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CASE NO.: Appeal (civil)  149 of 2007

PETITIONER: Krishna Bhagya Jala Nigam Ltd

RESPONDENT: G. Harischandra Reddy and Anr

DATE OF JUDGMENT: 10/01/2007

BENCH: Dr. Arijit Pasayat & S. H. Kapadia

JUDGMENT: J U D G M E N T (Arising out of SLP (C)No.10418 of 2005)

KAPADIA, J.         Leave granted.         Two 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 Arbitration Act’).         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.

       The second issue is regarding the merits of the claims  made by the contractor.

       The facts giving rise to the above civil appeal are as  follows.

       On 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 Scheme.   The 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:  "Clause 29 - (a) 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.

(i)     The meaning of the specifications designs,  drawings and instructions herein before  mentioned, (ii)    The quality of workmanship or materials used

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on the work and  (iii)   Any other 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.

(b)     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.

(c)     In case the decision of the Chief Engineer is  not acceptable to the Contractor, he may  approach the Law Courts at\005.(*) 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 Chief  Engineer.

(d)     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.  No.26/99 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.   Ultimately, 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.

       Aggrieved 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

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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.

       Mr. 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".   Learned 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 aforementioned  grounds.

       We do 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 Arbitration Act.   He did not challenge the competence of the arbitral tribunal.   He did 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.

       Before 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.   Government of Karnataka and Another \026 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

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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.

       On the 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 far 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 standstill.   We 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.

       Accordingly the civil appeal stands allowed to the extent  indicated above with no order as to costs.