INDIAN OIL CORPORATION LTD.versusM/S. SPS ENGINEERING LTD.

                          [2011) 2 S.C.R. 512


A                 INDIAN OIL CORPORATION LTD.
                                   V.
                    M/S. SPS ENGINEERING LTD.
                   (Civil Appeal No. 1282 of 2011)

                         FEBRUARY 03, 2011
B
          [R.V. RAVEENDRAN AND A.K. PATNAIK, JJ.]

          Arbitration and Conciliation Act, 1996 - s. 11 -
    Appointment of arbitrator under - Termination of contract
C   alleging non-completion of work within the stipulated period
    - Contractor raising claims against the Company and
    invoking arbitration agreement - Appointment of arbitrator -
    Counter-claim raised by the company, for the extra cost in
    getting the work completed through the alternative agency -
o   Passing of award - However, rejection of the counter claim -
    Petition uls. 11 for appointment of an arbitrator to decide the
    said counter claim - Dismissed by the Designate of the Chief
    Justice of the High Court on the ground that the alternative
    agency having completed its work much before the earlier
E   arbitration proceedings came to an end, the claim in regard
    to the actual cost ought to have been crystallized and claimed
    in the first arbitration itself - Thus, the application was held
    to be misconceived, ba"ed by res judicata, and ma/a fide -
    Held: Not justified - Designate committed a jurisdictional error
F   in dismissing the application u/s. 11, on the ground that the
    claim for extra cost was barred by res judicata and by
    limitation - Chief Justice or his designate cannot examine the
    tenability of the claim, in particular whether the claim is barred
    by res judicata, while considering an application u/s. 11 -
    Such an issue would be examined by the arbitral tribunal -
G   A decision on res judicata requires consideration of the
    pleadings as also the claims and the award in the first round
    of arbitration, in juxtaposition with the pleadings and the
    issues/claims in the second arbitration - If the cause of action

H                                 512
                                                                       ·'
        INDIAN OIL CORPORATION LTD. v. SPS               513
                 ENGINEERING LTD.
 arose after the completion of pleadings and commencement A
 of hearing in the first round of arbitration, the company can
 raise a separate claim by initiating a second arbitration -
 Claim for reimbursement of the extra cost for getting the work
 completed, is a claim for damages which is yet to be
 adjudicated by an adjudicating forum - Thus, the company B
 cannot adjust the amount due by it under the award, against
 a mere claim for damages made by it against the contractor
 - Application u/s. 11 is allowed ,;_ Res judicata.

        The appellant, a public sector company, awarded a                   C
  contract which was to be completed within 13 months
  from the date of issuance of the order. The appellant
· terminated the contract after two years alleging that the
  respondent contractor was unable to complete the work
  within the stipulated period and notified the respondent
  that according to the Clause 7 .0.9.0 of the General                      D ·\
   Conditions of Contract the extra cost in getting the work
   completed through an alternative agency would be borne
 . by him. The respondent raised certain claims against the
   appellant and -invoked the arbitration agreement. An
  application was filed under Section 11 of the Arbitration                 E
   and Conciliation Act, 1996 and a retired High Court Judge
  was appointed as an arbitrator. The appellant made
   several counter-claims. The arbitrator passed an award.
   He adjusted Rs. 11, 10,662/- awarded to the appellant,
  towards the sum of Rs. 91,33,844/- awarded in favour of                   F
   the respondent and directed the appellant to pay to the
   respondent, the balance of Rs. 80,23, 182/-. However, the
   counter claim of the appellant in regard to the extra cost
   involved in getting the work completed through an
   alternative contractor was rejected. The appellant did not               G
   challenge the award. The appellant sent a notice to the
   respondent to pay the amount specified towards the said
   counter claim but the respondent did not pay the amount.
   The appellant then filed a petition under Section 11 of the
   Act praying for appointment of an arbitrator to decide its               H
                                                          ~   ',   '
    514      SUPREME COURT REPORTS              [2011) 2 S.C.R.

A claim for the extra cost in getting the work completed
  through the alternative agency. The Designate of the
  Chief Justice of the High Court dismissed the application
  holding that the application under Section 11 of the Act
  by the appellant was misconceived, barred by res
B judicata, and ma/a fide. It was held that claim with regard
  to the extra cost was considered and rejected by the
  arbitrator; that the claim was barred by limitation; and
  that the alternative agency completed its work much
  before the earlier arbitration proceedings came to an end,
c thus, the claim in regard to the actual cost ought to have
  been crystallized and claimed in the first round of
  arbitration. Therefore, the appellant filed the instant
  appeal.

