Partly allowed

South Western Railway v. Sri Tam Tam Pedda Guruva Reddy

Karnataka HC16 Aug 2021MFA/996/2018

Case brief

AI extract

What is this about?

A railway works award was challenged over excepted matters, compensation and interest. The court upheld the tribunal’s jurisdiction over withheld claims and rejection of the delay counterclaim, but set aside extended-period site rent and pre-award interest. Post-award interest and the remainder of the award were confirmed.

What did the court decide?

Claim No.13 for extended-period site rent and pre-award interest under claim No.24 set aside; post-award interest and the remaining award confirmed.

South Western Railway Vs Sri Tam Tam Pedda Guruva Reddy — Arbitration | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 16^TH DAY OF AUGUST, 2021

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PRESENT

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THE HON’BLE MRS.JUSTICE S.SUJATHA

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AND

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THE HON’BLE MR. JUSTICE E.S.INDIRESH

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M.F.A.No.996/2018 (AA)

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BETWEEN :

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SOUTH WESTERN RAILWAY REP BY ITS CHIEF ENGINEER (CONSTRUCTIONS) SOUTH WESTERN RAILWAY No.18, MILLERS ROAD BENGALURU – 560 023

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..APPELLANT

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(BY SRI ABHINAY Y.T, ADV.)

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AND :

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SRI TAM TAM PEDDA GURUVA REDDY MAJOR, No.1427, 18^TH MAIN ROAD II CROSS, JP NAGAR II PHASE, BENGALURU – 560 078

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SRI M.JEYACHANDREN FA & CAO (STORES AND WORKSHOPS) NEW JOINT OFFICE SOUTHERN RAILWAY CHENNAI- 600 023

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SRI M.SUYAMBULINGAM ADDITIONAL DRM SOUTHERN RAILWAY MADURAI DIVISION MADURAI – 625 016

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SRI S.NAYAK CHIEF ELECTRICAL SERVICE ENGINEER HEADQUARTERS OFFICE SOUTHERN RAILWAY CHENNAI – 600 003 …RESPONDENTS

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(BY SRI ADITHYA D , ADV FOR R-1.)

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THIS M.F.A. IS FILED UNDER SECTION 173(1) OF THE ARBITRATION AND CONCILIATION ACT, AGAINST THE JUDGMENT AND AWARD DATED 01.09.2017 PASSED ON A.S.NO.122/2006 ON THE FILE OF THE 8^TH ADDITIONAL CITY CIVIL & SESSIONS JUDGE, (CCE-15) BENGALURU, DISMISSING THE ARBITRATION SUIT FILED BY THE PLAINTIFF AGAINST THE RESPONDENTS UNDER SECTION 34 OF THE ARBITRATION AND CONCILIATION ACT AND ETC.,

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THIS APPEAL HAVING BEEN HEARD AND RESERVED, COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, S. SUJATHA, J ., DELIVERED THE FOLLOWING:

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J U D G M E N T

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This appeal is filed under Section 37(1)(c) of The Arbitration and Conciliation Act, 1996 (‘Act’ for short) challenging the order dated 1.9.2017 passed in A.S.No.122/2006 by the VIII Addl. City Civil & Sessions Judge, Bangalore. (‘Trial Court’ for short).

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For the sake of convenience, the parties are referred to as per their status before the Trial Court.

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Briefly stated the facts are:

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An agreement was entered into between the

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parties on 25.10.1999 for Tunneling, Earthwork and Minor Bridges between Ch 21000 to Ch 23500 in Reach V between Puttaparthy and Basampulli (in the Pennukonda-Puttaparthy-Dharmavaram New BG Line) for the value of Rs.4,53,58,614/- and the completion period was agreed for 10 months from the date of commencement of the work i.e., 25.8.1999. Though the completion of work ought to have been done on 24.8.2000 but actually it was made on 8.3.2002 after obtaining four extensions. Regarding the payments, the dispute arose as such, the respondent No.1 raised about 24 claims and requested the same to be referred for Arbitration. The General Manager on examination of the claims, came to the conclusion that only 5 claims were arbitrable and accordingly referred the same for Arbitration, as per Terms of Reference dated 22.1.2003. Thus, Three Member Arbitral Tribunal constituted entered into reference and the petitioner raised 24

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claims and also an additional claim before it. The Railways made a counter claim i.e., for the cost of Arbitration and payment of Rs.20,63,810/- being 5% of the executed value of the work for the delay caused in completion of the work. By an award dated 2.6.2006, as per the majority opinion, the Tribunal accepted the claim Nos.2, 3(a)(1), (2), 3(b)(3), 3(b)(4), 11, 13, 15, 16, 19, 20, 21, 24 and additional claim, awarded a sum of Rs.2,70,92,054/- rejecting the counter claim of the Railways whereas the dissenting member of the Tribunal rejected all the claims except claim No.1(b), 2, 16 and awarded a sum of 14,74,071/- rejecting the counter claim of the Railways. The award dated 2.6.2006 has been corrected by Arbitral award dated 12.07.2006, collectively referred to as the award.

