2022 (11) TMI 1500 - SC - Indian Laws

Supreme Court upholds arbitral award allowing contractor escalation claims when contractual conditions satisfied

The SC dismissed an appeal challenging an arbitral award granting escalation claims to a contractor. The contractor claimed escalation under contractual ... Validity of Arbitral Award - claim of escalation made by the Contractor - rejection of the claim by the Superintending Engineer - Contractor raised a claim Under Section 7 of the Adhiniyam seeking resolution of the dispute through statutory arbitration - HELD THAT:- A contractual Clause which provides for the finality of rates quoted by the Contractor and disallows any future claims for escalation is conclusive and binding on the parties. If the Clause debarring future claims permits escalation subject to certain conditions, no claim is admissible if the conditions are not satisfied. However, if the conditions are satisfied, the Contractor will have a right to claim escalation. This is a contractual right. The right originates and subsists by virtue of the contract itself. It is the duty of the Court, while interpreting the contract to decipher the true and correct meaning the parties intended and enforce the rights arising out of the contract. Officers administering the contract will not have any discretion whatsoever to admit or deny escalation after the conditions specified in a contract are satisfied. The Executive Engineer has acted beyond the scope of Clause 3.11(A). Under the clause, if a circumstance beyond the control of the Contractor exists and the Superintending Engineer, in charge of work grants a written order to the effect, a right to seek escalation arises. When the two conditions provided Under Clause 3.11(A) were satisfied, there was no discretion left with the Executive Engineer to impose any further conditions for claiming escalation. The Executive Engineer has certainly acted beyond the scope of the contract. The role of the Executive Engineer was only to forward the decision of the Superintending Engineer and enable the Contractor to raise a claim for escalation. Returning to the facts of the present case, whether the escalation is justified or not is another matter, and it is for the Arbitral Tribunal to decide the admissibility of the claim depending on the evidence on record. That will be a finding of fact, with which is not concerned in the present case. For the reason stated above, it is opined that the Arbitrator was justified in granting the claim for escalation as the conditions precedent for raising a plea for escalation are admittedly satisfied by the inspection report dated 31.10.2002 followed by the letter of the Superintending Engineer dated 12.11.2002. There are no errors of jurisdiction or acts of misconduct or events of invalidity or impropriety in the conduct of proceedings by the Arbitrator. For this reason, the High Court has rightly refrained from exercising its revisional jurisdiction Under Section 19(2) by not interfering with the award passed by the Arbitral Tribunal. The Civil Appeal arising out of Special Leave Petition is accordingly dismissed. Issues Involved:1. Claim of escalation by the Contractor.2. Applicability of the principle of res judicata.3. Interpretation and application of Clause 3.11(A) of the contract.4. Jurisdiction and scope of the High Court under Section 19 of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983.Detailed Analysis:1. Claim of Escalation by the Contractor:The Contractor claimed escalation costs due to the transportation of sand from an alternative quarry after the originally allotted quarry was depleted. The contract initially included provisions for such scenarios under Clause 3.11(A), which stated that no separate payment for leads or lifts would be made unless a quarry change occurred due to circumstances beyond the Contractor's control, and only upon the written order of the Superintending Engineer.2. Applicability of the Principle of Res Judicata:The State argued that the claim was barred by res judicata, referencing a previous arbitral award dated 06.10.2007 that had rejected a similar claim. However, the Court found that the initial claim lacked factual basis and written approval from the Superintending Engineer, which were present in the current claim. Therefore, the principle of res judicata did not apply as the conditions and facts differed significantly between the two claims.3. Interpretation and Application of Clause 3.11(A) of the Contract:Clause 3.11(A) was pivotal in determining the escalation claim. The Court found that the conditions for escalation were met: the depletion of the original quarry was beyond the Contractor's control, and the Superintending Engineer had granted written permission for using an alternative quarry. The Executive Engineer's conditional permission, which attempted to deny escalation, was deemed beyond his scope as the clause did not allow for additional conditions once the primary conditions were met.4. Jurisdiction and Scope of the High Court under Section 19 of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983:The High Court's power under Section 19(2) was examined to determine if the Arbitral Tribunal had acted outside its jurisdiction or with material irregularity. The Court found no such errors or misconduct in the Arbitrator's proceedings. The High Court had appropriately refrained from interfering with the award, as there were no grounds under Section 19(2) to do so.Conclusion:The Supreme Court upheld the Arbitral Tribunal's award granting the Contractor's claim for escalation. The conditions under Clause 3.11(A) were satisfied, and the principle of res judicata did not apply. The High Court's decision to not interfere with the award was found to be within its jurisdiction, leading to the dismissal of the appeal. Parties were ordered to bear their own costs.