REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.  7408-7409      OF 2008 (Arising out of SLP (C) Nos. 4968-4969 of 2005)

M/S  P. MANOHAR REDDY & BROS.     … APPELLANT

Versus

MAHARASHTRA KRISHNA VALLEY DEV. CORP. & ORS.               … RESPONDENTS

J U D G M E N T

S.B. Sinha, J.

1. Leave granted.

2. Respondent herein invited tenders for the work of excavation in canal

K.M.  No.  126,  Kukadi  Left  Bank  Canal,  Shrigonda  in  the  District  of

Ahmednagar  at  an  estimated  costs  of  Rs.23,26,424/-  pursuant  whereto

appellant herein submitted its offer for a sum of Rs.21,10,233/-.  The said

offer being the lowest was accepted.  

3. The  parties  hereto  thereafter  entered  into  a  contact  on  9.2.1988;

clauses 37, 54 and 55 whereof read as under:

“37. After completion of work and prior to that payment,  the  contractor  shall  furnish  to  the Executive Engineer, a release of claims against the Government arising out of the contract, other than claims  specifically  identified,  evaluated  and expected from the operation of the release by the contractor.”

54. Settlement  of  Dispute  (For  works  costing less than Rs. 50 lakhs).

If the contractor considers any work demanded of him to be outside the requirements of the contract, or considers any drawings, record or ruling of the Executive Engineer, KIP Dn. No. VII, Shrigonda on any matter in connection with or arising out of the  contract  or  the  carrying  out  of  work  to  be outside  the  terms  of  contract  and  hence unacceptable he shall promptly ask the Executive Engineer,  in  writing,  for  written  instructions  or decision.  Thereupon the Executive Engineer, shall give his  written instructions  or decision within a period of 30 days of such request.

Upon  receipt  of  the  written  instructions  or decision  the  contractor  shall  promptly  proceed without delay to comply with such instructions or decision.

If the Executive Engineer fails to give his decision in writing within a period of 30 days after being requested, or if the contractor is dissatisfied with the  instructions  or  decision  of  the  Executive Engineer, the contractor may within 30 days after receiving  the  instructions  or  decision  appeal  to upward authority who shall afford an opportunity to the contractor to be heard and to offer evidence in support of his appeal.  

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If the contractor is dissatisfied with this decision, the contractor within a period of thirty days from receipt of the decision shall indicate his intention to refer the dispute to Arbitration as per clause 55 failing which the said decision shall be final and conclusive.  

55. Arbitration (For works costing less than Rs. 50 lakhs)

All the disputes or differences in respect of which the decision has not been final and conclusive as per  clause  54  above  shall  be  referred  for arbitration  to  a  sole  arbitrator  appointed  as follows.

Within  30  days  of  receipt  of  notice  from  the contractor or his intention to refer the dispute to arbitration  the  Chief  Engineer  (SP  Irrigation Department),  Pune shall  send to the contractor a list of three officers of the rank of Superintending Engineers or higher, who have not been connected with the work under this contract.  The contractor shall  within 15 days of receipt  of this  list  select and communicate to the Chief Engineer, the name of  one  officer  from  the  list  who  shall  then  be appointed  as  the  Sole  Arbitrator.   In  case contractor  fails  to  communicate  this  selection  of name  within  the  stipulated  period,  the  Chief Engineer  shall  without  delay  select  one  officer from the list and appoint him as the sole arbitrator. If  the  Chief  Engineer  fails  to  send  such  a  list within 30 days as stipulated the contract shall send a similar list to the Chief Engineer within 15 days. The Chief  Engineer  shall  then  select  one  officer from  the  list  and  appoint  him  as  the  Sole Arbitrator within 15 days.  If the Chief Engineers fails to do so, the contractor shall communicate to the Chief Engineer the name of one officer from the list who shall then be the sole Arbitrator.  

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The Arbitrator  shall  be conducted  in  accordance with the provision of  the Indian Arbitration Act, 1940 or any statutory modification thereof.   The Arbitration shall determine the amount of costs to be awarded to either parties.  

Performance  under  the  contract  shall  continue during  the  arbitration  proceedings  and  payments due to the contractor shall not be withheld unless they  are  subject  matter  of  the  arbitration proceedings.  