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Being aggrieved by the said award, the Railways filed application under Section 34 of the Act for setting aside the award mainly contending that the

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Arbitral Tribunal ought not to have entertained or adjudicated any claim other than the claims referred to it under the Terms of Reference. It was contended that the Tribunal could not have ordered the refund of EMD when the respondent No.1 had not even claimed it. The Trial Court after hearing the matter, by its judgment and decree dated 1.9.2017 dismissed the suit. Being aggrieved by the said judgment, the Railways have preferred the present appeal.

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Learned counsel appearing for the appellant argued that as per clause 63 of the General Conditions of Contract (‘GCC’ for short) which governs the Arbitration, the General Manager had referred only 5 claims to the Arbitral Tribunal out of the 24 claims raised by the Contractor since 19 of them were claims relating to ‘excepted matters’. The Arbitral Tribunal instead of restricting the Arbitration to the extent of terms of reference has adjudicated all the 24 claims

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which is contrary to the terms of reference. This ground

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coming within the ambit of Section 34(2)(a)(iv) of the Act, the Trial Court ought to have analysed the matter in a right perspective. The Trial Court, in a cavalier

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manner, dismissed the suit.

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Learned counsel for the appellant has placed

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reliance on the following judgments:

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1. (2006)1 SCC 86 in State of Rajasthan Vs. Nav Bharat Construction.

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2. (2010)14 SCC 633 in Union of India Vs. Chandalavada Gopalakrishna Murthy and others.

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3. AIR 2002 SC 1272 in General Manager, Northern Railway and another Vs. Sarvesh Chopra.

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4. AIR 2015 SC 270 in M/s Harsha Constructions Vs. Union of India.

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5. AIR 2011 SC 3814 in State of Goa Vs. Praveen Enterprises.

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6. (2010)8 SCC 767 in Sree Kamatchi Amman Construction Vs DRM.

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7. AIR 2014 SC 1914 in Union of India Vs. Concrete Products.

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8. (2015) 9 SCC 695 in Union of India Vs. Bright Power Projects.

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9. (2016) 6 SCC 36 in Union of India Vs. Ambica Construction.

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10. Union of India Vs. Soham Engineering (MFA 2144/2019).

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Learned counsel for the respondent No.1

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argued that 19 claims left out by the General Manager

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would not come within the purview of excepted matters as per clause 63 of the GCC. Learned Arbitrator, having analysed the claims and the aspect of jurisdiction as a preliminary issue, returned a ruling to take up all the 24 claims for consideration, the same being accepted, the appellant is estopped from raising objections to the jurisdiction of the learned Arbitrator in deciding all the 24 claims. The Trial Court has extensively considered the contentions raised by the appellant herein and rejected the same by giving valid reasons. The scope of

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section 34 under the Act being limited, the Trial Court has rightly dismissed the suit as none of the grounds urged by the appellant would come within the parameters set down by the Hon’ble courts with respect to the grounds of challenge under Section 34 of the Act. Learned counsel has placed reliance on the following judgments:

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1. Bharat Sanchar Nigam Limited & another Vs. M/s Nortel Networks India Pvt. Ltd., (Civil Appeal Nos.843-844 of 2021).

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2. National Insurance Company Limited Vs. Boghara Polyfab Pvt. Limited reported in 2009(1) SCC 267.

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3. Agarwal Company and another Vs. Union of India reported in AIR 2015 All 25.

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4. Union of India Vs. M/s Pam Development Pvt. Ltd., S.C. (Civil Appeal No.5618/2006).

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5. Rhiti Sports Management Pvt. Ltd., Vs. Power Play Sports and Events Limited, New Delhi (O.M.P.(Comm)394/2017).

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6. M. Rajkumar Vs. The General Manager, Madras (O.P.No. 107/2012).

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7. Olympus Super Structure Pvt. Ltd., Vs. Meena Vijay Khetan reported in AIR 1999 S.C. 2102.

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8. Hydel Construction Ltd., Vs. H.P.State Electricity Board reported in AIR 2000 HP 19.

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9. State of U.P. Vs. Ram Nath International reported in AIR 1996 S.C. 782.

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We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.

