THE STATE OF MADHYA PRADESHversusM/S SEW CONSTRUCTION LIMITED & ORS.

                        [2022] 9 S.C.R. 731                            731


              THE STATE OF MADHYA PRADESH                              A
                                 v.
        M/S SEW CONSTRUCTION LIMITED & ORS.
                 (Civil Appeal No. 8571 of 2022)
                      NOVEMBER 18, 2022                                B
                [A. S. BOPANNA AND
        PAMIDIGHANTAM SRI NARASIMHA, JJ.]
       Arbitration – Arbitral Award – In the instant case, the State
issued tender notice for construction of Masonry Dam and the
                                                                       C
appellant-contractor was successful bidder – During the course
of work, the contractor requested for an alternate quarry which
request was denied and the matter was referred for arbitration –
Thereafter, the contractor made another request for another
alternate quarry (Mahuar Quarry) – Upon inspection, the
constituted committee approved the request and a conditional           D
permission was granted to the contractor – Despite conditional
permission, the contractor raised claim of Rs 5,51,03,040/-
towards escalated cost of transportation – The claim was rejected
by the authority but the same was accepted in arbitral proceeding
by the Arbitrator – High Court upheld the award – Hence instant
                                                                       E
appeal – Held: 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
and if the clause debarring future claims permits escalation
subject to certain conditions, and the conditions are satisfied,
which in the present case were actually satisfied as the               F
circumstances were beyond the control of the contractor, the
Contractor will have a right to claim escalation.
      Contract: Government contracts – The rights and duties
of the parties to the contract subsist or perish in terms of the
contract itself – Even if a party to the contract is a governmental    G
authority, there is no place for discretion vested in the officers
administering the contract – Discretion, a principle within the
province of administrative law, has no place in contractual matters
unless, of course, the parties have expressly incorporated it as a
part of the contract – It is the bounden duty of the court while
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                                731
732            SUPREME COURT REPORTS                      [2022] 9 S.C.R.


A     interpreting the terms of the contracts, to reject the exercise of
      any such discretion that is entirely outside the realm of the
      contract.
            Dismissing the appeal, the Court
            HELD: 1. Determination of the claim for escalation
B     depends on the construction of clause 3.11(A) of the contract,
      which provides that the claim for escalation w ill not be
      entertained unless there exist circumstances beyond the
      control of the contract. Further, the claim is admissible only
      upon the written order of the Superintending Engineer in
C     charge of the work. In instant case both conditions are satisfied.
      In the first instance, the inspection report clearly indicates
      that the original quarry is depleted of the sand and therefore
      an alternative quarry is necessary for the execution of the
      contract. Secondly, this is a circumstance which is certainly
      beyond the control of the Contractor. Further, the permission
D     granted by the Superintending Engineer is in complete
      satisfaction of the requirement of the clause. Therefore the claim
      for escalation is in full satisfaction of the terms of the contract.
      [Para 18][739-C-E]
            2. A contractual clause which provides for the finality of
E     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
F     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
G     not have any discretion whatsoever to admit or deny escalation
      after the conditions specified in a contract are satisfied. [Para
      22][740-C-E]
            3. The Executive Engineer has acted beyond the scope
      of clause 3.11(A). Under the clause, if a circumstance beyond
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THE STATE OF MADHYA PRADESH v. M/S SEW CONSTRUCTION                     733
                       LTD.

the control of the Contractor exists and the Superintending             A
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
                                                                        B
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. [Para 23][740-E-G]
       4. The rights and duties of the parties to the contract
subsist or perish in terms of the contract itself. Even if a party      C
to the contract is a governmental authority, there is no place
for discretion vested in the officers administering the contract.
Discretion, a principle within the province of administrative
law, has no place in contractual matters unless, of course, the
parties have expressly incorporated it as a part of the contract.       D
It is the bounden duty of the court while interpreting the terms
of the contracts, to reject the exercise of any such discretion
that is entirely outside the realm of the contract. [Para 24][740-
G-H; 741-A-B]
      5. In the instant case, whether the escalation is justified       E
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. For the reason stated
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 followed by           F
the letter of the Superintending Engineer. [Para 25][741-B-C]
      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8571
of 2022.
      From the Judgment and Order dated 03.05.2019 of the High Court    G
of Madhya Pradesh, Bench at Gwalior in Arbitration Revision No. 04 of
2009.



