{"id":201543,"date":"1989-01-24T00:00:00","date_gmt":"1989-01-23T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/vishwanath-sood-vs-union-of-india-anr-on-24-january-1989"},"modified":"2018-08-04T11:38:18","modified_gmt":"2018-08-04T06:08:18","slug":"vishwanath-sood-vs-union-of-india-anr-on-24-january-1989","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/vishwanath-sood-vs-union-of-india-anr-on-24-january-1989","title":{"rendered":"Vishwanath Sood vs Union Of India & Anr on 24 January, 1989"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Vishwanath Sood vs Union Of India & Anr on 24 January, 1989<\/div>\n
Equivalent citations: 1989 AIR 952, \t\t 1989 SCR (1) 288<\/div>\n
Author: S Rangnathan<\/div>\n
Bench: Rangnathan, S.<\/div>\n
           PETITIONER:\nVISHWANATH SOOD\n\n\tVs.\n\nRESPONDENT:\nUNION OF INDIA & ANR.\n\nDATE OF JUDGMENT24\/01\/1989\n\nBENCH:\nRANGNATHAN, S.\nBENCH:\nRANGNATHAN, S.\nMUKHARJI, SABYASACHI (J)\n\nCITATION:\n 1989 AIR  952\t\t  1989 SCR  (1) 288\n 1989 SCC  (1) 657\t  JT 1989 (1)\t585\n 1989 SCALE  (1)154\n\n\nACT:\n    Arbitration\t Act,  1940: Section 3, 14, 17, 30,  31\t and\n33--Arbitration agreement--Clause providing penalty as\tcom-\npensation to Department for default on part of contractor in\nadhering to time schedule--Compensation to be determined  by\nSuperintending Engineering and none else--Award of compensa-\ntion--Whether liable to be questioned before Arbitrator.\n\n\n\nHEADNOTE:\n    The\t appellant undertook the construction of a  Farmers'\nCommunity Centre Building by an agreement entered into\twith\nthe  Union of India and the State of Himachal  Pradesh,\t the\nrespondents in the appeal.\n    The agreement dated June 20, 1968 provided, by Clause 2,\nfor the payment of compensation for delay, if the contractor\nshould\thave been guilty of delay in commencing the work  or\nin  completing it, the quantum of compensation to be  deter-\nmined  by the Superintending Engineer and that his  decision\nwas final. Clause 25 provided for settlement of disputes  by\narbitration.  It excluded from arbitration matters  or\tdis-\nputes in respect of which provision had been made  elsewhere\nor otherwise in the contract.\n    Certain disputes arose between the parties, and in terms\nof  clause 25 of the agreement they were referred to a\tsole\narbitrator.\n    The Contractor submitted a claim in respect of 9  items,\nand the department filed a counter claim to the effect\tthat\nthey  were entitled to receive from the Contractor a sum  of\nRs.24,000 on account of payment of 10 per cent\tcompensation\nfor not executing the work in accordance with the terms\t and\nconditions of the agreement. The arbitrator gave his  award,\nand the same was filed in the Court.\n    The\t Contractor  filed objections  for  modification  in\nrespect\t of items 1, 8 and 9 of his claim and item no. 1  of\nthe  respondents' counter claim. The department\t also  filed\nits objections.\nThe Single Judge dismissed the objections of the respondents\nand\n289\nallowed the appellants' claim only in respect of item no.  1\nof the respondents' counter claim. The single Judge took the\nview that a reading of clause 2 with clause 25 made it clear\nthat  any compensation under clause 2 could  be\t adjudicated\nupon only by the Superintending Engineer or the\t Development\nCommissioner  and that it was not open to the arbitrator  to\nhave  entered  upon a reference in regard to this  claim  at\nall.\n    Both  parties filed appeals to the Division\t Bench.\t The\nBench  reversed the order of the Single Judge  and  restored\nthe award to its original terms. It held that inasmuch as  a\nbonafide  dispute can be raised by the contractor in  regard\nto  his liability to compensation under clause 2 and  as  no\nmachinery  was\tprovided in clause 2 for the  resolution  of\nsuch dispute, there is ample justification for holding\tthat\nresort\tcan be had to arbitration under clause 25.  On\tthis\nview of the matter, the Bench did not agree with the  Single\nJudge that the arbitrator had traveled outside his jurisdic-\ntion in awarding compensation to the Government against\t the\ncontractor for the delay in executing the work.\n    In\tthe appeal to this Court it was contended on  behalf\nof the appellants that the terms of Clause 2 clearly  envis-\nage the determination of the amount of compensation for\t the\ndelay in the execution of the work only by the\tSuperintend-\ning Engineer and specifically mentions that the decision  of\nthe  Superintending Engineer in writing shall be final.\t The\nopening\t words of Clause 25, \"Except otherwise\tprovided  in\nthe  contract\" clearly take out of the purview of Clause  25\nany  dispute in respect of a claim under Clause 2.  