HIGH COURT OF JAMMU AND KASHMIR AT JAMMU. AA No. 27 OF 2008 Union of India Petitioners M/S Sunny Builders Respondent !Mr. Sachin Gupta, Advocate ^Mr. R. K. Gupta, Advocate HONBLE MR. JUSTICE SUNIL HALI-JUDGE Date: 08.10.2010 :J U D G M E N T :
For manufacture and supply of Furniture at Nagrota, a
contract was entered between the Commander Works
Engineers 138 and the respondent-claimant by contract
agreement CA no. CWE/JP-83A/05-06 on 09.02.2006. The
value of the contract agreement was Rs. 11,85,025.00. The
contract was to commence from 09.01.2006 and 31.01.2006
and the completion date was fixed as 30.07.2006, which,
subsequently was extended to 07.12.2006. It seems that the
first consignment is stated that have been supplied by the
claimant, for which an amount of Rs. 2,35,920/- was released in
his favour. On completion of second set of supplies a bill to the
tune of Rs. 3.35 lacs and odd was raised. This bill is stated to
have not been cleared by the petitioner, as a result of which
clause 37 of the agreement was invoked by the claimant for
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referring the matter to the arbitrator. On reference being made
to the arbitrator, he is stated to have entered into the reference
on 17.12.2007. As many as ten claims were laid by the
claimant. Except claim nos. 3 and 5, all other claims were
allowed by the arbitrator. The counter-claims raised by Union of
India were rejected. Feeling aggrieved of this award, the
objector has filed this petition under Section 34 of the J&K
Arbitration and Conciliation Act of 1997 for setting aside the
arbitral award dated 22.05.2008.
The grounds for setting aside the award relates to the fact
that arbitrator has passed the award ignoring the stipulations in
the contract and, without referring to the stipulations of the
contract, the arbitrator has accepted the claims of the claimant.
It is contended that articles supplied by the claimant were to be
accepted strictly in consonance with the contract specifications.
The arbitrator by traveling beyond the scope of the contract has
allowed the claims. The second ground is that while accepting
the plea of the claimant in accepting the supplies made by him
in violation of the specifications provided in the contract,
misconduct of the arbitrator is apparent. What is being
contended is that, as the supplies were not found in
consonance with the contract specifications, claimant was
informed by letter dated 28.10.2006. In this behalf reference
was also made to General Condition of IAFW-1815Z (General
Condition of contracts for the supply of stores and material to
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the MES) which stipulated that Engineer-In-charge shall have
the full power to reject the material brought to site by the
claimant, which are not in accordance with the contract
specifications and accordingly the material supplied by the
claimant was rejected by Engineer-In-Charge. It is further
contended that as per the condition of the contract, GE is the
final authority in deciding whether the supplies are of quality
inferior to that contracted for or otherwise under Condition 20 of
IAFW-1815Z and the decision of the GE in this regard shall be
the final. It is also contended that recommendations of the
Board of Officers has not been concurred by the accepting
officers. In nut shell the objection raised is that the supplies
which are not in conformity with the specifications of the
contract, as such, cannot be accepted and the arbitrator has no
authority to allow the claims in this behalf.
The stand of the claimant is that reliance placed by the
petitioner on general conditions of the agreement stands
superseded by clause/ note 8 of the contract executed with the
claimant, which provides as under:-
Board of Officers will be convened by the Accepting
Officer immediately after acceptance of samples by
G.E. The G.E shall intimate to the Accepting Officer
for convening of the Board for approval of the
supplies.
Elaborating the manner in which the claim has been
rejected by the objector, it is stated by the claimant that it
submitted furniture items on 29.07.2006. A request was made
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by the G.E to the Accepting Officer to convene the Board of
Officers for inspection and approval. The Board of Officers, after
inspecting the supplied items, found the same to be in order
and as per the contract specifications. The claimant submitted
his first RAR on 18.09.2006 and payment of Rs. 2,35,920/- was
made to him. The second set of samples to the G.E Nagrota
was submitted on 09.11.2006 and after approval of the same by
the G.E, the supplies were made on 10.11.2006. Same
procedure, as envisaged vide Note 8 of the Contract
Agreement, was followed. The Board of Officers assembled and
found the furniture items as per the specifications of the
Contract Agreement. No defects were pointed out by the Board
of Officers. The claimant submitted the second RAR on
05.02.2007 which has been denied to it.
It is further contended that no communication dated
28.10.2006 was received by the claimant, intimating him that
quality of wood used in the manufacture of furniture was not in
accordance with the specifications. The general condition of
the contract, as indicated in para no. 4 and 5 of the petition,
stood superseded by specific condition/ note in the agreement
executed with the claimant by the petitioner. The other
contention raised is that when the first RAR was submitted,
same procedure was followed by placing reliance on note 8 of
the contract agreement while releasing the first payment. What
is contended is that on the recommendations of the Board of
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Officers, who inspected the material supplied by the claimant,
payment was released but here in this case different stand was
taken by taking recourse to general conditions of the contract.
This, in nut shell, is the stand of the claimant.
I have heard the learned counsel for the parties.
An award of the arbitrator can be set aside only on the
following conditions:-
An arbitral award may be set aside by the Court
only if:-
(a) the party making the application furnishes
proof that:-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under
the law to which the parties have subjected it
or, failing any indication thereon, under the law
for the time being in force; or
(iii) the party making the application was not given
proper notice of the appointment of an
arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms
of the submission to arbitration or it contains
decisions on matters beyond the scope of the
submission to arbitration:
..
