Bhagya Jala Nigam Ltd Vs. G. Harischandra Reddy and Anr  Insc 28 (10
Arijit Pasayat & S. H. Kapadia (Arising out of Slp (C)No.10418 Of 2005) Kapadia,
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
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.
second issue is regarding the merits of the claims made by the contractor.
facts giving rise to the above civil appeal are as follows.
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
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:
- 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 namely.
The meaning of
the specifications designs, drawings and instructions herein before mentioned,
The quality of
workmanship or materials used on the work and
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 Contractor.
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 diligence.
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
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.
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.
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.
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.
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".
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
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
not challenge the competence of the arbitral tribunal.
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.
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.
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.
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 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
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.
the civil appeal stands allowed to the extent indicated above with no order as