All awards shall be in writing and in case of award amounting  to  Rs.  One  lakh  and  above,  such awards  shall  state  the  reasons  for  the  amount awarded.  Neither party is entitled to bring a claim to  arbitrator  if  the  arbitrator  has  not  been appointed  before  the  expiration  of  30  days  after defects liability period.”

4. A work order was issued on the same day. The said contract was to be

completed by 8.1.1989, i.e. within a period of about 11 months.   

Appellant failed to complete the work within the stipulated time.  He

applied for extension which was granted first upto 09.07.1989 and thereafter

upto 30.09.1990.   Within  the said period the work was  completed.   The

measurements of the work undertaken by the appellant were recorded on

26.11.1990.  Final bill prepared and paid by the respondent was accepted by

the appellant without any demur.   

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5. Inter alia, on the premise that appellant was asked to do extra items of

work, it raised its claims by a letter dated 27.2.1991, which was rejected.   

Details of the purported extra work done by appellant, however, were

not mentioned in the said letter dated 27.2.1991. It submitted another claim

giving details thereof by a letter dated 10.6.1991.   

6. Appellant by a letter dated 26.9.1991 purporting to invoke clause 54

of  the  General  Conditions  of  Contract,issued  notice  to  the  Executive

Engineer of respondent, stating:

“Whereas a number of claims were referred to you from time to time and in respect of many of them you have failed to give the decision. And whereas the work under contract was kept in progress by us in good faith and with a belief that on completion of the work you will reconsider our total case and settle our accounts with all the claims.  

And  whereas  the  work  has  been  duly completed by us, we are now in a petition (sic) of finally work out in full the sum of money due and payable to us by the department including all the claims.

Now therefore, we hereby call upon you and give  you  notice  finally  under  clause  54  of  the General  conditions  of  contract  with  a  request  to settle  our  accounts  and  give  your  decisions  in respect  of  our  following  claims  and  disputes within  a  period  of  thirty  days  from the  date  of receipt of this notice by reconsidering your earlier

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decision  in  respect  of  claim  on  which  you  had indicated your decision earlier.”

He specified 16 claims thereunder.

7. Respondent  rejected  the  said  claim  by  its  letter  dated  5.10.1991

alleging  that  the  stipulated  period  therefor  expired  in  May,  1991.   The

Executive Engineer of the respondent by his letter dated 29.10.1991 opined

that the matter cannot be considered for arbitration, stating:  

“Please  refer  your  letter  under  reference  which was  received  by  this  office  in  the  1st week  of October  1991.   The  claims  raised  were  already denied  by  this  Office  vide  letter  No.  448  dtd. 29.4.91. As you have referred the matter under the provisions of clause 54 of the L.C.B. No. 18 for 87, 88, The decisions of this office are again sent herewith.  It is further clarified that the matter is brought for arbitration process after expiry of 30 days from end of defect liability period.  The work was  completed  in  November-90  and  the  defect liability period of six months is over in May 1991, hence  the  matter  cannot  be  considered  for arbitration.”

However, its earlier decision of rejecting the claim was repeated.  

8. Treating the same to be an order rejecting his claim, appellant herein

preferred  an  appeal  thereagainst  before  the  Superintending  Engineer  in

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terms of its letter dated 26.11.1991;  pursuant whereto a meeting was held

between  the  representatives  of  the  parties;  the  minutes  whereof  read  as

under:

“Since  the  contractors  have  not  submitted  their claims under clause 54 of the General conditions of the contract along with documentary evidences within the stipulated period i.e. before the expiry of 30 days after defect liability period and as per clause 55 which states ‘Neither party is entitled to bring a claim to arbitrator if the arbitrator has not been appointed  before  the  expiration  of  30  days after defect liability period.’

Defect  liability  period  of  this  contract expired on 31st May 1991 and the stipulated period of 30 days expired on 30th June 1991.

Hence the contractor’s appeal for arbitration is hereby rejected”

9. A  copy  of  the  said  minutes  of  the  meeting  was  sent  by  the

Superintending Engineer along with his letter dated 30.12.1991.   

A notice, on the premise that disputes and differences arose between

the parties within the meaning of clause 55 of the General Conditions of

Contract,  was  served upon the Chief  Engineer  asking him to  furnish  the

names of its three officers for appointment of sole arbitrator within 30 days

from  the  receipt  thereof.   The  said  request  was  rejected  by  the  Chief

Engineer in terms of his letter dated 26.2.1992, stating:

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“ You have given notice under clause 54 on 26/11/91 to refer the dispute to arbitration.  Thus the notice under clause 54 is given after the expiry of 30 days of defect liability period.  

