FAO (OS) 135/2010 Page 1 of 27 * IN THE HIGH COURT OF DELHI AT NEW DELHI + FAO(OS) No.135/2010 & CM No.3552/2010 NTPC Ltd. …..Appellant through Mr. R.K. Joshi, Adv. versus Deconar Services Pvt. Ltd. …..Respondent through Mr. J.P. Gupta, Adv. WITH FAO(OS) No.136/2010 & CM No.3562/2010 NTPC Ltd. …..Appellant through Mr. R.K. Joshi, Adv. versus Deconar Services Pvt. Ltd. …..Respondent through Mr. J.P. Gupta, Adv. % Date of Hearing: February 24, 2010 Date of Decision: April 09, 2010 CORAM: * HON'BLE MR. JUSTICE VIKRAMAJIT SEN HON'BLE MR. JUSTICE MANMOHAN SINGH 1. Whether reporters of local papers may be allowed to see the Judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the Judgment should be reported Yes in the Digest? VIKRAMAJIT SEN, J. 1. The Appellant assails the Order of the learned Single Judge dated 16.12.2009 in terms of which the Appellant‘s Objections to a composite Award passed in respect of the two contracts came to be dismissed. The first contract was executed on 12.10.1987 and was FAO (OS) 135/2010 Page 2 of 27 with regard to the construction of 100 ‗A‘ and ‗B‘ type quarters; the second contract was executed on 23.11.1987 with regard to 68 ‗B‘, ‗C‘ and ‗D‘ type quarters. Learned counsel for the Appellant clarifies that the Appellant was not desirous of entering into a contract with the third party who was L-1 because of some previous unsatisfactory transactions. Since the Bid of this third party was lower than that of the Respondent before us, the Respondent agreed to give a sixteen per cent rebate, ostensibly to match the third party/L-1. The finding in the Award to the effect that the Appellant was responsible for a delay of six months, out of a total delay of thirty two months, has not been controverted before us. The contention of the Appellant is that the Arbitrator had no jurisdiction to pass any Award in respect of the delayed period in view of Clause-6 of the First Agreement, which reads as follows:- 6.0 The total contract value and the unit rates shall remain firm during the execution of the contract and no variation on whatsoever account shall be accepted by NTPC. However, the total contract price is subject to change due to quantity variation based on the unit rates indicated in Appendix D in accordance with the provisions contained in general conditions of contract for Civil works. 2. Reliance has also been placed on an amendment to the General Conditions of Contract in which the parties have agreed to substitute Clause 53/53A with the following:- FAO (OS) 135/2010 Page 3 of 27 The quoted price shall remain firm during the currency of the contract. Predicated on the above Clauses, the contention before us, as well as before the Arbitrator and the learned Single Judge, is that the contractor‘s claim for damages due to delay in the Project was ‗an excepted matter‘, and in the alternative, even if it was adjudicable despite the presence of the above extracted Clauses, damages could not have been granted. 3. On the first question, the learned Single Judge has pithily observed that the arbitration did not commence through a petition under Section 20 of the Arbitration Act, 1940 (‗Act‘ for short); on the contrary, the Arbitrator was chosen by the Appellant itself and accordingly claims had been referred to the Arbitrator by the Appellant. If it was the case of the Appellant that these claims were ‗excepted matters‘, at that initial stage itself the Appellant should have declined to refer the claims to the Arbitrator. It is a matter of regret that the Terms of Reference to the Arbitrator have not been filed by the Appellant either before us or before the learned Single Judge. The question that arises is whether, regardless of the reference of these claims to the Arbitrator, the Appellant can nevertheless contend that the claims were not arbitrable as they fell in the genre of ‗excepted matters‘. Reliance has been placed by Mr. R.K. Joshi, learned counsel for the Appellant, on the following observations of the Division Bench in Delhi Development FAO (OS) 135/2010 Page 4 of 27 Authority -vs- Jagan Nath Ashok Kumar, 89(2001) DLT 668, with which we respectfully concur:- 14. A perusal of the judgment of Bhagat Construction (supra), which was also a case relating to DDA, would show that the same question arose for consideration on almost identical facts. Notwithstanding Clause 25 of the Agreement relating to arbitration, counter claim No. 2 of similar nature, which was an ―excepted matter‖ was referred for adjudication. When the award was filed in the Court various objections were raised. However, there was no specific objection in respect of counter claim No. 2 that Arbitrator