          Allowing the appeal, the Court
D
         HELD: 1.1 In an application under Section 11 of the
    Arbitration and Conciliation Act, 1996, it has to be decided
    whether there is an arbitration agreement between
    parties. The Chief Justice or his designate is not expected
E   to go into the merits of the claim or examine the tenability
    of the claim, in an application under Section 11 of the Act.
    The Chief Justice or his Designate might however,
    choose to decide whether the claim is a dead (long.
    barred) claim or whether the parties have, by recording
F   satisfaction, exhausted all rights, obligations and
    remedies under the contract, so that neither the contract
    nor the arbitration agreement survived. When it is said
    that the Chief Justice or his Designate might choose to
    decide whether the claim is a dead claim, it is implied that
G   he would do so only when the claim is evidently and
    patently a long time barred claim and there is no need for
    any detailed consideration of evidence. If the distinction
    between apparent and obvious dead claims, and claims
    involving disputed issues of limitation is not kept in view,
H   the Chief Justice or his designate would end up deciding
                                                         . \
       INDIAN OIL CORPORATION LTD. v. SPS                5.'.15
                ENGINEERING LTD.
the question of limitation in all applications under Se_ction     A
11 of the Act. [Para 11] [526-B-H]
     1.2. An application under Section 11 of the Act is
expected to contain pleadings about the existence of a
dispute and the existence of an arbitration agreement to          B-
decide ·such dispute. The applicant is not expected to
justify the claim or plead exhaustively in regard to
limitation or produce documents to demonstrate that the
claim is within time in_ a proceedings under Section 11 of
the Act. That issue should normally be left to the Arbitral
Tribunal. If the Chief Justice or his designate is of the         C
view that in addition to examining whether there is an
arbitration agreement between the parties, he should
consider the issue whether the claim is a dead one (long
time barred) or whether there has been satisfaction of
mutual-rights and obligation under the contract, he should        D
record his intention to do so and give an opportunity to
the parties to place their materials on such issue. Unless
parties are put on notice that such an issue would be
examined, they would be under the impression that only
questions of jurisdiction and existence of arbitration            E
agreement between the parties would be considered in
such proceedings. [Para 12) [527-A-D]
      1.3 The question whether a claim is barred by res
judicata, does not arise for consideration in a proceedings · F
 under Section 11 of the Act. Such an issue would have
to be examined by the arbitral tribunal. A decision on res
judicata requires consideration of the pleadings as also
 the claims/issues/points and the award in the first round
 of arbitration, in juxtaposition with the pleadings and the
 issues/points/claims in the second arbitration. The limited G
 scope of Section 11 does not permit such examination
 of the maintainability or tenability of a claim either on
 facts or in law. It is for the arbitral tribunal to examine and
 decide whether the claim was barred by res judicata. There
 can be no threshold consideration and rejection of a H ·
    516     SUPREME COURT REPORTS               [2011] 2 S.C.R.

A claim on the ground of res judicata, while considering an
  application under Section 11 of the Act. [Para 13) [527-E·
    G]
         2.1 On a perusal of the order of the Designate, it is
    found that the Designate clearly exceeded his limited
8   jurisdiction under Section 11 of the Act, by deciding that
    the claim for extra cost, though covered by the arbitration
    agreement was barred by limitation and by the principle
    of res judicata. He was also not justified in terming the
    application under Section 11 of the Act as 'misconceived
C   and malafide'. Nor could he attribute 'ma/a fides' to the
    appellant, a public sector company, in filing an application
    under Section 11 of the Act, without any material to
    substantiate it. The findings of fact recorded by the
    Designate were wholly unwarranted in a proceeding
D   under Section 11 of the Act and the fallacy in such
    findings: (i) Finding: The appellant did not state anywhere
    in the petition the date which the final bill was settled and
    did not produce any document containing such
    information. The appellant was not expected or required
E   to give such information in a petition under Section 11
    of the Act or produce the documents showing the
    settlement of final bill along with the said petition.
    Therefore, the appellant could not be found fault for such
    omission. In fact, the Designate noticed that the work was
F   completed on 29.12.2007. The claim was in time with
    reference to the date on which the work completed
    (29.12.2007) by the alternative agency. (ii) Finding: As the
    work was completed on 29.12.2007 and as the award was
    made only on 27.10.2008, the appellant ought to have
G   crystalised the extra cost and claimed it in the first
    arbitration proceedings. The assumption that the
    appellant ought to have made the claim for extra cost
    which arose after the commencement of the arbitration
    proceedings, in the pending proceedings by way of
H   amendment, has no basis either in law or in contract. If
        INDIAN OIL CORPORATION LTD. v. SPS               517 ...
                 ENGINEERING LTD.
 the cause of action arose after the completion of              A
 pleadings and commencement of hearing in the first
 round of arbitration, nothing prevented the appellant from
 making a separate claim by initiating a second arbitration,
 (iii) Finding: Once a risk and cost tender is issued at the
 risk and cost of a person, then, the amount which is to        B
 be claimed from the person who is guilty of breach ....
 becomes crystallized when the risk purchase tender at a
 higher cost is awarded. This might be true as a general
 proposition. But it might not apply if there is a specific
 provision in the contract (like clause 7 .0.9.0) which         c
 requires that the employer should claim as extra cost,
                                .
 only the difference between the "amounts as would have
                                   .
 been payable to the contractor m respect of the work"
 and "the amount actually expended by the owner for
 completion of the entire work". [Para 18) [532-A-H; 533-       D
 A-CJ
       2.2 The Designate should have avoided the risks and
  dangers involved in deciding an issue relating to the
  tenability of the claim without necessary pleadings and
                 a
  documents, in proceeding relating to the limited issue        E
  of appointing an Arbitrator. It is clear that the Designate
  committed a jurisdictional error in dismissing the
  application filed by the appellant under Section 11 of the
  Act, on the ground that the claim for extra cost was barred
  by res judicata ar.d by limitation. Consideration of an       F
  application under Section 11 of the Act, does not extend
- to consideration of the merits of the claim or the chances
  of success of the claim. [Para 19) [533-C-E]
      2.3 The award amount due to the respondent under
 the award dated 27.10.2008 is an ascertained sum due,          G
 recoverable by executing the award as a decree. On the
 other hand the claim of the appellant for reimbursement
 of the extra cost for getting the work completed, is a claim
 for damages which is yet to be adjudicated by. an
 adjudicating forum. The appellant cannot, therefore,           H
    518      SUPREME COURT REPORTS               [2011) 2 S.C.R.