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734             SUPREME COURT REPORTS                           [2022] 9 S.C.R.


A          Saurabh Mishra, AAG, Abhinav Shrivastava, Sunny Choudhary,
      Madhav Gupta, Advs. for the Appellant.
             Dr. Menaka Guruswamy, Sr. Adv., D. Bharat Kumar, Aman Shukla,
      Yash S. Vijay, Utkarsh Pratap, M. Chandrakanth Reddy, Sandeep Singh,
      Ms. Kaadambari, Navin Kr. Thakur, Rameshwar Prasad Goyal, Advs.
B     for the Respondents.
            The Judgment of the Court was delivered by
            PAMIDIGHANTAM SRI NARASIMHA, J.
            1. Leave granted.
C           2. This appeal is against the decision of the High Court of Madhya
      Pradesh in an Arbitration Revision No. 4 of 2009 under Section 19 of the
      Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 19831 whereby
      the award of the Arbitral Tribunal was upheld.
            3. The short facts leading to the Arbitral Award and thereafter
D     the decision of the High Court may be stated as under.
              4. The State issued a tender notice2 for the construction of a
      Masonry Dam and eventually, Respondent No. 1 (hereinafter referred
      to as ‘the Contractor’) was selected as the successful bidder. A contract
      was entered into on 06.11.1993 for a total consideration of
E     Rs. 1,22,81,86,600/-, to be completed within a period of sixty months.
             5. As the only issue arising for consideration, in this case, relates
      to the claim of escalation made by the Contractor, the relevant clause is
      extracted hereunder:
            “3.11(A) The quoted rates of the contractor shall be inclusive
F           of the leads and lifts and in no case separate payment for
            leads or lifts to any materials including water shall be payable.
            Similarly no leads or lifts for the materials issued by the
            department as prescribed in the tender documents shall be
            payable. The contractor shall bring approved quality of
G           materials. Different quarries are shown in Annexure C. The
            details shown in the Annexure C are only as a guide to the
            contractor but the contractor before tendering should satisfy
            himself regarding the quantity and quality available and all
            other details of Annexure C and provide for any variation in
            respect of leads, lifts, place and method of quarrying, type of
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THE STATE OF MADHYA PRADESH v. M/S SEW CONSTRUCTION                             735
        LTD. [PAMIDIGHANTAM SRI NARASIMHA, J. ]

      rocks to be quarried and all such other aspects in his tendered           A
      rate. Later on any claim whatsoever shall not entertained
      except where any quarry is changed for circumstance beyond
      the control of contract under the written order of
      Superintending Engineer in-charge of work.”
       6. Though the contract was entered into in 1993, the work was            B
suspended for a long time and it resumed on 18.09.2000. While carrying
out the construction work under the contract, the Contractor requested
an alternate quarry on 07.03.2002, which was denied by the Executive
Engineer on 11.03.2002. The decision of the Executive Engineer was
also confirmed by the Superintending Engineer on 12.12.2002 and this
has led the Contractor to seek a reference of the matter to arbitration3        C
(hereinafter referred to as ‘the first arbitration’).
       7. While the above-referred claim for an alternative quarry
followed by the reference to the arbitration was pending, the Contractor
renewed the request for an alternate quarry, this time for excavating
sand from Mahuar quarry. This request was made on 20.10.2002. On                D
the basis of this request, a committee of two Executive Engineers and
one Sub-Divisional Officer conducted an inspection of the original quarry
that was allotted to the Contractor i.e., the Barua Sand quarry as well as
the new proposed quarry i.e., the Mahuar Sand quarry. This inspection
report dated 31.10.2002 suggested that there was no sand available in           E
the quarry originally allotted under the contract and there was justification
for the request made by the Contractor for allotment of the Mahuar
quarry which had sufficient stock of sand available.
        8. Following the inspection report the Superintending Engineer by
his letter dated 12.11.2002 granted permission to the Contractor to             F
excavate sand from Mahuar quarry. It is important to mention here the
specific and categorical statement of the Superintending Engineer that
the permission granted under his letter would be subject to the conditions
specified in Clause 3.11(A) of the contract. The relevant portion of the
letter is extracted hereinbelow:
                                                                                G
      “….Accordingly after inspection and discussion, the
      permission for excavating the sand from Mahua river sand
      quarry, to the executive engineer is proposed, so the
      construction work would not adversely affected. In this regard
      on telephone, I have discussed the matter with the Chief
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736            SUPREME COURT REPORTS                           [2022] 9 S.C.R.


