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REPORTABLE

IN THE SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 311-312 OF 2003

M/s. Asian Techs Ltd. ..    Appellant

-versus-

Union of India & others .. Respondents

J U D G M E N T

Markandey Katju, J.

1. These appeals have been filed by special leave against the impugned judgment  

and order dated 21st March, 2002 of the Kerala High Court in MFA No. 452 of 1997.

2. Heard learned counsel for the parties and perused record.  

3. The appellant, Asian Techs Ltd entered into an agreement dated 2.9.1986 with  

the Union of India for construction of  'Provision of Lab and Administrative Block'  etc  

for NPOL at Kakkanad, Cochin. The probable amount of contract was Rs. 3,58,96,665/-,  

and the construction was to be completed before 8.9.1988.  The period of the contract

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was 24 months.  Ext R1 is the agreement and Ext R1(a) is the General conditions of  

contract known as IAFW – 2249.  According to the appellant, due to the delay caused by  

the respondent,  the project  could not  be completed by 30.6.1990.  According to the  

appellant,  the delay was because the site of the work proposed was changed by the  

respondent subsequent to the signing of the agreement.  Also, the design and structural  

particulars of the building were fundamentally altered by the respondent by omitting the  

basement  floor  itself.   The  respondent  nominated  the  suppliers  of  prime  cost  items  

belatedly.  They did not finalize the design and structural particulars of the work within  

the period of the contract which expired on 8.9.1988 and dragged on the works, resulting  

in suspension of the ongoing works and making the labour and machinery items idle.  

By efflux of time the cost of labour, fuel,  materials etc.  increased.  The respondents  

assured to settle the rates for extra items across the table and persuaded the petitioner to  

continue  to  carry  out  and  complete  the  works.  The  respondent  No.  2  allowed  

unconditional extension of time at the first instance on 10.11.1988 and then from time to  

time, without levy of liquidated damages.  There was no agreement of whatsoever nature  

in respect of rates for works carried out between 8.9.1988 and 30.6.1990, or on rates for  

extra and altered items.  The respondent did not pay even at the agreed rates in the  

agreement in respect of certain items and avoided reference to rates in the MES schedule  

of  rates  for  many  other  items,  for  which  rates  were  to  be  derived.   The  contract  

stipulated settlement of rates for extra items of work involved by Respondent No. 2,

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being the accepting officer.  

4.  The respondents prepared the last bill on 27.2.1991 for works completed on  

30.6.1990, which was received under protest on 7.5.1991.  The general condition 7(d) of  

IAFW 2249 forming part of the contract reserved rights of the petitioner and Respondent  

No. 2, to correct any mistake in fixation of rates at any time, even after receipt of the last  

payment.  It is alleged that the respondent No. 2 failed to communicate any decision on  

objections to incorrect fixation of rates, duly notified from time to time by the petitioner.  

The  rates  were  fixed  by  a  board  of  subordinate  officials,  behind  the  back  of  the  

petitioner,  violating  the  contract,  and  thus  huge  amounts  due  and  payable  to  the  

petitioner were wrongfully withheld.      

5. The petitioner invoked the arbitration clause in the agreement for settlement of  

the disputes and differences which arose and sent a demand notice dated 10.12.1991 for  

payment  of  Rs.  1,24,58,108/-  together  with  interest  thereon.   Respondent  No.  2  on  

15.6.1992 intimated readiness and willingness to refer the disputes and differences as  

specified in the notice dated 10.12.1991 to arbitration.  The Chief Engineer Air Force  

was appointed the sole Arbitrator  on 15.12.1992 and the respondents  participated  in  

arbitration proceeding without any demur or protest.  

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6. The Sole Arbitrator, found patent mistakes in fixation of rates of extra items  

and determined unpaid amounts and passed a non-speaking award dated 30.12.1993 in  

favour of the petitioner for payment of Rs. 39,75,484/- together with past, pendente lite  

and future  interest  and rejected  the  counter  claims.  The Subordinate  Judge's  Court,  

Ernakulam passed a decree in terms of the Award, on 8.10.96, while dismissing the  

application for setting aside  the award by a  common judgment.  The respondents filed  

M.F.A. No. 452 of 1997 and CRP No. 1906 of  1998 before the High Court of Kerala,  

Ernakulam, challenging the decree in terms of the award.  The High Court set aside the  

non-speaking Award, except in respect of claim No. 12 for payment of Rs. 1,20,000/-  

wrongfully withheld by the respondents.