A adjust the amount due by it under the award, against a
  mere claim for damages made by it against the
  respondent. The appellant would have to pay the award
  amount due to the respondent and if necessary modify
  its claim for extra cost against the respondent. [Para 20]
B [533-F-G]

      3. The order of the Designate is set aside. The
  application under Section 11 of the Act filed by appellant
  before the Chief Justice of the Delhi High Court is
C allowed. [Para 21] [534-A-B]

         National Insurance Co. Ltd. vs. Boghara Polyfab Private
    Limited 2009 (1) SCC 267; SBP and Co. v. Patel Engineering
    Ltd. 2005 (8) sec 618 - referred to.

D                        Case Law Reference:
          2009 (1) sec 267        Referred to          Para 10
          2005 (8) sec 618        Referred to          Para 10

          CIVIL APPELLATE JURISDICTION : Civil Appeal No.
E 1282 of 2011.

        From the Judgment & Order dated 08.12.2009 of the High
    Court of Delhi at New Delhi in A.A. No. 288 of 2009.

F       Goolam E. Vahanvati, AG, Rakesh Sawhney, Mona Aneja,
    Aruna Mathur, Anoopam N. Prasad, Nishant Patil (for
    Arputham, Aruna & Co.) for the Appellant.

          Arvind Minocha for the Respondent.

G         The Judgment of the Court was delivered by

          R.V.RAVEENDRAN, J. 1. Leave granted.

       2. The Indian Oil Corporation Limited, the appellant herein,
  awarded an infrastructure work relating to drinking water
H system for its Paradip Refinery project to the respondent on .
     INDIAN OIL CORPORATION LTD. v. SPS                      519
    ENGINEERING LTD. [R.V. RAVEENDRAN, J.]
17 .10.2000 and followed by a formal agreement dated                 A
18.1.2001. The period stipulated under the contract for
completion of the work was 13 months from the date of issue
of the order dated 17.10.2000 and the contract value was
Rs.16,61, 17,473/-. The appellant terminated the contract on
29.10.2002 alleging that the respondent contractor though            B
required to complete the work within 13 months, had achieved
a progress of hardly 15.94% till 30.4.2002 and notified the
respondent that the work will be got completed through an
alternative agency, at the risk and cost of the respondent under
Clause 7.0.9.0 of the General Conditions of Contract. ·              c
     3. In view of the said termination, the respondent raised
certain claims against the appellant and invoked the arbitration
agreement contained in the General Conditions of Contract and
filed an application under section 11 of the Arbitration and
Conciliation Act, 1996 ('Act' for short} before the Delhi High       D
Court for appointment of an arbitrator. The Designate of the
Chief Justice of the High Court, by order dated 17.3.2003,
appointed a retired High Court Judge as the arbitrator.

     4. Before the arbitrator, the respondent filed a statement      E
of claims raish 1g eight claims. However in its written submission
before the Arbitrator, the contractor confined its claims to only
three, aggregating to Rs.1,31,81,288/-.

     5. The appellant made several counter-claims aggregating
to Rs.92,72,529/-. Subsequently the statement of counter-claims      F
was amended and the following para was added in regard to
the· extra cost in getting the work completed through an
alternative contractor:

     "Since the aforementioned contract is still pending and         G
     /OCL is in the process of inducting agency (ies) to
     complete the said work, the· Engineer-in-charge of the
     said contract, Ell estimated a minimum expenditure of
     Rs.18,36,20,000/- for completion of the works under the
     said contract which Ell intimated to IOCl by its letter dated   H
    '520          SUPREME COURT REPORTS              [2011] 2 S.C.R.


           23.5.2002, ~- copy whereof is annexed hereto and marked
                       1


A
           Annexure RY. The said estimated expenditure has been
           revised by IOCL who has arrived at the reduced figure of
           Rs.2, 10,41,6261-(Rupees Two Crores Ten Lacs Forty One
           Thousand Six Hundred Twenty Six Only) in its proposal
           dated 09.09,2006, a copy whereof is annexed hereto and
B
           marked Annexure RY-1. Accordingly, IOCL is entitled to
           recover from SPSEL any additional sums including the
           abovementioned Rs.2, 10,41,6261- (Rupees Two Crores
           Ten Lacs Forty One Thousand Six Hundred Twenty Six
           Only) that it will according to its estimate incur upon
c          execution of the balance work by other agencies pursuant
           to the termination of the said contract in terms of Clause
           7.0.6.0 of GCC along with any other additional
           expenditure incurred by IOCL in completion of the said
           works. IOCL, therefore, is entitled to an amount of
D          Rs.2, 10,41,626/- (Rupees Two Crores Ten Lacs Forty One
           Thousand Six Hundred Twenty Six Only) from SPSEL
           which SPSEL has not paid till date."

