Full Judgment Text
2006:BHC-OS:14624-DB
IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION SUIT NO. 3489 OF 1987
ARBITRATION SUIT NO. 3489 OF 1987 ARBITRATION SUIT NO. 3489 OF 1987
The Hindustan Construction Co. Ltd., ]
a Company registered under the ]
Companies Act, 1913 and having its ]
registered office at Construction House]
Walchand Hirachand Marg, Ballard Estate]
Bombay - 400 038. ] .. Plaintiffs
Versus
1. The Union of India through ]
The Executive Engineer (S&C), Vasai ]
Creek Bridges, Western Railway, 8th ]
floor, Churchgate Building, ]
Churchgate, Bombay - 400 020. ]
2. General Manager, Western Railway, ]
having its office at Churchgate, ]
Bombay - 400 020. ] .. Defendants
Mr. Milind Vasudeo i/b M/s. Harish Joshi & Co. for
the plaintiffs.
Mr. Suresh Kumar for the defendants.
CORAM: R.M. LODHA, &
S.A. BOBDE, JJ.
DATED: 14TH DECEMBER, 2006
JUDGMENT. : [Per R.M. Lodha, J.]
. This Arbitration Suit has been referred to the
Division Bench in view of the order dated 19th April,
1988, passed by the learned single Judge.
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2. The Reference order dated 19th April, 1988,
reads thus:
" CORAM: S.N. VARIAVA, J.
Date : 19th April 1988.
ORAL ORDER :
. This Petition is under Section 20 of
the Arbitration Act.
. The facts briefly stated are that on
24th April, 1984, the Plaintiffs submitted
their tender to the Defendants. The contract
between the parties was arrived at on 7th
February 1985. Clause 13.6 of the Contract
provides as under:-
‘13.6. The contract shall be governed
by the General price variations clause
as under:
Adjustment for variation in prices of
materials labour and fuel shall be
determined in the manner prescribed
below:-
The Percentage component of various
items in this contract on which
variation in price admissible shall
be:-
Material component 30%
Labour component 30%
Fuel component 5%
Fixed component at 35% shall not
be considered
for any price
variation.’
. If, in any case, the accepted offer
includes some specific payment to be made to
consultants or some materials supplied by
Railway at fixed rate, such payments shall be
excluded from the gross value of the work for
purpose of payment/recovery of variations.
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The amount of variation in prices in the
several components (labour, materials, etc.)
shall be worked out by the following
formulae:-
i) L - R x (I - 10) x P
10 100
ii) M - R x (W - Wo) x Q
Wo 100
iii) U - R x (F - fo) x Z
Fo 100
. It would seem that thereafter the
State Government revised the minimum wages
payable to the Unskilled Labour. According
to the Plaintiffs as a result of this
revision the additional burden imposed upon
the Plaintiffs was only partly compensated by
the formula given under the above stated
Clause 13.6. The Plaintiffs claim that they
are entitled to be compensated for the
increase in the cost of labour and they have
accordingly made an additional claim. The
Defendants, on the other hand, contend that
in fact no dispute has arisen out of the
conditions of the Contract. According to
them, the claim of the Plaintiffs is outside
the terms of the Contract and that the only
compensation and the escalation to which the
Plaintiffs are entitled to as per Clause 13.6
have admittedly been received by the
Plaintiffs.
. The question therefore which arises is
whether there is any dispute or difference
arising out of the Contract which would
necessitate as reference. My prima facie
view was that there was no dispute arising
out of the Contract which would necessitate a
reference. However Mr. Madon has drawn my
attention to two unreported judgements of
this Court both dated 7th January 1988 passed
in Arbitration Suits No.1499 of 1985 and 1327
of 1985 wherein the Learned Judge while
construing an identical arbitration clause
has held that the question whether the claim
is in excess of what is prescribed under the
Contract, is within the cognizance of the
Arbitrator and that a reference cannot be
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refused on the ground that some of the claims
are in excess of what is provided under the
Contract.
. As against this Mr. Lokur has cited
an unreported judgment of this Court dated
20th January 1988 in Arbitration Suit No.454
of 1979 whereunder the Learned Judge has held
that where a Clause of the Contract barred
the claim for excalation then in view of the
specific Agreement between the parties it was
not open for the Plaintiffs to claim
additional amounts on grounds of excalation
and, that a claim on this account falls
outside the ambit of the agreements between
the parties and that it was not possible to
refer such disputes to Arbitration.
. Both the abovementioned Judgments
which are binding on me are directly contrary
to each other. Under these circumstances, it
is necessary that this question be decided by
a Division Bench to this Court.
. Under the circumstances, I direct that
the matter be placed before the Learned Chief
Justice for the purposes of assigning the
Suit to a Division Bench for consideration of
the question as to whether claims which arise
dehors the Contract and/or which are contrary
to the express provisions of the Contract can
be referred to Arbitration under the terms of
the Contract."
3. The necessity of reference seems to have
arisen as the learned single Judge found that there was
difference of opinion by the two single Judges of this
Court on the question whether there is any dispute or
difference arising out of the contract which would
necessitate the reference.