did not have jurisdiction to deal with the same as it was an ―excepted matter‖. This objection was raised at the time of arguments and it was not opposed on the ground that it could not be raised at the stage of arguments inasmuch as, under Section 30 of the Arbitration Act, 1940 objections to the award could be filed by the parties within 30 days of the receipt of the notice of filing of the award failing which the Court had no other option but to make the Award rule of the Court and pass decree in terms thereof. On the other hand, it was contended on behalf of the DDA that since the Arbitrator did not have jurisdiction to deal with an ―excepted matter‖ the same goes to the root of the matter and therefore such an objection could be raised at any time and in support of this contention reliance was placed on the decision of the Supreme Court in the case of Prabartak Commercial Corporation Ltd. v. The Chief Administrator, Dandakaranya Project and Another, AIR 1991 SC 957. Learned Single Judge, keeping in view the importance of the question involved, made reference to FAO (OS) 135/2010 Page 5 of 27 the Division Bench and that is how this question came to be dealt with by the Division Bench. After hearing both the parties at length, detailed judgment is given holding that objections with regard to lack of inherent jurisdiction on the part of the Arbitrator to pass an award in respect of counter claim No. 2 could be taken at any time as it was not an objection under Section 30 of the Arbitration Act, 1940 but amounted to an objection raised under Section 33 of the Arbitration Act, 1940 for which law of limitation had no application. It was further held that the said counter claim did not fall within the jurisdiction of the Arbitrator and the question was one of lack of inherent jurisdiction of the Arbitrator to deal with the matter and the award in respect of such counter claim was a nullity and could be set up wherever it was sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. This judgment in fact applies with all force as far as present case is concerned and, therefore, relying upon the aforesaid judgment, we are of the view that Arbitrator lacked inherent jurisdiction to deal with the counter claim No. 1. Award on counter claim No. 1 is accordingly set aside. 4. We must, therefore, proceed to decide whether the Arbitrator was foreclosed and prevented from pronouncing on the claim for escalation for the extended period of the contract. Both the Arbitrator as well as the learned Single Judge has concurrently concluded that since the Appellant was responsible for the initial delay of six months, it would become liable for damages. It is noteworthy that the Arbitrator has not granted damages for the FAO (OS) 135/2010 Page 6 of 27 total period of delay, viz., thirty two months. Instead, he has meticulously calculated the escalation which had been occasioned in the initial six months period in respect of which the Appellant indubitably was responsible for the delay. It seems to us that it is certainly arguable that since the Appellant was responsible for the initial delay, it could also have been found liable for the entire remainder; or at least that the Respondent would stand insulated for all the resultant or consequent damages. It is in this context that learned counsel for the Appellant has drawn our attention to New India Civil Erectors (P) Ltd. v. Oil & Natural Gas Corpn., AIR 1997 SC 980, the relevant paragraph of which is extracted below:- 8. Claim 9: The appellant claimed an amount of Rs 32,21,099.89p under this head, against which the arbitrators have awarded a sum of Rs 16,31,425. The above claim was made on account of escalation in the cost of construction during the period subsequent to the expiry of the original contract period. The appellant‘s claim on this account was resisted by the respondent- Corporation with reference to and on the basis of the stipulation in the Corporation‘s acceptance letter dated 10-1-1985 which stated clearly that ―the above price is firm and is not subject to any escalation under whatsoever ground till the completion of the work‖. The Division Bench has held, and in our opinion rightly, that in the face of the said express stipulation between the parties, the appellant could not have claimed any amount on account of escalation in the cost of construction carried on by him after the expiry of the original contract FAO (OS) 135/2010 Page 7 of 27 period. The aforesaid stipulation provides clearly that there shall be no escalation on any ground whatsoever and the said prohibition is effective till the completion of the work. The learned arbitrators, could