NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.      7012           OF 2008 [Arising out of S.L.P. (C) No.12194 of 2006]

Royal Education Society             .....        Appellant

Versus

LIS (India) Construction Co. Pvt. Ltd.       .....       Respondent

J U D G M E N T

Lokeshwar Singh Panta, J.

1. Leave granted.

2. This appeal is directed against the judgment and order

dated 19.04.2006 passed by the Division Bench of the High

Court of Judicature at Bombay in Appeal  No.  198 of 2006.

The  appellant-Society  has  filed  the  above-said  appeal

challenging the order dated 14.11.2005 of the learned Single

Judge whereby the appellant’s Arbitration Petition No.423 of

2004 filed under Section 34 of the Arbitration and Conciliation

Act,  1996  against  the  award  of  the  Arbitral  Tribunal  was

dismissed.   

3. Briefly stated, the relevant facts are as follows:

The appellant is an educational  society duly registered

with  the  Charity  Commissioner,  Bombay  under  Bombay

Public Trust Act, 1956.  The appellant-Society is running an

educational  institution  at  Borli  Panchatan,  Taluk

Shriwardhan, District Raigad, Maharashtra.  The President of

the appellant-Society is stated to be a renowned Surgeon and

a gold  medalist  of  University  of  Bombay,  in Surgery and is

affiliated  to  various  well-known Hospitals  in  Bombay.   The

President  of  the  appellant-Society  hails  from  village

Barli/Konkan  and  out  of  his  emotional  love  to  his  native

village and in order to educate  his own village children;  he

took  upon  the  responsibility  to  establish  the  school  and

institution at his  ancestral  land at Barli  in Konkan area of

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Maharashtra.   The  appellant-Society  is  running  English

Medium School for the last about 20 years.

4. The  appellant-Society  desired  to  establish  a  women’s

college  at  Borli  and,  therefore,  it  invited  tenders  for

construction of a building at Borli,  Panchatan.  The Society

was depending upon magnanimous donors, who have agreed

to donate the entire amounts for the Project.   

5. The  respondent-company  is  incorporated  under  the

Companies  Act.   The  Director  of  the  respondent-company

visited the site and in the presence of the donor, they agreed

to  construct  the  building  at  the  proposed  site.   The

respondent-company  offered  tender  for  constructing  the

building at a total cost of Rs.1,55,37,981.20 [Rupees one crore

fifty five lacs thirty seven thousand nine hundred eighty one

and twenty paise].  The college was named after the donor as

‘Kalsekar Institute of Science’.  It is the case of the appellant-

Society  that  the  tender  of  the  respondent-company  was

accepted with the condition that the time was essence of the

contract  and  the  respondent-company  by  its  letter  dated

29.04.2000 assured to the appellant-Society that the company

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will  complete  the  Project  within  the  stipulated  time.   The

standard agreement drafted by the Council  of Architect was

executed  on  20.04.2000  and  the  entire  Project  was  to  be

completed within 18 months on or before 01.11.2001.  It was

also agreed that the final measurement and valuation shall be

done in the 17th month.  The date of the commencement was

agreed upon 01.05.2000.  The procedure for payment was that

the  respondent-company  would  submit  the  bills  to  the

appellant’s Architect and the same would be forwarded to the

donor (President of the appellant-Society)  and thereafter the

cheque  issued  by  the  donor  in  the  name  of  the  appellant-

Society  and,  in  turn,  the  appellant-Society  would  pay  the

amount to the respondent-company.

6. The respondent-company allegedly failed to complete the

Project  as on 01.11.2001 and the  appellant-Society  did  not

give any extension of time to the respondent-company.  The

respondent-company paid a total sum of Rs.1,41,59,956/- as

on 19.10.2001 for the cost of  work done.   The respondent-

company abandoned the work in the midstream.  The donor

refused  to  give  any  amount  beyond  the  agreed  amount  of

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Rs.1,55,37,981.20  when he found that the building was still

incomplete and the contractors were demanding astronomical

amount for completion of the entire building.  The respondent-

company removed their entire labour and machinery from the

site and it left the building incomplete as an orphan without

any care or maintenance to face the wrath of seasons.  The

building  has  no  windows  and  doors  on  the  upper  floors.

Subsequently,  correspondence  was  exchanged  between  the

appellant-Society  and  the  respondent-company.   The

respondent-company also  failed  to pay the electricity  bill  of

Rs.1,29,000/-.    