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The points that arise for our consideration

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are:

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Whether the challenge made to the award confirmed by the Trial Court to the referred claims is justifiable?

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2. Whether the claims of the respondent comes under the ambit of “excepted matters”?

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3. Whether the learned Arbitral Tribunal has exceeded its jurisdiction while passing the award?

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4. Whether the rejection of the counter claims of the Railways is justifiable?

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Re. Point No.1 : List of claims made by the respondent/claimant before the General Manager is as under:

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List of Claims

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Claim	Description	Claim as per	Claim as per
No		statement of 14.01.2003 Rs.	statement of 03.07.2006 Rs.
1.	Refund of EMD, Security Deposit and final bill	27,50,000	27,50,000
2.	Payment towards controlled blasting	1,76,85,600	2,43,41,686
3(a)	Payment towards extra items of work in excess of 25% falling in over cut in tunnel	95,48,854
3)a) 1)	Payment towards extra items of work boulder packing in over cut in tunnel		94,85,370
3(a) (2)	Payment towards coursed rubble		4,24,472
3(b)	Payment towards quantity executed –more that 25% of agreement quantity	38,79,306
3(b) (1)	Payment towards CERTIFIED COPY legging		2,02,950

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3(b) (2)	Payment side walls	towards providing inside the tunnel		1,12,515
3 (b) (3)	Payment embankm earth	towards formation of ent with contractor’s		51,19,716
3 (b) (4)	Payment conceptio	towards mechanical n		8,23,274
3 (b) 5	Payment conceptio	towards mechanical n		8,23,274
3 (b) (6)	Payment supports	towards permanent		6,05,034
4	Payment delayed p	of interest charges for ayment of RA Bills	50,35,054	50,35,054
5	Payment towards beyond a	of equitable rates quantity executed greement period	Not quantified	1,04,32,481
6(a)	Payment monthly agreemen	towards additional overheads beyond t period	95,25,306	95,25,306
6 (b)	Payment I turnover	towards loss suffered	99,34,148	99,34,148
7	Payment classificat	towards lower ion in strata	18,81,511	18,81,511
8	Payment t tunneling	owards extra rates of	72,33,448	72,33,448
9	Payment	towards idle charges	71,97,400	71,97,400

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	for man and machinery
10	Payment towards damages to machinery and permanent support	14,33,250	14,33,250
11	Payment towards over –break in tunnel	13,32,840	15,45,899
12	Payment towards over-break open cut excavation	54,18,130	54,18,130
13	Payment towards land taken on rent for site , camp etc.	1,99,500	1,99,500
14	Payment towards stripping quantity on banks	20,43,569	2,06,411
15	Payment towards the quantity paid in CERTIFIED COPY-7 but reduced in CERTIFIED COPY-8	1,39,466	60,226
16	Payment towards difference in rate of blanketing	35,006	78,654
17	Payment towards contractor’s own earth for mechanical compaction	11,07,530	11,07,530
18	Payment towards wastage of steel	7,50,282	7,50,282
19	Payment towards CERTIFIED COPY foundation for permanent support	9,63,750	9,63,750
20	Payment towards leveling	2,88,900	2,88,900

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	course in tunnel
21	Payment towards temporary support	16,26,400	16,26.400
22	Payment towards increase use of fuel and oil	1,23,81,062	1,23,81,062
23	Payment towards turling	1,39,500	1,39,500
24	Payment of interest charges	20%	20%
Additional	Payment towards cement consum	ed	1,79,315
Claim

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Amongst the said 24 plus additional claims, 5 claims

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viz., 1, 4, 6(b), 13 and 24 were referred to the Arbitral

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Tribunal by the General Manager. Firstly, it is apt to analyse the challenge made to the award with respect to the claims referred.

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11. As regards claim No.1 - Refund of EMD

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security deposit and final bill of Rs.27,50,000/-, it is said to have been complied with, by the railways. No further adjudication is required.

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12. Regarding claim No.4 - Payment of interest

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charges for delayed payment of RA bills, the same is

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rejected. No award is made on this claim by the Arbitral

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Tribunal.

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13. Regarding claim No.6(b) - Payment towards

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loss suffered due to reduction in turnover in contractors profit, the said claim is rejected.

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Regarding claim No.13 – Payment towards land taken on rent for site camp etc., during the period beyond the stipulated period of completion, Arbitral Tribunal has awarded an amount of 1,99,500/- towards this claim. The same has been confirmed by the Trial Court.