4. In the Plaint filed under Section 20 of the
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Arbitration Act, 1940, the plaintiffs set out the
following questions indicating the disputes and
differences having arisen between the parties on the
interpretation of the contract:
"(i) Whether the Plaintiffs are entitled to
payment on account of increase in Minimum
Wages during execution of the works as per
their letter No.HC/BCRB/1064 dated 25.12.1985
and subsequent letters, amounting to
Rs.86,30,300.00 for the period ending
September, 1987.
(ii) Whether the Plaintiffs are entitled to
payment on account of increase in Minimum
Wages for the period beyond September 1987
till completion of the work, on similar
basis.
(iii) Whether the Plaintiffs are entitled
for payment of interest including past,
pendente lite and future interest on the
amounts found due to them.
(iv) Whether the Plaintiffs are entitled
for costs of reference.
5. The principal dispute or difference that seems
to have arisen is regarding increase in minimum wages
during the execution of the contract work. According to
the plaintiffs, they are entitled to payment on account
of increase in minimum wages during execution of the
work.
6. The case of the plaintiffs is that they
entered into contract with the defendants for
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construction of railway bridge No.73 near Vasai. The
defendants accepted the tender of the plaintiffs on 24th
April, 1984 and the formal contract was executed on 7th
February, 1985. The work under the contract was to be
completed in thirty months i.e. by 23rd October, 1986.
The estimated value of the work was Rs.5,13,88,500/-.
According to the plaintiffs, the tender rates were
predicted upon the cost of labour, material etc. as
prevailing at the time of submission of the tender; the
contract itself provided for price escalation clause and
formulae for quantifying the escalation in price payable
to the Plaintiffs. During the execution of the work,
the State Government revised the minimum wages rates of
the unskilled labour. The plaintiffs’ case is that the
revision is very much in excess of rise in the cost of
living index. They started paying to their workers the
revised minimum wages as applicable from time to time.
The additional burden due to the said revision was only
partly compensated by the formula which was based on the
cost of living index. The contract provided that the
plaintiffs would have to pay the minimum wages as per
the Minimum Wages Act. This fact coupled with the
agreement that the plaintiffs were to be compensated for
increase in the cost of labour made it necessary for the
defendants to reimburse the additional cost to the
plaintiffs. The plaintiffs claim to have written to the
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defendants that they must pay to the plaintiffs on the
basis of the revised minimum wages in respect of the
agreed component of labour in the contract but despite
repeated requests when the defendants failed to pay as
per the demand of the plaintiffs, they were constrained
to file the Arbitration Suit under Section 20 of the
Arbitration Act, 1940.
7. Clause 13.6 of the contract has already been
noticed by the learned single Judge in the referral
order which we have reproduced above.
8. The counsel for the plaintiffs relied upon
clause 54 of the General Conditions of the contract
which reads thus:
"54. The contractor shall be responsible
for compliance with the provisions of the
Minimum Wages Act, 1948 (hereinafter referred
to as the "said Act") and the Rules made
thereunder in respect of any employees
directly or through petty contractors or
sub-contractors, as per C.S. No.36 dt.
20.3.67, employed by him on road construction
or in building operations or in stone
breaking or stone crushing for the purpose of
carrying out this contract.
. If in compliance with the terms of the
contract, the contractor directly or through
petty contractors or sub-contractors supplies
any labour to be used wholly or partly under
the direct orders and control of the Railways
whether in connection with any work being
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executed by the Contractor or otherwise for
the purposes of the Railway such labour
shall, for the purpose of this clause, still
be deemed to be persons employed by the
contractor.
. If any moneys shall, as a result of
any claim or application made under the said
Act be directed to be paid by the Railway,
such moneys shall be deemed to be moneys
payable to the Railway by the Contractor and
on failure by the Contractors to repay the
Railway any moneys paid by it demanded, the
Railway shall be entitled to recover the same
from any moneys due or accruing to the
contractor under this or any other Contract
with the Railways."
9. The counsel for the plaintiffs also relied
upon clause 13.7 as well as additional special condition
- Clause 9. These clauses read thus:
"13.7 Price adjustment during the extended
period of completion.
The price adjustment i.e. either increase or
decrease will be applicable upto the
stipulated date of completion where such
expansion has been granted under Clause 17.3
of the General Conditions of Contract.
However, where extension has been granted
under Clause 17.4 of General Conditions of
Contract the price adjustment will be done as
follows:-
In case the indices increase above the
indice applicable to the last month of
the original completion period or the
extended period under Clause 17.3, the
price adjustment for the period of
extension granted under Clause 17.4
will be limited to the amount payable
as per the indices applicable to the
last month of the original completion
period or the extended period under
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Clause 17.3 of the General Conditions
of the Contract.
In case any or all the indices fall
below the indices applicable to the
last month of the original extended
period of completion under Clause
17.3, then the lower indices will be
adopted for the price adjustment for
the period of extension under Clause
17.4 of the General Conditions of
Contract."