7. On  these  premises,  the  respondent-company  filed

Arbitration Application bearing No. 61 of 203 before the High

Court  of  Judicature  at  Bombay.   The  President  of  the

appellant-Society  appeared  in-person.   The  said  Arbitration

Application  came  up  before  the  learned  Single  Judge  on

02.05.2003, on which date following order was passed:-

“…  The  Petitioners  have  already appointed  Mr.  Devbhakta  as  their arbitrator.   Mr.  Roshan  Nanavati  is appointed  as  second  arbitrator.   These two  arbitrators  will  appoint  third

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arbitrator  who  will  act  as  Presiding Arbitrator.   The  arbitral  tribunal  so constituted will decide all issues between the parties including claims and counter claims,  if  any,  and  also  existence  of arbitral clause and/or that the claims as raised by the Petitioners are arbitrable or not.   Application  stands  disposed  of accordingly.”

8. The  respondent-company  filed  its  alleged  claim  on

31.07.2003, whereas the appellant-Society filed reply thereto

and counter claim also on 21.1.2003 accompanied by report

dated  21.01.2002  of  the  Architect  Khalil  R.  Shaikh  and

Associates.   The  arbitration  proceedings  were  heard  on

various  dates  and  finally  the  Arbitral  Tribunal  passed  an

Award on 23.02.2004, but since the respondent-company did

not pay the fees of the Arbitral Tribunal, therefore the Award

was  not  declared.   Subsequently,  it  appears  that  the

respondent-company paid the fees of the Arbitral Tribunal and

thereafter on 20.04.2004 the said Award was communicated

and declared to the appellant-Society by the Arbitral Tribunal

by  its  letter  dated  20.04.2004.   The  following  Award  was

passed by the Arbitral Tribunal:-

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1. We do hereby award that the Respondents namely  M/s.  Royal  Education  Society  do pay to the Claimants namely M/s LIS (India) Construction  Co.  (P)  Ltd.,  the  sum  of Rs.35,50,762.03  [Rupees  thirty  five  lakhs fifty  thousand  seven  hundred  sixty  two point  zero  three  only]  in  full  and  final payment of the claim No.1 upheld by us in this arbitration proceedings.

2. We do hereby award that the Respondent do bear and pay interest at 7% per annum on the  amount  of  Rs.35,50,762.03  [Rupees thirty  five  lakhs  fifty  thousand  seven hundred  sixty  two  point  zero  three  only] from 13.06.2003  till  the  date  of  award as also  interest  at  7%  p.a.  from the  date  of award till the date of payment excluding two months  needed  to  make  arrangement  for payment.

3. We do hereby award that the Respondents namely  M/s.  Royal  Education  Society  do pay to the Claimants namely M/s LIS (India) Construction  Co.  (P)  Ltd.,  the  sum  of Rs.5,00,000/-  [Rupees  five  lakhs  only] towards claim No.2.

4. We do hereby award that the Respondent do bear  and  pay  interest  at  7%  p.a.  on  the above  amount  of  Rs.5,00,000/-  from  the date  of  award  to  the  date  of  payment excluding  one  month  needed  to  make arrangement for payment.

5. We do hereby award that each party do bear and pay its own legal cost as well as cost of this arbitration proceedings.

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6. We do hereby award that each party do bear and  pay  three  Arbitrators’  fees  in  equal parts.”

9. Being aggrieved by the Award of  the Arbitral  Tribunal,

the  appellant-Society  filed  Arbitration  Petition  423  of  2004

before the High Court of Judicature at Bombay.  The learned

Single  Judge  dismissed  the  said  arbitration  petition  on

14.11.2005.

10. Feeling  aggrieved  thereby,  the  appellant-Society  filed

appeal  challenging the correctness and validity of  the order

dated 14.11.2005 of the learned Single Judge and the Award

passed by the Arbitral Tribunal.  The Division Bench of the

High  Court,  as  noticed  above,  dismissed  the  appeal  on

19.04.2006.  Now, the appellant-Society has filed this appeal

by special leave.

11. We have heard the learned counsel for the parties and

meticulously examined the judgment and order of the Division

Bench  confirming  the  order  of  the  learned  Single  Judge

dismissing  the  Arbitration  Petition  of  the  appellant-Society.

12. It is not in dispute that Dr. Abdur Rahim Undre is the

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President  of  the  appellant-Society.   He  registered  the

appellant-Society  with  the  Charity  Commissioner,  Bombay.