                                                 (emphasis supplied)
E
    The prayer in the counter-claim however remained unaltered
    and did not include the claim of Rs.2, 10,41,626/- on account
    of risk - execution of balance work. Even after the above
    amendment, the prayer continued to be as under :

F       "It is therefore prayed that the learned Arbitrator may be
    pleased to:

            (i)    award a sum of Rs.92, 72,529/- (Rupees Ninety
                   Two Lacs Seventy Two Thousand Five Hundred
G                  Twenty Nine Only) against SPSEL and in favour of
                   IOCL along with the additional amounts which in
                   IOC's estimate, IOC will incur in further executing
                   and completing at the Claimant's risk and cost, the
                   balance works remaining incomplete under the said
                   contract.
H
      INDIAN OIL CORPORATION LTD. v. SPS                         521
     ENGINEERING LTD. [R.V. RAVEENDRAN, J.]
     (ii)    grant pendent lite interest@ 18% per annum on the ·,A
             awarded amount;

     (iii)   grant interest on the awarded amount @ 18% ·per
             annum from the date of award till the date of
             payment in full;                                           8
     (iv)    grant cost of arbitration proceedings to lOCL;
                              I                              .     .

     (v)     grant such oth~r or further order(s) and/or relief as ·'
             are deemed appropriate in the circumstances of the
             case;"                                                     c
     6. The arbitrator made an award dated 27.10.2008. He
awarded Rs.91,33,844 towards the claims <;>f respondent. As
against the counter claims aggregating to Rs.92, 72,529 made
by the appellant, the arbitrator awarded a sum ofR~.11, 10,662.         D
In regard to the averments made by the appellantfn regard to
the extra cost involved in getting the work completed through
an alternative contractor, the arbitrator observed thus : ·

    "102. The contract was terminated in October 2002 and .
    till date the balance work of the contract has not been E .
    executed. Such damage could have been allowed to the
    respondent if in a reasonable period after termination of
    the contract, the respon~ent had executed the balance
    work at the risk and costs of the claimant. In case the costs
    actually incurred haveJ~eeo more than the costs which F
    were required to be incurred under the contract, then the
    difference between the two costs could have been
    awarded as damages to the respondent. There is no
    proper evidence on the record to show that what could
    have been the costs. ofthe balance work if it had been G
    executed within reasonable period after the termination of
    the contract. Such damage cannot be awarded on mere
    opinion of any particular person or on hypothetical basis.
    Under clause 1:0.9.0 of General Conditions of the
    Contract, the respondent was entitled at the risk and
                                                                        H,
     522      SUPREME COURT REPORTS                  [2011} 2 S.C.R.


 A         expenses of the contractor to get completed the balance
           work and recover the costs from the claimant. This clause
           further contemplates that on the amount actually
           expended by the owner for the completion of the work
           15% to be added as supervision charges, the same would
 8         have become recoverable from the claimant. In the
           present case, no such cost has been incurred till date.
           Thus, for these reasons, I reject this counter claim."

                                                (emphasis supplied).

 C The arbitrator adjusted Rs.11, 10,662 awarded to the appellant,
   towards the sum of Rs.91,33,844 awarded in favour of the
   respondent and consequently directed the appellant to pay to
   the respondent, the balance of Rs.80,23, 182. He further
   directed that if the amount was not paid within three months
 D from the date of award, the appellant shall pay interest at the
   rate of 12% per annum from the date of award till payment. The
   appellant did not challenge the award and it thus attained
   finality.

 E        7. The appellant claims that it entrusted the incomplete
    work to Deepak Construction Company for completion in the _
    year 2005, that the said contractor completed the work on
    29.12.2007, and that the final bill of the said alternative agency
    was settled on 7.5.2008. On that basis, the appellant calculated
    the actual extra cost incurred in completing the work and the
. F total amount recoverable from the petitioner in terms of the
    contract, as under:
     A.     Amount determined as payable          Rs.4,05,74,465.00
            to the alternative agency (Deepak
 G          Construction Co.) for the balance
            work

     8.     Material supplied to the alternative(+) Rs.2,78,68,861.64
            agency for completing the work
     C.     Total Cost (A + 8)                     Rs.6,84,43,326.64
        INDIAN OIL CORPORATION LTD. v. SPS                         523
       ENGINEERING LTD. [R.V. RAVEENDRAN, J.]
                                                                           A
  D.    The cost of such unfinished .work,(-) Rs.3,30,93,996.75
        if it had been completed by the
        respondent, as per its contract
        rates.
                                                                           B
  E.    Extra cost incurred on account            Rs.3,53,49,329.89
        of getting the work completed at
        the risk and cost of respondent
        (C - D)
                                                                           c
  F.    Supervision charges at 15% on(+) Rs.1,02,66,499.00
        Rs.6,84,43,326.64

