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J.G Engineer'S Pvt. Ltd. v. Calcutta Improvement Trust And Another
Factual and Procedural Background
The appellant, a contractor, entered into a works contract with the respondent, Calcutta Improvement Trust (CIT). CIT terminated the contract, prompting the contractor to invoke the arbitration clause. On 30-09-1999 the arbitrator held the termination wrongful and awarded the contractor Rs 24,80,000 plus interest. CIT challenged the award under Sections 30 and 33 of the Arbitration Act, 1940. A learned Single Judge of the High Court dismissed the challenge, but a Division Bench allowed CIT’s appeal and set aside the award. The contractor appealed to the Supreme Court.
Legal Issues Presented
- Whether the issue of wrongful termination was an “excepted matter” under the contract—rendering it non-arbitrable because of an Engineer’s certificate—and therefore beyond the arbitrator’s jurisdiction.
- Whether the award was liable to be set aside on the ground that the arbitrator failed to consider CIT’s counter-claim, thereby omitting to exercise jurisdiction vested in him.
Arguments of the Parties
Appellant-Contractor’s Arguments
- The Engineer’s certificate could speak only to the quality or measurement of work, not to responsibility for breach; therefore, the validity of termination remained arbitrable.
- CIT itself sought framing of an issue on wrongful termination before the first arbitrator and never objected during 98 sittings (16 before the first arbitrator, 82 before the second).
- The Engineer’s certificate dated 03-11-1995 was produced only in the 46th sitting (03-11-1998); absence of a timely plea in CIT’s counter-statement bars later objection to arbitrability.
Respondent-CIT’s Arguments
- Clauses 1.9 and 15 made the Engineer’s certificate conclusive; hence the question of wrongful termination was an excepted matter not referable to arbitration.
- The arbitrator failed to consider its counter-claim, thus exceeding jurisdiction and rendering the award liable to be set aside.
- Relied on Union of India v. Popular Builders, SAIL v. J.C. Budharaja, and U.P. Rajkiya Nirman Nigam Ltd. v. Indure (P) Ltd. to contend that the existence of an arbitrable dispute is a jurisdictional prerequisite and that courts, not arbitrators, decide arbitrability.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union of India v. Popular Builders, Calcutta (2000) 8 SCC 1 | Existence of an arbitrable dispute is a condition precedent; non-arbitrable claims must be excluded. | Distinguished on facts; Court noted that, unlike in Popular Builders, CIT never raised the non-arbitrability plea before the arbitrator, so the case actually supported the contractor. |
| Steel Authority of India Ltd. v. J.C. Budharaja (1999) 8 SCC 122 | To test whether the arbitrator exceeded jurisdiction, the contract must be examined. | Held inapplicable because Budharaja involved a speaking award showing prohibited items; the present award is non-speaking and no similar overreach was shown. |
| U.P. Rajkiya Nirman Nigam Ltd. v. Indure (P) Ltd. (1996) 2 SCC 667 | Court, not arbitrator, decides arbitrability under Section 33; parties are not estopped from raising the issue before court. | Noted but found unhelpful to CIT; arbitrator’s jurisdiction here depended on factual matrix and CIT had not pleaded the necessary facts. |
Court's Reasoning and Analysis
Issue 1: Arbitrability of Termination
The Court observed that arbitrability turned on whether an Engineer’s certificate under the contract had been issued and pleaded. CIT’s counter-statement before the arbitrator contained no plea that a certificate rendered the dispute non-arbitrable, and the certificate itself surfaced only in the 46th sitting. Because CIT participated in extensive arbitration without objection, it could not later invoke the excepted-matter clause. Hence, arbitrability was not a jurisdictional bar.
Issue 2: Consideration of Counter-Claim
The award, though non-speaking, expressly stated that both the contractor’s claims and CIT’s counter-claims were considered and disposed of. The Division Bench’s contrary finding was “contrary to the record.” Therefore, the alleged non-consideration of the counter-claim furnished no ground to set aside the award.
Accordingly, both grounds relied upon by the Division Bench failed. The Single Judge’s order upholding the award was restored.
Holding and Implications
APPEAL ALLOWED; DIVISION BENCH JUDGMENT SET ASIDE; SINGLE JUDGE’S ORDER RESTORED.