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At this juncture, it is beneficial to refer to the judgment of the Hon'ble Apex Court in the case of State

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of Rajasthan Vs. Nav Bhrat Construction Company,

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supra, wherein it has been held that it must be noted that, in the case of Tarapore & Co. Vs. State of M.P. reported in (1994) 3 SCC 521 , there was no terms in

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the contract which prohibited any extra claims being made because of the increase in wages. Clause 31 of the special conditions of the contract specifically bars the contractor from claiming any compensation or an increase in rate under such circumstances. Not only that but the respondents had with their initial tender put in terms which provided that if there was any increase in the minimum wages by the Government, the rates quoted by him would be increased by the same percentage. At the time of negotiation, this clause was dropped. Thus, the respondents had themselves agreed not to claim any compensation or increase by reason of increase in wages. This claim, therefore, could not have been granted. This case is squarely applicable to the facts of the present case.

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16. In Union of India Vs. Chandalavada

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Gopalakrishna Murthy and others, supra, the Hon'ble Apex Court considering Clause 17(3) of the

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Contract held that if there is delay by the Railways, the term of the contract can be extended as has been done in the present case, however, the contractor shall not be entitled to damages or compensation. A reference has been made to the judgment in Ch. Ramalinga Reddy Vs. Superintending Engineer reported in (1999)9 SCC 610 wherein it has been held that if the contract is extended under the terms of the contract, compensation cannot be awarded by the Arbitrator. The aforesaid principle has been reiterated in another decision of the Hon'ble Apex Court in General Manager, Northern Railway and another Vs. Sarvesh Chopra reported in (2002)4 SCC 45 .

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The Trial Court distinguished the judgment of Sarvesh Chopra mainly on the ground that it was rendered with reference to section 20 of the Arbitration Act, 1940 whereas the present Arbitration is under the Arbitration and Conciliation Act, 1996. As could be seen

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from the GCC, no such distinguishable factors are found. Hence, a sum of Rs.1,99,500/- awarded under this claim is not justifiable.

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Claim No.24 is towards payment of interest

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charges. Taking all the factors into consideration, the Tribunal was of the view that the claimant was certainly entitled to compensation in the form of interest on the amount awarded from 1.4.2002 which was the month after the date of actual completion. While the claimant had claimed an interest rate of 20%, keeping the falling trend in the interest rates in the country during the reference period, the Tribunal awarded simple interest @ 10% p.a. on all the sums awarded under claims 1 to 23 with effect from 1.4.2002 upto 31.3.2006.

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In the case of Sree Kamatchi Amman

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Constructions , supra, the Hon'ble Apex Court in the context of clause 16(2) of the General Conditions of Contract governing contract between the claimant

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therein and the railways quoting the said clause has held that the contract bars payment of interest and the said clause is extracted hereunder:

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the earnest money or the security deposit or amounts payable to the contractor under the contract, but Government securities deposit in terms of sub-clause (1) of this clause will be repayable (with) interest accrued thereon.”

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In the same judgment, it has been observed that section 37(1) of the Act, 1996 by using the words “unless otherwise agreed by the parties” categorically clarifies that the Arbitrator is bound by the terms of the contract insofar as the award of interest from the date of cause of action to the date of award. Therefore, where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest between the

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date when the cause of action arose to the date of award.

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In Ambika Constructions supra, the

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Hon'ble Apex Court has held that if the contract expressly bars the award of interest pendente lite, the same cannot be awarded by the Arbitrator. It is also made clear that the bar to award interest on delayed payment, by itself, will not be readily inferred as express bar to award interest pendente lite by the Arbitral Tribunal as ouster of power of the Arbitrator has to be considered on various relevant aspects referred to in the decisions of the Hon'ble Apex Court, it would be for the Division Bench to consider the case on merits.

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In Concrete Products , supra, the Hon'ble Apex Court referring to Sree Kamatchi Amman Constructions has held that the Arbitrator could not have awarded any interest from the date when the recovery was made till the award was made. However,

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interest would have been payable from the date when the award was made till the money was deposited in the High Court and thereafter converted to fixed deposit receipts.

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In Bright Power Projects , supra,

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considering clause 13(3) of the Contract entered into between the parties therein, it has been held that when it has been specifically understood between the parties that no interest was to be paid on the earnest money, security deposit and the amount payable to the contractor under the contract, no interest could be awarded being bound by the terms of the contract.

