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Supreme Court of India
Krishna Bhagya Jala Nigam Ltd vs G. Harischandra Reddy And Anr on 10 January, 2007
Author: Kapadia
Bench: Dr. Arijit Pasayat, S. H. Kapadia
           CASE NO.:
Appeal (civil)  149 of 2007

Krishna Bhagya Jala Nigam Ltd

G. Harischandra Reddy and Anr

DATE OF JUDGMENT: 10/01/2007

Dr. Arijit Pasayat & S. H. Kapadia


(Arising out of SLP (C)No.10418 of 2005)


Leave granted.

Two issues arise for determination in this civil appeal
filed by Krishna Bhagya Jala Nigam Ltd. (for short, ‘Jala
Nigam’) against the decision of the Division Bench of the
Karnataka High Court dated 28.1.2005 in Miscellaneous First
Appeal No.1785 of 2002 dismissing the said appeal preferred
by Jala Nigam under Section 37(1)(b) of the Arbitration and
Conciliation Act, 1996 (for short, ‘the Arbitration Act’).
The first issue is : whether Jala Nigam could be allowed
to raise the contention, on the facts and circumstances of this
case, that Clause 29 of the Contract(Agreement) is not an
arbitration clause and due to want of jurisdiction of the
arbitral tribunal to adjudicate upon the claims made by the
contractor (respondent no.1), Award dated 25.6.2000
published on 14.11.2000 was a nullity.

The second issue is regarding the merits of the claims
made by the contractor.

The facts giving rise to the above civil appeal are as

On 27.11.93 Agreement bearing No.41/93 was entered
into between Jala Nigam and the claimant (respondent no.1)
concerning construction of Mulawad Lift Irrigation Scheme.
The contract was for 36 months. It was to be completed by
26.11.96. In the course of execution of the contract, Jala
Nigam entrusted to the contractor, certain extra work vide two
supplementary agreements dated 11.6.96 and 7.11.98. The
contract was extended up to 31.12.2003. The claimant
(contractor) raised disputes, said to have arisen out of the
works entrusted under the contract. By letter dated 23.3.98
the contractor called upon the Chief Engineer to act as an
arbitrator under Clause 29 of the Contract which is
reproduced hereinbelow:

“Clause 29 – (a) If any dispute or difference of any
kind whatsoever were to arise between the
Executive Engineer/Superintending Engineer and
the contractor regarding the following matters

(i) The meaning of the specifications designs,
drawings and instructions herein before

(ii) The quality of workmanship or materials used
on the work and

(iii) Any other question, claim, right, matter thing
whatsoever, in any way arising out of or
relating to the contract, designs, or those
conditions or failure to execute the same
whether arising during the progress of the
work or after the completion, termination or
abandonment thereof the dispute shall, in the
first place, be referred to the Chief Engineer
who has jurisdiction over the work specified in
the Contract. The Chief Engineer shall within
a period of ninety days from the date of being
requested by the Contractor to do so, give
written Notice of his decision to the

(b) Subject to other form of settlement hereafter
provided, the Chief Engineer’s decision in
respect of every dispute or difference so
referred shall be final and binding upon the
Contractor. The said decision shall forthwith
be given effect to the Contractor shall proceed
with the execution of the work with all due

(c) In case the decision of the Chief Engineer is
not acceptable to the Contractor, he may
approach the Law Courts at.(*) for settlement
of dispute after giving due written Notice in
this regard to the Chief Engineer within a
period of ninety days from the date of receipt of
this Written Notice of the decision of the Chief

(d) If the Chief Engineer has given written Notice
of his decision to the Contractor and no
written Notice to approach the Law Court has
been communicated to him by the Contractor
within a period of Ninety days from receipt of
such notice, the decision shall be final and
binding upon the Contractor.”

By letter dated 26.3.98 the Chief Engineer refused to act
as an arbitrator on the ground that the contract did not
provide for arbitration. This led the contractor to file C.M.P.
No.26/99 under Section 11 of the Arbitration Act. By order
dated 10.9.99 the High Court directed the Chief Engineer to
act as an arbitrator. By the said order the High Court directed
both the parties to file their respective claims and counter
claims before the arbitrator. By letter dated 12.11.99 the
Arbitrator entered upon the reference. He fixed the date of
appearance of the parties. The Arbitrator gave necessary
directions to both sides to file statements and counter
statements. The contractor placed before the Arbitrator 11
claims in all. Jala Nigam filed its counter statement.
Ultimately, on the basis of the evidence produced by the
parties, the Arbitrator gave his Award on 25.6.2000 and the
same was published on 14.11.2000.

Aggrieved by the Award, Jala Nigam filed a petition under
Section 34(2)(v) of the Arbitration Act before the Principal Civil
Judge (Senior Division) Bijapur vide Arbitration Case No.1 of
2001. The Award was confirmed by the said civil court vide
Judgment dated 15.12.2001. Aggrieved by the said decision,
Jala Nigam carried the matter in first appeal filed under
Section 37(1)(b) of the Arbitration Act to the High Court. Vide
impugned judgment dated 28.1.2005 the appeal stood
dismissed. Hence this civil appeal.