Even  if\nClause\t25 be held applicable, the question of submitting  a\ndispute in this regard to the arbitrator could only arise if\nthere had been a determination and a dispute under Clause 2.\nIt  was further submitted that there was no dispute  at\t all\nbetween the parties on the question of compensation and that\na dispute cannot be said to arise merely because a  counter-\nclaim  was for the first time put forward by the  Department\nbefore the arbitrator.\n    On\tbehalf of the respondent-Department the\t appeal\t was\ncontested by contending that Clause 2 was in the natore of a\npenal  clause which automatically takes effect\tirrespective\nof  any default. The clause made the contractor\t liable\t for\nthe penalty prescribed therein whenever there was a delay in\nthe  completion of the contract, whatsoever might have\tbeen\nthe  reason therefore, the question as to whether  the\tcon-\ntractor was at default or not being totally immaterial.\t The\nDepartment was, therefore, entitled to automatically  deduct\nfrom  the bills payable to the contractor, the\tcompensation\nor penalty at the rate mentioned in Clause 2\n290\nor such reduced amount as may be determined in a  particular\ncase by the Superintending Engineer and that if the contrac-\ntor  objected  to the deduction that would give\t risc  to  a\ndispute which can be the subject matter of arbitration under\nClause 25.\nAllowing the appeal,\n    HELD: 1. Clause 2 of the contract makes the time  speci-\nfied for the performance of the contract a matter of essence\nand  emphasises\t the need on the part of the  contractor  to\nscrupulously  adhere  to the time schedule approved  by\t the\nEngineer-in-charge. With a view to compel the contractor  to\nadhere to this time schedule, this clause provides a kind of\npenalty in the form of a compensation to the Department\t for\ndefault in adhering to the time schedule. [297E-F]\n    2. Clause 2 contains a complete machinery for determina-\ntion of the compensation which can be claimed by the Govern-\nment  on  the ground of delay on the part of  contractor  in\ncompleting  the contract as per the time schedule agreed  to\nbetween\t the  parties. The decision  of\t the  Superintending\nEngineer is in the nature of a considered decision which\n    has to arrive at after considering the various  mitigat-\ning  circumstances that may be pleaded by the contractor  or\nhis  plea that he is not liable to pay compensation  at\t all\nunder this clause. [298E-F]\n    3.\tThe  question regarding the amount  of\tcompensation\nleviable under Clause 2 has to be decided only by the Super-\nintending Engineer and no one else. [298G]\n    4.\tThe opening part of Clause 25 clearly excludes\tmat-\nters  like those mentioned in Clause 2 in respect  of  which\nany  dispute is left to be decided by a higher\tofficial  of\nthe Department. [299C]\n    5. The question of awarding compensation under Clause  2\nis  outside the purview of the arbitrator and the  compensa-\ntion,  determined under Clause 2 either by the\tEngineer-in-\nCharge\tor on further reference by the Superintending  Engi-\nneer will not be capable of being called in question  before\nthe arbitrator. [299D]\n    6. Clause 25 which is the arbitration clause starts with\nan  opening  phrase excluding certain matters  and  disputes\nfrom  arbitration and these are matters or disputes  in\t re-\nspect  of which provision has been made elsewhere or  other-\nwise in the contract. These words can have reference only to\nprovisions such as the one in paranthesis in Clause 2\n291\nby  which  certain types of determination are  left  to\t the\nadministrative authorities concerned. [299B-C]\n    7. The question of any negligence or default on the part\nof  the contractor has many facets and to say that  such  an\nimportant aspect of the contract cannot be settled by  arbi-\ntration but should be left to one of the contracting parties\nmight  appear to have far reaching effects. In\tthe  instant\ncase,  it  is  made clear that the  decision  regarding\t non\narbitrability  is only on the question of  any\tcompensation\nwhich the government might claim in terms of Clause 2 of the\ncontract.  This\t is not an undefined power.  The  amount  of\ncompensation is strictly limited to a maximum of 10  percent\nand  with a wide margin of discretion to the  Superintending\nEngineer. It is this power that is kept outside the scope of\narbitration. [299E, F, H; 300A]\n\n\n\nJUDGMENT:\n<\/pre>\n
    CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 1524  of
\n1982.\n<\/p>\n
    From the Judgment and Order dated 5.9.1977 of the  Hima-
\nchal Pradesh High Court in F.A.O. No. 8 of 1975.
