M/S. HARSHA CONSTRUCTIONSversusUNION OF INDIA & ORS.

                         [2014] 7 S.C.R. 668


A                 M/S. HARSHA CONSTRUCTIONS
                                  v.
                      UNION OF INDIA & ORS.
                   (Civil Appeal No. 534 of 2007)
                       SEPTEMBER 05, 2014
B
           [ANIL R. DAVE AND VIKRAMAJIT SEN, JJ.]

          Arbitration and Conciliation Act, 1996 - ss. 34, 7(3) -
    Contract of arbitration - Dispute pertaining to the amount
C   payable to the contractor in relation to extra work done by the
    contractor - Amount payable to the contractor not final since
    dispute not decided by the Chief Engineer - Though some
    amount paid but accepted under protest by the contractor -
    In terms of the contract clause, said dispute specifically not
D   arbitrable - However, "excepted matter" referred to arbitrator
    - Arbitrator deciding the issue holding that the same were not
    excepted matters but arbitrable - Held: Arbitration arises from
    a contract and unless there is a specific written contract, a
    contract with regard to arbitration cannot be presumed - As
E   per the Contract clause, arbitrator could nof arbitrate upon the·
    excepted disputes - If a non-arbitrable dispute is referred to
    an Arbitrator and an issue is framed by the Arbitrator in
    relation thereto, there cannot be a presumption or a
    conclusion to the effect that the parties had agreed to refer
F   the issue to the Arbitrator - Award regarding non-arbitrable
    dispute quashed and set aside - Liberty granted to the
    contractor to take appropriate legal action for recovery ol
    payment for work done not forming part of the contract.
        Partly allowing the appeal, the Court
G
        HELD: Arbitration arises from a contract and unless
    there is a specific written contract, a contract with regard
    to arbitration cannot be presumed.:Thus, so far as the
    disputes which have been referred to in Clause 39 of the
H                                668
      HARSHA CONSTRUCTIONS v. UNION OF INDIA          669

 contract are concerned, it was not open to the Arbitrator A
 to arbitrate upon the said disputes as there was a specific
 clause whereby the said disputes had been "excepted".
 Moreover, when the law specifically makes a provision ·
 with regard to formation of a contract in a particular
 manner, there cannot be any presumption with regard to 8
 a contract if the contract is not entered into by the mode
 prescribed under the Act.)f a non-arbitrable dispute is
 referred to an Arbitrator and even if an issue is framed
·by the Arbitrator in relation to such a dispute, there
 cannot be a presumption or a conclusion to the effect that C
 the parties had agreed to refer the issue to the Arbitrator.
 In the instant case, the respondent authorities had raised·
 an objection relating to the arbitrability-of the aforestated
 issue before the Arbitrator and yet the Arbitrator had
 rendered his decision on the said "excepted" dispute. It
 was not open to the Arbitrator to decide the issues which 0
 were not arbitrable and the award, so far as it relates to
 disputes regarding non-arbitrable disputes-determination
 of the rate for extra work done by the contractor is
 concerned, is bad in law and is quashed. The portion of
 the award so far as it pertains to the disputes which were E
 arbitrable is upheld. [Para 20-23] [675-F-H; 676-A-F]

     General Manager, Northern Railway and another v.
Sarvesh Chopra 2002 (2) SCR 156:(2002) 4 SCC 45;
Madnani Construction Corporation (P) Limited v. Union of F
India & ors. 2009 (16) SCR 216: (2010) 1 sec 549 - referred·
to.
                    Case Law Reference:
      2002 (2) SCR 156      Referred to         Para 13     G
      2009 (16) SCR 216     Referred to         Para 13
    CIVIL APPELLATE JURISDICTION : Civil Appeal No. 534
of 2007.
                                                            H
     670       SUPREME COURT REPORTS                 [2014] 7 S.C.R.


 A       From the Judgment and Order dated 09.09.2005 of the
     High Court of Judicature, Andhra Pradesh at Hyderabad in.
     C.M.A. No. 476 of 2005.

        Vemula Prasad Rao, G. Ramakrishna Prasad, Filza
     Moonis, Bharat J. Joshi for the Appellant.
 8
           D.S Mahra for the Respondents.

