THE HON’BLE SRI JUSTICE B.PRAKASH RAO AND THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY C.M.A.No.860 of 2001 And C.R.P.No.2290 of 2001 Dated:03rd November, 2010. CMA No.860 of 2001 Between: M/s.V.Pundarikakshudu & Sons., 10-1-31, Waltair Uplands, Visakhapatnam, rep. by its Managing Partner Sri Madhavarao. …Appellant And 1. Rashtriya Ispat Nigam Ltd., Visakhapatnam Steel Plant, a Company incorporated under the Companies Act, 1956, having its registered office at Main Administrative Building, Visakhapatnam Steel Plant, Visakhapatnam, rep. by its Chief Engineer (Contracts); 2. T.R.Seshadri, 6-3-597/A/16, Flat No.101, Marry’s Manson,V.R. Colony, Hyderabad-4. ….Respondents *** C.R.P.No.2290 of 2001 Between: M/s.V.Pundarikakshudu & Sons., 10-1-31, Waltair Uplands, Visakhapatnam, rep. by its Managing Partner Sri Madhavarao. …Petitioner And Rashtriya Ispat Nigam Ltd., Visakhapatnam Steel Plant, a Company incorporated under the Companies Act, 1956, having its registered office at Main Administrative Building, Visakhapatnam Steel Plant, Visakhapatnam, rep. by its Chief Engineer (Contracts); ….Respondent *** THE HON’BLE SRI JUSTICE B.PRAKASH RAO AND THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY C.M.A.No.860 of 2001 And C.R.P.No.2290 of 2001 COMMON JUDGMENT(Per Hon’ble Sri Justice B.Seshasayana Reddy) C.M.A.No.860 of 2001 is directed against the judgment dated 16.01.2001 passed in O.P.No.59 of 1999 on the file of the Senior Civil Judge, Gajuwaka, (old OP No.43 of 1994 on the file of the Senior Civil Judge, Visakhapatnam) and whereas, C.R.P.No.2290 of 2001 is directed against the judgment dated 16.01.2001 passed in O.P.No.60 of 1999 on the file of the Senior Civil Judge, Gajuwaka, (old O.P.No.47 of 1994 on the file of the Senior Civil Judge, Visakhapatnam). 2. Since these two proceedings arising out of the Award dated 30.11.1993 passed by the arbitrator-2nd respondent in C.M.A.No.860 of 2001, they are heard together and are being disposed of by this common judgment. 3. Brief facts of the case giving raise to filing of the C.M.A. as well as the C.R.P. by the appellant-petitioner are: Rashtriya Ispat Nigam Limited, Visakhapatnam-1st respondent in CMA No.860 of 2001, (hereinafter after referred to as ‘the employer’), awarded a contract for construction of 180 ‘C’ type dwelling units under an agreement No.VSP/CON/T/35/81-82, dated 09.03.1982 to M/s.V.Pundarikakshudu & Sons (hereinafter referred to as ‘the contractor’). The construction must be completed by 07.09.1982. However, the contractor completed the work by 31.03.1984. The employer issued a certificate of completion of the work on 29.04.1985. Some disputes arose in respect of the works executed by the contractor. Therefore, the contractor invoked Clause 16 of the General Conditions of the Contract and placed the disputes for settlement before the Engineer. Negotiations between the parties did not materialize. Therefore, the contractor invoked the arbitration clause in the agreement and addressed a letter to the Deputy Chief Engineer, Township [c], Visakhapatnam Steel Project, Visakhapatnam, dated 11.10.1985 making 17 items of claims and settlement of the same and in case of finding difficult to settle the same, sought for reference of the disputes for arbitration. The employer disputed the claims of the contractor and pleaded that the most of the claims come under “excepted matters”. However, the employer appointed Sri C.D.Mathew as arbitrator on its side. Whereas, the contractor nominated Sri T.V.Ramana Rao, as arbitrator on his behalf. Both the arbitrators appointed Sri T.R.Seshadri as Umpire. Subsequently, Sri C.D.Mathew expressed his inability to act as an arbitrator. Therefore, the employer appointed Sri T.R.Reddy as its arbitrator in place of Sri C.D.Mathew. Before the arbitral tribunal, the employer raised a preliminary objection with regard to maintainability of certain claims as they come under “excepted matters”. The Arbitral Tribunal rejected the prayer of the employer to adjudicate the preliminary issue. Thereupon, the employer filed O.P.No.76 of 1988 on the file of the Principal Subordinate Judge, Visakhapatnam, under Sections 11, 12 and 16 of the Arbitration Act, 1940, seeking declaration that the arbitration agreement ceased to have effect and thereby removal of the arbitrators and umpire. The O.P. ended