\n    A.B.  Rohtagi,  Mrs. Urmila Kapoor, Miss S.\t Janani\t and
\nNaresh K. Sharma for the Appellant.\n<\/p>\n
Miss A. Subhashini for the Respondents.\n<\/p>\n
The Judgment of the Court was delivered by
\n    RANGANATHAN, J. The appellant Vishwanath Sood  undertook
\nthe construction of a Farmers’ Community Centre Building  at
\nThanedhar  by  an agreement entered into with the  Union  of
\nIndia  and  the State of Himachal Pradesh  dated  20.6.1968.
\nCertain disputes arose between the parties to the  agreement
\nand  in terms of clause 25 of the agreement, they  were\t re-
\nferred\tto  a sole arbitrator. The  contractor\tsubmitted  a
\nclaim of Rs. 1,28,000 while the respondents also submitted a
\ncounter-claim.\tBy an award dated 20.3.1972, the  abritrator
\nawarded\t an amount of Rs.31,932 to the contractor and a\t sum
\nof Rs.21,504 to the respondents. The award was filed in\t the
\ncourt. The contractor filed an application in the court\t for
\nmodification or correction of the award in respect of  three
\nitems  of  his\tclaim ( 1, 8 and 9) and item no.  1  of\t the
\nrespondent’s  counter claim. The Department also  filed\t its
\nobjections to the award and prayed that a sum of Rs.8,080.29
\nshould\tbe awarded in favour of the Department or the  award
\nremitted to arbitrator. The
\n292<\/span>
\nlearned\t single\t Judge dismissed the objections of  the\t re-
\nspondents. So far as the appellant’s prayers were concerned,
\nhe  allowed  the same only in respect of item 1 of  the\t re-
\nspondent’s  counter claim. He held that the  arbitrator\t was
\nnot  justified\tin  granting  to the  Government  a  sum  of
\nRs.20,000  against the contractor. Both the  contractor\t and
\nthe respondents preferred appeals to the Division Bench. The
\nBench reversed the order of the learned single Judge. It set
\naside the order of the learned single Judge in so far as the
\nsum  of Rs.20,000 was deleted thereby from the award of\t the
\narbitrator. The award was restored to its original terms and
\nthe  contractor was held entitled to interest at 6 per\tcent
\non  the\t amount\t found due to him after\t adjusting  the\t sum
\nawarded\t by  the  arbitrator in\t favour\t of  the  Government
\nagainst the sum awarded in favour of the contractor.
\n    The\t contractor  has preferred this\t appeal\t by  special
\nleave  from  the  order of the Division Bench  of  the\tHigh
\nCourt.\n<\/p>\n
    Learned  counsel for the appellant pressed\tthe  conten-
\ntions in respect of the four items to which he had  objected
\nbefore\tthe  learned single Judge and  the  Division  Bench.
\nThree  of these items pertain to the claims put\t forward  by
\nthe  contractor\t which were rejected by the  arbitrator\t and
\nheld by the courts to have been rightly rejected. The  first
\nclaim  (item no. 1) made by the contractor was of a  sum  of
\nRs. 12,720 which, according to him, was the loss incurred by
\nhim by reason of the Department’s delay in handing over\t the
\nsite  to him for executing the contract. The learned  single
\nJudge  discussed  this aspect of the matter  at\t length.  He
\nobserved  that, on this point, there was, on the  one  hand,
\noral  evidence\tadduced on behalf of  the  Department  while
\nthere  was  only the bare denial of the\t contractor  on\t the
\nother. He pointed out that the arbitrator had fully  consid-
\nered  the  matter and that it was not open to the  court  to
\nre-assess the evidence and that there was no error  apparent
\non the face of the record. The second claim (item no. 8) was
\nfor a sum of Rs.6,172 being the amount kept as security with
\nthe  respondent.  In respect of this item also\tthe  learned
\nsingle\tJudge discussed the evidence which showed  that\t the
\nsecurity amount had been properly adjusted by the Department
\nwhich had been constrained to take up the work departmental-
\nly at the cost and risk of the contractor. He held that this
\nwas  an aspect which had been considered by  the  arbitrator
\nand  a\tproper conclusion arrived at. The  third  claim\t put
\nforward\t by  the petitioner (item no. 9) was for  a  sum  of
\nRs.30,000,  claimed as compensation for an amount  spent  by
\nthe  contractor for the purchase of a truck for\t this  work.
\nThe  learned  single Judge here again pointed  out  that  no
\nmaterial had been placed before
\n293<\/span>
\nthe  arbitrator by the contractor to show that he was  enti-
\ntled to the amount and that, in any event, having regard  to
\nthe fact that the work was executed by the Department at the
\ncost  and risk of the contractor, there was no\tquestion  of
\nthe contractor preferring any claim in respect of this item.