................
9. Price variation due to escalation:
The adjustment for variation in price of
material, labour and fuel will be governed by
Clause 13.6 of the additional special
conditions of works. However, the index for
labour component will be the consumer Price
Index No. for industrial workers for "Bombay
Centre" and not that of "All India". To this
extent the Clause 13.6 of additional special
conditions of works will stand modified."
10. On the other hand, the counsel for the
defendants invited our attention to the letter dated
December 25, 1985 (Exhibit-B) annexed with the Plaint
and the decision of the Deputy Chief Engineer dated 19th
May, 1986 (Exhibit-L) declining to make extra payment
towards variation of price of labour excepting as
provided for in Clause 13.6. He submitted that in the
backdrop of these documents, if Clause 63 of the General
Conditions is seen, it would be apparent that the
dispute sought to be raised by the plaintiffs falls in
the category of ‘excepted matters’ and, therefore,
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cannot be referred for adjudication to the Arbitrator.
In this connection, the counsel for the defendants
relied upon the judgment of the Supreme Court in the
case of General Manager, Northern Railway & Anr. Vs. General Manager, Northern Railway & Anr. Vs. General Manager, Northern Railway & Anr. Vs.
Sarvesh Chopra, (2002) 4 SCC 45. Sarvesh Chopra, (2002) 4 SCC 45. Sarvesh Chopra, (2002) 4 SCC 45.
11. Clause 13.6 provides that the contract shall
be governed by the general price variation clause as set
out therein. Inter alia, this clause provides for
variation in price admissible to labour component at
30%. The parties are ad-idem that as per Clause 13.6
the price variation concerning labour has been paid to
the contractor (plaintiffs). The plaintiffs’ claim
pertains to the revision of minimum wages made by the
State Government payable to the unskilled labour during
the operation of the contract and the case of the
plaintiffs is that the revision by the State Government
was far more in excess of the rise in the cost of living
index and this additional burden, though partly
compensated by Clause 13.6, has to be fully borne by the
defendants and since the defendants have not accepted
the demand of the plaintiffs to pay to the plaintiffs on
the basis of revised minimum wages, the dispute has
arisen.
12. Clause 63 of the General Conditions of the
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Contract is very relevant which reads thus:
"63. Matters finally determined by the
Railway.
. All disputes and differences of any
kind whatsoever arising out of or in
connection with the contract, whether during
the progress of the work or after its
completion and whether before or after the
determination of the contract, shall be
referred by the contractor to the Railway and
the Railway shall within a reasonable time
after receipt of the Contractor’s
presentation make the notify decisions on all
matters referred to by the contractor in
writing, provided that matters for which
provision has been made in Clauses 18, 22(5),
39, 45(a), 55, 55-A, 60(2) and
61(1)(xiii)(B)(c)(b) of the General
Conditions of Contract or in any clause of
the Special Conditions of the Contract shall
be deemed as ‘excepted matters’ and decisions
thereon shall be final and binding on the
contractor; provided further that ‘excepted
matters’ shall specifically excluded from the
purview of the arbitration clause and shall
not be referred to arbitration."
13. What is provided by Clause 63 is that all
disputes and differences of any kind and nature
whatsoever between the parties in connection with the
contract shall be referred by the contractor
(plaintiffs) to the Railway (defendants) and that the
Railway shall, within a reasonable time after receipt of
the contractor’s presentation, make decision and notify
the same to the contractor in writing. It further
provides that the matters provided in clauses 18, 22(5),
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39, 45(a), 55, 55-A(5), 60(2) and 61(1)(xiii)(B)(c)(b)
of the General Conditions of Contract or any clause of
Special Conditions of the Contract shall be treated as
"excepted matters" and decision thereon shall be final
and binding on the contractor. It further provides that
excepted matters shall stand specifically excluded from
the purview of the arbitration clause and shall not be
referred to arbitration. The question, therefore, that
arises for our determination is - whether the claim made
by the plaintiffs falls in the category of ‘excepted
matters’. If the answer is in the affirmative,
obviously such matter is outside the purview of the
arbitration clause and shall not be referred to
arbitration. Having seen clauses 13.6, 13.7 and
additional Special Condition of Work - Clause 9, no
doubt is left in our mind that the controversy raised by
the plaintiffs concerning the revised payment of minimum
wages to unskilled labour is covered by the clauses of
the Special Conditions of the Contract. Clause 13.6 and
so also Clause 9 are the clauses of special conditions
of the Contract. As a matter of fact, the title itself
suggests that these are special conditions of work. On
25th December, 1985, the plaintiffs wrote to the
concerned authority of the defendants that they were
eligible for compensation for increase in labour cost on
account of abnormal increase in minimum wages and,
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accordingly, put up the claim of Rs.23,47,125/- towards
that head for the additional expenses incurred upto 31st
October, 1985. However, this claim of the plaintiffs
was rejected by the defendants and vide letter dated
19th May, 1986, the plaintiffs were communicated that
the Railways (Defendants) were not liable to make any
extra payment towards variation of the prices of labour
excepting as provided for in Clause 13.6 of the
additional Special Conditions of Work Part "B" of the
Contract. This decision is final and binding upon the
contractor; the claim made by the plaintiffs falls in
the category of excepted matters and not amenable to
arbitration clause provided in Clause 63.