        Total amount recoverable from the
        respondent (E+F)                          Rs.4,56, 15,828.89
                                                                           D

  Towards the said claim against the respondent, the appellant
  adjusted the sum of Rs.80,23, 182/- awarded by the arbitrator
  to the respondent and arrived at the net amount recoverable
  from the respondent towards extra cost for completion as                 E
  Rs.3, 75,92,646.89. The appellant by notice dated 22.1.2009
                                                         I •
  called upon the respondent to pay the said sum of
  Rs.3,75,92,646.89 (and interest thereon at 18% per annum if
  the amount was not paid within seven days) and informed the
  respondent that if it disputed its liability, to treat the said letter   F
  as appellant's notice invoking arbitration. The appellant also
  suggested a panel of three names (including Justice P.K. Bahri
  - the arbitrator who had made the award dated 27.10.2008)
  with a request to select one of them as the arbitrator. The
  respondent by reply dated 18.3.2009 refused to comply,
~ contending that the counter claim in regard to the risk-execution        G
  cost had already been rejected by the arbitrator, by his award
  dated 27.10.2008 and that award having attained finality, there
  could be no further arbitration. In view of the said stand of the
  respondent, the appellant filed a petition under section 11 of
                                                                           H
    524          SUPREME COURT REPORTS              [2011) 2 S.C.R.


A the Act praying for appointment of an arbitrator to decide its
  claim for the extra cost in getting the work completed through
  the alternative agency.

        8. The learned Designate of the Chief Justice of the Delhi
   High Court (for short 'the Designate') by the impugned order
8
  dated 8.12.2009 dismissed the application with costs of
   Rs.50,000/-. He held that the application under section 11 of
   the Act by the appellant was misconceived, barred by res
  judicata, and ma/a fide. The Designate held (i) that the claim
   by the appellant in regard to extra cost had already been
C considered and rejected by the Arbitrator; (ii) that the claim
   regarding extra cost was barred by limitation (by drawing an
   inference from the observation of the Arbitrator that the risk
  execution tender was not awarded to Deepak Construction Co.
  within a reasonable period of termination of respondent's
D contract); and (iii) that as the work was completed by Deepak
  Construction Co. on 29.12.2007 and the earlier arbitration
  proceedings had came to an end much later on 27.10.2008,
  the claim in regard to actual extra cost ought to have been
  crystallized and claimed in the first round of arbitration.
E
         9. The said order is challenged in this appeal by special
    leave. On the contentions urged the questions that arise for
    consideration are as follows :

          (i)     Whether the Chief Justice or his designate can
F                 examine the tenability of a claim, in particular
                  whether a claim is barred by res judicata, while
                  considering an application under section 11 of the
                  Act?

G         (ii)    Whether the Designate was justified in holding that
                  the claim was barred by res judicata and that
                  application under section 11 of the Act was
                  misconceived and ma/a fide?

H
       INDIAN OIL CORPORATION LTD .. v. SPS                  525
      ENGINEERING LTD. [R.V. RAVEENDRAN, J.]
 Re : Question (i)                                                   A

       10. This Court, in National Insurance Co. Ltd. vs. Boghara
  Polyfab Private Limited [2009 (1) SCC 267] following the
  decision in SBP & Co. v. Patel Engineering Ltd. [2005 (8)
. SCC 618], identified and segregated the issues that may be         B
  raised in an application under section 11 of the Act into three
  categories, as under :

    ·. "22.1. The issues (first category) which the Chief Justice/
       his designate will have to decide are :                  ·
                                                                     c
       (a)   Whether the party making the application has
             approached the appropriate High Court?

       (b)   Whether there is an arbitration agreement and
             whether the party who has applied .under Section        D
             11 of the Act, is a party to such an agreement?

      22.2. The issues (second category) which the Chief
      Justice/his designate may choose to decide (or leave
      them to the decision of the Arbitral Tribunal) are:
                                                       ,             E
       (a)    Whether the claim is a dead (long-barred) claim or
              a live claim?

       (b)   Whether the parties have concluded the contract/
             transaction by recording satisfaction of their mutual
             rights and obligation or by receiving the final         F
             payment without objection?

      22.3. The issues (third category) which the Chief Justice/
      his designate should leave exclusively to the Arbitral .
      Tribunal are:                                              G

       (i)     Whether a claim made falls within the arbitration
             · clause (as for example, a matter which is reserved
               for final decision of a departmental authority and
               excepted or excluded from arbitration)?
                                                                     H
    526          SUPREME COURT REPORTS                [2011] 2 S.C.R.

A         (ii)     Merits or any claim involved in the arbitration."