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This Court in MFA No.2144/2017 (one of us

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SSJ was a member) in the case of Union of India Vs. Soham Engineering Constructions (D.D.16.4.2020)

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has held that awarding interest @ 18% p.a. with respect to restoration of the excess amount encashed by invoking bank guarantee submitted towards

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mobilization advance for a period of 22 months is against clause 16(3) and 64(5) of the GCC and similarly the award of interest under Clause 10 and 11 is contrary to Section 31(7) of the Act which provides for grant of interest on the amount awarded by the Tribunal “unless otherwise agreed by the parties”. The judgment of the Hon'ble Apex Court in the case of Union of India Vs. Concrete Products and Const. Co. Etc., reported in AIR 2014 SC 1914 has been referred to, wherein it has been held that payment of interest by the Tribunal in contravention of the specific Clauses in the Railway Contract is bad in law. However, we confirm the rate of interest at 10% p.a., for the post award period in the present case.

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Re. Point Nos.2 and 3:

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Now the next question would be whether

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other 19 claims adjudicated by the learned Arbitrator comes within the purview of “excepted matters”. Clause

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63 of the GCC which governs the arbitration reads as under:

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“63. Matters Finally Determined By The Railway: All disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after its completion and whether before or after the determination of the contract, shall be referred by the contractor to the GM and the GM shall within 120 days after receipt of the contractor’s representation, make and notify decisions on all matters referred to by the contractor in writing provided that matters for which provision has been made in Clauses 8,18,22(5),39,43(2), 45(a), 55, 55-A, 57, 57A, 61(1), 61(2) and 62(1) to (xiii) (B) of Standard General Conditions of Contract or in any Clause of the Special Conditions of Contract shall be deemed as ‘excepted matters’ (matters not arbitrable) and decisions of the Railway authority, thereon shall be final and binding on the contractor, provided further that ‘excepted matters’ shall stand

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specifically excluded from the purview of the Arbitration Clause.”

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26. To appreciate the arguments advanced by

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the learned counsel for the parties on this point, it is necessary to scan through the clauses specified as “excepted matters” under clause 63 viz., Clause 8 - Assistance by the Railway for the Stores to be obtained by the Contractor; Clause 18 - Illegal gratification; Clause 22(5) – Meaning of Intent of specifications and drawings; Clause 39 – Rates for extra items of works; Clause 43(2) – Signing of ‘No claim certificate’ ; Clause 45 – Measurement of works; Clause 55 – Provisions of payments of wages Act; Clause 55-A – Provisions of contract labour (Regulation and Abolition) Act 1970; Clause 57 – Provision of Workmen’s Compensation Act 57; Clause 57-A – Provision of Mines Act; Clause 61 – Right of Railway to determine Contract; Clause 62(1) – Determination of contract owing to default of

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Contractor. The 19 claims as narrated in the tabular column hereinabove would indicate that the said claims are payments claimed under the different heads. The Tribunal has considered the jurisdiction aspect as a preliminary issue inasmuch as excepted matters and has given a ruling.

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Section 16(5) of the Act provides that the Arbitral Tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and where the Arbitral Tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. Sub-section(2) contemplates, a plea that the Arbitral Tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an Arbitrator, whereas sub-section(3) provides that a plea

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of the Arbitral Tribunal exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. As per sub-section(6), a party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34. Thus, the said ruling of the Arbitrator could be challenged only under Section 34. As such the applicant has questioned the same under Section 34 proceedings which cannot be faulted with.

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It would be relevant to refer to the judgment of the Hon'ble Apex Court in the case of State of Goa , supra. As regards the reference to Arbitration, the Hon'ble Apex Court has observed thus:

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“10. `Reference to arbitration' describes various acts. Reference to arbitration can be by parties themselves or by an appointing authority named in the arbitration agreement or by a court on an application by a party to the arbitration agreement. We may elaborate:

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(a) If an arbitration agreement provides that all disputes between the parties relating to the contract (some agreements may refer to some exceptions) shall be referred to arbitration and that the decision of the arbitrator shall be final and binding, the `reference' contemplated is the act of parties to the arbitration agreement, referring their disputes to an agreed arbitrator to settle the disputes.

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(b) If an arbitration agreement provides that in the event of any dispute between the parties, an authority named therein shall nominate the arbitrator and refer the disputes which required to be settled by arbitration, the `reference' contemplated is an act of the appointing authority referring the disputes to the arbitrator appointed by him.

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(c) Where the parties fail to concur in the appointment of arbitrator/s as required by the arbitration agreement, or the authority named in the arbitration agreement failing to nominate the arbitrator and refer the disputes raised to arbitration as required by the arbitration agreement, on an application by

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an aggrieved party, the court can appoint the arbitrator and on such appointment, the disputes between the parties stand referred to such arbitrator in terms of the arbitration agreement.