in dismissal on 30.10.1992. The employer filed C.R.P.No.4225 of 1992 before this Court assailing the order dated 30.10.1992 passed in O.P.No.76 of 1988. The said CRP came to be dismissed on 31.12.1992. The order passed in the CRP reads as hereunder: “The contract work in question was completed in the year 1984. Arbitration proceedings were initiated in the year 1986. The petitioner nominated an Arbitrator reserving his right. However, this matter went on for a nearly six years for deciding a preliminary point with regard to the appointment of an Arbitrator and about the procedure to be adopted. The object of resorting to arbitration is to have a quick disposal without interference of the Court. That object has already been defeated. The petitioner can as well take as many objections as he can, when he wants to question the award. But the court should first consider with regard to the limitation and the procedure that has been adopted, after giving opportunity to both the parties. The Arbitrators are directed to pass the award as expeditiously as possible. The objections that has been raised and answered by the Arbitrators can as well be questioned by the petitioner at the time when he wants to question the award. The C.R.P. is therefore, dismissed.” The contractor submitted 27 items of claims before the arbitrators. The employer pleaded before the arbitrators that the contractor cannot claim more than what he stated in the letter dated 11.10.1995. The arbitrators were not able to come to a unanimous decision on the disputes between the parties and therefore, disputes came to be referred to umpire. The umpire considered the material brought on record and passed an award, dated 30.11.1993, granting Rs.66,92,850/- and one month time from the date of publication was allowed to the employer for payment and failing which the award amount shall carry interest at 18% p.a. to the date of payment or the date of decree by Court whichever is earlier. The umpire assigned supplementary reasons to the award dated 30.11.1993. The employer filed O.P.No.43 of 1994 on the file of the Principal Subordinate Judge, Visakhapatnam, under Section 33 r/w.Secs.30 and 19 of the Arbitration Act, 1940, to set aside the Award and whereas, the contractor filed O.P.No.47 of 1994 on the file of I Additional Subordinate Judge, Visakhapatnam, under Section 17 of the Arbitration Act, 1940, to make the award as rule of a Court. The two O.Ps. came to be transferred to the file of the Senior Civil Judge, Gajuwaka and renumbered as O.P.No.59 of 1999 and OP No.60 of 1999 respectively. The learned Senior Civil Judge, on considering the material brought on record and on hearing the counsel appearing for the parties, set aside the award in respect of the items of claim Nos.1, 12, 13, 14, 16, 18, 22, 24, 25 and 26 as they are out side the purview of the arbitration while remitting the matter back to the arbitrators for fresh adjudication on the items of claim Nos.2 to 5, 7 to 11, 15, 17, 19, 20, 21 and 23. Accordingly, O.P.No.59 of 1999 came to be allowed in part and O.P.No.60 of 1999 came to be dismissed. Hence, the CMA and the CRP by the contractor. 4. Heard learned counsel appearing for the contractor and learned counsel appearing for the employer. 5. Learned counsel appearing for the contractor submits that the civil Court exceeded its jurisdiction and thereby erred in recording a finding that the additional claims do not relate to the claims already made by the contractor in his letter dated 11.10.1985. He would also submit that what is referred to the arbitrators is the entire dispute between the parties and in which case, arbitrators can adjudicate the claims of the parties and record their findings. In support of his submissions, reliance has been placed on the judgment of the Supreme Court in State of Orissa v. Asis Ranjan Mohanty[1] and H.L.Batra and Company v. State of Haryana[2]. By referring these two judgments, learned counsel contends that all the claims made by the contractor are relatable to the agreement No.VSP/CON/T/35/81-82, dated 09.03.1982, and in which case, the scope of arbitration had not been enlarged. In a way, his contention is additional claims do not change the scope of the arbitration. 