A           Engineer on 31/10/2002 and his inspection report dated 17/
            09/2002 and 18/09/2002 was referred in which it has been
            mentioned that, if in Barua Nala sand Quarry the sand is not
            available then the sand from Mahua river be obtained, which
            was confirmed by him on 31/10/2002 during telephonic
            conversation…..
B
            ….Therefore it is directed to the Executive Engineer,
            Madikheda Dam(concrete Dam), Sindh Project and Executive
            Engineer, Sindh Project(Mud Dam), in place of Barua Nala,
            the sand of Mahuar River be used for construction of projects
            under clause 3.11A of the condition of contract agreement,
C           the permission is granted. The Executive Engineers are further
            directed that they will grant permission to the respective
            contractor under clause 3.11A of the condition of contract
            agreement, so the construction work would not be adversely
            affected.”
D           9. In compliance with the above-referred letter of the
      Superintending Engineer, the Executive Engineer granted conditional
      permission to use the Mahuar quarry under his letter dated 23.12.2002
      which stated as under:
            “Permission to collect sand from Mahua river is hereby
E           accorded with following conditions.
            1. It is assumed as per clause 3.11A that provision in the tender
            rate already exist for extra expenditure due to change in lead,
            hence no payment for extra lead is admissible in this account,
            nor any claim on this subject shall be acceptable by this office.
F
                                         xxx
            5. No extra time, fate or payment shall be allowed for
            construction to this change”
             10. Despite the conditional permission granted by the Executive
G     Engineer, the Contractor for the first time on 10.11.2006 raised a claim
      of Rs. 5,51,03,040/- towards escalation for the enhanced cost incurred
      due to the transportation of sand from the Mahuar quarry. The request
      was rejected by the Superintending Engineer in his letter dated 14.12.2006,
      stating that:
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THE STATE OF MADHYA PRADESH v. M/S SEW CONSTRUCTION                              737
        LTD. [PAMIDIGHANTAM SRI NARASIMHA, J. ]

       “As per the clause 2.25 of N.l.T. page 50 of the agreement                A
       and note Annexure -C page 85 which stat that “This statement
       is only for the guidance of the contractor. The Tender should
       satisfy himself regarding availability of the required quantity
       and quality of materials.”
       Thus as per this clause the tender is therefore supposed to               B
       satisfy himself about the availability of the quantity and quality
       of material to be used before tendering. The lead chart is for
       guidance only. Therefore this aspect is covered in the item of
       works of schedule of quantities (Annexure -1) appended with
       the tender and no claim is entertained of this page.
                                                                                 C
       Therefore according to above referred clause of agreement
       your claim of sand for extra lead is not valid and hence
       rejected.”
       11. Aggrieved by the above-referred rejection of the claim by the
Superintending Engineer, the Contractor raised a claim under Section 7           D
of the Adhiniyam seeking resolution of the dispute through statutory
arbitration.
       12. By Award dated 26.11.2008, the Arbitrator accepted the claim
raised by the Contractor and awarded an amount of Rs. 5,51,03,040/-
with 9% interest in favour of the Contractor. The revision filed by the          E
State against the Award under Section 19 of the Adhiniyam was dismissed
by the order impugned herein. The High Court rejected arguments of
the State and allowed the claim of the Contractor on mainly three grounds:
(a) the claim filed by the Contractor is not barred by limitation; (b) the
principle of res judicata is not appliable, and (c) the Contractor is entitled
to the escalation as provided in clause 3.11(A) of the contract.                 F
       Submissions by the Parties:
        13. Shri Saurabh Mishra, learned Additional Advocate General
for the State of Madhya Pradesh submitted that the claim made by the
Contractor is barred by res judicata. What he really means is that the
                                                                                 G
original claim made by the Contractor on 07.03.2002 leading to the
initiation and rejection of claims under the first arbitral award dated
06.10.2007 become final, and therefore a similar claim is inadmissible.
Shri Saurabh Mishra took us through the letters in the additional
compilation evidencing the request for arbitration, the rejection by the
Executive Engineer dated 11.03.2002 and thereafter by the Superintending         H
738             SUPREME COURT REPORTS                            [2022] 9 S.C.R.