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11. Reference to arbitration can be in respect of all disputes between the parties or all disputes regarding a contract or in respect of specific enumerated disputes. Where `all disputes' are referred, the arbitrator has the jurisdiction to decide all disputes raised in the pleadings (both claims and counter claims) subject to any limitations placed by the arbitration agreement. Where the arbitration agreement provides that all disputes shall be settled by arbitration but excludes certain matters from arbitration, then, the arbitrator will exclude the excepted matter and decide only those disputes which are arbitrable. But where the reference to the arbitrator is to decide specific disputes enumerated by the parties/court/appointing authority, the arbitrator's jurisdiction is circumscribed by the specific reference and the arbitrator can decide only those specific disputes.”

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29. In Union of India Vs. Chandalavada

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Gopalakrishna Murthy , supra, the Hon'ble Apex Court has observed thus:

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“6. The dispute now to be resolved is confined only to item No.1 of the claim. To answer this question, we may refer to clause 17(3) of the contract. Clause 17(3) reads:

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"Clause 17(3): In the event of any failure or delay by the Railway to hand over to the contractor possession of the lands necessary for the execution of the works or to give the necessary notice to commence the works or to provide the necessary drawings or instructions or any other delay caused by the Railway due to any cause, whatsoever, the said failure or delay shall in no way effect or vitiate the Contract or alter the character thereof or entitle the contractor to damages of compensation thereof but in any such case, the Railway may grant such extension of extensions of the completion date as may be considered reasonable."

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Clause 17(3) thus clearly shows that if there

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is delay by the Railways, the terms of the contract can be extended as has been done in the present case. However, the contractor shall not be entitled to damages or compensation.

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A similar question was considered by the

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Hon'ble Apex Court in Ch. Ramalinga Reddy Vs. Superintending Engg. & Anr 1999 (9 )SCC 610 . It has been held that if the contract is extended under the terms of the contract, compensation cannot be awarded by the Arbitrator. The aforesaid judgment has been followed in another decision of the Hon'ble Apex Court in General Manager (Northern Railway) & Anr. Vs. Sarvesh Chopra 2002(4)SCC 45.

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In the case of General Manager, Northern Railway and another Vs. Sarvesh Chopra , supra, the Hon'ble Apex Court has observed thus:

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“12. In Ch. Ramalinga Reddy Vs. Superintending Engineer & Anr., 1994 (5) Scale 67, claim was allowed by arbitrator for "payment of extra rates for work done beyond agreement time at schedule of rate prevailing at the time of execution". Clause 59 of A.P. Standard Specifications, which applied to the contract between the parties, stated that no claim for compensation on account of delays or hindrances to the work from any cause would lie except as therein defined. The claim was found to be outside the defined exceptions. When extensions of time were granted to the appellant to complete the work the respondents made it clear that no claim for compensation would lie. For both these reasons, this Court held that it was impermissible to award such claim because the arbitrator was required to decide the claims referred to him having regard to the contract between the parties and, therefore, his jurisdiction was limited by the terms of the contract.

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16. Thus, it may be open to prefer a claim touching an apparently excepted matter subject to a clear case having been made out for excepting or excluding the claim from within the four corners of "excepted matters". While dealing with a petition under Section 20 of the Arbitration Act, the Court will look at the nature of the claim as preferred and decide whether it falls within the category of "excepted matters". If so, the claim preferred would be a difference to which the arbitration agreement does not apply, and therefore, the Court shall not refer the same to the arbitrator. On the pleading, the applicant may succeed in making out a case for reference, still the arbitrator may, on the material produced before him, arrive at a finding that the claim was covered by "excepted matters". The claim shall have to be disallowed. If the arbitrator allows a claim covered by an excepted matter, the award would not be legal merely because the claim was referred by the Court to arbitration. The award would be liable to be set aside on the ground of error apparent on the face of the award or as

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vitiated by legal misconduct of the arbitrator. Russell on Arbitration (Twenty-First Edition, 1997) states vide para 1-027 (at p.15)

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"Arbitrability. The issue of arbitrability can arise at three stages in an arbitration; first, on an application to stay the arbitration, when the opposing party claims that the tribunal lacks the authority to determine a dispute because it is not arbitrable, second, in the course of the arbitral proceedings on the hearing of an objection that the tribunal lacks substantive jurisdiction and third, on an application to challenge the award or to oppose its enforcement. The New York Convention, for example, refers to non-arbitrability as a ground for a court refusing to recognize and enforce an award.