14. As a matter of fact the controversy that has
been referred by the learned single Judge to us is
wholly and squarely concluded now by the judgment of the
Supreme Court in the case of General Manager, Northern General Manager, Northern General Manager, Northern
Railway & Anr. Vs. Sarvesh Chopra, (2002) 4 SCC 45. Railway & Anr. Vs. Sarvesh Chopra, (2002) 4 SCC 45. Railway & Anr. Vs. Sarvesh Chopra, (2002) 4 SCC 45.
That was a case wherein the Court was concerned with
Clause 63 of the Conditions of Contract with which we
are concerned and some Special Conditions of Contract
viz. Clauses 9.2, 11.3 and 21.5 as were obtaining in
the contract. This is what the Supreme Court said with
reference to Clause 63 of the General Conditions of the
Contract.
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"7. A bare reading of clause 63 shows that
it consists of three parts. Firstly, it is
an arbitration agreement requiring all
disputes and differences of any kind
whatsoever arising out of or in connection
with the contract to be referred for
adjudication by arbitration, by the Railways,
on a demand being made by the contractor
through a representation in that regard.
Secondly, this agreement is qualified by a
proviso which deals with "excepted matters".
"Excepted matters" are divided into two
categories: (i) matters for which provision
has been made in specified clauses of the
General Conditions, and (ii) matters covered
by any clauses of the Special Conditions of
the contract. Thirdly, the third part of the
clause is a further proviso, having an
overriding effect on the earlier parts of the
clause, that all "excepted matters" shall
stand specifically excluded from the purview
of the arbitration clause and hence shall not
be referred to arbitration. The source of
controversy is the expression: "matters for
which provision has been made in any of the
clauses of the Special Conditions of the
contract shall be deemed as "excepted
matters" and decisions thereon shall be final
and binding on the contractor". It is
submitted by the learned counsel for the
respondent that to qualify as "excepted
matters" not only the relevant clause must
find mention in that part of the contract
which deals with Special Conditions but
should also provide for a decision by an
authority of the Railways by way of an
"inhouse remedy", which decision shall be
final and binding on the contractor. In
other words, if a matter is covered by any of
the clauses in the Special Conditions of the
contract but no remedy is provided by way of
decision by an authority of the Railways then
that matter shall not be an "excepted
matter". The learned counsel supported his
submission by reading out a few clauses of
the General Conditions and Special
Conditions. For example, vide clause 18 of
the General Conditions any question or
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dispute as to the commission of any offence
or compensation payable to the Railways shall
be settled by the General Manager of the
Railways in such manner as he shall consider
fit and sufficient and his decision shall be
final and conclusive. Vide clause 2.4.2(b)
of the Special Conditions, a claim for
compensation arising on account of
dissolution of a contractor’s firm is to be
decided by the Chief Engineer (Construction)
of the Railways and his decision in the
matter shall be final and binding on the
contractor. Vide clause 12.1.2 of the
Special Conditions, a dispute whether the
cement stored in the godown of the contractor
is fit for the work, is to be decided by the
Engineer of the Railways and his decision
shall be final and binding on the contractor.
The learned counsel submitted that so long as
the remedy of decision by someone though he
may be an authority of the Railways is not
provided for, the contractor’s claim cannot
be left in the lurch by including the same in
"excepted matters". We find it difficult to
agree."
15. With regard to the Petition under Section 20
of the Arbitration Act, 1940, in paragraph 17 of the
report the Supreme Court summed up its conclusions thus:
"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 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
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excepted matter, and (iii) an issue as to
arbitrability of claim is available for
determination at all the three stages - while
making a reference to arbitration, in the
course of arbitral proceedings and while
making the award a rule of the court."
16. The Supreme Court, thus, has clearly exposited
the legal position that while deciding the Petition
under Section 20 of the Arbitration Act, 1940, the Court
is obliged to examine whether the 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. This legal
position is clearly attracted to the facts of the
present case as the controversy raised by the plaintiffs
with regard to their claim pertaining to revision of
minimum wages by the State Government of the unskilled
labour is clearly covered by excepted matters under
Clause 63. The pleading and the material placed before
the Court does not even remotely suggest that the claim
is outside the purview or category of excepted matters
and referrable to arbitration.
17. We, thus, hold that the claim of the
plaintiffs on account of increase in minimum wages
during execution of the works falls in the category of
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excepted matters and is not referrable to arbitration
for adjudication.
18. Suit is, accordingly, dismissed with no order
as to costs.
Sd/-
[R.M. LODHA, J.] [R.M. LODHA, J.] [R.M. LODHA, J.]
Sd/-
[S.A. BOBDE, J.] [S.A. BOBDE, J.] [S.A. BOBDE, J.]