Immediate effect: the arbitral award dated 30-09-1999 in favour of the contractor (Rs 24.80 lakh plus interest) stands reinstated. CIT’s objections are dismissed, and costs are awarded to the contractor. The decision reiterates that parties must promptly raise objections to arbitrability; failure to do so may preclude later challenges. No new substantive precedent was set beyond application of settled principles.
Y.K Sabharwal, J.— Leave granted.
2. The dispute and differences between the appellant-contractor and respondent-Calcutta Improvement Trust (CIT) were determined by award dated 30-9-1999. The arbitrator held that the contract was wrongly terminated by CIT and awarded in favour of the contractor a sum of Rs 24,80,000 besides interest. The award was challenged by the CIT by filing an application under Sections 30 and 33 of the Arbitration Act, 1940. That application was rejected by a learned Single Judge of the High Court. The appeal of the CIT was, however, allowed by the Division Bench and the award was set aside. The contractor has challenged the correctness of the decision of the Division Bench.
3. The main grounds on which the award has been set aside by the impugned judgment are two. First, that the question of the wrongful termination of the contract was an excepted matter and, thus, not arbitrable. Second, the arbitrator has not considered the counterclaim of the CIT and thereby has failed to exercise jurisdiction vested in him by law.
4. Regarding the ground of arbitrability, clause 1.9 of the Information and Instructions to Tenders stipulates that the disputes between the parties to the contract shall be referable to an arbitrator, other than those for which the decision of the Engineer is by contract expressed to be final, binding and conclusive. Clause 15 of the contract provides that the certificate of the Engineer as to the happening of any of the events referred to in the said clause shall be conclusive proof as between the contractor and the CIT, of the statements contained in such certificate. According to the CIT, in view of the Engineer's certificate dated 3-11-1995 certifying that the contractor has miserably failed to complete the work and with a view to effecting completion of the work and remedying the breach, it is a fit case for taking action under clause 16 of the works contract for termination, the question of the validity of termination is an excepted matter and, therefore, not arbitrable.
5. According to the contractor, however, the Engineer's certificate could only certify as to the quality or measurement of the work done and it could not give a binding statement as to who caused the breach or was responsible for delay and these matters are essentially within the jurisdiction of the arbitrator to be adjudicated upon and to hold otherwise would render arbitration clause nugatory. Further the case of the contractor is that the issue as to whether the termination is wrongful was initially framed by the first arbitrator who was the officer on special duty of the CIT on 3-3-1997 at the instance of the CIT itself. In place of the said arbitrator, the Court appointed the arbitrator who has made and published the award in question. The arbitrator adopted the said issue on 24-6-1998 with consent of both the parties.
6. Learned counsel for the appellant submits that there were 16 hearings before the earlier arbitrator and 82 before the present arbitrator. In those proceedings, the respondent never objected to framing of the issue as to the termination of the contract or to hearing of the said issue and no objection was taken to the arbitrability of the issue. The issue of termination was left to be decided by the arbitrator. In respect of the Engineer's certificate dated 3-11-1995, it was pointed out that the same was produced before the arbitrator only on 3-11-1998 in the 46th sitting before the arbitrator. The contention is that under these circumstances, it is not open to the CIT to urge that the issue of termination of the contract cannot be adjudicated by the arbitrator.
7. We have perused the counter statement of facts filed by the CIT before the arbitrator. It is clear therefrom that no objection as to the arbitrability of the issue of the validity of termination has taken in the said counter statement. On 3-3-1997, the following three issues were framed by the arbitrator:
“1. Was the contract wrongfully terminated?
2. Is the claimant entitled to any claim referred to in the statement of facts?
3. Is the respondent entitled to any claim referred to in the counter statement of facts and counterclaim?”
8. The arbitration proceedings of the 23rd sitting dated 10-7-1998 show that the Engineer's certificate had not been filed. It is clear that the certificate dated 3-11-1995 was produced for the first time on 3-11-1998 in the 46th sitting before the arbitrator.