        11. To find out whether a claim is barred by res judicata,
   or whether a claim is "ma/a fide", it will be necessary to
  examine the facts and relevant documents. What is to be
  decided in an application under section 11 of the Act is whether
8
  there is an arbitration agreement between parties. The Chief
  ,fustice or his designate is not expected to go into the merits
  of the claim or examine the tenability of the claim, in an
  application under section 11 of the Act. The Chief Justice or
   his Designate may however choose to decide whether the
C claim is a dead (long-barred) claim or whether the parties have,
  by recording satisfaction, exhausted all rights, obligations and
  remedies under the contract, so that neither the contract nor the
  arbitration agreement survived. When it is said that the Chief
  Justice or his Designate may choose to decide whether the
D claim is a dead claim, it is implied that he will do so only when
  the claim is evidently and patently a long time barred claim and
  there is no need for any detailed consideration of evidence. We
  may elucidate by an illustration : If the contractor makes a claim
  a decade or so after completion of the work without referring
E to any acknowledgement of a liability or other factors that kept
  the claim alive in law, and the claim is patently long time barred,
  the Chief Justice or his Designate will examine whether the
  claim is a dead claim (that is, a long time barred claim). On
  the other hand, if the contractor makes a claim for payment,
F beyond three years of completing of the work but say within five
  years of completion of work, and alleges that the final bill was
  drawn up and payments were made within three years before
  the claim, the court will not enter into a disputed question
  whether the claim was barred by limitation or not. The court will
G leave the matter to the decision of the Tribunal. If the distinction
  between apparent and obvious dead claims, and claims
  involving disputed issues of limitation is not kept in view, the
  Chief Justice or his designate will end up deciding the question
  of limitation in all applications under section 11 of the Act.
H
       INDIAN OIL CORPORATION LTD. v. SPS                       527
      ENGINEERING LTD. [R.V. RAVEENDRAN, J.]
        12. An application under section 11 of the Act is expected A·
  to contain pleadings about the existence of a dispute and the
  existence of an arbitration agreement to decide such dispute.
  The applicant is not expected to justify the claim or plead
  exhaustively in regard to limitation or produce documents to
  demonstrate that the claim is within time in a proceedings under • B
- section 11 of the Act. That issue should normally be left to the
  Arbitral Tribunal. If the Chief Justice or his designate is of the
  view that in addition to examining whether there is an arbitration
  agreement between the parties, he should consider the issue
  whether the claim is a dead one (long time barred) or whether         c
  there has been satisfaction of mutual rights and obligation
  under the contract, he should record his intention to do so and
  give an opportunity to the parties to place their materials on
  such issue. Unless parties are put on notice that such an issue
  will be examined, they will be under the impression that only D
  questions of jurisdiction and existence of arbitration agreement
. between the parties will be considered in such proceedings.

       13. The question whether a claim is barred by res judicata,
  does not arise for consideration in a proceedings under section
  11 of the Act. Such an issue will have to be examined by the          E
 arbitral tribunal. A decision on res judicata requires
 consideration of the pleadings as also the claims/issues/points
  and the award in the first round of arbitration, in juxtaposition
 with the pleadings and the issues/points/claims in the second
 arbitration. The limited scope of section 11 of the Act does not       F
  permit such examination of the maintainability or tenability of a
  claim either on facts or in law. It is for the arbitral tribunal to
  examine and decide whether the claim was barred by res
 judicata. There can be· no threshold consideration and rejection
  of a claim on the ground of res judicata, while considering an        G
 application under section 11 of the Act.

 Re : Question (ii)

      14. We extract below the reasoning adopted by the
                                                                        H
    528       SUPREME COURT REPORTS                  (2011] 2 S.C.R.


A Designate to dismiss the appellant's application under section
  11 of the Act :

          "5. In my opinion, not only the aforesaid para 102 in the
          Award dated 27 .10.2008 operates as res judicata against
          the present petitioner, I find that the present petition is _
B
          misconceived and and ma/a fide because, if the present
          petitioner is correct in saying and which I doubt it is, that
          its limitation/right would only begin after the work is
          completed by M/s Deepak Construction Company when
          the amount of the higher cost is known, even then, the work
c         was completed by the Mis Deepak Construction Company
          admittedly on 29.12.2007, and thus the present petitioner,
          could well have proved its counter claim in the earlier
          proceedings and could have crystallized the amount in the
          said earlier arbitration proceedings. If necessary it could
D         have even amended its pleadings as regards the counter
          claim. On a further query by the Court to the counsel for
          the petitioner with respect to the statement in the notice
          dated 22.01.2009 sent by the petitioner to the respondent
          which states that Mis Deepak Construction Company has
E         completed the work on 29.12.2007 and its final bill has now
          been settled" that when was the bill of Mis Deepak
          Construction Company settled, the counsel for petitioner
          states that for the present no such information is at all
          available whether in the form of any assertion in the
F         present petition or in any document in support thereof.

