Allahabad High Court Sets Aside Part Of Award Dealing With Non-Arbitrable Dispute
The Allahabad High Court has held that disputes regarding works undertaken by party independent of the contract which contains the arbitration agreement cannot be determined under such arbitration agreement.Section 70 of the Contract Act, 1872 provides that a party is bound to compensate the other party for the work done by the latter party when there was no intention to do the...
The Allahabad High Court has held that disputes regarding works undertaken by party independent of the contract which contains the arbitration agreement cannot be determined under such arbitration agreement.
Section 70 of the Contract Act, 1872 provides that a party is bound to compensate the other party for the work done by the latter party when there was no intention to do the work gratuitously.
The bench comprising Chief Justice Arun Bhansali and Justice Vikas Budhwar held,
“wherein some extra work etc. pertaining to the same contract has been undertaken may form part of the arbitrable dispute, however, in an arbitral dispute with reference to quantum meruit or Section 70 of the Act, 1872, for a work undertaken which is wholly independent of the contract containing the arbitration clause, the same cannot become an arbitral dispute.”
Factual Background
Parties entered into a contract for rebuilding a bridge. The Railways contract (GCC) was applicable to the contract. It was alleged that the contract could not be executed within stipulated time as the respondent had not approved the drawings for construction of the bridge. Even during the extended period, drawings were not approved.
Subsequently, due to the relationship between the parties, appellant carried out certain grouting work which was not mentioned in the contract. Appellant incurred expenses of Rs. 65 Lakhs which was not paid by the respondent. The dispute between the parties was referred to arbitration.
The Arbitrator awarded a total sum of Rs.1,41,06,623.68 in favour of the appellant which included amount under the headings of earnest money, performance guarantee, epoxy grouting work, mobilization of resources, and 10% loss of profit. This award was challenged by the respondent under Section 34 of the Arbitration and Conciliation Act, 1996.
The Commercial Court held that issue of mobilization of resources could not be gone into as it required reappreciation of facts and evidence which was produced before the arbitrator. Epoxy grouting was held to be non-arbitrable, and the interest was not payable as per proviso to Section 31(7) of the Act of 1996 read with clause 16(3) of the GCC. Accordingly, the award was set aside as being patently illegal.
High Court Verdict
The Court observed that while declaring the award as patently illegal assigned no reasons as to why appellant was not entitled to amount for mobilization of resources.
The Court held that though clause (iv) of Section 34(2)(a) of the Act, 1996 provides that arbitral award on matter beyond the scope of arbitration agreement can be set aside, the matters which have been submitted for arbitration are saved. The arbitral award can be set aside only to the extent that it discusses/ decides matters not within the scope of arbitration, held the Court.
“While clause (iv) of Section 34(2)(a) of the Act, 1996 provides that the arbitral award, which deals with a dispute not contemplated by or not falling within the terms of the arbitration or it contains decisions on matters beyond the scope of the submission to arbitration, the same can be set aside by the court. However, the proviso saves the decisions on matters submitted to arbitration and mandates that only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside.”
Accordingly, the Court held that the award of amount for mobilization of resources was wrongly set aside by the Commercial Court.
The Court observed that the epoxy grout work undertaken by the appellant did not form a part of the contract which was entered into by the parties and thus, was not arbitrable under the arbitration agreement which formed a part of the contract.
The Court relied on Renusagar Power Co. Ltd. v. General Electric Company And Another, where it was held that the test for determination of arbitrator's jurisdiction was whether the terms of the contract need to be considered for determining the claim.
It was held that in case of the appellant, there was no need to look at the contract as the contract was for rebuilding bridge no. 70 whereas grouting work was different patch. Accordingly, the arbitral was upheld except to the extent of amount awarded towards epoxy grouting and pendente lite interest.
Case Title: M/S Shyam Lalit Dubey And Another vs. Union Of India Thru. Ganeral Manager Northern Railway Baroda House, New Delhi And Another 2024 LiveLaw (AB) 446 [APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 No. - 66 of 2023]
Case citation: 2024 LiveLaw (AB) 446