\nThe above three claims of the petitioner were also  rejected
\nby the Division Bench which pointed out that the award\tmade
\nby the arbitrator was not a speaking award and that the face
\nof the award did not show any error. We do not think that so
\nfar  as these claims are concerned, that the  appellant\t has
\nany  arguable  case at all. As pointed out by  the  Division
\nBench of the High Court, the award was a non-speaking award.
\nThe  arbitrator had considered the materials  placed  before
\nhim  and had arrived at his conclusions. The award does\t not
\non the face of it disclose any error, much less any error of
\nlaw,  which needs to be set fight. We therefore,  hold\tthat
\nthe  High Court was justified in affirming the award so\t far
\nas the rejection of these three claims is concerned.
\n    The\t position  in  regard to the counter  claim  of\t the
\nrespondents  which  was allowed by the\tarbitrator  and\t the
\nDivision  Bench stands on a different footing. The  respond-
\nents’  claim before the arbitrator was that they were  enti-
\ntled to receive from the contractor “Rs.24,000 on account of
\npayment\t of 10 per cent compensation on the tendered  amount
\nfor not executing the work in accordance with the terms\t and
\nconditions  of\tthe agreement”. As against  this  claim\t the
\narbitrator  awarded the respondents a sum of Rs.20,000.\t The
\nlearned\t single\t Judge took the view that having  regard  to
\nclause\t2  of the contract (pertaining to the claim  by\t the
\nrespondent)  read with clause 25 it was clear that any\tcom-
\npensation  under clause 2 could be adjudicated upon only  by
\nthe superintending Engineer or the Development\tCommissioner
\nand  that it was not open to the arbitrator to have  entered
\nupon a reference in regard to this claim at all. In order to
\nappreciate  the finding of the learned single Judge it\twill
\nbe  useful to set out clauses 2 and 25 of the conditions  of
\ncontract on which his decision was based:\n<\/p>\n
\t      “Clause  2: Compensation for delay:  The\ttime
\n\t      allowed  for carrying out the work as  entered
\n\t      in  the tender shall be strictly\tobserved  by
\n\t      the  contractor and shall be deemed to be\t the
\n\t      essence  of  the contract on the part  of\t the
\n\t      contractor  and  shall be\t reckoned  from\t the
\n\t      fifteenth\t day  after the date  on  which\t the
\n\t      order  to commence the work is issued  to\t the
\n\t      contractor.  The\twork  shah  throughout\t the
\n\t      stipulated period of the contract be proceeded
\n\t      with  all\t due diligence\tand  the  contractor
\n\t      shall pay as compensation an amount
\n\t      294<\/span>
\n\t      equal to one per cent, or such smaller  amount
\n\t      as the Superintending Engineer (whose decision
\n\t      in  writing shall be final) may decide on\t the
\n\t      amount of the estimated cost of the whole work
\n\t      as shown in the tender for every day that\t the
\n\t      work remains uncommenced, or unfinished, after
\n\t      proper  dates.  And further,  to\tensure\tgood
\n\t      progress during the execution of the work, the
\n\t      contractor  shall\t be bound in  all  cases  in
\n\t      which  the time allowed for any work  exceeds,
\n\t      one  month (save for special jobs to  complete
\n\t      one-eighth  of  the whole of the\twork  before
\n\t      one-fourth of the whole time allowed under the
\n\t      contract\thas  elapsed;  three-eighth  of\t the
\n\t      work,   before  one-half\tof  such  time
\n\t      has  elapsed,  and threefourth  of  the  work,
\n\t      before three-fourth of such time has  elapsed.