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION SUIT NO. 3489 OF 1987
ARBITRATION SUIT NO. 3489 OF 1987 ARBITRATION SUIT NO. 3489 OF 1987
The Hindustan Construction Co. Ltd., ]
a Company registered under the ]
Companies Act, 1913 and having its ]
registered office at Construction House]
Walchand Hirachand Marg, Ballard Estate]
Bombay - 400 038. ] .. Plaintiffs
Versus
1. The Union of India through ]
The Executive Engineer (S&C), Vasai ]
Creek Bridges, Western Railway, 8th ]
floor, Churchgate Building, ]
Churchgate, Bombay - 400 020. ]
2. General Manager, Western Railway, ]
having its office at Churchgate, ]
Bombay - 400 020. ] .. Defendants
Mr. Milind Vasudeo i/b M/s. Harish Joshi & Co. for
the plaintiffs.
Mr. Suresh Kumar for the defendants.
CORAM: R.M. LODHA, &
S.A. BOBDE, JJ.
DATED: 14TH DECEMBER, 2006
JUDGMENT. : [Per R.M. Lodha, J.]
. This Arbitration Suit has been referred to the
Division Bench in view of the order dated 19th April,
1988, passed by the learned single Judge.
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2. The Reference order dated 19th April, 1988,
reads thus:
" CORAM: S.N. VARIAVA, J.
Date : 19th April 1988.
ORAL ORDER :
. This Petition is under Section 20 of
the Arbitration Act.
. The facts briefly stated are that on
24th April, 1984, the Plaintiffs submitted
their tender to the Defendants. The contract
between the parties was arrived at on 7th
February 1985. Clause 13.6 of the Contract
provides as under:-
‘13.6. The contract shall be governed
by the General price variations clause
as under:
Adjustment for variation in prices of
materials labour and fuel shall be
determined in the manner prescribed
below:-
The Percentage component of various
items in this contract on which
variation in price admissible shall
be:-
Material component 30%
Labour component 30%
Fuel component 5%
Fixed component at 35% shall not
be considered
for any price
variation.’
. If, in any case, the accepted offer
includes some specific payment to be made to
consultants or some materials supplied by
Railway at fixed rate, such payments shall be
excluded from the gross value of the work for
purpose of payment/recovery of variations.
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The amount of variation in prices in the
several components (labour, materials, etc.)
shall be worked out by the following
formulae:-
i) L - R x (I - 10) x P
10 100
ii) M - R x (W - Wo) x Q
Wo 100
iii) U - R x (F - fo) x Z
Fo 100
. It would seem that thereafter the
State Government revised the minimum wages
payable to the Unskilled Labour. According
to the Plaintiffs as a result of this
revision the additional burden imposed upon
the Plaintiffs was only partly compensated by
the formula given under the above stated
Clause 13.6. The Plaintiffs claim that they
are entitled to be compensated for the
increase in the cost of labour and they have
accordingly made an additional claim. The
Defendants, on the other hand, contend that
in fact no dispute has arisen out of the
conditions of the Contract. According to
them, the claim of the Plaintiffs is outside
the terms of the Contract and that the only
compensation and the escalation to which the
Plaintiffs are entitled to as per Clause 13.6
have admittedly been received by the
Plaintiffs.
. The question therefore which arises is
whether there is any dispute or difference
arising out of the Contract which would
necessitate as reference. My prima facie
view was that there was no dispute arising
out of the Contract which would necessitate a
reference. However Mr. Madon has drawn my
attention to two unreported judgements of
this Court both dated 7th January 1988 passed
in Arbitration Suits No.1499 of 1985 and 1327
of 1985 wherein the Learned Judge while
construing an identical arbitration clause
has held that the question whether the claim
is in excess of what is prescribed under the
Contract, is within the cognizance of the
Arbitrator and that a reference cannot be
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refused on the ground that some of the claims
are in excess of what is provided under the
Contract.
. As against this Mr. Lokur has cited
an unreported judgment of this Court dated
20th January 1988 in Arbitration Suit No.454
of 1979 whereunder the Learned Judge has held
that where a Clause of the Contract barred
the claim for excalation then in view of the
specific Agreement between the parties it was
not open for the Plaintiffs to claim
additional amounts on grounds of excalation
and, that a claim on this account falls
outside the ambit of the agreements between
the parties and that it was not possible to
refer such disputes to Arbitration.
. Both the abovementioned Judgments
which are binding on me are directly contrary
to each other. Under these circumstances, it
is necessary that this question be decided by
a Division Bench to this Court.
. Under the circumstances, I direct that
the matter be placed before the Learned Chief
Justice for the purposes of assigning the
Suit to a Division Bench for consideration of
the question as to whether claims which arise
dehors the Contract and/or which are contrary
to the express provisions of the Contract can
be referred to Arbitration under the terms of
the Contract."
3. The necessity of reference seems to have
arisen as the learned single Judge found that there was
difference of opinion by the two single Judges of this
Court on the question whether there is any dispute or
difference arising out of the contract which would
necessitate the reference.
