UNION OF INDIAversusM/S. VARINDERA CONSTRUCTIONS LTD. ETC.

                          [2018] 5 S.C.R. 587                             587


                           UNION OF INDIA                                 A
                                   v.
       M/S. VARINDERA CONSTRUCTIONS LTD. ETC.
                (Civil Appeal Nos. 3994-3995 of 2018)
                           APRIL 19, 2018                                 B
       [R. K. AGRAWAL AND ASHOK BHUSHAN, JJ.]
       Contract – Clause therein, putting bar on reimbursement of
certain payments on account of escalation – Interpretation of –
Contract between appellant and respondent-Contractor– During              C
the subsistence of contract, notification issued by which minimum
wages of the labour was increased– Along with the final bill, the
respondent also claimed reimbursement of wages in view of such
increase in wages of labour – Claim of additional amount rejected
by appellant– Dispute referred to arbitration – Award passed by
arbitrator in favour of the respondent – Challenge by appellant,          D
rejected by High Court – On appeal, held: Parties are free to decide
their own terms and conditions in case of a contract and the same
are to be construed by the courts after having regard to the intention
of the parties – In the instant case, in view of Cl.19 no reimbursement
regarding any escalation whatsoever was to be made to the                 E
contractor if any such escalation took place during the subsistence
of the contract – The word “whatsoever” as used in Cl.19 suggests
that any escalation taking place even due to the action of the
government was also not to be reimbursed – Further, on reading of
Cl.6.3 which also deals with the issue in question, it is evident that
no escalation was to be reimbursed – Hence, in the presence of            F
such clauses, which respondent voluntarily agreed before accepting
the contract, any departure cannot be allowed – Respondent cannot
claim reimbursement of excess of minimum wages on account of
hike due to the Notification as it would be against Cl.19 r/w. Cl.6.3–
Arbitration and Conciliation Act, 1996 – ss.5, 34.                        G
      Arbitration – Proceedings under – Object of – Discussed –
Arbitration and Conciliation Act, 1996.


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                                   587
588            SUPREME COURT REPORTS                       [2018] 5 S.C.R.


A           Allowing the appeals, the Court
             HELD: 1.1 The primary object of the arbitration is to reach
      a final disposition in a speedy, effective, inexpensive and
      expeditious manner. In order to regulate the law regarding
      arbitration, legislature came up with legislation which is known
B     as Arbitration and Conciliation Act, 1996. In order to make
      arbitration process more effective, legislature restricted the role
      of courts in case where matter is subject to the arbitration. Section
      5 of the 1996 Act specifically restricted the interference of the
      courts to some extent. In other words, it is only in exceptional
      circumstances, as provided by this Act, the court is entitled to
C     intervene in the dispute which is subject matter of arbitration.
      Such intervention may be before, at or after the arbitration
      proceeding, as the case may be. In short, court shall not intervene
      with the subject matter of arbitration unless injustice is caused
      to either of the parties. [Para 8] [592-A-C]
D            1.2 It is well-settled cannon of law that parties are free to
      decide their own terms and conditions in case of a contract. In
      the instant case, Clause 19 of the special conditions deal with
      issue of bar on reimbursement of certain payments on account of
      escalation. On a plain reading of said clause, prima facie, it appears
E     that the appellant made it clear that the contractor shall quote
      their rate after having regard to this clause that no reimbursement
      regarding any escalation whatsoever be made to the contractor if
      any such escalation takes place during the subsistence of the
      contract which the respondent with open eyes had agreed. The
      word “whatsoever” as used in Clause 19 suggests that even any
F     escalation takes place due to the action of the government would
      also not be reimbursed. [Para 9] [592-D, F-G]
            1.3 Further, Clause 6.3 of special conditions, particularly,
      deals with the present issue. On a plain reading of Clause 6.3
      read with Clause 19, it is evident that it was particularly made
G     clear that no escalation would be reimbursed even in the case of
      a regulation. Hence, in the presence of such clauses, which
      respondent voluntarily agreed before accepting the contract, any
      departure cannot be allowed. In other words, now the respondent
      cannot claim reimbursement of excess of minimum wages on
H     account of hike due to the Notification of the Government of
  UNION OF INDIA v. M/S. VARINDERA CONSTRUCTIONS                             589
                      LTD. ETC.