not therefore have awarded any amount on the ground that the appellant must have incurred extra expense in carrying out the construction after the expiry of the original contract period. The aforesaid stipulation between the parties is binding upon them both and the arbitrators. We are of the opinion that the learned Single Judge was not right in holding that the said prohibition is confined to the original contract period and does not operate thereafter. Merely because time was made the essence of the contract and the work was contemplated to be completed within 15 months, it does not follow that the aforesaid stipulation was confined to the original contract period. This is not a case of the arbitrators construing the agreement. It is a clear case of the arbitrators acting contrary to the specific stipulation/condition contained in the agreement between the parties. We, therefore, affirm the decision of the Division Bench on this count as well (claim 9). 5. Mr. J.P. Gupta, learned counsel for the Respondents, is quick to point out that the words in the contract between the parties speaks of the period ―during the currency of the contract‖ in contradistinction to the clause in Civil Erectors which contemplates ―till the completion of the work‖. According to learned counsel for the Respondents, there is a material difference in the clauses inasmuch as so far as the present parties are FAO (OS) 135/2010 Page 8 of 27 concerned, the rates were to remain firm only during the currency of the period envisaged in the Contract. 6. In this regard, we can do no better than to reproduce the relevant observations of the Supreme Court in General Manager, Northern Railway –vs- Sarvesh Chopra, 2002(4) SCC 45:- 14. In Hudson‘s Building and Engineering Contracts (11th Edn., pp. 1098-99) there is reference to ―no-damage‖ clauses, an American expression, used for describing a type of clause which classically grants extensions of time for completion, for variously defined ―delays‖ including some for which, as breaches of contract on his part, the owner would prima facie be contractually responsible, but then proceeds to provide that the extension of time so granted is to be the only right or remedy of the contractor and, whether expressly or by implication, these damages or compensation are not to be recoverable therefor. These ―no-damage‖ clauses appear to have been primarily designed to protect the owner from late start or coordination claims due to other contractor delays, which would otherwise arise. Such clauses originated in the federal government contracts but are now adopted by private owners and expanded to cover wider categories of breaches of contract by the owners in situations which it would be difficult to regard as other than oppressive and unreasonable. American jurisprudence developed so as to avoid the effect of such clauses and permitted the contractor to claim in four situations, namely, (i) where the delay is of a different kind from that contemplated by the clause, including extreme delay, (ii) where the delay amounts to abandonment, (iii) where the delay is a result FAO (OS) 135/2010 Page 9 of 27 of positive acts of interference by the owner, and (iv) bad faith. The first of the said four exceptions has received considerable support from judicial pronouncements in England and the Commonwealth. Not dissimilar principles have enabled some Commonwealth courts to avoid the effect of ―no-damage‖ clauses. (See Hudson, ibid.). 15. In our country question of delay in performance of the contract is governed by Sections 55 and 56 of the Indian Contract Act, 1872. If there is an abnormal rise in prices of material and labour, it may frustrate the contract and then the innocent party need not perform the contract. So also, if time is of the essence of the contract, failure of the employer to perform a mutual obligation would enable the contractor to avoid the contract as the contract becomes voidable at his option. Where time is ―of the essence‖ of an obligation, Chitty on Contracts (28th Edn., 1999, at p. 1106, para 22-015) states ―a failure to perform by the stipulated time will entitle the innocent party to (a) terminate performance of the contract and thereby put an end to all the primary obligations of both parties remaining unperformed; and (b) claim damages from the contract-breaker on the basis that he has committed a fundamental breach of the contract (‗a breach going to the root of the contract‘) depriving the innocent party of the benefit of the contract (‗damages for loss of the whole transaction‘)‖. If, instead of avoiding the contract, the contractor accepts the belated performance of