7. It is alleged by the appellant that the High Court erroneously allowed C.R.P.  

No. 1906 of 1998, contrary to the law declared by this Court in Essar Constructions vs.  

N.P. Ramakrishna Reddy  (2000) 6 SCC  94, 103.  In paragraph 33 of the said judgment  

it was observed that an application under Section 115 of the Code of Civil Procedure,  

1908, did not lie to challenge a decree passed in terms of the Award.

8. The appellant has further alleged that the High Court ignored a long line of  

decisions  of  this  Court  declaring  that  it  is  not  open  to  the  Court  to  examine  the  

correctness of a non-speaking award on a reappraisal of evidence, nor for that purpose

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was it permissible to interpret the contract.  It is alleged that the High Court did not refer  

to the memorandum of appeal filed by the respondents.  It is alleged that the High Court  

without stating any reason rejected the contention of the petitioner that the Commander  

Works  Engineer  (CWE)  was  not  the  competent  authority  to  fix  the  rates  for  extra,  

deviated and additional items under the contract entered into with Respondent No.  2  

and beyond the period of contract and that his pecuniary jurisdiction was only up to Rs.  

20,000/-,  stipulated  in  MES  Regulation,  1968  and  that  no  final  decision  on  the  

objections of the petitioner against erroneous fixation of rates was ever communicated  

by the Chief  Engineer, who is the accepting officer.  It is alleged that the High Court  

erroneously assumed that extensions of time granted by Respondent No. 2. from time to  

time, deprived the petitioner of its  right for due payment at the then prevailing rates for  

delayed works at the instance of the respondents.    

9. The  High  Court  by  the  impugned  order  allowed  the  appeal  and  revision  

making the following observations:

“We, therefore, hold that the award passed by the arbitrator in respect  of claim Nos. 1 to 3, 5, 9, 17, 19, 21, 23, 24, 26, 30, 33, 35, 37, 38, 40,  41, 44 and 46 is against the conditions agreed to by the contracting   parties and in conscious disregard of the terms of the contract and also  the arbitration clause from which the arbitrator derives his authority. We are, however, not interfering with the award in respect of claim  No. 12 alone, which in our view is binding on the appellants.  We hold  that the arbitration clause 70 was conditional one giving finality to the  decisions of CWE as per the various provisions, clauses 62(G) and  

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11(C) of the contract.  The award of the arbitrator and the orders of  the court  below in Arbitration O.P.  Nos.  4 and 18 of 1994 to the   Extent to which they are covered by clauses 62(G) and 11(C) except  claim No. 12 are set aside and the Arbitration O.P. No. 18 of 1994   filed by Union of India is  allowed as above.   The appeal  and the   revision are allowed as above.  In the facts and circumstances of this  case, we are not awarding costs.”       

10. It can be seen that the High Court has set aside the arbitrator's award holding  

that  under  the  finality  clause  under  clauses  11(C)  and  62(G),  the  decision  of  the  

Commander Works Engineer (CWE) is final and binding and has been exempted from  

the purview of the arbitration clause, which is clause 70 of the contract.  Thus the High  

Court held that the arbitrator travelled beyond the terms of reference.

11. In this  connection we may refer  to clause 70 of the contract  which is  the  

arbitration clause.  The said clause reads as follows:

“70. Arbitration

All disputes, between the parties to the Contract (other than those for  which the decision of the CWE or any other person is by the Contract  expressed to be final and binding) shall,  after written notice by either  party  to the Contract  to the other  of them, be referred to the sole   arbitration of  an Engineer  Office to be appointed by the authority   mentioned in the tender documents.”         

Clause 11 of the contract reads as follows:

“11.  Time, delay and Extension

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(A) Time is of the essence of the contract and is specified in   contract documents or in each individual Works Order.