The  appellant-Society  is  running  schools  and  college  for

women  at  a  small  village  Borli  Panchatan  in  Taluka

Shrivardhan, District Raigad.  Dr. Abdur Rahim Undre, as a

President of the appellant-Society, donated all his immovable

property and established English medium school in his native

place.    The  appellant-Society  through  its  Architects,  M/s

Salim Dawawala, had invited tenders for construction of Girls

College  at  Borli  Panchatan.   The  respondent-company  had

submitted its tender for the said work.  It  is not in dispute

that the tender of the respondent-company was accepted on

behalf of the appellant-Society.  The work was awarded to the

respondent-company by the appellant-Society.  Thereafter, a

formal contract agreement dated 20.04.2000 was entered into

by and between the parties.  As per the terms of the contract,

the work under the contract was stipulated to be completed by

01.11.2001,  i.e.  within  18  months  period  from 01.05.2000.

The  total  estimated  cost  of  Project  was  Rs.1,55,37,981.20

based  on  item-rate  contract.   Undisputedly,  as  the

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respondent-company could not complete the work within the

stipulated  period,  therefore  a  dispute  arose  between  the

parties,  which  was  referred  by  the  learned  Single  Judge  to

three  members  of  Arbitral  Tribunal,  namely,  Shri  Russi  R.

Mistry, Shri Madhav Deobakhta and Dr. Roshan N. Nanavati.

Both the parties filed their statements of claim and counter-

claim before the Arbitral Tribunal.  The respondent-company

under Claim No.1 had claimed a sum of Rs.38,06,576.75 for

outstanding R.A. Bills.  Against R.A. Bill No.17, an amount of

Rs.21,33,423.18 was claimed, whereas against R.A. Bill No.18

a sum of Rs.15,35,356.97 was claimed out of which a sum of

Rs.1,37,796.60 was claimed beyond prolonged period of work,

i.e.  01.11.2001  to  21.01.2002.   The  Arbitral  Tribunal  had

allowed the following claims:-

1. In  regard  to  R.A  Bill  No.17,  a  sum  of Rs.22,45,708.61 was awarded.

2. For R.A. Bill No.18, a sum of Rs.13,05,053.42 was awarded.

3. Bill beyond R.A. Bill No.18 was rejected.

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The  total  amount  awarded  under  Claim  No.1  was

Rs.35,50,762.03.

13. It  was the claim of the respondent-company before the

Arbitral Tribunal that gross value of the work executed by it

within  the  stipulated  period  was  to  the  tune  of

Rs.1,45,59,956/-,  but  the  total  work  executed  was  to  the

extent of Rs.1,80,78,908/-.  Thus, the difference between the

gross  value  of  the  work  and  the  amount  of  total  work  got

executed in the prolonged period was Rs.35,18,952 and the

said  amount  was  claimed  on  escalation  rate  at  10%.   The

Arbitral  Tribunal  awarded  a  sum of  Rs.35,50,762.03  under

Claim No.1 and a sum of Rs.5,00,000/- under Claim No.2 to

the respondent-company along with interest at the rate of 7%

p.a. from the date of award till the date of payment, excluding

two months needed to make arrangement for payment.  Claim

Nos.3, 4, 5, 6, 7 and 8 were rejected.  The counter claim of the

appellant-Society was rejected.   

14. As stated above, the Award of the Arbitral Tribunal was

upheld by the learned Single Judge as well as by the Division

Bench of the High Court.   

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15. We have gone through the general conditions of contract

executed between the appellant-Society and the respondent-

company.    The Type of Contract in terms of clause (3) of the

Contract was item-rate contract and the Contractor was to be

paid for the actual quantity of work done, as measured at site,

at the rates quoted by him in the Contract Bills.  In terms of

clause 16 (1) the Architect shall be the Owner’s representative

during the construction period, who shall periodically visit the

site to familiarise himself generally with the progress and the

quality of the work and to determine in general if the work was

proceeding in accordance with the contract document.  As per

clause  32,  when  any  instruction  or  decision  given  at  site

involves an extra or whereby the Contractor may plan to claim

an extra,  it  shall  be  the  responsibility  of  the  Contractor  to

inform  the  Architect  of  the  extra  amount  and  get  written

authorization from the  Architect  before  proceeding  with  the

work  involved.   Clause  40  of  the  Arbitration  Agreement

stipulates that upon it becoming reasonably apparent that the

progress  of  the  works  is  delayed,  the  Contractor  shall

forthwith give written notice of the cause of the delay to the

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Architect and if in the opinion of the Architect, the completion

of the work to be or has been delayed beyond that date for

completion  stated  in  the  appendix  to  these  conditions  or

beyond any extended time previously fixed under this clause.