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17. "To sum up, our conclusion are: (i) while deciding a petition under Section 20 of the Arbitration Act, 1940, the Court is obliged to examine whether a difference which is sought to be referred to arbitration is one to

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which the arbitration agreement applies. If it is a matter excepted from the arbitration agreement, the Court shall be justified in withholding the reference, (ii) to be an excepted matter it is not necessary that a departmental or 'in-house' remedy for settlement of claim must be provided by the contract. Merely for the absence of provision for in-house settlement of the claim, the claim does not cease to be an excepted matter, (iii) an issue as to arbitrability of claim is available for determination at all the three stages - while making reference to arbitration, in the course of arbitral proceedings and while making the award a rule of the Court.

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18. In the case before us, the claims in question as preferred are clearly covered by "excepted matters". The statement of claims, as set out in the petition under Section 20 of the Arbitration Act, does not even prima facie suggest why such claims are to be taken out of the category of "excepted matters" and referred to arbitration. It would be an exercise in futility to refer for adjudication by the

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arbitrator a claim though not arbitrable, and thereafter, set aside the award if the arbitrator chooses to allow such claim. The High Court was, in our opinion, not right in directing the said four claims to be referred to arbitration.”

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Learned counsel for the respondent has placed reliance on the judgment of the Hon'ble Apex Court in Olympus Superstructures Private Limited Vs. Meena Vijay Khetan , supra, wherein the Hon'ble Apex Court has held that Section 34 of the Act is based on Article 34 of the UNCITRAL Model Law and it will be noticed that under the 1996 Act, the scope of the provisions for setting aside the award is far ( sic or more or) less the same as under Section 30 or Section 33 of the Arbitration Act of 1940. Under sub-clause (iv) of Section 34(2)(a), the arbitral award may be set aside by the court if the award deals with a dispute not contemplated by or not falling within the terms of the submission to the arbitrator or if it contains a decision

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on matters beyond the scope of the submission to Arbitration. The words “terms of the submission to arbitration” in Section 34(2)(a)(iv) refer to the terms of the arbitration clause. This appears to be the meaning of the word if one refers to Section 28 which uses the words “dispute submitted to arbitration” and to Section 43(3) which uses the words “submit future disputes to arbitration”.

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It is not in dispute that the General Manager has referred only 5 claims to the Arbitral Tribunal. In the case of State of U.P. Vs. Ramnath International Construction (P) Limited , supra, it has been held that the jurisdiction of the Court in interfering with the award of an Arbitrator is limited. If the Arbitrator adjudicates a claim of a contractor with reference to the clauses of the agreement itself whereby the agreement gets engrafted into the award, it will be open to the court to examine those clauses of the agreement and

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find out the correctness of the conclusions of the

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Arbitrator with reference to those clauses.

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35. In M/s Agarwal Company and another Vs.

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Union of India , supra, the Hon'ble Apex Court has observed that whether a particular claim, which has been made by a contractor, is arbitrable or conversely, whether it has been excepted or excluded from the purview of arbitrability, cannot lie in the exclusive domain of the other party, to the contract. The Arbitral Tribunal under Section 16 of the Act has the jurisdiction to decide as to whether a particular claim falls within an excepted matter or is within the purview of the Arbitration agreement. The issue as to whether the claim was arbitrable or fell within the scope of an excepted mater, must be left to the Arbitral Tribunal. Where a reference to arbitration has taken place outside the court, a party to the arbitral agreement cannot preclude the Arbitral Tribunal from deciding as to

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whether the claim is arbitrable or whether it pertains to an excepted matter. That issue has to be determined by the Arbitral Tribunal. It was further held, while constituting an Arbitral Tribunal in terms of Clause 64 of the Standard General Conditions of Contract, it was not open to the General Manager to decline to refer a portion of the claims raised by the claimant on the ground they pertained to an excepted matter. Accordingly the competent authority viz., the General Manager of the Northern Railways has been directed to make a reference of all the claims, disputes and differences in terms as sought by the petitioner, clarifying that the reference to Arbitration shall be subject to all the objections of the respondents in regard to the arbitrability of each claim and it would be open to the respondents to raise all appropriate objections before the Arbitral Tribunal including that a particular claim falls within an excepted matter under the terms of the contract. Any such objection shall be adjudicated

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upon by the Arbitral Tribunal under Section 16 of the Act.

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36. In Rhiti Sports Management Pvt. Ltd., Vs.