As  soon  as  possible  after  the  contract  is  let  or  any   substantial  Works  Order  is  placed  and  before  work  under  it  has   begun, the G.E. And the Contractor shall agree upon a Time Progress  Chart.  The Chart shall be prepared in direct relation to the time stated  in the contract documents or the Works Order for completion of the  individual items thereof,  and/or the Contract or Works order as a   whole.

(B) If the works be delayed:

(a)   by reason of  non-availability  of  Government  stores   mentioned in Schedule 13; or  

(b)   by reason of non-availability or breakdown of Govt.   Tools and Plant mentioned in Schedule 'C' then, in any such  event,   notwithstanding   the   provisions    hereinbefore   contained,  the  G.E.  May  in  his  discretion  grant  such   extension of time as may appear reasonable to him and the  Contractor shall  be bound to complete the works within   such extended time.  In the event  of the Contractor not   agreeing to the extension granted by the Garrison Engineer,  the matter shall  be referred to the Accepting Officer (or   CWE in case of contract accepted by Garrison Engineer)   whose decision shall be final and binding.    

(C) No  claim  in  respect  of  compensation  or  otherwise,   howsoever  arising, as a result of extensions granted under Conditions  (A) and (B) above shall be admitted.”  

 Clause 62(G) of the Contract states as under:

“(G) For all Contracts -  

If any work, the rate for which cannot be obtained by any of  the methods referred to in paras (A) to (E) above, has been ordered on

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the contractor, the rate shall be decided by the G.E. On the basis of the  cost to the Contractor at Site of Works plus 10% to cover all overheads  and profit.   Provided that if the contractor is not satisfied with the   decision of the G.E. He shall be entitled to represent the matter to the  C.W.E. Within seven days of receipt of the G.E.'s decision and the   decision of the C.W.E. Thereon shall be final and binding.

If any alterations or additions (other than those authorised to  be executed by day work or for an agreed sum) have been covered up  by the Contractor without his having given notice of his intention to do  so,  the  Engineer-in-Charge  shall  be  entitled  to  appraise  the  value   thereof  and  in  the  event  of  any  dispute  the  decision  of  the  G.E.   Thereon shall be final and binding.”.

12. In the present case it is apparent that the delay in the execution of the contract  

was solely due to the default of the respondents.  In this connection  we may refer to the  

following facts.

(1) The Assistant Garrison Engineer sent letter dated 21.06.1988  admitting suspension of works of beams & of main roof slab building,  due to non-finalization of design.       (2) The user  of  the  building i.e.  NPOL directed stoppage of   many items of work pending their final decisions on them by letter   dated 17.09.1988.

(3) On 26.9.1987 the appellant  notified the respondents  about  the idling due to non-finalization of various structural particulars, and  demanded  compensation.   The  appellant  again  sent  notice  dated  9.2.1988 intimating the respondent about idling at the site and losses  due  to  non-finalization  of  designs  and  particulars.   The  Assistant  Garrison Engineer sent a letter on 21.6.1988 admitting suspension of  works of beams and of main roof slab building due to non-finalization  of design.

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(4) On 17.9.1988 the user of the building i.e. NPOL directed   stoppage of many items of works pending their final decision on them.  Also, by letter dated 26.9.1988 respondent No. 3 directed stoppage of  construction of many items of work pending their final decision on   structural particulars.

(5) On 10.11.1988 respondent  No.  3  intimated  unconditional   grant of extension of time from 8.9.1988 to 31.1.1989 by respondent  No. 2.

(6) The  appellant  by  letter  dated  24.11.1988  requested   respondent Nos. 2 & 3 to settle accounts of the  value of the works   already carried out, to make payment in terms of the agreement and to  close  the  agreement  due  to  continued  suspension  of  works  and   increased cost of construction due to efflux of time so as to arrange   the remaining works through separate work orders   

(7) The Assistant Garrison Engineer of respondent No. 3 sent a  letter dated 11.10.1989 assuring the petitioner to settle rates across the  table  and  directed  to  carry  out  such  items,  agreeing  to  take  up   objections as to rates, for settlement by the  appropriate authority.  