Thus  you  have  not  submitted  the  claims within  the  stipulated  time  and  followed  the procedure as per the clause 54 of general condition for settlement of dispute.  This  has already been informed to  you by the  Superintending Engineer Kukadi  canal  circle,  Pune-6  under  his  letter  no. KCC/PB-1/KM 126/Claims/4129 dt. 30/12/91.

Hence the question of appointing arbitrator by this office does not arise.”

10. Appellant thereafter sent a list of arbitrators on 9.3.1992 followed by

a notice through a lawyer.

Indisputably,  the  said  request  for  referring  the  disputes  to  an

arbitrator was rejected by respondent.   

11. Appellant filed an application under Section 8 of the Arbitration Act,

1940 (for short, “the Act”) in the Court of Civil Judge (Senior Division),

Ahmednagar at Ahmednagar for appointment of Arbitrator.  

By reason of a judgment and order dated 9.12.1997, the Civil Judge

Senior Division, Ahmednagar opining that the said application having been

filed within  the period as  specified in Article 137 of  the Limitation Act,

1963 and the cause of action therefor having arisen on 29.10.1991 on which

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date the appellant’s claim was rejected, appointed one Shri V.M. Bedse, a

retired Chief Engineer as Arbitrator with regard to the additional and extra

works allegedly carried out by appellant.  

The learned judge held:

“The petitioner along with Exh. 19 has produced various  documents  and  correspondence  ensued with the respondents.  It is crystal clear from this correspondence that  the petitioner had demanded release of claim on 27/2/91 under clause No. 37 of the  contract  agreement.   This  claim  letter  was received by the respondents  and further query in respect  of  proof  of  claim was  called  for  by  the respondents  by  their  letter  dated  29/4/91. Accordingly,  the  proof  was  submitted  by  letter dated 10/6/91 and details of claim were given on 26/9/91.   The  petitioner  also  apprised  about ‘settlement of dispute’ as contemplated in clause No.  54  of  the  contract  agreement.   Therefore practically there is compliance by the petitioner as contemplated under clause No. 54 of the contract agreement.   The  record  also  reveals  that  the respondents  on  5/10/91  i.e.  after  lapse  of  three months  replied  the  notice  of  petitioner  dated 10/6/91  and  first  time  it  was  agitated  that  the petitioner has not taken steps under clause No. 55 under defect liability and before expiration of 30 days.   The  clause  No.  19(a)  of  the  contract agreement  is  in  respect  of  material  and workmanship and it defines the defect liability in respect of workmanship and materials and so also the defect liability period is to be counted from the certified  date  of  completion  certificate.   Under clause No. 26 of the contract agreement, it is the respondents  who  are  required  to  issue  such certificate  to  the  petitioner.   The  notices  were issued by the petitioner under clause Nos. 54 and

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55 of the contract but it  appears from the record that  the  respondents  did  not  take  any  steps  to choose their arbitrator.  On the contrary, on 9/3/92 the list of three officers was demanded and out of them  sole  arbitrator  was  chosen  but  the respondents  have  not  replied  the  same.   In  this manner, the petitioner and respondents could not concur  for  appointment  of  arbitrator  and  the petitioner had therefore no alternative but to resort to provisions of Section 8 of the Arbitration Act. The correspondence produced on record in support of claim under Section 8 of the Arbitration Act by the  petitioner  is  sufficient  to  come  to  the conclusion  that  there  was  dispute  between petitioner  and  the  respondents  in  respect  of additional work and no such steps have been taken by  the  respondents  as  provided  under  the Contract.”

12. A  Civil  Revision  Application  No.  201  of  1998  was  preferred

thereagainst by the respondent before the High Court, which by reason of

the impugned judgment and order dated 13.4.2004 has been allowed.  A

Review Petition filed by appellant thereagainst has been dismissed.    

13. Mr. Sundaravaradan, learned Senior Counsel appearing on behalf of

appellant raised the following contentions in support of the appeal.  

i. The High Court committed a serious error of law in passing the

impugned  judgment  insofar  as  it  failed  to  take  into

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consideration  that  limitation for raising a claim as  envisaged

under clause 54 is not applicable in the instant case.   

ii. In  view  of  the  fact  that  the  claim  was  rejected  only  on

26.2.1992  by  the  appellate  authority,  the  period  of  30  days

should be counted therefrom.   

iii. While exercising its jurisdiction under Section 8 of the Act, the

court was concerned only with the question as to whether there

was a triable issue.   

iv. Once a triable issue is found to have been raised, which was

required to be referred to the arbitration, the merit of the claim

cannot be gone into.   