\n\t      However,\tfor special jobs if a  time-schedule
\n\t      has  been submitted by the Contractor and\t the
\n\t      same  has\t been accepted by  the\tEngineer-in-
\n\t      charge,  the contractor shall comply with\t the
\n\t      said  time-schedule. In the event of the\tcon-
\n\t      tractor failing to comply with this condition,
\n\t      he  shall be liable to pay as compensation  an
\n\t      amount  equal to one per cent or such  smaller
\n\t      amount  as the Superintending Engineer  (whose
\n\t      decision in writing shall be final) may decide
\n\t      on  the said estimated cost of the whole\twork
\n\t      for  every day that the due quantity  of\twork
\n\t      remains  incomplete; provided always that\t the
\n\t      entire amount of compensation to be paid under
\n\t      the provisions of this clause shall not exceed
\n\t      ten  per\tcent, on the estimated cost  of\t the
\n\t      work as shown in the tender.”\n<\/p><\/blockquote>\n
\t      “Clause 25: Settlement of disputes by Arbitra-
\n\t      tion:  Except where otherwise provided in\t the
\n\t      contract, all questions and disputes  relating
\n\t      to the meaning of the specifications,  designs
\n\t      drawings\tand instructions  hereinbefore\tmen-
\n\t      tioned and as to the quality of workmanship or
\n\t      materials used on the work or as to any  other
\n\t      question,\t claim, matter or thing\t whatsoever,
\n\t      in  any way arising out of or relating to\t the
\n\t      contract,\t designs, drawings,  specifications,
\n\t      estimates, instruction, order, or these condi-
\n\t      tions or otherwise concerning the works or the
\n\t      execution\t or  failure  to  execute  the\tsame
\n\t      whether  arising\tduring the progress  of\t the
\n\t      work  or after the completion  or\t abandonment
\n\t      thereof shall be referred to the sole arbitra-
\n\t      tion  of\tthe person appointed  by  the  Chief
\n\t      Engineer,\t Himachal Pradesh Public  Works\t De-
\n\t      partment\t……..  ”\n<\/p><\/blockquote>\n
295<\/span><\/p>\n
The  Division  Bench  did not agree with  the  view  of\t the
\nlearned\t single\t Judge. It pointed out that,  while  in\t the
\nordinary  course,  the rate of compensation payable  by\t the
\ncontractor  is one per cent of the amount of  the  estimated
\ncost  of the whole work, under clause 2, the  Superintending
\nEngineer is authorised to depart from this figure and deter-
\nmine  the compensation at a smaller amount if there are\t any
\nextenuating  circumstances in favour of the contractor.\t The
\nquestion  however  was whether the  compensation  determined
\nunder  clause  2 is excluded from the scope  of\t arbitration
\nunder  clause 25. The Division Bench answered this  question
\nin  the\t negative. It pointed out that the sine qua  non  of
\nclause 2 was that the contractor should have been guilty  of
\ndelay  in  commencing the work or in completing it  but\t the
\nclause did not specify either the authority or the procedure
\nfor  determining whether the contractor is  responsible\t for
\nthe  default. Observing that there can be a serious  dispute
\nin a particular case as to the person who is responsible for
\nthe delay, the Bench took the view that the determination of
\nthis dispute cannot be excluded from the scope of clause 25.
\nThe Bench observed that inasmuch as a bona fide dispute\t can
\nbe  raised by the contractor in regard to his  liability  to
\ncompensation under clause 2 and no machinery is provided  in
\nclause 2 for the resolution of that dispute, there is  ample
\njustification for holding that resort can be had to arbitra-
\ntion  under  clause 25. The statement in clause 2  that\t the
\ndecision of the Superintending Engineer is final,  according
\nto  the\t Bench,\t merely constituted a  declaration  that  no
\nofficer in the Department could disturb his  quantification.
\nBut  this finality cannot be construed as extending  to\t ex-
\nclude the jurisdiction of the arbitrator under clause 25. On
\nthis  view  of the matter, the Division Bench  found  itself
\nunable\tto  agree  with the learned single  Judge  that\t the
\narbitrator had traveled outside his jurisdiction in awarding
\na sum of Rs.20,000 as compensation to the Government against
\nthe contractor for the delay in executing the work.
\n    It will be seen from the narration above that so far  as
\nthis  item  was\t concerned, both parties  proceeded  on\t the
\nfooting\t that the claim of the Government was a claim  under
\nclause 2 and that the arbitrator had awarded the sum only in
\nterms  of clause 2. This is also borne out by the fact\tthat
\nthe claim of the Department was based on a percentage of the
\ntotal  cost of the work and the restriction of the claim  to
\n10%  also appears to have been the result of the proviso  to
\nclause\t2.  The award, therefore, on a fair reading  of\t it,
\ncontains  a grant by the arbitrator of compensation  to\t the
\nGovernment in terms of clause 2. It is therefore open to the
\nparties\t to urge before this Court, as they did\t before\t the
\nHigh Court also, that, on a proper construction of clauses 2
\nand 25,
\n296<\/span>
\nthis  award  was not justified. It is in this  respect\tthat
\nthis  counter claim of the Department stands on a  different
\nfooting from the earlier claims of the contractor which have
\nbeen  rejected\tand  which, we have held  above,  have\tbeen
\nrightly rejected.\n<\/p>\n
    Learned  counsel  for the appellants contends  that\t the
\nterms of clause 2 clearly envisage the determination of\t the
\namount of compensation for the delay in the execution of the
\nwork  only by the Superintending Engineer  and\tspecifically
\nmentions that the decision of the Superintending Engineer in
\nwriting\t shah  be  final. The opening words  of\t clause\t 25:
\n“Except\t where otherwise provided in the  contract”  clearly
\ntake out of the purview of clause 25 any dispute in  respect
\nof  a  claim under clause 2. He submitted  that\t the  clause
\nauthorised  only the Superintending Engineer to go into\t the
\nquestion  whether there is any delay or not and the  reasons
\ntherefore  and to determine the rate at\t which\tcompensation
\nshould\tbe charged from the contractor. If the\tEngineer-in-
\ncharge levies a compensation under clause 2, the  contractor
\ncan  apply to the Superintending Engineer. If  the  Superin-
\ntending\t Engineer finds that there was no fault on the\tpart
\nof  the\t contractor at all he could waive  the\tcompensation
\nunder clause 2 and that cannot be challenged by the  Depart-
\nment  before the arbitrator. Per contra, where the  Superin-
\ntending\t Engineer confirms that there has been a  delay\t for
\nwhich compensation should be charged, it will not be open to
\nthe contractor to challenge the conclusion before the  arbi-
\ntrator.\t Learned counsel also submitted that even if  clause
\n25 were to be held applicable, the question of submitting  a
\ndispute in this regard to the arbitrator could only arise if
\nthere had been a determination and a dispute under clause 2.