reciprocal obligation on the part of the employer, the innocent party i.e. the contractor, cannot claim compensation for any loss FAO (OS) 135/2010 Page 10 of 27 occasioned by the non-performance of the reciprocal promise by the employer at the time agreed, ―unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so‖. Thus, it appears that under the Indian law, in spite of there being a contract between the parties whereunder the contractor has undertaken not to make any claim for delay in performance of the contract occasioned by an act of the employer, still a claim would be entertainable in one of the following situations: (i) if the contractor repudiates the contract exercising his right to do so under Section 55 of the Contract Act, (ii) the employer gives an extension of time either by entering into supplemental agreement or by making it clear that escalation of rates or compensation for delay would be permissible, (iii) if the contractor makes it clear that escalation of rates or compensation for delay shall have to be made by the employer and the employer accepts performance by the contractor in spite of delay and such notice by the contractor putting the employer on terms. 16. Thus, it may be open to prefer a claim touching an apparently excepted matter subject to a clear case having been made out for excepting or excluding the claim from within the four corners of ―excepted matters‖. While dealing with a petition under Section 20 of the Arbitration Act, the court will look at the nature of the claim as preferred and decide whether it falls within the category of ―excepted matters‖. If so, the claim preferred would be a difference to which the arbitration agreement does not apply, and therefore, the court shall not refer the same to the arbitrator. On the pleading, the applicant may succeed in making out a case for reference, still the FAO (OS) 135/2010 Page 11 of 27 arbitrator may, on the material produced before him, arrive at a finding that the claim was covered by ―excepted matters‖. The claim shall have to be disallowed. If the arbitrator allows a claim covered by an excepted matter, the award would not be legal merely because the claim was referred by the court to arbitration. The award would be liable to be set aside on the ground of error apparent on the face of the award or as vitiated by legal misconduct of the arbitrator. Russell on Arbitration (21st Edn., 1997) states vide para 1-027 (at p. 15): ―Arbitrability.—The issue of arbitrability can arise at three stages in an arbitration; first, on an application to stay the arbitration, when the opposing party claims that the Tribunal lacks the authority to determine a dispute because it is not arbitrable, second, in the course of the arbitral proceedings on the hearing of an objection that the Tribunal lacks substantive jurisdiction and third, on an application to challenge the award or to oppose its enforcement. The New York Convention, for example, refers to non- arbitrability as a ground for a court refusing to recognize and enforce an award.‖ 17. To sum up, our conclusions are: (i) while deciding a petition under Section 20 of the Arbitration Act, 1940, the court is obliged to examine whether a difference which is sought to be referred to arbitration is one to which the arbitration agreement applies. If it is a matter excepted from the arbitration agreement, the court shall be justified in withholding the reference, (ii) to be an excepted matter it is not necessary that a departmental or an ―in-house‖ remedy for settlement of claim must be FAO (OS) 135/2010 Page 12 of 27 provided by the contract. Merely for the absence of provision for in-house settlement of the claim, the claim does not cease to be an excepted matter, and (iii) an issue as to arbitrability of claim is available for determination at all the three stages — while making reference to arbitration, in the course of arbitral proceedings and while making the award a rule of the court. 