14. Ms.  Aprajita  Singh,  learned  counsel  appearing  on  behalf  of  the

respondent, on the other hand, would urge:

i. Clause 54 of the General Conditions of the Contract must be

invoked  by the  contractor  during  the  tenure  thereof  and  not

after completion of the contract and acceptance of the final bill.

ii. The  final  bill  having  been  accepted  without  any  demur,  the

contract came to an end, wherewith the arbitration agreement

which was a part thereof also perished.    

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iii. Appellant having not sought for extension of time in terms of

sub-Section (4) of Section 37 of the Act and in any event no

sufficient  cause  having  been  made  out  therefor,  even  no

extension of time could be granted.  

15. Indisputably, the parties are governed by the Act.  

‘Arbitration Agreement’ has been defined in Section 2(a) of the Act

to  mean  a  written  agreement  to  submit  present  or  future  differences  to

arbitration, whether an arbitrator is named therein or not.   

An arbitration is a private dispute resolution mechanism agreed upon

by the  parties.   The  arbitration  agreement  is  contained  in  a  commercial

document; it must be interpreted having regard to the language used in it.  A

bare perusal of clauses 37, 54 and 55 of the General Conditions of Contract

clearly shows that the arbitration agreement entered into by and between the

parties is not of wide amplitude.  In a case where arbitration clause is of

wide  amplitude,  the  same may cover  also  the  claims  arising  during  the

tenure of contract or thereafter, provided the arbitration clause subsists.   

16. Clause 37 imposes an obligation upon the contractor to furnish to the

Executive Engineer a release of claims against the Government arising out

of the contract other than the claims specifically identified, evaluated and

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expected  from the  operation  of  the  release  by  the  Contractor  only  after

completion of the work and prior to payment thereof.   

There is nothing on record to show that any claim in relation to extra

or  additional  work  had  been  raised  by  the  contractor  prior  to  27.2.1991

although final measurement had been recorded on 26.11.1990 and the bill

has been paid in full and final satisfaction on 4.12.1990.  Clauses 54 and 55

of the arbitration agreement must be read together.   

17. Indisputably, the contract has been entered into for works costing less

than Rs. 50 lakhs and, thus, clause 54 would be attracted in the instant case.

In terms of the said provision, the contractor has to raise a demand with the

Executive Engineer if any work is demanded from him, which he considers

to be outside the requirements of the contract.  The word ‘consider’ is of

some significance, it means “to think over; to regard as or deem to be.” (See

Advanced Law Lexicon,3rd Edition, 2005).   

18. If a work has to be carried out outside the terms of the contract and is

unacceptable, he is required to promptly approach the Executive Engineer in

writing for obtaining his written instruction or decision in that behalf.  The

Executive Engineer is obligated to give his written instructions or decision

within a period of 30 days of making such request.  Once such instruction or

decision is received, the contractor is required to comply therewith.  Only in

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a case where the Executive Engineer fails and/or neglects to give a decision

or issue instruction, the contractor may within a period of 30 days thereafter

prefer  an  appeal  to  the  appellate  authority.   The  appellate  authority  is

required to provide an opportunity of hearing to the contractor.  It is only

when  the  contractor  is  dissatisfied  with  the  decision  of  the  appellate

authority, he may indicate his intention to refer the dispute to Arbitration in

terms of clause 55 within a period of 30 days from the date of receipt of the

said decision, failing which, the same would be final.  

19. The arbitration clause, thus, could be invoked only in a case where

the decision has not become final and conclusive as per clause 54.   

20. A plain reading of the aforementioned provisions clearly shows that

clause  54  does  not  envisage  raising  of  a  claim  in  respect  of  extra  or

additional work after the completion of contract.   

21. The jurisdiction of the civil court under Section 8 of the Act or under

Section 20 thereof can be invoked if  the disputes and differences arising

between the parties was the one to which the arbitration agreement applied.  