\nClause\t2 envisages that the Engineer-in-charge\t should,  in
\nappropriate cases, levy a compensation at the rate specified
\nin that clause. If he did, it was open to the contractor  to
\ndispute the same and approach the Superintending Engineer to
\nreduce or waive the compensation for any reason\t whatsoever.
\nOr, it may be that, even where the Engineer-in-charge levied
\nno  compensation, the Superintending Engineer could,  either
\non his own motion or on being moved by the department, after
\nconsidering the facts charge a compensation with the quantum
\nof which the department may not be satisfied in which  event
\na  dispute could arise. But in the present case neither\t the
\nEngineer-in-charge  nor\t the  Superintending  Engineer\t had
\ndetermined any liability at all under clause 2. There was no
\ncompensation  levied against which there was any protest  by
\nthe  contractor,  and there was no matter submitted  to\t the
\nSuperintending Engineer for determination. In these  circum-
\nstances,  the  submission  of the learned  counsel  for\t the
\nappellant  is that there was no dispute at all\tbetween\t the
\nparties on
\n297<\/span>
\nthe  question of compensation and that a dispute  cannot  be
\nsaid  to  arise merely because a counter claim\tis  for\t the
\nfirst time put forward by the Department before the arbitra-
\ntor.\n<\/p>\n
    On\tthe other hand, the learned counsel for the  Depart-
\nment  contended\t that clause 2 is in the nature of  a  penal
\nclause which automatically takes effect irrespective of\t any
\ndefault.  He described it as an “agreed penalty” clause.  He
\nstated\tthat the clause made the contractor liable  for\t the
\npenalty prescribed therein whenever there was a delay in the
\ncompletion  of the contract, whatsoever might have been\t the
\nreason therefore, the question as to whether the  contractor
\nwas at default or not being totally immaterial. The  Depart-
\nment  was, therefore, entitled to automatically deduct\tfrom
\nthe  bills  payable to the petitioner  the  compensation  or
\npenalty\t at the rate mentioned in clause 2 or  such  reduced
\namount\tas  may be determined in a particular  case  by\t the
\nSuperintending Engineer and that if the contractor  objected
\nto  this deduction that would give rise to a  dispute  which
\ncan be the subject matter of arbitration under clause 25. He
\ntherefore  submitted  that the Division\t Bench\thas  rightly
\nconstrued the terms of the contract and confirmed the  award
\nmade by the arbitrator.\n<\/p>\n
    We have gone through the judgment of the Division  Bench
\nof the High Court and we have also considered the  arguments
\nadvanced  on  both sides. With great respect, we  find\tour-
\nselves unable to agree with the interpretation placed by the
\nDivision Bench on the terms of the contract. Clause 2 of the
\ncontract makes the time specified for the performance of the
\ncontract a matter of essence and emphasises the need on\t the
\npart  of the contractor to scrupulously adhere to  the\ttime
\nschedule approved by the Engineer-in charge. With a view  to
\ncompel the contractor to adhere to this time schedule,\tthis
\nclause provides a kind of penalty in the form of a compensa-
\ntion  to the Department for default in adhering to the\ttime
\nschedule.  The\tclause envisages an amount  of\tcompensation
\ncalculated  as\ta percentage of the estimated  cost  of\t the
\nwhole work on the basis of the number of days for which\t the
\nwork  remains  uncommenced or unfinished to  the  prescribed
\nextent\ton  the\t relevant dates. We do not  agree  with\t the
\ncounsel for the respondent that this is in the nature of  an
\nautomatic levy to be made by the Engineer-in charge based on
\nthe  number  of days of delay and the  estimated  amount  of
\nwork.  Firstly, the reference in the clause to the  require-
\nment that the work shall throughout the stipulated period of
\nthe contract be proceeded with due diligence and the  refer-
\nence in the latter part of the clause that the\tcompensation
\nhas  to be paid “in the event of the contractor\t failing  to
\ncomply with” the prescribed time
\n298<\/span>
\nschedule  make\tit clear that the levy\tof  compensation  is
\nconditioned on some default or negligence on the part of the
\ncontractor.  Secondly,\twhile the clause fixes the  rate  of
\ncompensation at 1 per cent for every day of default it takes
