2011 (4) TMI 1276 - SC - Indian Laws

Court rules on scope change in construction contract; reaffirms jurisdiction over arbitration disputes

Union of India & Other Versus Tantia Construction Pvt. Ltd.

The Supreme Court upheld the High Court's decision that the Respondent Company was not obligated to execute additional work beyond the original contract ... Offer to tender - delay - Jurisdiction of High Court - Held that:- The Respondent Company has satisfactorily explained their position regarding their offer being confined only to the balance work of the original Tender and not to the extended work. The delay occasioned in starting the work was not on account of any fault or lapses on the part of the Respondent Company, but on account of the fact that the project design of the work to be undertaken could not be completed and ultimately involved change in the design itself. The Respondent Company appears to have agreed to complete the varied work of Tender No.76 of 06-07 which variation had been occasioned on account of the change in the design as against the entire work covering both the first and second Tenders. To proceed on the basis that the Respondent Company was willing to undertake the entire work at the old rates was an error of judgment and the termination of the contract in relation to Tender No.76 of 06-07 on the basis of said supposition was unjustified and was rightly set aside by the learned Single Judge of the High Court, which order was affirmed by the Division Bench. The submissions made on behalf of the Petitioners that in terms of Clause 23(2) of the Agreement, the Petitioners were entitled to alter and increase/decrease the scope of the work is not attracted to the facts of this case where the entire design of the Rail Over-Bridge was altered, converting the same into a completely new project. We endorse the view of the High Court that notwithstanding the provisions relating to the Arbitration Clause contained in the agreement, the High Court was fully within its competence to entertain and dispose of the Writ Petition filed on behalf of the Respondent Company. Issues Involved:1. Petitioners' right to compel the Respondent Company to execute additional work not included in the original contract.2. Whether altering the nature of work in a Risk and Cost Tender violates Articles 14 and 19(1)(g) of the Constitution of India.3. Whether the Writ Court had jurisdiction to entertain the dispute despite the arbitration clause in the contract.Issue-wise Analysis:1. Petitioners' right to compel the Respondent Company to execute additional work not included in the original contract:The Respondent Company filed a writ petition challenging the order that required them to execute additional work not included in the original contract. The contract initially involved constructing a Rail Over-Bridge at Bailey Road, but due to design changes and procedural delays, the scope of work increased significantly. The Respondent Company refused to undertake the additional work, which led to the Railways floating a separate tender for the extended work. The High Court held that the additional work could not be forced upon the Respondent Company, as it was not part of the original agreement. The Supreme Court upheld this view, stating that the Respondent Company's offer to complete the original work did not extend to the additional work, which was a new project due to the altered design.2. Whether altering the nature of work in a Risk and Cost Tender violates Articles 14 and 19(1)(g) of the Constitution of India:The Respondent Company argued that altering the nature of work in the tender violated Articles 14 (Right to Equality) and 19(1)(g) (Right to Practice Any Profession) of the Constitution. The High Court agreed, noting that the Petitioners themselves had altered the agreement by separately tendering the extended work. The Supreme Court concurred, emphasizing that the additional work was not merely an increase in scope but a substantial alteration of the original project. Therefore, compelling the Respondent Company to undertake the new work at the old rates was unjustified.3. Whether the Writ Court had jurisdiction to entertain the dispute despite the arbitration clause in the contract:The Petitioners contended that the dispute should have been resolved through arbitration as per the contract's terms. However, the High Court entertained the writ petition, citing precedents that an alternative remedy does not bar the High Court's jurisdiction under Article 226 of the Constitution. The Supreme Court endorsed this view, referencing several decisions that upheld the High Court's power to intervene in cases of injustice, irrespective of alternative remedies like arbitration. The Supreme Court affirmed that the constitutional powers of the High Court and the Supreme Court cannot be fettered by any alternative remedy available to the authorities.Conclusion:The Supreme Court dismissed the Special Leave Petition, upholding the High Court's decision that the Respondent Company was not obligated to execute the additional work and that the Writ Court had the jurisdiction to entertain the dispute. The termination of the original contract by the Petitioners was deemed unjustified, and the High Court's order to clear the payments for the work already completed by the Respondent Company was affirmed.