22. The contractual  clause provides for a limitation for  the  purpose of

raising a claim having regard to the provisions of Section 28 of the Indian

Contract Act.  It is no doubt true that the period of limitation as prescribed

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under Article 137 of the Limitation Act would be applicable, but it is well

settled that a clause providing for limitation so as to enable a party to lodge

his claim with the other side is not invalid.  

In The Vulcan Insurance Co. Ltd. vs. Maharaj Singh and anr. reported

in AIR 1976 SC 287, the arbitration clause read as under:

“18.  If any difference arises as to the amount of any  loss  or  damage  such  difference  shall independently of all other questions be referred to the decision of  an Arbitrator,  to  be appointed  in writing  by  the  parties  in  difference,  or,  if  they cannot  agree  upon  a  single  Arbitrator  to  the decision  of  two  disinterested  persons  as Arbitrators....  … …..  …….  …..  …….  ……  …. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this policy that the award by such  arbitrator,  arbitrators  or  Umpire  of  the amount of the loss or damage if disputed shall be first obtained.

19.  In  no  case  whatever  shall  the  company  be liable for any loss or damage after the expiration of twelve months from the happening of the loss or  damage  unless  the  claim  is  the  subject  of pending action or arbitration.”

Referring to the well known decision of Scott vs. Avery, (1856) 25 LJ

Ex 308 = 5 HLC 811, and noticing different views expressed by different

courts, it was held:

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“22.  The two lines  of  cases  clearly  bear  out  the two distinct situations in law. A clause like the one in  Scott  v.  Avery  bars  any  action  or  suit  if commenced for determination of a dispute covered by the arbitration clause. But if on the other hand a dispute cropped up at the very outset which cannot be referred to arbitration as being not covered by the  clause,  then  the  Scott  v.  Avery  clause  is rendered inoperative and cannot  be pleaded as a bar to the maintainability of the legal action or suit for determination of the dispute which was outside the arbitration clause.”

Whether such a clause comes within the purview of the arbitration

clause, vis-à-vis Article 137 of the Limitation Act, it was held:

“…It has been repeatedly held that such a clause is not  hit  by Section 28 of the Contract Act and is valid; vide-The Baroda Spinning and Weaving Co. Ltd.  v.  The  Satyar  narayan  Marine  and  Fire Insurance Co. Ltd. ILR 38 Bom 344 : AIR 1914 Bom  225  (2);  Dawood  Tar  Mahomed  Bros.  v. Queensland Insurance Co. Ltd. AIR 1949 Cal 390 and The Ruby General Insurance Co. Ltd. v. The Bharat  Bank  Ltd.  AIR  1950  (East)  Punj  352. Clause  19  has  not  prescribed  a  period  of  12 months  for  the  filing  of  an  application  under Section  20  of  the  Act.  There  was  no  limitation prescribed  for  the  filing  of  such  an  application under  the  Indian  limitation  Act,  1908  or  the limitation Act, 1963. Article 181 of the former did not  govern  such  an  application.  The  period  of three years prescribed in Article 137 of the Act of 1963  may be  applicable  to  an  application  under Section 20.”  

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Whether the difference which arose between the parties was the one

to which the arbitration clause applied and whether the application under

Section 20 of the Act could be dismissed, this Court opined:

“24. But in this case on a careful consideration of the matter we have come to the definite conclusion that the difference which arose between the parties on the company's repudiation of the claim made by respondent  No.  1  was  not  one  to  which  the arbitration clause applied and hence the arbitration agreement  could  not  be  filed  and  no  arbitrator could be appointed under Section 20 of the Act. Respondent No. 1 was ill-advised to commence an action under Section 20 instead of instituting a suit within three months of the date of repudiation to establish the company's liability.”  

(See also  A.B.C. Laminart Pvt. Ltd. vs. A.P. Agencies,  Salem [AIR

1989 SC 1239)

23. It is  not  a case where an application under Section 8 could not be

filed within  a period of 3 years.  It  is a case where a determination was

necessary as  regards  invocation of  the  disputes  settlement  processes.  For

resolution of the dispute, a claim must be made in terms of the provisions of

the contract  for the purpose of giving effect to the arbitration clause;  the

application thereof being limited in nature.   

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24. Mr. Sundaravaradan has taken us through a large number of decisions

to contend that the purported ‘accord and satisfaction’ on the part  of the

contractor  might  not  itself  be  a  sufficient  ground  to  reject  a  prayer  for

making a reference under the Arbitration Act.   