4. In the Plaint filed under Section 20 of the
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Arbitration Act, 1940, the plaintiffs set out the
following questions indicating the disputes and
differences having arisen between the parties on the
interpretation of the contract:
"(i) Whether the Plaintiffs are entitled to
payment on account of increase in Minimum
Wages during execution of the works as per
their letter No.HC/BCRB/1064 dated 25.12.1985
and subsequent letters, amounting to
Rs.86,30,300.00 for the period ending
September, 1987.
(ii) Whether the Plaintiffs are entitled to
payment on account of increase in Minimum
Wages for the period beyond September 1987
till completion of the work, on similar
basis.
(iii) Whether the Plaintiffs are entitled
for payment of interest including past,
pendente lite and future interest on the
amounts found due to them.
(iv) Whether the Plaintiffs are entitled
for costs of reference.
5. The principal dispute or difference that seems
to have arisen is regarding increase in minimum wages
during the execution of the contract work. According to
the plaintiffs, they are entitled to payment on account
of increase in minimum wages during execution of the
work.
6. The case of the plaintiffs is that they
entered into contract with the defendants for
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construction of railway bridge No.73 near Vasai. The
defendants accepted the tender of the plaintiffs on 24th
April, 1984 and the formal contract was executed on 7th
February, 1985. The work under the contract was to be
completed in thirty months i.e. by 23rd October, 1986.
The estimated value of the work was Rs.5,13,88,500/-.
According to the plaintiffs, the tender rates were
predicted upon the cost of labour, material etc. as
prevailing at the time of submission of the tender; the
contract itself provided for price escalation clause and
formulae for quantifying the escalation in price payable
to the Plaintiffs. During the execution of the work,
the State Government revised the minimum wages rates of
the unskilled labour. The plaintiffs’ case is that the
revision is very much in excess of rise in the cost of
living index. They started paying to their workers the
revised minimum wages as applicable from time to time.
The additional burden due to the said revision was only
partly compensated by the formula which was based on the
cost of living index. The contract provided that the
plaintiffs would have to pay the minimum wages as per
the Minimum Wages Act. This fact coupled with the
agreement that the plaintiffs were to be compensated for
increase in the cost of labour made it necessary for the
defendants to reimburse the additional cost to the
plaintiffs. The plaintiffs claim to have written to the
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defendants that they must pay to the plaintiffs on the
basis of the revised minimum wages in respect of the
agreed component of labour in the contract but despite
repeated requests when the defendants failed to pay as
per the demand of the plaintiffs, they were constrained
to file the Arbitration Suit under Section 20 of the
Arbitration Act, 1940.
7. Clause 13.6 of the contract has already been
noticed by the learned single Judge in the referral
order which we have reproduced above.
8. The counsel for the plaintiffs relied upon
clause 54 of the General Conditions of the contract
which reads thus:
"54. The contractor shall be responsible
for compliance with the provisions of the
Minimum Wages Act, 1948 (hereinafter referred
to as the "said Act") and the Rules made
thereunder in respect of any employees
directly or through petty contractors or
sub-contractors, as per C.S. No.36 dt.
20.3.67, employed by him on road construction
or in building operations or in stone
breaking or stone crushing for the purpose of
carrying out this contract.
. If in compliance with the terms of the
contract, the contractor directly or through
petty contractors or sub-contractors supplies
any labour to be used wholly or partly under
the direct orders and control of the Railways
whether in connection with any work being
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executed by the Contractor or otherwise for
the purposes of the Railway such labour
shall, for the purpose of this clause, still
be deemed to be persons employed by the
contractor.
. If any moneys shall, as a result of
any claim or application made under the said
Act be directed to be paid by the Railway,
such moneys shall be deemed to be moneys
payable to the Railway by the Contractor and
on failure by the Contractors to repay the
Railway any moneys paid by it demanded, the
Railway shall be entitled to recover the same
from any moneys due or accruing to the
contractor under this or any other Contract
with the Railways."
9. The counsel for the plaintiffs also relied
upon clause 13.7 as well as additional special condition
- Clause 9. These clauses read thus:
"13.7 Price adjustment during the extended
period of completion.
The price adjustment i.e. either increase or
decrease will be applicable upto the
stipulated date of completion where such
expansion has been granted under Clause 17.3
of the General Conditions of Contract.
However, where extension has been granted
under Clause 17.4 of General Conditions of
Contract the price adjustment will be done as
follows:-
In case the indices increase above the
indice applicable to the last month of
the original completion period or the
extended period under Clause 17.3, the
price adjustment for the period of
extension granted under Clause 17.4
will be limited to the amount payable
as per the indices applicable to the
last month of the original completion
period or the extended period under
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Clause 17.3 of the General Conditions
of the Contract.
In case any or all the indices fall
below the indices applicable to the
last month of the original extended
period of completion under Clause
17.3, then the lower indices will be
adopted for the price adjustment for
the period of extension under Clause
17.4 of the General Conditions of
Contract."