6. Learned counsel appearing for the employer submits that a particular procedure has been prescribed under the General Conditions of Contract for adjudication of the disputes and thereafter reference to the arbitrator. Unless and until such procedure is adopted, the contractor cannot seek adjudication of the claims through arbitration. Learned counsel took us to Clause 16.2 of the General Conditions of Contract, which reads as hereunder: “16.2 (a) All disputes and differences of any kind whatever arising out of or in connection with the Contract or the carrying out of the work (whether during the progress of the works or after their completion and whether before or after the determination, abandonment or breach of the contract) shall be referred to and settled by the Engineer who shall state his decision in writing. Such decision may be in the form of final certificate or otherwise. The decision of the Engineer with respect of any of the excepted matters shall be final and without any appeal as stated in clause 16.1 thereof. But if either the Employer or the Contractor be dissatisfied with the decision of the Engineer or any matter, question or dispute of any kind (except on any excepted matters) or as to the withholding by the Engineer of any certificate which the contractor may claim to be entitled then and in any such case, either party (the Employer or the Contractor) may within 28 days after receiving notice of such decision give a written notice to the other party through the Engineer requiring that such matters in dispute be arbitrated upon. Such written notices shall specify the matters which are in dispute or difference of which such written notice has been given and no other shall be and is here by referred to the arbitration and final decision of single Arbitrator to be agreed upon and appointed by both the parties or in case of disagreement as to the appointment of single Arbitrator to the arbitration of two Arbitrators one to be appointed by each party which Arbitrators shall before taking upon themselves the burden of Reference appoint an Umpire.” By referring the above clause, the learned counsel contends that the contractor has to first raise claims before the Engineer and invite his decision thereon and if he is dissatisfied with the decision, he can make a written notice within 28 days requiring such matters in dispute be arbitrated upon. In support of his submissions, learned counsel placed reliance on the judgments of the Supreme Court in Orissa Mining Corporation Ltd. V. M/s.Prannath Vishwanath Rawlley[3]; K.V.George v. The Secretary to Govt. Water and Power Dept., Trivandrum & Anr.[4]; Santosh Singh Arora v. Union of India & Ors.[5]; State of A.P. v. I.Chandrasekhara Reddy & Ors.[6]; State of Orissa v. Asis Ranjan Mohanty (1 supra); and H.L.Batra and Company v. State of Haryana (2 supra). 7. In Orissa Mining Corporation Ltd. V. M/s.Prannath Vishwanath Rawlley’s case (3 supra), the Supreme Court in para.10 of the judgment observed as follows: 10. On a reading of the plaint, we are satisfied that the claim for transporting the iron ore for the extra distance is limited to Rs.68,582 and the whole claim after including the claim for construction of the road is confined only to Rs.93,582. The arbitrator having disallowed Rs.25,000 being the claim for construction of the road should have confined his award only to Rs.68,582. The claim of additional Rs.68,582 before the arbitrator was clearly beyond the order of reference which incorporated the reliefs prayed for in the plaint by the respondent herein. It would have been different if the entire claim relating to the transport of the iron ore for the extra distance was made without specifying the amount of claim. When the amount has been specified in the plaint and when the reference is confined to the claim made in the plaint, the arbitrator would have to restrict his award only to the claim. We are satisfied that in this case the arbitrator has exceeded his jurisdiction in embarking on the claim that was for the first time put forward before him by the respondent. There is therefore, an error apparent on the face of the award.” 