A     Engineer dated 12.12.2002, the communication for reference to arbitration
      dated 24.12.2002, and its culmination into the first award dated
      06.10.2007. None of these facts are disputed by Ms. Menaka
      Guruswamy, learned Senior Advocate appearing on behalf of the
      Respondent No.1.
B            14. Shri Saurabh Mishra also argued that the letter of the
      Superintending Engineer dated 12.12.2002 followed by the letter of the
      Executive Engineer was implicitly accepted by the Contractor in letter
      and spirit and without any protest. It is only after a period of four years
      that the Contractor for the first time raised a plea for escalation, claiming
      an amount of Rs. 5,51,03,040/- under a letter dated 10.11.2006. He would,
C     therefore, argue that this plea should not be permitted to be raised. He
      finally submitted that while the Superintending Engineer rejected even
      the belated request on 14.12.2006, the claim for arbitration was beyond
      the period of limitation as per the contractual terms as the claim was
      made only on 10.12.2007.
D            15. Countering the submissions of the State, Ms. Menaka
      Guruswamy submitted that sand is an essential ingredient for the
      execution of the contract. Initially, the lead provided for her client was at
      a distance of 20 kilometers from the Baruanala quarry. The transportation
      from the lead and the lifting of the sand, together constitute an integral
E     part of the cost. Both these components have a serious impact on the
      profitability for the Contractor. According to her, it is an admitted fact
      that the Baruanala was depleted of sand and therefore, it became
      compelling to provide an alternative site for executing the contract.
      However, the alternative site is at an additional distance of 40 kilometers
      and therefore her client had to incur the extra cost for the transportation
F     of the sand. It is for this reason that the Superintending Engineer, as well
      as the Executive Engineer, have granted the requisite permissions after
      due inspection and therefore, the claim for escalation is justified.
             16. It was further argued that the first arbitral award dated
      06.10.2007 rejecting the previous claim will have no bearing on the present
G     proceedings as the former related to the first part of the clause and the
      present arbitration would relate to a period thereafter. She argued that
      as the request for arbitration relates to the later part of the clause, the
      earlier award cannot operate as res judicata.

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THE STATE OF MADHYA PRADESH v. M/S SEW CONSTRUCTION                              739
        LTD. [PAMIDIGHANTAM SRI NARASIMHA, J. ]