Mr. C.S. Vaidyanathan, learned senior counsel for Jala
Nigam, contended that the above-quoted Clause 29 of the
Contract was not an arbitration clause and, therefore, the
proceedings before the Arbitrator stood vitiated for lack of
jurisdiction. He contended that the proceedings before the
Arbitrator were without jurisdiction for want of arbitration
agreement which cannot be cured by appearance of the
parties, even if there was no protest or even if there was a
consent of Jala Nigam, since consent cannot confer
jurisdiction and, therefore, the impugned Award was null and
void. Learned counsel submitted that though the plea of “no
arbitration clause” was not raised in the counter statement
before the Arbitrator, such a plea was taken by Jala Nigam in
C.M.P. No.26/99 filed by the contractor and, therefore, Jala
Nigam was entitled to raise the plea of “no arbitration clause”.
Learned counsel submitted that under the circumstances the
courts below had erred in holding that Jala Nigam had waived
its right to object to the Award on the aforementioned

We do not find any merit in the above arguments. The
plea of “no arbitration clause” was not raised in the written
statement filed by Jala Nigam before the Arbitrator. The said
plea was not advanced before the civil court in Arbitration
Case No.1 of 2001. On the contrary, both the courts below on
facts have found that Jala Nigam had consented to the
arbitration of the disputes by the Chief Engineer. Jala Nigam
had participated in the arbitration proceedings. It submitted
itself to the authority of the Arbitrator. It gave consent to the
appointment of the Chief Engineer as an Arbitrator. It filed its
written statements to the additional claims made by the
contractor. The executive engineer who appeared on behalf of
Jala Nigam did not invoke Section 16 of the Arbitration Act.
He did not challenge the competence of the arbitral tribunal.
He did not call upon the arbitral tribunal to rule on its
jurisdiction. On the contrary, it submitted to the jurisdiction
of the arbitral tribunal. It also filed written arguments. It did
not challenge the order of the High Court dated 10.9.99
passed in C.M.P. No.26/99. Suffice it to say that both the
parties accepted that there was an arbitration agreement, they
proceeded on that basis and, therefore, Jala Nigam cannot be
now allowed to contend that Clause 29 of the Contract did not
constitute an arbitration agreement.

Before concluding on this issue, one clarification needs to
be mentioned. On 26.7.2005 a three-Judge Bench of this
Court has referred the question involving interpretation of
Clause 29 of the Contract to the Constitution Bench in the
case of M/s. P. Dasaratharama Reddy Complex v.
Government of Karnataka and Another
Civil Appeal
No.1586 of 2004. Placing reliance on the said order, learned
counsel for Jala Nigam submitted that the hearing of this civil
appeal be postponed pending disposal of the above reference
by the Constitution Bench. We do not find any merit in this
argument. As stated above, the plea that Clause 29 of the
Contract was not an arbitration clause, was raised in the
present case for the first time only in Miscellaneous First
Appeal No.1785 of 2002 filed under Section 37(1)(b) of the
Arbitration Act before the High Court. As stated above, Jala
Nigam, on the contrary, had consented to the Chief Engineer,
acting as an Arbitrator. For the aforestated reasons and
particularly in view of the fact that there has been
considerable delay in the litigation no useful purpose would be
served by keeping the matter pending in this Court awaiting
the decision of the Constitution Bench. Therefore, on the facts
and circumstances of this case and in view of the conduct of
the parties, we hold that Jala Nigam cannot be allowed to urge
that Clause 29 of the Contract is not an arbitration clause.

On the merits of the claims made by the contractor we
find from the impugned Award dated 25.6.2000 that it
contains several Heads. The Arbitrator has meticulously
examined the claims of the contractor under each separate
Heads. We do not see any reason to interfere except on the
rates of interest and on the quantum awarded for letting
machines of the contractor remaining idle for the periods
mentioned in the Award. Here also we may add that we do not
wish to interfere with the Award except to say that after
economic reforms in our country the interest regime has
changed and the rates have substantially reduced and,
therefore, we are of the view that the interest awarded by the
Arbitrator at 18% for the pre-arbitration period, for the
pendente lite period and future interest be reduced to 9%.

As far as idling charges are concerned, the Arbitrator has
awarded Rs.42,000/- per day for the period 1.2.94 to 17.12.94
and from 1.6.95 to 31.12.95 excluding the period 18.12.94 to
31.5.95 and from 1.1.96 to 12.11.96. On this basis the idling
charges awarded by the Arbitrator was arrived at Rs.1.47
crores. It is contended that the contractor has not led any
evidence to show the existence of the machinery at site and,
therefore, he was not entitled to idling charges. We are of the
view that the Award of the Arbitrator is fair and equitable. He
has excluded certain periods from calculations, as indicated
above. We have examined the records. The delay took place
on account of non-supply of Drawings and Designs and in the
meantime the establishment of the contractor stood standstill.
We suggested to the learned counsel for the respondent
(contractor) for reduction of the awarded amount under this
Head from Rs.1.47 crores to Rs.1 crore. Learned counsel for
the respondent fairly accepted our suggestion. We suggested
the aforestated figure keeping in mind the longstanding
dispute between the parties. Therefore, the amount awarded
under this Head shall stand reduced from Rs.1.47 crores to
Rs.1 crore.

Accordingly the civil appeal stands allowed to the extent
indicated above with no order as to costs.

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