\ncare to prescribe the maximum compensation of 10 per cent on
\nthis  ground  and it also provides for a discretion  to\t the
\nSuperintending Engineer to reduce the rate of penalty from 1
\nper cent. Though the clause does not specifically say so, it
\nis clear that any moderation that may be done by the  Super-
\nintending Engineer would depend upon the circumstances,\t the
\nnature and period of default and the degree of negligence or
\ndefault\t that  could be attributed to the  contractor.\tThis
\nmeans  that the Superintending Engineer, in determining\t the
\nrate  of compensation chargeable, will have to go  into\t all
\nthe aspects and determine whether there is any negligence on
\nthe  part of the contractor or not. Where there has been  no
\nnegligence on the part of the contractor or where on account
\nof  various  extraneous\t circumstances referred\t to  by\t the
\nDivision  Bench such as vis major or default on the part  of
\nthe  Government or some other unexpected circumstance  which
\ndoes not justify penalising the contractor, the Superintend-
\ning  Engineer will be entitled and bound to reduce  or\teven
\nwaive the compensation. It is true that the clause does\t not
\nin  terms  provide for any notice to the contractor  by\t the
\nSuperintending Engineer. But it will be appreciated that  in
\npractice the amount of compensation will be initially levied
\nby  the Engineer-in-charge and the  Superintending  Engineer
\ncomes  into the picture only as some sort of  revisional  or
\nappellate  authority  to  whom the  contractor\tappeals\t for
\nredress. As we see it, clause 2 contains a complete  machin-
\nery  for  determination\t of the compensation  which  can  be
\nclaimed by the Government on the ground of delay on the part
\nof the contractor in completing the contract as per the time
\nschedule agreed to between the parties. The decision of\t the
\nSuperintending Engineer, it seems to us, is in the nature of
\na  considered decision which he has to arrive at after\tcon-
\nsidering  the various mitigating circumstances that  may  be
\npleaded by the contractor or his plea that he is not  liable
\nto pay compensation at all under this clause. In our opinion
\nthe  question regarding the amount of compensation  leviable
\nunder clause 2 has to be decided only by the  Superintending
\nEngineer and no one else.\n<\/p>\n
    The\t Division  Bench  has construed\t the  expression  in
\nclause 2 in parenthesis that “the Superintending  Engineer’s
\ndecision shall be final” as referring only to a finality qua
\nthe  department; in other words, that it only constitutes  a
\ndeclaration that no officer in the department can  determine
\nthe  quantification  and that the  quantum  of\tcompensation
\nlevied by the Superintending Engineer shall not be
\n299<\/span>
\nchanged without the approval of the Government. After refer-
\nring to certain judicial decisions regarding the meaning  of
\nthe  word  “final” in various statutes, the  Division  Bench
\nconcluded that the finality cannot be construed as excluding
\nthe  jurisdiction of the arbitrator under clause 25. We\t are
\nunable to accept this view. Clause 25 which is the  arbitra-
\ntion clause starts with an opening phrase excluding  certain
\nmatters and disputes from arbitration and these are  matters
\nor  disputes  in respect of which provision  has  been\tmade
\nelsewhere  or otherwise in the contract. These words in\t our
\nopinion\t can have reference only to provisions such  as\t the
\none  in\t parenthesis in clause 2 by which certain  types  of
\ndeterminations\tare left to the\t administrative\t authorities
\nconcerned. If that be not so, the words “except where other-
\nwise provided in the contract” would become meaningless.  We
\nare  therefore\tinclined to hold that the  opening  part  of
\nclause\t25 clearly excludes matters like those mentioned  in
\nclause\t2  in  respect of which any dispute is\tleft  to  be
\ndecided by a higher official of the Department. Our  conclu-
\nsion, therefore, is that the question of awarding  compensa-
\ntion under clause 2 is outside the purview of the arbitrator
\nand that the compensation, determined under clause 2  either
\nby  the\t Engineer-in-charge or on further reference  by\t the
\nSuperintending Engineer will not be capable of being  called
\nin question before the arbitrator.\n<\/p>\n
    We may confess that we had some hesitation in coming  to