The record shows that the Architect of the appellant-Society

issued letter dated 20.4.2000 to the Managing Director of the

respondent-company  whereby  the  tender  quotations  of  the

respondent-company  was  accepted  by  the  appellant-Society

on certain conditions contained in the said letter.  One of the

conditions  was  that  total  cost  of  the  Project  will  be  within

Rs.1.55 crores.  Further condition was that the Project of the

construction of the Girls College at Borli,  Panchatan for the

appellant-Society  shall  be  completed  within  stipulated  time

frame of 18 months from 01.05.2000 and if the Project was

not completed within stipulated time, a penalty of Rs.1,000/-

per day will  be charged and if  completed before time, same

amount will be paid as bonus.  It was also stipulated that the

respondent-company  could  mobilize  the  work  from

21.04.2000.  The MOU will be read in conjunction with tender

document and other prevailing laws of the State Government.   

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16. In response to the said work order, the Director of the

respondent-company  vide  reference  :  LIS/RES/00/06  dated

29.04.2000 acknowledged and accepted the work order dated

20.04.2000  and  stated  that  the  respondent-company  had

started mobilization for the commencement of the said Project

and  assured  the  appellant-Society  to  complete  the  same

within the stipulated time limit.  In terms of the Agreement,

the  Director  of  the  respondent-company  informed  the

Architect of the appellant-Society vide letter dated 16.05.2000

that in terms of the Agreement the respondent-company had

already mobilized the site and executed the work at the site.

The  parties  thereafter  have  exchanged  various

communications with each other.   The respondent-company

could not complete the work within the stipulated period, the

appellant-Society vide letter dated 04.09.2001 refused to give

further  extension  of  time  beyond  stipulated  period  as

contemplated  in  the  Terms  of  the  Agreement.    It  is  not

disputed  that  the  appellant-Society  has  paid  a  sum  of

Rs.1,41,000/- to the respondent-company before 01.11.2001,

i.e.  the  stipulated  period  for  execution  of  the  work.   The

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respondent-company  submitted  R.A.  Bill  Nos.  17  for

Rs.22,45,708.61 and R.A. Bill No. 18 for Rs.13,05,053.42 after

the  stipulated  period  of  the  execution  of  the  work.   The

appellant-Society has not extended the stipulated time beyond

01.11.2001.   The  respondent-company  claimed  a  sum  of

Rs.1,80,78,908/- for the work done by it till 21.01.2002.

17. Undisputedly,  the  appellant-Society  is  an  educational

society  duly  registered  by  the  Charity  Commissioner  under

Bombay Public Trust Act, 1956.  Dr. Syed Akhtar, a renowned

Surgeon,  is  the  President  of  the  appellant-Society.   He  has

established  a  women’s  college  at  his  native  village  Borli

Panchatan  with  a  sole  purpose  of  giving  education  to  the

children of his native village.  He has donated his entire land

for  the  construction  of  the  women’s  college  and  received

substantial amounts by donations from magnanimous donors

for the Project.  The work of construction of the college was

entrusted  to  the  respondent-company  for  a  total  cost  of

Rs.1,55 crores.  Looking to the charitable cause for which the

President-Donor of the appellant-Society has donated his land

and raised money from the donors, we do not wish to embark

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upon the merits of the claims and counter claims raised by

the parties before the Arbitral Tribunal.  In the interest of both

the parties and in order to settle their dispute finally, we think

it proper and reasonable that in addition to Rs.1,41,51,956/-

already  paid  by  the  appellant-Society  to  the  respondent-

company for the work executed by it, an extra sum of Rs.21

lakhs  shall  be  paid  by  the  appellant-Society  to  the

respondent-company on account of the work claimed in R.A.

Bill  No.17.   The  respondent-company  is  not  entitled  to  the

payment of the amount claimed for prolonged period of work

done  after  01.11.2001  to  21.01.2002.   The  claim  beyond

01.11.2001 made  by the  respondent-company and awarded

by the Arbitral  Tribunal,  therefore,  is  wholly  untenable  and

unsustainable.   

18. In  the  facts  and  circumstances  of  the  case,  the

respondent-company cannot be held entitled to the retention

money and interest as awarded by the Arbitral Tribunal in its

Award,  which  has  been  affirmed  by  the  High  Court.   The

balance  amount  of  Rs.21 lakhs,  as ordered  by us,  shall  be

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paid  by  the  appellant-Society  to  the  respondent-company

within eight weeks from the date of this order.

19. In the result, for the above-said reasons, the appeal  is

partly allowed and the judgment and order dated 19.04.2006

of the Division Bench of the High Court affirming the order of

the  learned  Single  Judge  in  Arbitration  Petition  No.  423  of

2004 whereby the Award of the Arbitral Tribunal was upheld,

shall stand modified in the aforesaid terms and to the extent

indicated above.  The parties are left to bear their own costs.

........................................J.                                                  (Lokeshwar Singh Panta)

........................................J.                                                  (Aftab Alam)

New Delhi, December 02, 2008.

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