           The Judgment of the Court was delivered by

        ANIL R. DAVE, J. 1. Aggrieved by the judgment dated 9th
 C September, 2005 delivered by the High Court of Judicature,
   Andhra Pradesh at Hyderabad, in CMA No.476 of 2005, this
   appeal has been filed by M/s Harsha Constructions, a
   contractor, against Union of India and its authorities.
   Hereinafter, the appellant has been described as a 'Contractor'.
 D
        2. The Union of India had entered into a contract for
   construction of a road bridge at a level crossing and in the said
   contract there was a clause with regard to arbitration. The issue
   with which we are concerned in the instant case, in a nutshell,
 E is as under:-
         . "When in a contract of arbitration, certain disputes are
           expressly "excepted", whether the Arbitrator can arbitrate
           on such excepted issues and what are the consequences
           if the Arbitrator decides such issues?"
, F -
          3. For the purpose of considering the issue, in our opinion,
     certain clauses incorporated in the contract are relevant and
     those clauses are reproduced hereinbelow:-

           "Cl~use 39. Any item of work carried out by the Contractor
 G
           on the· instructions of the Engineer which is not included
           in the accepted schedule of rates shall be executed at the
           rates set forth in the "Schedule of Rates, South Central
           Railway" modified by the tender percentage and where
           such items are not contained in the latter at the rates
 H
HARSHA CONSTRUCTIONS v. UNION OF INDIA                 671
           [ANIL R. DAVE, J.]
 agreed upon between the Engineer and the Contractor A
 before the execution of such items of work and the
 Contractor shall be bound to notify the Engineer at least
 seven days before the necessity arises for the execution
 of such items of work that the accepted schedule of rates
 does not include a rate or rates for the extra work involved. B

 The rates payable for such items shall be decided at the
 meeting to be held between the Engineer and the
 contractor in as short a period as possible after the need
 for the special item has come to the notice. In case the C
 contractor {ails to attend the meeting after being notified
 to do so or in the event of no settlement being arrived at
 the Railway shall be entitled to execute the extra works by
 other means and the contractor shall have no claim for loss
 or damage that may result from such procedure. Provided
 that if the Contractor commences work or incurs any D
 expenditure in regard thereto before the rates are
 determined and agreed upon as lastly mentioned, then
 and in such a case the Contractor shall only be entitled to
 be paid in respect of the work carried out or expenditure
 incurred by him prior to the date of the rates as aforesaid. E
 according to the rates as shall be fixed by the Engineer.
 However, if the contractor is not satisfied with the decision
 of the Engineer in this respect he may appeal to the Chief
 Engineer within 30 days of getting the decision of the
 Engineer supported by the analysis of the rates claimed. F
 The Chief Engineer's decision after hearing both the
 parties in the matter would be final and binding on the
 contractor and the Railway."

 "Clause-63. All disputes and differences of any kind G
 whatsoever arising out of or in connection with the contract
 whether during the progress of the work or after its
 completion and whether before or after the determination
 of the contract shall be referred by the Contractor to the
 Railway and the Railway shall within a reasonable time H
    672       SUPREME COURT REPORTS                    [2014] 7 S.C.R.


A         after receipt of the contractor's presentation make and
          notify decisions on all matters referred to by the contractor
          in writing provided that matters for which provision has
          been made in Clause 18, 22(5), 39, 45(a), 55, 55-A(5),
          6.1 (2) and 62(1 )(.xiii)(B)(e)(b) of the General Conditions of
B         contract or in any Clause of the Special conditions of the
          contract shall be deemed as 'Excepted matters' and
          decisions thereon shall be final and binding on the
          contractor; provided further that excepted matters shall
          stand specifically excluded from the purview of the
c         arbitration clause and shall not be referred to arbitration."

          4. Upon perusal of Clause 63 of the aforestated contract,
    it is quite clear that the matters for which provision had been
    made in Clauses 18, 22(5), 39, 45(a), 55, 55-A(5), 61 (2) and
    62(1 )(xiii)(B)(e)(b) of the ~eneral Conditions of Contract were
D   "excepted matters" and they were not to be referred to the
    arbitrator.