\nthis  conclusion. As pointed out by the Division Bench,\t the
\nquestion  of  any negligence or default on the part  of\t the
\ncontractor has many facets and to say that such an important
\naspect of the contract cannot be settled by arbitration\t but
\nshould\tbe  left  to one of the\t contracting  parties  might
\nappear\tto have far reaching effects. In fact, although\t the
\ncontractor  in\tthis  case might object to  the\t process  of
\narbitration  because  it has gone against  him,\t contractors
\ngenerally  might  very well prefer to have the\tquestion  of
\nsuch  compensation decided by the arbitrator rather than  by
\nthe  Superintending Engineer. But we should like to make  it
\nclear that our decision regarding non arbitrability is\tonly
\non  the\t question of any compensation which  the  Government
\nmight  claim in terms of clause 2 of the contract.  We\thave
\nalready pointed out that this is a penalty clause introduced
\nunder  the  contract  to ensure that the  time\tschedule  is
\nstrictly  adhered  to. It is something which  the  Engineer-
\nincharge  enforces from time to time when he finds that\t the
\ncontractor is being recalcitrant, in order to ensure  speedy
\nand proper observance of the terms of the contract. This  is
\nnot  an\t undefined  power. The\tamount\tof  compensation  is
\nstrictly limited to a maximum of 10% and with a wide  margin
\nof discretion to the Superintending Engineer, who might\t not
\nonly  reduce  the  percentage but who, we  think,  can\teven
\nreduce it
\n300<\/span>
\nto  nil, if the circumstances so warrant. It is\t this  power
\nthat is kept outside the scope of arbitration. We would like
\nto  clarify  that this decision of ours will  not  have\t any
\napplication to the claims, if any, for loss or damage  which
\nit may be open to the Government to lay against the contrac-
\ntor,  not in terms of clause 2 but under the general law  or
\nunder  the Contract Act. As we have pointed out at the\tvery
\noutset\tso  far as this case is concerned the claim  of\t the
\nGovernment has obviously proceeded in terms of clause 2\t and
\nthat  is the way in which both the learned single  Judge  as
\nwell  as the Division Bench have also approached  the  ques-
\ntion.  Reading clauses 2 and 25 together we think  that\t the
\nconclusion  is irresistible that the amount of\tcompensation
\nchargeable under clause 2 is a matter which has to be  adju-
\ndicated\t in accordance with that clause and which cannot  be
\nreferred to arbitration under clause 25.\n<\/p>\n
    As\tstated earlier, an alternative ground was  urged  by
\nthe learned counsel for the appellant that, no penalty under
\nclause 2 having been imposed by the respondents in the first
\ninstance, no dispute had at all arisen which could have been
\nreferred to arbitration. This point was not taken before the
\nHigh  Court and the relevant facts are not on  record.\tThat
\napart,\tin  the\t view we have taken, it\t is  unnecessary  to
\nexpress\t any  opinion on this argument and we  refrain\tfrom
\ndoing so.\n<\/p>\n
    For the reasons above mentioned, we restore the judgment
\nof  the learned single Judge. In the result, the  amount  of
\ncompensation  of  Rs.20,000  awarded by\t the  arbitrator  in
\nfavour\tof the Government will stand deleted. The amount  of
\ninterest  payable to the contractor, if any, will be  worked
\nout on the basis of the award as modified by us above.
\n    The\t appeal is allowed. We however make no order  as  to
\ncosts in the circumstances of the case.\n<\/p>\n
N.V.K.\t\t\t\t       Appeal allowed.\n301<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Vishwanath Sood vs Union Of India & Anr on 24 January, 1989 Equivalent citations: 1989 AIR 952, 1989 SCR (1) 288 Author: S Rangnathan Bench: Rangnathan, S. PETITIONER: VISHWANATH SOOD Vs. RESPONDENT: UNION OF INDIA & ANR. DATE OF JUDGMENT24\/01\/1989 BENCH: RANGNATHAN, S. BENCH: RANGNATHAN, S. MUKHARJI, SABYASACHI (J) CITATION: 1989 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-201543","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nVishwanath Sood vs Union Of India & Anr on 24 January, 1989 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/vishwanath-sood-vs-union-of-india-anr-on-24-january-1989\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Vishwanath Sood vs Union Of India & Anr on 24 January, 1989 - 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