9. On the aforesaid facts, learned Single Judge came to the conclusion that the issue about termination having been gone into by the arbitrator, it was not permissible for the CIT to take the plea about the non-arbitrability thereof. Learned counsel for the CIT, however, contends that issue of arbitrability being a matter of jurisdiction of the arbitrator, learned Single Judge was not correct in concluding that the CIT could not take that plea and the Division Bench by the impugned judgment rightly reversed the decision of the learned Single Judge. Learned counsel relies upon the decision in the case of Union of India v. Popular Builders (2000) 8 SCC 1 by a three-Judge Bench, to which one of us (G.B Pattanaik, J.) was a member, in support of the contention that the existence of an arbitrable dispute is a condition precedent for exercise of power by the arbitrator. We have no quarrel with this proposition. In the decision relied upon, on facts, it was found that the final bill that was prepared by the appropriate authority was accepted by the contractor without any protest and that the said question had been raised by the Government before the arbitrator in respect of Claim 2. On these facts, the Court held that insofar as Claim 2 is concerned, the same could not have been a matter of reference of an arbitrable dispute and as such, the award to that extent must be set aside. In fact, this decision is against the respondent inasmuch as in the said case the other claim items in respect whereof the Union of India had not taken any objection on the same score as in respect of Claim 2, the Bench held that it was not appropriate to allow the Government to raise that objection, so far as other items of the claim are concerned and except to the extent of Claim Item 2 the rest of the award was affirmed.
10. Reliance has also been placed on Steel Authority of India Ltd. v. J.C Budharaja, Govt. and Mining Contractor (1999) 8 SCC 122. That is, however, a case of a speaking award where it was apparent from the award that the arbitrator had awarded the amount for the items for which there was prohibition in the contract and thereby he had travelled beyond his jurisdiction and it is in that context that the Court reiterated that to find out whether the arbitrator has travelled beyond his jurisdiction and beyond the terms of the agreement between the parties, the agreement is required to be looked into. This decision has no applicability to the present case.
11. Lastly, reliance is placed on U.P Rajkiya Nirman Nigam Ltd. v. Indure (P) Ltd. (1996) 2 SCC 667 This is again a decision by a three-Judge Bench of which one of us (G.B Pattanaik, J.) was a member. The said decision arose out of an application filed under Section 33 of the Arbitration Act pending the arbitration proceedings for a declaration that there existed no arbitration agreement between the parties on the basis of which dispute could be referred for arbitration. The contention urged was that the arbitrator having been appointed by the appellant, they could not seek a declaration under Section 33 of the Act. It was held that the arbitrators cannot clothe themselves with jurisdiction to decide conclusively the arbitrability of the dispute and it is for the court to decide that question and, therefore, the appellant is not estopped to file an application under Section 33 of the Act. This decision again is of no assistance for deciding the present case. In the case in hand it cannot be held that the arbitrator per se had no jurisdiction to decide the issue of the validity of the termination of the contract. It depended upon the factual matrix.
12. The issue of termination of the contract in question, on the facts under consideration before us, does not relate to the jurisdiction of the arbitrator. Without going into the scope of clause 1.9 of the Information and Instructions to Tenders or that of clause 15 of the contract and assuming that issue of termination of contract can be brought within the scope of the said clauses and, thus, made an excepted matter but that would depend upon the fact whether the Engineer's certificate under clause 1.9 has been issued or not. Therefore, specific plea had to be taken that such a certificate was issued and, therefore, the aspect of termination was not arbitrable. As already noticed, no such fact was pleaded or contention urged in the counter statement of facts. In this view, it is not necessary to decide whether the issue of termination of the contract could be brought within the ambit of the excepted matter or not or that the Engineer's certificate could be conclusive only as to the quality or measurement of the work done.
13. The Division Bench was, thus, not correct in coming to the conclusion that the fundamental terms of the agreement between the parties prohibited the arbitrability of the excepted matters. The first ground on the basis of which the judgment of the learned Single Judge was reversed is, thus, not sustainable.
14. Regarding the second ground on which decision of learned Single Judge was reversed by the impugned judgment, we are concerned in this case with a non-speaking award. Perusal of the award shows that the arbitrator has considered the claims and counterclaims of the parties. The arbitrator says that “and whereas i have considered the claim and the counterclaim amounts as per statement of facts and the counter statement of facts….” Again while formulating the award, the arbitrator awards the amount in full and final settlement of the claim of the claimant as set out in the statement of facts and the counterclaims of the respondent. In this view, the conclusion of the Division Bench that the arbitrator has not considered the counterclaim of the CIT, is contrary to the record. Therefore, the second ground is also not sustainable.
15. For the foregoing reasons, we set aside the impugned judgment of the Division Bench and restore that of the learned Single Judge. The appeal is, thus, allowed with costs.
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