Such  a  question  came  up  for  consideration  before  this  Court  in

Damodar Valley Corporation vs. K.K. Kar [(1974) 1 SCC 141], wherein this

Court noticing the decision of  Heyman  v.  Darwins Ltd. (1942) 1 All ER

337, stated the law thus:

“Again, an admittedly binding contract containing a general  arbitration  clause may stipulate  that  in certain events the contract shall come to an end. If a question arises whether the contract has for any such reason come to an end I can see no reason why the arbitrator should not decide that question. It is clear, too, that the parties to a contract may agree  to  bring  it  to  an  end  to  all  intents  and purposes and to treat it as if it had never existed. In such a case, if there be an arbitration clause in the contract,  it  perishes  with  the  contract.  If  the parties  substitute  a new contract  for the contract which they have abrogated the arbitration clause in the abrogated contract  cannot be invoked for the determination  of  questions  under  the  new agreement. All this is more or less elementary.”

It was furthermore held:

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“Similarly the question whether there has been a settlement of all the claims arising in connection with the contract  also postulates  the existence of the contract. The principle laid down by Sarkar. J., in  Kishorilal  Gupta  Bros's  case  [1960]  1  S.C.R. 493 that  accord and satisfaction does not  put  an end to the arbitration clause was not dissented to by the majority. On the other hand proposition (6) seems to lend weight to the views of Sarkar, J. In these  circumstances,  the  question  whether  the termination was valid or not and whether damages are  recoverable  for  such  wrongful  termination does not affect the arbitration clause, or the right of the respondent to invoke it for appointment of an arbitrator.”

{See also  S.C. Konda Reddy vs.  Union of India & anr. [AIR 1982

KARNATAKA 50)}

25. We are, however, in this case faced with a different situation.  The

contention of respondent is not that there has been a breach of contract and

the contract still subsists.  Its contention is that in terms of the contract the

claim for extra work or additional work should have been raised during the

tenure of the contract itself  and not after it  came to an end and payment

received in full and final satisfaction.   

26. An arbitration clause, as is well known, is a part of the contract. It

being a collateral term need not, in all situations, perish with coming to an

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end  of  the  contract.  It  may survive.  This  concept  of  separability  of  the

arbitration  clause  is  now widely accepted.  In  line  with this  thinking,  the

UNCITRAL  Model  Law  on  International  Commercial  Arbitration

incorporates the doctrine of separability in Article 16(1). The Indian law -

The  Arbitration  and  Conciliation  Act,  1996,  which  is  based  on  the

UNCITRAL Model Law, also explicitly adopts this approach in Article 16

(1)(b), which reads as under:-

“16. Competence of arbitral tribunal to rule on its jurisdictional. -  (1) The arbitral tribunal may rule on  its  own  jurisdiction,  including  ruling  on  any objections with respect to the existence or validity of the arbitration agreement, and for that purpose, -

(a)  An  arbitration clause  which  forms part  of  a contract  shall  be  treated  as  an  agreement independent  of  the  other  terms  of  the   contract; and  

(b)  A  decision  by  the  arbitral  tribunal  that  the contract is null and void shall not entail ipso jure the invalidity of the   arbitration   clause.”   

(Emphasis supplied).

Modern laws on arbitration confirm the concept. The United States

Supreme Court in the recent judgment in  Buckeye Check Cashing, Inc. v.

Cardegna (546 US 460) acknowledged that the  separability rule permits a

court “to enforce an arbitration agreement in a contract that the arbitrator

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later finds to be void.” The Court, referring to its earlier judgments in Prima

Paint Corp. v. Flood & Conklin Mfg. Co., (388 U. S. 395),  and Southland

Corp. v. Keating, (465 U. S. 1), inter alia, held :-

“Prima Paint  and  Southland  answer  the  question presented here by establishing three propositions. First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.”  

But  this  must  be distinguished  from the  situation  where  the  claim

itself was to be raised during the subsistence of a contract so as to invoke

the arbitration agreement would not apply.

M/s Bharat Heavy Electricals Limited, Ranipur  vs.  M/s Amar Nath

Bhan Prakash (1982) 1 SCC 625, whereupon reliance has been placed by

Mr.  Sundaravaradan   is  not  applicable  as  it  was  held  therein  that  the

question  whether  there  was  discharge  of  the  contract  by  accord  and

satisfaction or not, is itself arbitrable.  