          6. A conspectus of the aforesaid facts show that firstly in
          the earlier arbitration proceedings, the counter claim of the
          present petitioner on this very subject matter was
          specifically dismissed by holding and observing that the
G
          risk purchase tender awarded to Mis Deepak Construction
          Company was not given within a reasonable period of time
          after termination of the work of the present respondent.
          Secondly, it has further become clear that the work was
          comp:cted by M/s Deepak Construction Company
H
     INDIAN OIL CORPORATION LTD. v. SPS                        529
    ENGINEERING LTD. [R.V. RAVEENDRAN, J.]
     admittedly as per the case of the petitioner on 29.12.2007         A
     and the earlier arbitration proceedings came to an end
     later by passing of the Award on 27.10.2008 and, therefore,
     the claim with respect to any cost of the total materials for
     the substitute contract for the risk purchase could very well
     have been crystallized and claimed. in the earlier arbitration     B
     proceedings. Thirdly, admittedly there is no challenge to
     the award dated 27.10.2008 by the present petition
     whereby its counter claim was rejected. Fourthly, I am of
     the view that once a risk and cost tender is issued at the
     risk ~nd cost of a person, then, the amount which is to be         c
     claimed from the person who is guilty of breach of contract
     and against whom risk and cost is tendered, becomes
     crystallized when the risk purchase tender at a higher cost
     is awarded. Once a higher cost of work is known as
     compared to the cost of the work for the earlier work for          0
     which the earlier contract was there and with respect to
     which the earlier contractor was in breach, then not only
     the amount becomes crystallized but limitation also
     commences for filing of the legal proceedings against the
     person in breach of obligations under the earlier contract.        E
      It cannot be that limitation and a right continues indefinitely
     to be extended till the performance is completed under a
   . subsequent risk purchase contract. This would give·
     complete uncertainty to the period of limitation striking at
     the very root of one of the principles of the Limitation Act
     and which is that evidence is lost by passage of time and          F
     Which will cause grave prejudice to the person against
     whom a stale claim is filed."
     15. The appellant submitted that having regard to clause
7.0.9.0 of the contract, damages can be claimed by it (as               G
employer), in regard to the additional amount incurred for getting
the work completed through an alternative agency at the risk
and cost of the contractor along with the supervision charges,
only when the amount was actually expended for completion
of the entire work; and therefore, unless the work was                  H
                                    •
                                                              I

    530      SUPREME COURT REPORTS                  [2011) 2 S.C.R.


A completed by the alternative agency and the final bill was settled
  or finalized, the actual extra cost could not be determined. It was
  pointed out that in the first round of arbitration, the hearing was
  concluded by the Arbitrator on 13.3.2008 and matter was
  reserved for orders and the award was declared on
B 27.10.2008; that the work was completed by the alternative
  agency on 29.12.2007 and final bill of the alternative agency
  was drawn and settled only on 7.5.2008, after the conclusion .
  of the hearing, by the Arbitrator; that the actual extra cost could
  be worked out only when the final bill was prepared, and not
c on the date of completion of work; that therefore the appellant
  could not make the claim for actual extra cost, in the first round
  art:iitration. It was also submitted that the appellant was not
  expected to give details of completion of work and preparation
  of the final bill, or produce documents in support of it in a
  proceeding under section 11 of the Act; and that the Designate
0
  was not therefore justified in finding fault with the appellant for
  not stating the da\e of settlement of the final bill in the petition
  under section 11 of the Act and for not producing the final bill.

          16. The appellant also contended that when its statement
E   of counter claim was amended before the Arbitrator, the
    appellant had only indicated its estimation of the probable extra
    cost to be Rs.2, 10,41,626/-, as advance indication of a claim
    to be made in future on the basis of actuals, and that it had not
    prayed for award of the said amount in the said proceeding. It
F   was pointed out that even after mentioning the proposed claim
    by amending the statement of counter claim, the actual counter
    claim before the arbitrator remained as only Rs.92,72,529/-
    exclusive of any claim on account of the risk completion cost.
    It was submitted that having regard to clause 7.0.9.0, the counter
G   claim for extra cost could not have been made when the first
    arbitration was in progress and that the arbitrator had in fact
    noticed in his award (at para 102) that only when the cost
    actually incurred, the appellant could make the claim for the
    extra cost. It is contended that the "rejection" by the arbitrator
H   was not on the ground that the claim for extra cost was not
     INDIAN OIL CORPORATION LTD. v. SPS                     531
    ENGINEERING LTD. [R.V. RAVEENDRAN, J:]
recoverable, nor on the ground that no extra cost was involved A -
in completing the work, but on the ground that as on the date
of the award, the appellant had not actually incurred any specific
extra cost; and that as the arbitrator clearly held that any claim ·
for extra cost was premature and could not be considered at
that stage, the observation that 'I reject this counter claim' only B
meant that the claim relating to extra cost was not being
considered in that award and that appellant should make the
claims separately after the amount was actually expended.