................
9. Price variation due to escalation:
The adjustment for variation in price of
material, labour and fuel will be governed by
Clause 13.6 of the additional special
conditions of works. However, the index for
labour component will be the consumer Price
Index No. for industrial workers for "Bombay
Centre" and not that of "All India". To this
extent the Clause 13.6 of additional special
conditions of works will stand modified."
10. On the other hand, the counsel for the
defendants invited our attention to the letter dated
December 25, 1985 (Exhibit-B) annexed with the Plaint
and the decision of the Deputy Chief Engineer dated 19th
May, 1986 (Exhibit-L) declining to make extra payment
towards variation of price of labour excepting as
provided for in Clause 13.6. He submitted that in the
backdrop of these documents, if Clause 63 of the General
Conditions is seen, it would be apparent that the
dispute sought to be raised by the plaintiffs falls in
the category of ‘excepted matters’ and, therefore,
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cannot be referred for adjudication to the Arbitrator.
In this connection, the counsel for the defendants
relied upon the judgment of the Supreme Court in the
case of General Manager, Northern Railway & Anr. Vs. General Manager, Northern Railway & Anr. Vs. General Manager, Northern Railway & Anr. Vs.
Sarvesh Chopra, (2002) 4 SCC 45. Sarvesh Chopra, (2002) 4 SCC 45. Sarvesh Chopra, (2002) 4 SCC 45.
11. Clause 13.6 provides that the contract shall
be governed by the general price variation clause as set
out therein. Inter alia, this clause provides for
variation in price admissible to labour component at
30%. The parties are ad-idem that as per Clause 13.6
the price variation concerning labour has been paid to
the contractor (plaintiffs). The plaintiffs’ claim
pertains to the revision of minimum wages made by the
State Government payable to the unskilled labour during
the operation of the contract and the case of the
plaintiffs is that the revision by the State Government
was far more in excess of the rise in the cost of living
index and this additional burden, though partly
compensated by Clause 13.6, has to be fully borne by the
defendants and since the defendants have not accepted
the demand of the plaintiffs to pay to the plaintiffs on
the basis of revised minimum wages, the dispute has
arisen.
12. Clause 63 of the General Conditions of the
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Contract is very relevant which reads thus:
"63. Matters finally determined by the
Railway.
. All disputes and differences of any
kind whatsoever arising out of or in
connection with the contract, whether during
the progress of the work or after its
completion and whether before or after the
determination of the contract, shall be
referred by the contractor to the Railway and
the Railway shall within a reasonable time
after receipt of the Contractor’s
presentation make the notify decisions on all
matters referred to by the contractor in
writing, provided that matters for which
provision has been made in Clauses 18, 22(5),
39, 45(a), 55, 55-A, 60(2) and
61(1)(xiii)(B)(c)(b) of the General
Conditions of Contract or in any clause of
the Special Conditions of the Contract shall
be deemed as ‘excepted matters’ and decisions
thereon shall be final and binding on the
contractor; provided further that ‘excepted
matters’ shall specifically excluded from the
purview of the arbitration clause and shall
not be referred to arbitration."
13. What is provided by Clause 63 is that all
disputes and differences of any kind and nature
whatsoever between the parties in connection with the
contract shall be referred by the contractor
(plaintiffs) to the Railway (defendants) and that the
Railway shall, within a reasonable time after receipt of
the contractor’s presentation, make decision and notify
the same to the contractor in writing. It further
provides that the matters provided in clauses 18, 22(5),
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39, 45(a), 55, 55-A(5), 60(2) and 61(1)(xiii)(B)(c)(b)
of the General Conditions of Contract or any clause of
Special Conditions of the Contract shall be treated as
"excepted matters" and decision thereon shall be final
and binding on the contractor. It further provides that
excepted matters shall stand specifically excluded from
the purview of the arbitration clause and shall not be
referred to arbitration. The question, therefore, that
arises for our determination is - whether the claim made
by the plaintiffs falls in the category of ‘excepted
matters’. If the answer is in the affirmative,
obviously such matter is outside the purview of the
arbitration clause and shall not be referred to
arbitration. Having seen clauses 13.6, 13.7 and
additional Special Condition of Work - Clause 9, no
doubt is left in our mind that the controversy raised by
the plaintiffs concerning the revised payment of minimum
wages to unskilled labour is covered by the clauses of
the Special Conditions of the Contract. Clause 13.6 and
so also Clause 9 are the clauses of special conditions
of the Contract. As a matter of fact, the title itself
suggests that these are special conditions of work. On
25th December, 1985, the plaintiffs wrote to the
concerned authority of the defendants that they were
eligible for compensation for increase in labour cost on
account of abnormal increase in minimum wages and,
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accordingly, put up the claim of Rs.23,47,125/- towards
that head for the additional expenses incurred upto 31st
October, 1985. However, this claim of the plaintiffs
was rejected by the defendants and vide letter dated
19th May, 1986, the plaintiffs were communicated that
the Railways (Defendants) were not liable to make any
extra payment towards variation of the prices of labour
excepting as provided for in Clause 13.6 of the
additional Special Conditions of Work Part "B" of the
Contract. This decision is final and binding upon the
contractor; the claim made by the plaintiffs falls in
the category of excepted matters and not amenable to
arbitration clause provided in Clause 63.