Haryana. If any departure would be allowed from the terms and                A
conditions of the contract, then it would destroy the basic purpose
of the contract provided such conditions shall not be arbitrary.
[Para 10] [592-G; 593-D-E]
      1.4 It is a settled law that the process of interpretation is
based on the objective view of a reasonable person, given the                B
context in which the contracting parties made their agreement.
The terms of the contract shall be construed by the courts after
having regard to the intention of the parties. Courts ought not to
take any hypothetical view as it may cause prejudice to either of
the parties. [Para 12] [594-B, D]
                                                                             C
      CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3994-
3995 of 2018.
      From the Judgment and Order dated 28.05.2012 of the High Court
of Delhi at New Delhi in FAO (OS) 238 of 2012 and FAO (OS) 239 of
2012 respectively.                                                           D
     A.K. Sanghi, Sr. Adv., Surender Kumar Gupta, Ms.Honey Kumari,
M.K. Maroria (for Shreekant N. Terdal), Advs. for the Appellant.
      Akhil Sibal, Deepak Khurana, Ms. Aditi Sharma, Umesh Kumar
Khaitan, Advs. for the Respondent.
                                                                             E
      The Judgment of the Court was delivered by
      R. K. AGRAWAL, J. 1. Leave granted.
      2. These two appeals are preferred against the impugned common
judgment and order dated 28.05.2012 passed by the High Court of Delhi
at New Delhi in FAO (OS) Nos. 238 and 239 of 2012 whereby the                F
Division Bench of the High Court dismissed the appeals filed by the
appellant herein while upholding the decision of learned single Judge of
the High Court. Since the moot question is same in these two appeals,
both would be disposed off by this common judgment.
      3. Brief facts:-                                                       G
       (a) The appellant herein is the Union of India and the respondent
herein is the Contractor. On 30.10.2006, the appellant floated two tenders
for the construction of the residential accommodations at Hissar. Pursuant
to that, the appellant received tenders of various companies.
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590             SUPREME COURT REPORTS                            [2018] 5 S.C.R.


A           (b) Being the lowest quotation of the respondent- Contractor, its
      tender was accepted by the appellant. The lump sum amount of these
      two contracts were Rs. 39,09,80,362.61 and Rs. 35,21,99,854.30
      respectively. Consequently, the appellant and the respondent-Contractor
      entered into formal contract and laid down terms and conditions of the
      contract by which it was decided that both would be bound and also
B
      added the clause of arbitration in case of dispute.
              (c) As per the terms of the contract, respondent started the work
      of construction as per the schedule on 20.03.2007 and finally completed
      the work within the stipulated extended time period of completion. At
      this juncture, respondent submitted the final bill along with some additional
C
      claims. The claim of additional amount was rejected by the appellant.
      As a result, the respondent invoked the arbitration clause and the dispute
      was referred to learned Arbitrator Shri Sunil Chopra, Chief Engineer
      (Contract) as provided under the Contract.

D            (d) Learned Arbitrator made the Award dated 24.08.2011. It is
      pertinent to note here that the respondent referred total 12 claims in the
      arbitration proceeding. Out of these claims, two were rejected by learned
      Arbitrator and one claim is partly withdrawn by the respondent and the
      remaining claims were decided in favour of the respondent.

E            (e) Feeling aggrieved, the appellant filed OMP Nos. 890 and 891
      of 2011 before the High Court of Delhi. Learned single Judge of the
      High Court, vide common order dated 16.03.2012, dismissed both the
      petitions and upheld the Award passed by learned Arbitrator.
            (f) Being aggrieved with the said order, the appellant preferred
F     two separate first appeals being FAP (OS) Nos. 238 and 239 of 2012
      respectively. However, the same two appeals also got dismissed by the
      Division Bench of the High Court in limini vide judgment and order
      dated 28.05.2012.
            (g) As a result, the appellant has filed these two appeals by way
G     of special leave before this Court.
             4. We have given our thoughtful consideration to the submissions
      of learned senior counsel for the parties and perused the material on
      record placed before us.

H
  UNION OF INDIA v. M/S. VARINDERA CONSTRUCTIONS                              591
             LTD. ETC. [R. K. AGRAWAL, J.]

      Point(s) for consideration:-                                            A

       5. The present case is confined only to the extent as to whether
the Award of the arbitrator and the findings of the High Court are contrary
to the express provision of Clause 19, according to which no escalation
is permissible to the contractor for, inter alia, increase in wages of
labour due to statutory hike, which the contractor may have to incur          B
during the execution of the work on any account?

      Rival contentions:-

       6. At the outset, learned senior counsel for the appellant-Union of
                                                                              C
India contended that the relationship of the appellant and respondent is
governed by the terms and conditions of the contract and as per Clause
19 of the special conditions, it is clearly mentioned that “No escalation,
reimbursement whatsoever shall be made to the contractor for
increase in, inter-alia, wages of the labor during the execution of
the contract”. Hence, the Notification issued by the State of Haryana         D
which increased the minimum wages of the labour during the subsistence
of the contract does not vest any right to the contractor to claim any
extra amount on account of labour wages. Hence, the impugned decision
of the High Court is liable to be set aside.