    1i Clause 7.0.9.0 of the contract relied upon by the            C
appellant reads thus :

    "clause 7.0.9.0

    Upon termination of the contract, the owner shall be entitled
    at the risk and expenses of the contractor by itself or         0
    through any independent contractor(s) or partly byJtself
    and/or partly through independent contractor(s) to complete
    to its entirety the work as contemplated in the scope of
    work and to recover from the contractor in addition to any
    other amounts, compensations or damages that the owner          E
    may in terms hereof or otherwise be entitled to (including
    compensation within the provisions of clause 4.4.0 10 and
    clause 7.0.7.0 hereof) the difference between the amounts
    as would have been payable to the contractor in respect
    of the work (calculated as provided for in clause 6.2 11.0
    hereof read with the associated provisions thereunder and       F
    clause 6.3.1.0 hereof) and the amount actually expended
     by the owner for completion of the entire work as
     aforesaid together with 15% (fifteen per cent) thereof to
     cover owner's supervision charges, and in the event of
     the latter being in the excess former, the owner shall be      G
     entitled (without prejudice to any other mode of recovery
     available to the owner) to recover the excess from security
     deposit or any monies due to the contractor."

                                           (emphasis supplied)      H
        ''.i(/,;:
    532             Sl.}PREME COURT REPORTS          [2011] 2 S.C.R.


A      18. On a perusal of the order of the Designate, we find that
  the Designate has clearly exceeded his limited jurisdiction
  under section 11 of the Act, by deciding that the claim for extra
  cost, though covered by the arbitration agreement was barred
  by limitation and by the principle of res judiata. He was also
B not justified in terming the application under section 11 of the
  Act as 'misconceived and malafide'. Nor could he attribute
  'ma/a fides' to the appellant, a public sector company, in filing
  an- application under section 11 of the Act, without any material
  to substantiate it. We may refer to some of the findings of fact
c recorded by the Designate, which were wholly unwarranted in
  a proceeding under section 11 of the Act and the fallacy in such
  findings:

        (i) Finding : The appellant did not state anywhere in the
  petition the date which the final bill was settled and did not
D produce any document containing such information. The
  appellant was not expected or required to give such information
  in a petition under section 11 of the Act or produce the
  documents showing the settlement of final bill along with the
  said petition. Therefore, the appellant could not be found fault
E for such omission. In fact, the Designate noticed that the work
  was completed on 29.12.2007. The claim was in time with
  reference to the date on which the work completed
  (29.12.2007) by the alternative agency.

F         (ii) Finding: As the work was completed on 29.12.2007
    and as the award was made only on 27.10.2008, the appellant
    ought to have crystalised the extra cost and claimed it in the
    first arbitration proceedings. The assumption that the appellant
  ought to have made the claim for extra cost which arose after
G the commencement of the arbitration proceedings, in the
  pending proceedings by way of amendment, has no basis
  either in law or in contract. If the cause of action arose after
  the completion of pleadings and commencement of hearing in
  the first round of arbitration, nothing prevented the appellant from
  making a separate claim by initiating a second arbitration.          ·
H
      INDIAN OIL CORPORATION LTD. v. SPS                     533
     ENGINEERING LTD. [R.V. RAVEENDRAN, J.]
     (iii) Finding : Once a risk and cost tenderis issued at the     A
risk and cost of a person, then, the amount which is to be
claimed from the person who is guilty of breach ......... :
becomes crystallized when the risk purchase. tender at a
higher cost is awarded.. This may be true as a general
proposition. But it may not apply if there is a specific provision   B
in the contract (like clause 7.0.9.0) which requires that the
employer should claim as extra cost, only the difference
between the "amounts as would have been payable to the
contractor in respect of the work" and "the amount actually
expended by the owner for completion of the entire work".            c
     19. The Designate should have avoided the risks and
dangers involved in deciding an issue relating to the tenability
of the claim without necessary pleadings and documents, in a
proceeding relating to the limited issue of appointing an
Arbitrator. It is clear that the Designate committed a               0
jurisdictional error in dismissing the application filed by the
appellant under section 11 of the Act, on the ground that the
claim for extra cost was barred by res judicata and by limitation.
Consideration of an application under section 11 of the Act,
does not extend to consideration of the merits of the claim or       E
the chances of success of the claim.

      20. We may at this stage refer to one aspect of the claim
for extra cost. The award amount due to the respondent under
the award dated 27 .10.2008 is an ascertained sum due, p
recoverable by executing the award as a decree. On the other
hand the claim of the aµpellant for reimbursement of the extra
cost for getting the work completed, is a claim for damages
which is yet to be adjudicated by an adjudicating forum. The
appellant cannot therefore adjust the amount due by it under G
the award, against a mere claim for damages made by it
against the respondent. The appellant will have to pay the
award amountdu~ to the respondent and if necessary modify'
its claim for extra· cost against the respondent.

     21. In view of the foregoing, this appeal is allowed and the    H
                                      r
    534     SUPREME COURT REPORTS                   (2011) 2 S.C.R.


A   order of the Designate is set aside. The application under
    section 11 of the Act filed by appellant before the Chief Justice
    of the Delhi High Court is allowed and Justice P.K.Bahri (Retd.)
    who was the earlier Arbitrator is appointed as the sole. arbitrator
    to decide the appellant's claim in regard to the additional cost
B   for completing the work. It is open to the respondent to raise
    all contentions against the claim of the appellant including the
    contention of limitation, maintainability and res judicata, before
    the arbitrator. Nothing in this order shall be construed as
    expression of any opinion on the merits or tenability of the claim
c   of the appellant regarding extra cost.

    N.J.                                            Appeal allowed.




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