14. As a matter of fact the controversy that has
been referred by the learned single Judge to us is
wholly and squarely concluded now by the judgment of the
Supreme Court in the case of General Manager, Northern General Manager, Northern General Manager, Northern
Railway & Anr. Vs. Sarvesh Chopra, (2002) 4 SCC 45. Railway & Anr. Vs. Sarvesh Chopra, (2002) 4 SCC 45. Railway & Anr. Vs. Sarvesh Chopra, (2002) 4 SCC 45.
That was a case wherein the Court was concerned with
Clause 63 of the Conditions of Contract with which we
are concerned and some Special Conditions of Contract
viz. Clauses 9.2, 11.3 and 21.5 as were obtaining in
the contract. This is what the Supreme Court said with
reference to Clause 63 of the General Conditions of the
Contract.
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"7. A bare reading of clause 63 shows that
it consists of three parts. Firstly, it is
an arbitration agreement requiring all
disputes and differences of any kind
whatsoever arising out of or in connection
with the contract to be referred for
adjudication by arbitration, by the Railways,
on a demand being made by the contractor
through a representation in that regard.
Secondly, this agreement is qualified by a
proviso which deals with "excepted matters".
"Excepted matters" are divided into two
categories: (i) matters for which provision
has been made in specified clauses of the
General Conditions, and (ii) matters covered
by any clauses of the Special Conditions of
the contract. Thirdly, the third part of the
clause is a further proviso, having an
overriding effect on the earlier parts of the
clause, that all "excepted matters" shall
stand specifically excluded from the purview
of the arbitration clause and hence shall not
be referred to arbitration. The source of
controversy is the expression: "matters for
which provision has been made in any of the
clauses of the Special Conditions of the
contract shall be deemed as "excepted
matters" and decisions thereon shall be final
and binding on the contractor". It is
submitted by the learned counsel for the
respondent that to qualify as "excepted
matters" not only the relevant clause must
find mention in that part of the contract
which deals with Special Conditions but
should also provide for a decision by an
authority of the Railways by way of an
"inhouse remedy", which decision shall be
final and binding on the contractor. In
other words, if a matter is covered by any of
the clauses in the Special Conditions of the
contract but no remedy is provided by way of
decision by an authority of the Railways then
that matter shall not be an "excepted
matter". The learned counsel supported his
submission by reading out a few clauses of
the General Conditions and Special
Conditions. For example, vide clause 18 of
the General Conditions any question or
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dispute as to the commission of any offence
or compensation payable to the Railways shall
be settled by the General Manager of the
Railways in such manner as he shall consider
fit and sufficient and his decision shall be
final and conclusive. Vide clause 2.4.2(b)
of the Special Conditions, a claim for
compensation arising on account of
dissolution of a contractor’s firm is to be
decided by the Chief Engineer (Construction)
of the Railways and his decision in the
matter shall be final and binding on the
contractor. Vide clause 12.1.2 of the
Special Conditions, a dispute whether the
cement stored in the godown of the contractor
is fit for the work, is to be decided by the
Engineer of the Railways and his decision
shall be final and binding on the contractor.
The learned counsel submitted that so long as
the remedy of decision by someone though he
may be an authority of the Railways is not
provided for, the contractor’s claim cannot
be left in the lurch by including the same in
"excepted matters". We find it difficult to
agree."
15. With regard to the Petition under Section 20
of the Arbitration Act, 1940, in paragraph 17 of the
report the Supreme Court summed up its conclusions thus:
"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 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
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excepted matter, and (iii) an issue as to
arbitrability of claim is available for
determination at all the three stages - while
making a reference to arbitration, in the
course of arbitral proceedings and while
making the award a rule of the court."
16. The Supreme Court, thus, has clearly exposited
the legal position that while deciding the Petition
under Section 20 of the Arbitration Act, 1940, the Court
is obliged to examine whether the 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. This legal
position is clearly attracted to the facts of the
present case as the controversy raised by the plaintiffs
with regard to their claim pertaining to revision of
minimum wages by the State Government of the unskilled
labour is clearly covered by excepted matters under
Clause 63. The pleading and the material placed before
the Court does not even remotely suggest that the claim
is outside the purview or category of excepted matters
and referrable to arbitration.
17. We, thus, hold that the claim of the
plaintiffs on account of increase in minimum wages
during execution of the works falls in the category of
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excepted matters and is not referrable to arbitration
for adjudication.
18. Suit is, accordingly, dismissed with no order
as to costs.
Sd/-
[R.M. LODHA, J.] [R.M. LODHA, J.] [R.M. LODHA, J.]
Sd/-
[S.A. BOBDE, J.] [S.A. BOBDE, J.] [S.A. BOBDE, J.]
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