Introduction
Facts
Decision
Comment
In Durga Charan Rautray v State of Orissa(1) the Supreme Court recently considered whether disputes or claims regarding payment of work can be raised and referred to arbitration after the party raising such claims has received payment on a final bill issued for the works, even if it made no objection in respect of such payments at that time.
The court decided the issue by reference to the governing arbitration clause, which allowed parties to refer disputes arising from the contract to arbitration "except where otherwise provided". The court considered that as the respondents had not argued that the appellant (who had referred the disputes to arbitration) was precluded by any clause in the contract from seeking settlement of his claims, the appellant could not be deprived of the right to seek redress of his claims by arbitration merely because he had received payments after preparation of the final bill without raising objections at the time.
The appellant, Durga Charan Rautray, was entrusted with construction work in connection with the Kharkhai Irrigation Project on December 31 1975. Under the contract, the work was to be completed on or before July 31 1976. For reasons including change in design, the work could not be completed within the prescribed time. The appellant eventually completed the assigned work in July 1978. According to the appellant, this delay in completion resulted in him suffering financial loss. The appellant also had further grievances and claims relating to the work.
The appellant raised the disputed matters with the respondents, but the respondents chose not to entertain the claims. The appellant eventually obtained a court order whereby the disputes raised by the appellant were referred to an arbitral tribunal. The arbitral tribunal examined nine claims raised by the appellant and adjudicated four claims (Items 4, 5, 6 and 9) in favour of the appellant.
Civil Court proceedings
The respondents filed objections under Sections 30(2) and 33(3) of the Arbitration Act 1940 before the civil judge, Senior Division of Bhubaneshwar Civil Court, contesting the arbitral award. These objections were contested by the appellant on the grounds of limitation. This plea was accepted by the court and the arbitral award was made a rule of the court.
High Court proceedings
Aggrieved with the order passed by the Civil Court, the respondents appealed to the High Court of Orissa under Section 39 of the act.(4)
In their appeal, the respondents asserted that the objections filed were wrongly rejected by the Civil Court on the grounds of limitation. It was further contended that the controversy raised by the appellant on which the award was passed could not have been referred to arbitration after the appellant had received the final bill without raising an objection.
The High Court upheld the findings of the Civil Court on the issue of limitation. However, it accepted the respondents' contention that it was not open to the appellant to have sought arbitration of his claims after he had received payments without raising an objection. The High Court therefore held that the appellant could not reap the benefits of the arbitral award in his favour.
Supreme Court proceedings
The High Court's judgment was challenged before the Supreme Court, which was called upon to examine:
"whether the disputes/claims raised by the appellant could have been referred to arbitration, after the appellant had received payment, on the preparation of the final bill, without raising any objections."
The Supreme Court's judgment focused on the arbitration clause under which the disputes raised by the appellant had been referred to arbitration and adjudicated upon by the arbitral tribunal. The court ruled that a perusal of the clause in question(5) left no room for doubt that the appellant could claim arbitration on account of disputes arising from the contract "except where otherwise provided [for in the contract]".
The court observed that the respondents had not argued that the appellant was precluded by any clause of the contract from seeking settlement of claims raised by it before the arbitral tribunal. Furthermore, the arbitration clause included within the purview of arbitration any disputes arising during the work or after the completion or abandonment thereof. In addition, the arbitration clause did not contain any restriction that would prevent the appellant from seeking redress by way of arbitration merely because he had received payments after the preparation of the final bill without raising objections.
Accordingly, the court opined that even after receipt of payment on the preparation of the final bill, it was open to the appellant to seek redress of his disputes by way of arbitration, even though he had not raised objections at the time of receiving payments on the final bill.
In its ruling, the court was supported by its earlier judgment in Bharat Coking Coal Ltd v Annapurna Construction,(6) in which it was held that the fact of having accepted a final bill did not remove a person's entitlement to raise a claim. In the present case, the court noted that at the time of accepting payment on the preparation of the final bill, the appellant had not undertaken to the respondents that he would not raise any further claims. Therefore, it was open to the appellant to raise his unsatisfied claims before the arbitrator.
The court further opined that it was not open to the respondents to contest the claims of the appellant after the appellant had obtained a court order to refer the disputes that it had raised to an arbitral tribunal. The court considered that the order referring the disputes to arbitration had attained finality, as the respondents had not challenged it. Furthermore, once the disputes raised by the appellant had been referred to arbitration by a court order and the rival parties had submitted to the arbitration proceedings, it was no longer open to either party to contend that arbitral proceedings were invalid.
On the issue of limitation, the Supreme Court observed that once the plea of limitation had been upheld by the High Court, the objections filed by the respondents, irrespective of their merits, were liable to be rejected. It was not open to the High Court to consider the objections of the respondents, as had been done in the contested judgment.
Therefore, the appellant's appeal was allowed.
In this matter, the Supreme Court essentially considered that even if a party does not raise objections at the time of accepting payment on a final bill, it can still seek referral to arbitration of its claims for payment for work done if:
- there is no specific bar in the arbitration clause against such reference; and
- the party seeking referral to arbitration has not given an undertaking, in accepting the payment, that it will not raise further claims.
For further information on this topic please contact Jasleen K Oberoi or Bahaar Dhawan at Amarchand & Mangaldas & Suresh A Shroff & Co by telephone (+91 11 4159 0700), fax (+91 11 2692 4900) or email ([email protected] or [email protected]).
Endnotes
(2) Section 30 - Grounds for setting aside award:
"An award shall not be set aside except on one or more of the following grounds, namely:
(a) that an arbitrator or umpire has misconducted himself or the proceedings;
(b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Sec. 35;
(c) that an award has been improperly procured or is otherwise invalid."
(3) Section 33 - Arbitration agreement or award to be contested by application:
"Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide that question on affidavits:
Provided that where the Court deems it just and expedient, it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit."
(4) Section 39 - Appealable orders:
"(1) An appeal shall lie from the following orders passed under this Act (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order:
An order:
(i) superseding an arbitration;
(ii) on an award stated in the form of a special case;
(iii) modifying or correcting an award;
(iv) filing or refusing to file an arbitration agreement;
(v) staying or refusing to stay legal proceedings where there is an arbitration agreement;
(vi) setting aside or refusing to set aside an award;
Provided that the provisions of this section shall not apply to any order passed by a Small Cause Court.
(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court."
(5) The clause in question, Clause 23, read as follows:
"Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship of materials used on the work, or as to any other questions, claim, right matter, or thing whatsoever, if any way arising out of, or relating to the contract, designs, drawings, specifications, estimates instructions, orders or these conditions, or otherwise concerning the work or the execution, or failure to execute the same, whether arising during the progress of the work, or after the completion or abandonment thereof shall be referred to the sole arbitration of a Superintending Engineer of the State Public Works Department unconnected with the work at any stage nominated by the concerned Chief Engineer. If there was no such Superintending Engineer, it should be referred to the sole arbitration of the Chief Engineer concerned. It will be no objection to any such appointment that the arbitrator so appointed is a Government Servant. The award of the Arbitrator so appointed shall be final, conclusive and binding on all parties to this contract."