the Executive Engineer if any work is demanded from him, which he considers to be outside the requirements D of the contract. The word 'consider' is of some significance, it means "to think over; to regard as or deem to be." [Paras 16 and 17] [1230-G-H; 1231-A-B] Advanced Law, Lexicon 3rd Edition 2005, referred to. 1.4. If a work has to be carried out outside the terms E of the contract and is unacceptable, he is required to promptly approach the Executive Engineer in writing for obtaining his written instruction or decision in that behalf. The Executive Engineer is obligated to give his written instructions or decision within a period of 30 days of F making such request. Once such instruction or decision is received, the contractor is required to comply therewith. Only in a case where the Executive Engineer fails and/or neglects to give a decision or issue instruction, the contractor may within a period of 30 days thereafter prefer an appeal to the appellate authority. The G appellate authority is required to provide an opportunity of hearing to the contractor. It is only when the contractor is dissatisfied with the decision of the appellate authority, he may indicate his intention to refer the dispute to Arbitration in terms of clause 55 within a period of 30 days H )T ' ~ ~ 1220 SUPREME COURT REPORTS [20_08] 17 S.C.R. A from the date of receipt of the said decision, failing which, the same would be final. The arbitration clause could be invoked only in a case where the decision has not become final and conclusive as per clause 54. A plain reading of the provisions clearly shows that clause 54 B does not envisage raising of a claim in respect of extra or additional work after the completion of contract. [Paras 18, 19 and 20] [1231-8-E-F]

1.5. The jurisdiction of the civil court under s. 8 of the Act or under s. 20 thereof can be invoked if the disputes c and differences arising between the parties was the one to which the arbitration agreement applied. [Para 21] [1231-G] D E F

1.6. The contractual clause provides for a limitation for the purpose of raising a claim having regard to the provisions of Section 28 of the Contract Act. The period of limitation as prescribed under Article 137 of the Limitation Act would be applicable, but a clause providing for limitation so as to enable a party to lodge his claim with the other side is not invalid. [Para 22] [1231-H; 1232- A]

#1. 7. It is not a case ,where an application under Section 8 could not be filed within a period of 3 years. It is a case where a determination was necessary as regards invocation of the disputes settlement processes. For resolution of the dispute, a claim must be made in terms of the provisions of the contract for the purpose of giving effect to the arbitration clause; the application thereof being limited in nature. [Para 23] [1233-H; 1234- A] .

1.8. An arbitration clause is a part of the contract. It G being a collateral term need not, in all situations, perish with coming to an end of the contract. It may survive. This concept of separability of the arbitration clause is now widely accepted. :J"he Indian law-The Arbitration and Conciliation Act, 1996, which is based on the UNCITRAL Model Law, also explicitly adopts the doctrine of separability in Article 16(1 ). [Para 26] [1235-0-E] H \ ',.- - -i. i>... (' ~ 1- P. MANOHAR REDDY & BROS. v. MAHARASHTRA 1221 KRISHNA VALLEY DEV. CORPN. & ORS.

1.9. It is also not a case where sub-section (4) of A Section 37 of the Act could be invoked. Appellant.did not invoke Section 37(4) of the Act. No reason has been assigned as to why the said discretion of the court should be invoked particularly when the claim has been raised only after completion of the work. [Para 31) [1238-F] 8 Mis Bharat Heavy Electricals Limited, Ranipur vs. Mis Amar Nath Bhan Prakash (1982) 1 SCC 625, Held inapplicable. The Vulcan Insurance Co. Ltd. vs. Maharaj Singh and Anr. AIR 1976 SC 287; Laminart Pvt. Ltd. v& A.P. Agencies, c Salem AIR 1989 SC 1239; Damodar Valley Corporation vs. K.K. Kar 1974 (1) SCC 141; S.C. Konda Reddy vs. Union of India and Anr. AIR 1982 KARNATAKA 50; Bharat Coking Coal Ltd. vs. Annapurna Construction (2003) 8 SCC 154; Chairman and MD NTPC Ltd. vs. Reshmi Constructions D Builders and Contractors (2004) 2 SCC 663; Wild Life Institute of India, Dehradun vs. Vijay Kumar Garg (1997) 10 SCC 528 and Mis K. Ramaiah and Company vs. Chairman and Managing Director, National Thermal Power Corpn. 1994 Supp. (3) SCC 126, referred to. Scott vs. Avery (1856) 25 LJ ex 308; Heyman v. Darwins Ltd. (1942) 1 All ER 337; Buckeye Check Cashing Inc. v. Cardegna 546 US 460; Prima Paint Corp. v. Flood and Conklin Mfg. Co. 388 U. S. 395 and Southland Corp. v. Keating 465 U. S. 1, referred to. E F Case Law Reference: Referred to. Referred to. Referred to. Referred to. Referred to.