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Power Play Sports and Events Limited , supra, the Hon’ble Delhi High Court has held as under:

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“Arbitration has also been described as ‘private justice'. It is an alternate dispute resolution mechanism that is founded on the fundamental principles of party autonomy and minimal judicial intervention. Thus, unless specifically provided, no judicial intervention would be permissible in arbitral proceedings. One of the stated primary object of the Act is ―to minimize the supervisory role of courts in the arbitral process. The above principle finds statutory expression in Section 5 of the Act, which expressly provides that ―Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”

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37. In M. Rajkumar Vs. the General Manager ,

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supra, the Hon’ble High Court of Judicature at Madras has held:

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“In answering the question, “whether the subject matter of the suit is arbitrable, that is capable of being adjudicated by a private forum (arbitral tribunal); and whether the High Court ought to have referred the parties to the suit to arbitration under Section 8 of the Act?”, has held that “The nature and scope of issues arising for consideration in an application under section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of `arbitrability' or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision

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of the arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under section 34 of the Act, relying upon sub-section 2(b)(i) of that section. But where the issue of `arbitrability' arises in the context of an application under section 8 of the Act in a pending suit, all aspects of arbitrability have to be decided by the court seized of the suit, and cannot be left to the decision of the Arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.”

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In the light of the judgments cited above, the

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General Manager ought to have referred all the claims to the Arbitral Tribunal to decide about the arbitrableness

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of the disputes having regard to clause 63-excepted matters. No perversity or patent illegality is found with the jurisdiction exercised by the learned Tribunal in giving a ruling on the ‘excepted matter’ – not referred by the General Manager.

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Re. Point No.4 :

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The counter claim was made by the railways seeking an amount of Rs.20,63,810/which is equivalent to 5% of executed value of agreement in favour of railways due to delay in completion of works by 21 months, resulted in losses in earnings to railways. The learned arbitrator on appreciation of evidence on record has held that it is the railways who was responsible for the delays in the execution of the work and rightly, the consequences of their lapse has to be borne by them. The Trial Court thus had refrained to interfere with the said findings. The same is neither perverse or shocks the conscience of the Court. The

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arguments advanced by the learned counsel for the railways in this regard is untenable. This Court cannot sit in appeal over the decision of the arbitrator, even where different view is possible. The Arbitrator, a creature of the agreement has given a finding on appreciation of evidence. Arbitrator being the master of quality and quantity of evidence, the same has to pass the muster as explained by the Hon'ble Apex Court in

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Associate Builders V/s. Delhi Development Authority [(2015) 3 SCC 49] , and Ssangyong Engineering & Construction Co. Ltd.,V/s. NHAI [(2019) 15 SCC 131]. No ground is made out to interfere with the order of the learned Arbitrator confirmed by the Trial Court in this regard as the scope of interference under Section 34/37 of the Act is limited, as held by the Hon'ble Apex Court in catena of decisions. Proper and adequate reasons are assigned by the learned Arbitrator in rejecting the counter-claim made by the Railways on appreciation of material evidence.

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To sum up, the ruling of the Arbitral Tribunal on the ‘excepted matters’ is within the jurisdiction permissible under Section 16 of the Act.

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We find no perversity or patent illegality in the award of the Tribunal to warrant interference by the court exercising the power under Section 37 of the Act inasmuch as ‘excepted matters’ are concerned. The view of the Tribunal cannot be substituted by any other view merely for the reason that there is a possibility of another plausible view unless it shocks the conscience of the Court. As discussed in Agarwal Company , supra, the General Manager ought to have referred all the 24 claims to the Tribunal to decide the issue of ‘excepted matters’. Sub-section(4) of Section 34 would not attract when the General Manager declines to refer the matter to Arbitration on adjudicating upon the issue of ‘excepted matters’ which otherwise would be a dispute by itself.

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42. In Olympus Super Structures Private

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Limited , supra, the Hon'ble Apex Court has held that the words “ the term of submission to arbitration” under section 34(2)(a)(iv) refers only to terms of the Arbitration clause. Hence, any unilateral reference made by the appellant ignoring some claims and referring only a few claims to the Arbitral Tribunal is not maintainable. The ruling of the Arbitral Tribunal on the ‘excepted matters’ as a preliminary issue is in conformity with Section 16 of the Act and exercising such jurisdiction is not barred under the law. The Trial Court has rightly not interfered with the said finding. No exception can be found in this regard.

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For the reasons aforesaid, we pass the following:

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ORDER

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Appeal is allowed in part.

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Awarding of simple interest @ 10% p.a. by the Arbitral Tribunal relating to claim No.24 from 1.4.2002 upto 31.3.2006, confirmed by the Trial Court is set aside. The award made by the learned Arbitrator to make the payment of the award by the Railways to the claimant within 30 days from the date of the award, failing which, the award amount will attract a simple interest at 10% per annum with effect from the date of the award as per Clause 31(7)(b) of the Arbitration & Conciliation Act, 1966, is confirmed.

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A sum of Rs.1,99,500/- awarded by the Tribunal with reference to claim No.13 and confirmed by the Trial Court is set aside.

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