        _5. In the instant case, we are concerned with a dispute
    which had arisen with regard to the amount payable to the
E   contractor in relation to extra work done by the contractor ..

   •       6. Upon perusal of Clause 39, we find that in the event of
    extra or additional work entrusted to the contractor, if rates at
    which the said work was to be done was not specified in the
    contract, the amount payable for the additional work done was
F · to be discussed by the contractor with the concerned Engineer
    and ultimately the rate was to be decided by the Engineer. If
    the rate fixed by the Engineer was not acceptable to the
    col'ltractor, the contractor had to file an appeal to the Chief
    Engineer within 30 days of getting the decision of the Engineer
G and the Chief Engineer's decision about the amount payable
    was to be final.

       7. It is not in dispute that some work, which was not
   covered under the contract had been entrusted to the contractor
H· and for determining the amount payable for the said work,
   HARSHA CONSTRUCTIONS v. UNION OF INDIA                  673
             [ANIL R. DAVE, J.]

certain meetings had been held by the contractor and the.          A
concerned Engineer but they could not agree to any rate.
Ultimately, some amount was paid in respect of the additional
work done, which was not acceptable to the contractor but the
contractor accepted the same under protest.
                                                                   B
      8. In addition to the aforestated dispute with regard to
determination of the rate at which the contractor was to be paid
for the extra work done by it, there were some other disputes
also and in order to resolve all those disputes, Respondent
No.5, a former Judge of the High Court of Andhra Pradesh, had
been appointed as an Arbitrator.
                                                                   c
     9. The learned Arbitrator decided all the disputes under
his Award dated 21.9.2002 though the contractor had objected
to arbitrability of the disputes which were not referable to the
Arbitrator as per Clause 39 of the Contract. Being aggrieved       D
by the Award, Union of India had preferred an appeal before
the Chief Judge, City Civil Court, Hyderabad under Section 34
of the Arbitration and Conciliation Act, 1996 (hereinafter
referred to as "the Act") and the said appeal was allowed,
whereby the Award was set aside.                                   E

    10. Before the City Civil Court, in the appeal filed under
Section 34 of the Act, the following two issues had been
framed:-

      {a)   Whether the dispute was in relation to an "excepted    F
            matter" and was not arbitrable?

      (b)   Whether the claimant was entitled to the amounts
            awarded by the Arbitrator?
      11. The Court decided the appeal in favour of the            G
respondent and against the contractor. Being aggrieved by the
order dated 8.4.2005 passed by the XIVth Additional Chief
Judge, City Civil Court, Hyderabad, CMA No.476 of 2005 was
filed by the contractor before the High Court and the High Court
                                                                   H
    674      SUPREME COURT REP08.TS               [2014] 7 S.C.R.


A was pleased to dismiss the same by virtue of the impugned
  judgment and therefore, the contractor has filed this appeal.

       12. The learned counsel appearing for the appellant-
  contractor had mainly submitted that as per Clause 39 of the
  contract, the Engineer of the respondent authorities was duty
8
  bound to decide the rate at which payment was to be made for
  the extra work done by the contractor, through negotiations
  between the parties. A final decision on the said subject was
  taken by the respondent authorities without the contractor's
  approval and therefore, there was a dispute between the parties.
C He had further submitted that no specific decision was taken
  by the Engineer and therefore, there was no question of filing
  any appeal before the Chief Engineer and as the Chief
  Engineer did not take any decision, the aforestated clauses, viz.
  Clauses 39 and 64 would not apply because clause 64 would
D referring to a decision of the Chief Engineer, but as the Chief
  Engineer had· not taken any decisiun, there was no question
  with regard to "excepti11g" clause 39. He had, therefore,
  submitted that the Award in toto was correct and the High Court
  had wrongly upheld the dismissal of the Award by the trial Court.
E
      13. The learned counsel had, thereafter, referred to the
  judgmen.ts delivered by this Court in General Manager,
  Northern Railway and another v. Sarvesh Chopra [(2002) 4
  SCC 45] and Madnani Construction Corporation (P) Limited
F v. Union of India & ors.[(2010) 1 SCC 549] to substantiate his
  case.