(8) Respondent  No.  3  on  23.11.1990  wrote  to  the  appellant   directing it to forward paid vouchers for items to take up the objections  as  to  rates  before  the  respondent  No.  2,  who  was  the  Accepting   Officer.  

(9) The  last  bill  amount  of  Rs.  7,87,143/-  was  paid  by  respondent No. 3 which was received by the appellant under protest.

(10) The  appellant  issued  demand  notice  for  payment  of  Rs.1,24,58,108/- being the unpaid amount allegedly due and payable  to it.

All  the above facts show the repeated defaults by the respondents due to which the  

contract could not be completed in time.

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13. The letter dated 24.11.1988 makes it clear that the appellant was not ready to  

carry out the work beyond the contracted period otherwise than on separate work orders,  

and the subsequent correspondence like the letter dated 11.10.1989 makes it clear that it  

was on the specific assurance given by the respondent to the appellant to continue the  

work and that the rates would be decided across the table that the appellant went ahead  

with the work.  Hence, in our opinion it is now not open to the respondent to contend  

that no claim for further amount can be made due to clause 11(C) and that the arbitrator  

would have no jurisdiction to award the same.

14. Clause 62(G) read with clause 7 make it clear that the finality provided under  

clause  62(G)  applies  only  to  cases  of  'deviation'  and not  in  a  case  when there  is  a  

material alteration and addition in the work done, as is clear from the correspondence  

between the parties in the present case.

15.Moreover,  Regulation  439  of  the  MES  Regulations  1968  fixes  the  pecuniary  

jurisdiction  of  the  CWE at  Rs.  20,000/-  only.   It  is  evident  that  the  CWE has  no  

jurisdiction to decide the dispute where the valuation is above Rs. 20,000/-, as in the  

present case.  The finality of the decision of the CWE applies only where the dispute is  

not  exceeding  Rs.  20,000/-.   Hence,  in  our  opinion,  the  arbitrator  was  within  his  

jurisdiction to decide the matter in question.

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16. It is well-settled that in the case of non-speaking awards under the Arbitration  

Act, 1940 the Court has very little scope of interference vide State of Rajasthan vs. Nav  

Bharat  Construction  Co. (2006)  1  SCC  86,  Raipur  Development  Authority vs.  

Chokhamal  Constructions (1989)  2  SCC 721,  Arosan Enterprises  Ltd.  vs.  Union of  

India (1999) 9 SCC 449, Ispat Engineering vs.  Steel Authority of India (2001) 6 SCC  

347, D.D. Sharma vs. Union of India (2004) 5 SCC 325.   

17. It has been held by this Court in National Insurance Company Ltd vs. Boghara  

Polyfab Pvt. Ltd (2009) 1 SCC 267 that even in the case of issuance of full and final  

discharge/settlement voucher/no-dues certificate the arbitrator or Court can go into the  

question whether the liability has been satisfied or not.  This decision has followed the  

view taken in  Chairman and Managing Director, NTPC Ltd. vs. Reshmi Constructions,  

Builders and Contractors (2004) 2 SCC 663 (vide paragraphs 27 and 28).

18.Apart from the above, it has been held by this Court in  Board of Trustees, Port of  

Calcutta vs.  Engineers-De-Space-Age (1996) 1 SCC 516, that a clause like clause 11  

only prohibits the  department from entertaining the claim, but it did not prohibit  the  

arbitrator from entertaining it.  This view has been followed by another Bench of this  

Court in Bharat Drilling & Treatment Pvt. Ltd. vs. State of Jharkhand & others in Civil  

Appeal No. 10216 of 2003 decided on 20th August, 2009.

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19. For the reasons given above we are not in agreement with the view taken by  

the High Court that the award of the arbitrator was without jurisdiction.  In the facts  and  

circumstances of the case, we allow these appeals and set aside the impugned order of  

the High Court and restore the award of the arbitrator.  No costs.

..........................................J. (Markandey Katju)

…..........................................J. (Asok Kumar Ganguly)   

New Delhi; 07th September, 2009