7. In this conspectus of the legal position, it is apparent that on the expiry of the period within which the contract had to be completed, the parties would have to agree to an extension, conditionally or unconditionally. If the required extension of time is not mutually agreed upon, a cause of action for a claim for damages on either side would arise. Unfortunately, more often than not, work continues without the terms being expressly reduced to writing, and in this nebulous and amorphous state there is ample scope for both parties to lay claims for damages at the stage they calculate to be opportune to them. No doubt, it is arguable that it is for the performing party to clarify that even if an extension is granted, the principal would remain liable for damages or escalation in rates which the contractor is constrained to incur in the extended period. But there is no justifiable reason to absolve the principal from the duty to make explicit that work executed in the continued period would be on a ‗no damage‘ basis or on any other variant. It is in these obscure circumstances that claims invariably arise which have to be adjudicated upon unless the terms of the contract explicitly and unequivocally bar any FAO (OS) 135/2010 Page 13 of 27 adjudication. We are mindful that the present claims had arisen prior to the amendment in Section 28 of the Indian Contract Act, 1872 (‗Contract Act‘ for short). It is one thing to say that the adjudicating authority may, on an interpretation of the contract between the parties, deny or decline to grant the claim for damages. It is quite another thing to say that the adjudicating authority is barred altogether from even considering the veracity and validity of the claims. It is generally assumed that time is usually not of the essence, and this is especially so in the case of construction contracts. Therefore, an explicit and unambiguous clause in the contract must exist for an assumption to the contrary to be drawn. One possible interpretation of an agreement containing an ‗exclusion of liability‘ or ‗excepted matter‘ clause is to infer that the parties have agreed that time is not of the essence and, therefore, neither party can claim damages. In such cases, these clauses would work to the advantage of one and the detriment of the other. Nevertheless, claims would have to be adjudicated by some forum; if the Arbitrator has not been empowered to do so, then a decision would have to be prayed for from the Civil Court. This must perforce be so since ‗exclusion of liability‘ or ‗excepted matter‘ clauses would otherwise become susceptible to being declared void as that would be contrary to public policy. Since by an exclusion clause excepted matters are expressly taken out of the purview of adjudication before the FAO (OS) 135/2010 Page 14 of 27 Arbitrator, there is no embargo in Arbitration jurisprudence to prevent these matters from being raised before the Civil Courts separately. 8. In Ganga Bai –vs- Vijay Kumar, AIR 1974 SC 1126, their Lordships held thus:- There is an inherent right in every person to bring a suit of a civil nature and unless the suit is barred by statute one may, at one‘s peril, bring a suit of one‘s choice. It is no answer to a suit, howsoever frivolous to claim, that the law confers no such right to sue. A suit for its maintainability requires no authority of law and it is enough that no statute bars the suit. 9. Reiterating the same persuasion, recently in Abdul Gafur – vs- State of Uttarakhand, (2008) 10 SCC 97, the Hon‘ble Supreme Court held thus:- 16. Section 9 of the Code provides that the civil court shall have jurisdiction to try all suits of a civil nature excepting the suits of which their cognizance is either expressly or impliedly barred. To put it differently, as per Section 9 of the Code, in all types of civil disputes, the civil courts have inherent jurisdiction unless a part of that jurisdiction is carved out from such jurisdiction, expressly or by necessary implication by any statutory provision and conferred on other tribunal or authority. Thus, the law confers on every person an inherent right to bring a suit of civil nature of one‘s choice, at one‘s peril, howsoever frivolous the claim may be, unless it is barred by a statute. FAO (OS) 135/2010 Page 15 of 27 10. By holding this, Courts are only upholding the age old principle of the law, viz. ubi jus ibi remedium, that is, where there is a right there is a remedy. Where a party to an arbitration agreement has a right which cannot be adjudicated by the Arbitral Tribunal in light of it partaking of the nature of an ‗excepted matter‘ or ―exclusion clause‖, the same cannot be held to have been extinguished completely; there is an inherent right of the party to get its grievances adjudicated by bringing a suit on these claims. If the claim is idle, untenable or contrary to the contract, it would eventually be dismissed. 11. The right to legal redress cannot be obliterated altogether. This conclusion does not completely whittle down or annihilate the ambit of exclusion clauses; the Adjudicating Authority would have to articulate the reasons for its conclusions while deciding the existence or absence of liability. A clause which states that no claims for damages would be entertainable even in the face of delay by one party would arguably be interpreted by