The said question need not detain us having been considered by this

Court  in  Bharat Coking Coal  Ltd.  vs.  Annapurna Construction  [(2003) 8

SCC 154] holding:

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“14. The question is as to whether the claim of the contractor is de hors the rules or not was a matter which fell for consideration before the arbitrator. He  was  bound  to  consider  the  same.  The jurisdiction of the arbitrator in such a matter must be held to be confined to the four-corners of the contract. He could not have ignored an important clause in the agreement; although it may be open to  the  arbitrator  to  arrive  at  a  finding  on  the materials on records that the claimant’s claim for additional work was otherwise justified.”

27. In Chairman and MD, NTPC Ltd. vs. Reshmi Constructions, Builders

& Contractors [(2004) 2 SCC 663], this Court held:  

“18. Normally, an accord and satisfaction by itself would not  affect  the arbitration clause but  if  the dispute is that the contract itself does not subsist, the question of invoking the arbitration clause may not  arise.  But  in  the  event  it  be  held  that  the contract survives, recourse to the arbitration clause may be taken.  [See  Union of  India v.  Kishorilal Gupta (AIR 1959 SC 1362) and Naihati Jute Mills Ltd. v. Khyaliram Jagannath (AIR 1968 SC 522).”

It was furthermore opined  

“28. Further,  necessitas  non  habet  legem is  an age-old maxim which means necessity knows no law.  A person may sometimes have to succumb to the pressure of the other party to the bargain who is in a stronger position.

29. We may, however, hasten to add that such a case  has  to  be  made  out  and  proved  before  the Arbitrator for obtaining an award.

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30. At this stage, the Court, however, will only be  concerned  with  the  question  whether  trial issues have been raised which are required to be determined by the Arbitrators.”  

28. We, however, as noticed hereinbefore, are concerned with a different

fact situation.  As arbitration clause could not be invoked having regard to

the limited application of clauses 37, 54 and 55 of the General Conditions of

the Contract,  we are of the opinion that the trial  court was not correct in

directing appointment of an arbitrator.   

29. We may notice  that  in  Wild  Life  Institute  of  India,  Dehradun  vs.

Vijay Kumar Garg  [(1997) 10 SCC 528], a Division Bench of this Court

held as under:

“It  is  also  necessary  to  refer  to  the  arbitration clause  under  the  contract  which clearly  provides that if the contractor does not make any demand for arbitration in respect  of any claim in writing within 90 days of receiving the intimation from the appellants  that  the bill  is  ready for payment,  the claim of  the  contractor  will  be  deemed  to  have been  waived  and  absolutely  barred  and  the appellants shall be discharged and released of all liabilities  under  the  contract  in  respect  of  these claims.  The liability, therefore, of the appellants cease  if  no  claim  of  the  contractor  is  received within 90 days of receipt by the contractor of an intimation that the bill is ready for payment.  This clause  operates  to  discharge  the  liability  of  the appellants on expiry of 90 days as set out therein and is not  merely a clause providing a period of

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limitation.  In the present case, the contractor has not made any claim within 90 days of even receipt of the amount under the final bill.  The dispute has been raised for the first time by the contractor 10 months after the receipt of the amount under the final bill.”

30. The High Court has relied upon a decision of this Court in  M/s K.

Ramaiah  and  Company Vs. Chairman  &  Managing  Director,  National

Thermal  Power  Corpn. [1994  Supp.  (3)  SCC  126].   We  need  not  deal

therewith in details as the effect thereof has been considered by us in Bharat

Coking Coal Ltd. vs. Annapurna Construction (supra).

31. It is also not a case where sub-section (4) of Section 37 of the Act

could be invoked.  Appellant did not invoke Section 37(4) of the Act.  No

reason has been assigned as to why the said discretion of the court should be

invoked particularly when the claim has been raised only after completion

of the work.   

32. For  the  reasons  aforementioned,  we,  albeit  for  different  reasons,

affirm  the  judgment  of  the  High  Court.   The  appeals  are,  accordingly,

dismissed.  In the facts and circumstances of the case there shall be no order

as to costs.   

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We may clarify that nothing stated herein shall affect the merit of the

appellant’s  claim  to  invoke  the  jurisdiction  before  any  other  forum  for

enforcing the same.  

……………….…..………….J.   [S.B. Sinha]

..………………..……………J.   [Cyriac Joseph]

New Delhi; December 18, 2008

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