IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA Arbitration Appeal No. 1 of 2008. Date of decision: October 30, 2008. H P Housing & Urban Dev. Authority …appellants Versus. Satish Chhiber …respondent. Coram: The Hon’ble Mr. Justice Deepak Gupta, Judge. The Hon’ble Mr. Justice V.K.Ahuja, Judge. Whether approved for Reporting? yes For the Appellant (s): Mr. C.N.Singh, Advocate. For the Respondent(s): Mr. S.D.Gill, Advocate. Deepak Gupta, J . This appeal under Section 37 of the Arbitration and Conciliation Act, 1996 ( hereinafter referred to as the Act) is directed against the order of the learned Additional District Judge, Shimla passed in Arbitration Case No. 1-S/2 of 2001, decided on 10.10.2007, whereby he has rejected the objections filed by the appellant against the award of the Arbitrator. The appellant entered into a contract with the respondent, hereinafter referred to as the contractor, for construction of some portion of the residential complex, - 2 - below BCS, in Phase-II, New Shimla. Dispute arose between the parties and the matter was referred to arbitration in terms of arbitration clause. The contractor filed a petition setting out his claim and one of the claims was that the department had wrongly imposed compensation amounting to Rs. 1,22,340/- under clause 2 of the agreement. The arbitrator only allowed this claim. Objections were filed to the award of the arbitrator and one of the objections was that a decision under clause 2 of the agreement is final and is not arbitrable. The learned lower court rejected the objections filed by the appellant. Hence the present appeal. Clause 2 of the agreement is worded virtually in identical language to clause 2 of the agreement normally entered into by the State with the contractors. This clause has been the subject matter of a number of decisions. It has been urged on behalf of the contractor that the decision in Vishwanath Sood v. Union of India and another, AIR 1989 Supreme Court 952, is not at all applicable to the present case. According to Shri Gill in the present case, the decision was not taken by the Chief Executive Officer whose decision was final and binding - 3 - but by the Engineer-in-charge. It would be pertinent to mention that the word “Superintending Engineer” occurring in the contract entered into by the State has been replaced by the word “Chief Executive Officer” in the contract in the present case. Shri Gill has placed reliance on the following observations of the apex Court in para 8 of the judgment in Vishwanath Sood’s case (supra):- “…………. But it will be appreciated that in practice the amount of compensation will be initially levied by the Engineer-in-charge and the Superintending Engineer comes into the picture only as some sort of revisional or appellate authority to whom the contractor appeals for redress. As we see, it, clause 2 contains a complete machinery for determination of the compensation which can be claimed by the Government on the ground of delay on the part of the contractor in completing the contract as per the time schedule agreed to between the parties. The decision of the Superintending Engineer, it seems to us, is in the nature of a considered decision which he has to arrive at after considering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause. In our opinion the question regarding the amount of compensation leviable - 4 - under clause, 2 has to be decided only by the Superintending Engineer and no one else.” On the basis of the aforesaid observations, it is contended that what is binding on the parties and not arbitrable is the decision of the Superintending Engineer and not the decision of the Executive Engineer. We are unable to accept this argument. The apex Court in Vishwanath Sood’s case (supra) further went on to hold as follows:- ………….. "If that be not so, the words "except where otherwise provided in the contract" would become meaningless. We are therefore inclined to hold that the opening part of clause 25 clearly excludes matters like those mentioned in clause 2 in respect of which any dispute is left to be decided by a higher official of the Department. Our conclusion, therefore, is that the question of awarding compensation under clause 2 is outside the purview of the arbitrator and that the compensation, determined under clause 2 either by the Engineer-in-charge or on further reference by the Superintending Engineer will not be capable of being called in question before the arbitrator.” The apex Court held in no uncertain terms that the question of awarding compensation under clause 2 of the contract is outside the purview of the arbitrator and that the compensation determined under clause 2 either by Engineer-in-charge or on further reference by the - 5 - Superintending Engineer will not be capable of being called in question before the arbitrator. The observations made in para 8 of the aforesaid judgment have to be read in light of what has been held in para 9 quoted hereinabove. The conclusion of the apex Court is contained in para 9 of the judgment. This decision clearly holds that even the decision of the Engineer-in-charge is not capable of being called in question before the Arbitrator. Reliance has been placed by Shri Gill on a judgment of a learned Single Judge of this Court in OMP(M) No. 1 of 2000, titled State of H.P. v. Suresh Bist, decided on 1.11.2000. We are of the considered opinion that the said judgment does not lay down the correct law since the learned Single Judge only considered a portion of para-8 of the judgment of the apex Court and did not consider the ratio of the apex Court contain in para 9 of the aforesaid judgment wherein it has been clearly held that the decision taken under clause 2 whether by the Executive Engineer or the Superintendent Engineer cannot be the subject matter of arbitration. - 6 - In view of the aforesaid discussion, the appeal is allowed and the order of the learned Additional District Judge is set aside. It is held that the Arbitrator had no jurisdiction to decide the claim No.1 relating to imposition of compensation under Clause 2 of the arbitration contract. The appeal is decided in the aforesaid terms with no order as to costs. ( Deepak Gupta ), J. October 30, 2008 ( V.K.Ahuja ), J. s. - 7 -