      14. The learned counsel had, thereafter, submitted that the
  appeal deserved to be allowed and the judgment delivered by
  the High Court confirming the order passed by the City Civil
G Court deserved to be quashed and set aside.
         15. There was no representation on behalf of the Union of
    India and therefore, we are constrained to consider the
    submissions made by learned counsel for the appellant only.

H         16. Upon perusal of both the clauses included in the
   HARSHA CONSTRUCTIONS v. UNION OF INDIA                   675
              [ANIL R. DAVE, J.]

contract, which have been referred to hereinabove, it is crystal A
clear that all the disputes were not arbitrable. Some of the
disputes which had been referred to in Clause 39 were
specifically not arbitrable and in relation to the said disputes
the co11tractor had to negotiate with the concerned Engineer of
the respondent and if the contractor was not satisfied with the B
rate determined by the Engineer, it was open to the contractor
to file an appeal against the decision of the Engineer before
the Chief Engineer within 30 days from the date of
communication of the decision to the contractor.

     17. In the instant case, there was no finality so far as the C
amount payable to the contractor in relation to the extra work
done by it is concerned, because the said dispute was never
decided by the Chief Engineer. In the aforestated
circumstances, when the disputes had been referred to the
Arbitrator, the disputes which had been among "excepted D
matters" had also been referred to the learned Arbitrator. ·

      18. Upon perusal of the case papers we find that before
the learned Arbitrator, the contractor did object to the
arbitrability of the disputes covered under Clause 39, but the      E
Arbitrator had decided the said issues by holding that !he same
were not "excepted matters" but arbitrable.

     19. The question before this Court is whether the Arbitrator
could have decided the issues which were not arbitrable.
                                                                    F
     20. Arbitration arises from a contract and unless there is
a specific written contract, a contract with regard to arbitration
cannot be presumed. Section 7(3) of the Act clearly specifies
that the contract with regard to arbitration must be in writing.
Thus, so far as the disputes which have been referred to in G
Clause 39 of the contract are concerned, it was not open to the
Arbitrator to arbitrate upon the said disputes as there was a
specific clause whereby the said disputes had been
"excepted". Moreover, when the law specifically makes a
provision with regard to formation of a contract in a particular H
    676          SUPREME COURT REPORTS                [2014] 7 S.C.R.

A   manner, there cannot be any presumption with regard to a
    contract if the contract is not entered into by the mode
    prescribed under the Act.

         21. If a non-arbitrable dispute is referred to an Arbitrator
    and even if an issue is framed by the Arbitrator in relation to
8
    such a dispute, in our opinion, there cannot be a presumption
    or a conclusion to the effect that the parties had agreed to refer
    the issue to the Arbitrator. In the instant case, the respondent
    authorities had raised an objection relatinQ to the arbitrability
    of the aforestated issue before the Arbitrator and yet the
C   Arbitrator had rendered his decision on the said "excepted"
    dispute. In our opinion, the Arbitrator could not have decided
    the said "excepted" dispute.

          22. We, therefore, hold that it was not open to the Arbitrator
D   to decide the issues which were not arbitrable and the award,
    so far as it relates to disputes regarding non-arbitrable
    disputes is concerned, is bad in law and is hereby quashed.

         23. We also take note of the fact that the contract had been
E   entered into by the parties on 24.4.1995 and the contractual
    work had been finalised on 31.3.1997. The Award was made
    on 21.9.2002 and therefore, we uphold the portion of the award
    so far as it pertains to the disputes which were arbitrable, but
    so far as the portion of the arbitral award which determines the
    rate for extra work done by the contractor is concerned, we
F   quash and set aside the same.

          24. Needless to say that it would be open to the contractor
    to take appropriate legal action for recovery of payment for
    work done, which was not forming part of the contract because
G   the said issue decided by the Arbitrator is now set aside.

         25. For_the reasons recorde~ hereirrabove, the appeal is
    partly allowed with no order as to costs.
    Nidhi Jain                                      Appeal partly allowed.
H