Analyzing the import of the controversy raised, what is
being insisted by the petitioner is that Claus 2(iv) of the Act is
sought to be invoked which contemplates following conditions:-
(iv) the arbitral award deals with a dispute
not contemplated by or not falling within the
terms of the submission to arbitration or it
contains decisions on matters beyond the
scope of the submission to arbitration.
The specific case of the petitioner is that the arbitrator has
allowed the claims of the claimant on the issue which it had no
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jurisdiction to adjudicate. The claimant was supposed to supply
the furniture strictly in consonance with the stipulations
provided in the contract and it is only after it is testified that
same has been done in accordance with the specifications, that
he would be entitled to receive payment for the same. The
arbitrator could not have directed the petitioner to make
payment by accepting the supplies, which were not in
conformity with the specifications of the contract. This was a
matter beyond the scope of submission to the arbitration.
As already stated herein supra, the claim of the claimant
was rejected on the ground that supplies were not made in
conformity with the specifications provided, as such the claim
was rejected. There is no dispute with this proposition of law
that arbitrator cannot decide a matter which is beyond the
scope of submission to the arbitration. The arbitrator was called
upon to resolve the dispute, strictly in consonance with the
terms of the contract. The decision of the arbitrator would be
illegal in case it is found that the arbitrator has allowed the
claim which was beyond the scope of the contract. He could not
have, as in the instant case, directed the petitioner to accept the
supplies in violation of the specifications provided by the
contract. This was beyond the scope of the submission to the
arbitration.
Having said so, the only question is as to whether the
supplies have been accepted in violation of the specifications
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provided by the contract. The plea of petitioner is that, general
conditions of the contract provide that, supplies have to be
accepted by the G.E and in case there is no such acceptance,
claims cannot be allowed. However, it be seen that note 8
attached to the agreement executed by the claimant, clearly
provides that if the samples are accepted by the G.E, the matter
is referred to the Board of Officers to accept the supplies made
by the claimant, and thereafter the amount is required to be
paid. The specific condition in the contract would over ride the
general provisions of the contract. It is contended by the
claimant that it was not a case where supplies were accepted
which were not in conformity with the specifications, but a case
where the G.E had, in violation of the contract, refused to make
the payment to the claimant. The supplies were accepted and
the arbitrator, who is the master of facts and law, has rightly
interpreted the terms of the contract by allowing the claim.
The other aspect of the matter is with respect to bar in
contract against admissibility of claim. This prohibits the
department but not the arbitrator from entering such a claim.
It be seen that Regulation 439 of the MES Regulations,
1968, fixes the pecuniary jurisdiction of the Chief Works
Engineer at Rs. 20,000/- only. He cannot accept any claim
above 20,000/-.The matter can be decided by the arbitrator. I
am supported in taking this view by a judgment of Supreme
Court delivered in Asain Techs Limited vs. UOI and Ors, reported as
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(2009) 10 SCC, 354, where it has been held as under:-
The stipulation in the contract regarding finality of
the decision of CWE ( the competent authority
specified in the contract) for fixation of rates for any
work order which was incapable of being calculated
by the methods specified read with the stipulation
saving the rights of the parties to correct any
mistake in rate fixation even after receipt of the last
payment make it clear that the finality provided by
the former stipulation applied only to cases of
deviation and not in a case when there was a
material alteration and addition in the work done.
Moreover, Regulation 439 of the MES Regulations,
1968 fixes the pecuniary jurisdiction of the CWE at
Rs. 20,000 only. The CWE has no jurisdiction to
decide the dispute where the valuation is above Rs.
20,000, as in the present case. The finality of the
decision of the CWE applies only where the dispute
is not exceeding Rs. 20,000. Hence the arbitrator
was within his jurisdiction to decide the matter ion
question.
Regarding the other claim, it be seen that damages have
been awarded on the basis of with-holding of the amount of the
claimant. In this aspect, be noted that, where in a works
contract, the party entrusted the work commits breach of the
contract, the contractor would be entitled to claim damages for
loss of profit which he expected to earn by undertaking the
works contract. I am fortified in this view by a judgment of Apex
Court delivered in case M/S A. T. Brij Paul Singh and Bros. vs. State of
Gujarat, reported as AIR 1984 SC, 1703, where their lordships
have held as under:-
where in a works contract, the party entrusted
the work commits breach of the contract, the
contractor would be entitled to claim damages
for loss of profit which he expected to earn by
undertaking the works contract. What must be
the measure of profit and what proof should be
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tendered to sustain the claim are different
matters. But the claim under this head is
certainly admissible.
Therefore the contention raised by the petitioner is not
sustainable as such is rejected.
What is concluded is that:-
(a) Supplies made by the claimant were referred
to the Board of Officers constituted by the G.E,
who inspected the same and his rejection was
not proper;
(b) It is further found that it is not a case where
the arbitrator had permitted a claim regarding
supplies of the material in violation of the
specifications provided under the contract but
a case where the material was accepted in
conformity with the specifications of the
contract, as the same were accepted by the
Board of Officers.
(c) Regarding other claims it be seen that about
the jurisdiction of the arbitrator to award
damages/ compensation for loss of profit,
profit turn over, loss due to blockage of capital
as also interest, nothing has been spelled out
by the petitioner on this count that it violates
any one of the conditions stipulated by Section
34 of the Act.
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For all what has been said above, this application is
rejected. The award of the arbitrator is directed to be enforced
as a decree.
(SUNIL HALI)
Judge
JAMMU:
08. 10. 2010
Anil Raina, Secy.
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