       17. We may mention at this very stage that this argument has the          A
effect of bifurcating the contract into two parts which is an impermissible
interpretation. The contract is a solitary agreement, intended to be
performed, executed and discharged as a single obligation. The rights
and obligations under the contract cannot be read separately by dividing
it into two parts. This argument is, therefore, rejected at the outset.
                                                                                 B
However, we will now proceed to consider the other submissions.
       Analysis and Findings:
       18. Determination of the claim for escalation depends on the
construction of clause 3.11(A) of the contract, which provides that the
claim for escalation will not be entertained unless there exist                  C
circumstances beyond the control of the contract. Further, the claim is
admissible only upon the written order of the Superintending Engineer in
charge of the work. In our view, both conditions are satisfied. In the first
instance, the inspection report dated 31.10.2002 clearly indicates that
the original quarry is depleted of the sand and therefore an alternative
quarry is necessary for the execution of the contract. Secondly, this is a       D
circumstance which is certainly beyond the control of the Contractor.
Further, the permission granted by the Superintending Engineer dated
12.11.2002 is in complete satisfaction of the requirement of the clause.
We are of the opinion that the claim for escalation is in full satisfaction
of the terms of the contract.                                                    E
       19. The most important submission of the State is that the claim
for arbitration is in fact barred by res judicata. We have examined this
submission in detail and our findings are as follows.
       20. The initial request for a change of quarry was made on
07.03.2002. This request was rejected by the Executive Engineer on               F
11.03.2002 and the same was confirmed by the Superintending Engineer
on 12.12.2002. Without any factual basis justifying the need, or proving
circumstances beyond the control of the Contractor, a claim was made
for arbitration at the first instance on 24.12.2002. It is this reference that
the Arbitrator considered and rejected by his award dated 06.10.2007.            G
As is evident from the above, (a) the request for arbitration was made in
2002 itself, (b) there was no proof of the fact that the Contractor was in
a position which is beyond his control, (c) there was no written order by
the Superintending Engineer granting sanction for the change of quarry,
(d) there were in fact letters of the Superintending Engineer as well as
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740            SUPREME COURT REPORTS                          [2022] 9 S.C.R.


A     the Executive Engineer rejecting the claim for an alternate quarry. These
      four factors make all the difference between the first arbitral award and
      the present proceedings. Hence, the principle of res judicata is not
      applicable.
            21. A further question which remains for consideration is with
B     respect to the letter of the Executive Engineer granting conditional
      permission. Shri Saurabh Mishra has submitted that while the Contractor
      accepts the alternate quarry, they cannot wriggle out of the condition of
      no escalation. We will presently deal with this submission.
             22. A contractual clause which provides for the finality of
C     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
D     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
E     after the conditions specified in a contract are satisfied.
             23. The Executive Engineer has in our opinion 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
F     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, in our opinion, 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
G     to raise a claim for escalation.
            24. In the context of discretion, we may reiterate this principle.
      The rights and duties of the parties to the contract subsist or perish
      in terms of the contract itself. Even if a party to the contract is a
      governmental authority, there is no place for discretion vested in
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THE STATE OF MADHYA PRADESH v. M/S SEW CONSTRUCTION                              741
        LTD. [PAMIDIGHANTAM SRI NARASIMHA, J. ]

the officers administering the contract. Discretion, a principle within          A
the province of administrative law, has no place in contractual
matters unless, of course, the parties have expressly incorporated
it as a part of the contract. It is the bounden duty of the court while
interpreting the terms of the contracts, to reject the exercise of any
such discretion that is entirely outside the realm of the contract.
                                                                                 B
       25. 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 we are not concerned.
For the reason stated above, we are of the opinion that the Arbitrator
was justified in granting the claim for escalation as the conditions precedent   C
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.
       26. The last submission of Shri Saurabh Mishra that the High
Court has acted beyond the scope of Section 19 of the Adhiniyam remains          D
to be considered. Section 19(2) of the Adhiniyam is as under:
       “19. High Court’s power of revision: (1)…..
       (2) If it appears to the High Court that the Tribunal —
       (a) has exercised a jurisdiction not vested in it by law; or              E
       (b) has failed to exercise a jurisdiction so vested; or
       (c) has acted in exercise of its jurisdiction illegally, or with
       material irregularity; or
       (d) has misconducted itself or the proceedings; or                        F
       (e) has made an award which is invalid or has been improperly
       procured by any party to the proceedings, the High Court
       may make such order in the case as it thinks fit.
       (3) The High Court shall in deciding any revision under this
       section exercise the same powers and follow the same                      G
       procedure as far as may be, as it does in deciding a revision
       under Section 115 of the Code of Civil Procedure, 1908 (No.5
       of 1908).”

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742             SUPREME COURT REPORTS                          [2022] 9 S.C.R.


A            27. Having examined the matter in detail, we are of the opinion
      that 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.
B
            28. For the reasons stated above, the Civil Appeal arising out of
      Special Leave Petition (C) No. 907 of 2020 is accordingly dismissed.
             29. Parties to bear their own costs.

C     Devika Gujral                                               Appeal dismissed.
      (Assisted by : Mahendra Yadav, LCRA)




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