8. In Santosh Singh Arora’s case (4 supra), the Supreme Court held that inclusion of fresh items in statement of claims after reference of claims to arbitration is not permissible. Much emphasis has been laid by the learned counsel on para.4 of the judgment, which reads as hereunder: “4. The appellant has submitted that in view of the arbitration clause contained in clause 70 of the General Conditions of the Contract, the learned arbitrator was required to indicate his findings on each individual item of dispute and that in making his award dated August 18, 1990, the learned arbitrator has not indicated his finding on the various items contained in the claim of the appellant. We have perused the consolidated statement of claims which was submitted by the appellant before the learned arbitrator. We find that apart from the claims which were earlier made by the appellant in relation to the three contracts and which had been referred to arbitration by the Chief Engineer, the appellant has incorporated in the statement of claims fresh items in respect of damages said to have been suffered by the appellant subsequent to the reference of the dispute to arbitration. In our opinion, the scope of the arbitration in these proceedings has to be confined to the disputes which were the subject matter of arbitration before the first arbitrator. It is not permissible for the appellant to raise new disputes in relation to damages claimed to have been sustained by him after the disputes have been referred to arbitration. The said claims were rightly rejected by the learned arbitrator while making the award dated August 18, 1990. The objections raised by the appellant with regard to the said claims cannot, therefore, be sustained and must be rejected.” 9. Before the Arbitrators, the employer specifically pleaded that the contractor has not raised the items of claim Nos.1, 12, 13, 14, 16, 17, 18, 19, 21, 22, 24, 25 and 26 before the Engineer and unless and until the contractor raised the said claims before the Engineer and invites the decision, it is impermissible for him to seek reference of the disputes to the arbitrators directly. The arbitrators having taken note of the contentions proceeded to adjudicate the above referred claims on the ground that they are relatable to the subject matter of the reference. The civil Court considered the terms of agreement and recorded a finding that the arbitrators went beyond the scope of reference by adjudicating the items of claim Nos.1, 12, 13, 14, 16, 17, 18, 19, 21, 22, 24, 25 and 26. 10. We have already extracted Clause 16.2 of the General Conditions of the Contract. The first step the contractor is required to take is that he has to place the claims before the Engineer and invite his decision. In the event of his not satisfying with the decision of the Engineer, he can make a request for referring the disputes to the arbitrators within 28 days after receiving notice of such decision. The contractor under letter dated 11.10.1985 addressed to the Deputy Chief Engineer, Township [c], made 17 items of claims. The Engineer rejected the claims either on the ground that they come under the excepted matters or beyond the period of limitation. However, the employer appointed arbitrator and referred only the 17 items of claims for adjudication. The arbitrators cannot travel beyond the scope of reference. The additional claims made by the contractor before the arbitrators were not the subject matter of reference. If at all, the contractor wants to make any additional claims, he has to first approach the Engineer and invite the decision and thereupon, make a request to the employer for referring the disputes to arbitrators. The civil Court considered the scope of agreement and also the nature of claims and came to the conclusion that the items of claim Nos.1, 12, 13, 14, 16, 17, 18, 19, 21, 22, 24, 25 and 26 are beyond the scope of reference. We do not see any illegality or irregularity warranting interference of this Court in the finding recorded by the civil Court. 11. Accordingly, both the C.M.A. and the C.R.P. are dismissed. No order as to costs. ________________ B. PRAKASH RAO, J. _____________________ B.SESHASAYANA REDDY, J. Date:03rd November, 2010. cs THE HON’BLE SRI JUSTICE B.PRAKASH RAO AND THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY C.M.A.No.860 of 2001 And C.R.P.No.2290 of 2001 COMMON JUDGMENT (Common Judgment of the Division Bench delivered by Hon’ble Sri Justice B.Seshasayana Reddy) Dated:03rd November, 2010. [1] (1999) 9 SCC 249 [2] (1999) 9 SCC 188 [3] AIR 1977 S.C. 2014 [4] AIR 1990 S.C. 53 [5] AIR 1992 S.C. 1809 [6] AIR 1998 S.C. 3311