       7. Per contra, learned counsel for the respondent submitted that       E
this Court need not interfere with the order passed by the High Court
and the arbitral Award under the question as the challenge in the instant
appeal does not fall within the contours of Section 34 of the Arbitration
and Conciliation Act, 1996 (for brevity “the Act”). The alleged challenges
pertain to certain claims relating to interpretation of the contract which    F
falls within the jurisdiction of the Arbitrator and findings of facts which
are final and binding between the parties, hence, this Court ought not to
interfere if the interpretation taken is plausible one and does not shocks
the conscience of this Court. Further, it was submitted that the impugned
decision of learned single Judge as well as the Division Bench of the
High Court is well-reasoned and based on the cannon of laws which             G
does not call for interference by this Court. Therefore, these appeals
being devoid of merits and deserve to be dismissed.


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592             SUPREME COURT REPORTS                             [2018] 5 S.C.R.


A            Discussion:-
             8. The primary object of the arbitration is to reach a final disposition
      in a speedy, effective, inexpensive and expeditious manner. In order to
      regulate the law regarding arbitration, legislature came up with legislation
      which is known as Arbitration and Conciliation Act, 1996. In order to
B     make arbitration process more effective, legislature restricted the role
      of courts in case where matter is subject to the arbitration. Section 5 of
      the Act specifically restricted the interference of the courts to some
      extent. In other words, it is only in exceptional circumstances, as provided
      by this Act, the court is entitled to intervene in the dispute which is
      subject matter of arbitration. Such intervention may be before, at or
C     after the arbitration proceeding, as the case may be. In short, court shall
      not intervene with the subject matter of arbitration unless injustice is
      caused to either of the parties.
             9. It is well-settled cannon of law that parties are free to decide
      their own terms and conditions in case of a contract. In the instant case,
D     Clause 19 of the special conditions deal with issue of bar on
      reimbursement of certain payments on account of escalation. It is apt to
      re-produce the said clause 19 herein below:
             “19. Reimbursement/Refund of Variation in Prices:- No
             escalation, reimbursement what so ever shall be made to the
E            contractor for increase in price of materials and fuels and wages
             of labour which the contractor may have to incur during execution
             of the work on any account. The contractor shall quote their rates
             accordingly.”
             On a plain reading of abovementioned clause, prima facie, it
F     appears that the appellant made it clear that the contractor shall quote
      their rate after having regard to this clause that no reimbursement
      regarding any escalation whatsoever be made to the contractor if any
      such escalation takes place during the subsistence of the contract which
      the respondent with open eyes had agreed. The word “whatsoever” as
G     used in Clause 19 suggests that even any escalation takes place due to
      the action of the government would also not be reimbursed.
            10. At this juncture, we would also like to mention that Clause 6.3
      of special conditions, particularly, deals with the present issue. For the
      sake of convenience, it is reproduced herein below:
H
  UNION OF INDIA v. M/S. VARINDERA CONSTRUCTIONS                              593
             LTD. ETC. [R. K. AGRAWAL, J.]

        “Minimum Wages Payable:                                               A
        6.1. Refer condition 51 of DG MAP general conditions of contracts.
        The Contractor shall not pay wages lower than minimum wages
        of labour as fixed by the Govt of India/State Govt/Union Territory
        whichever is higher.
        6.2 The fair wage referred to in condition 51 of DG MAP general       B
        conditions of contracts will be deemed to be the same as the
        minimum wages payable as referred to above.
        6.3. The contractor shall have no claim whatsoever, if on
        account of local factor and /or regulations he is required to
        pay the wages in excess of minimum wages as described                 C
        above during the execution of work.”
                                              (Emphasis supplies by us)
        On a plain reading of Clause 6.3 read with Clause 19, it is evident
that it was particularly made clear that no escalation would be reimbursed
even in the case of Regulation. Hence, in the presence of such clauses,
                                                                              D
which respondent voluntarily agreed before accepting the contract, any
departure cannot be allowed. In other words, now the respondent cannot
claim reimbursement of excess of minimum wages on account of hike
due to the Notification of the Government of Haryana. If any departure
would be allowed from the terms and conditions of the contract, then it
would destroy the basic purpose of the contract provided such conditions      E
shall not be arbitrary.
        11. In the impugned decision, the Division Bench of the High Court,
at Para 6 & 7 held as under:
        “6. Suffice would it be to state that clause 19 and 25 have to be
        read harmoniously. Whereas Clause 19 prohibits escalation to be       F
        paid with respect to the wages of labour, Clause 25 requires
        minimum wage increase to be reimbursed to the contractor upon
        there being an impact thereon by a law declared by the State
        Government. The minimum wages, as we all know, are statutorily
        notified under the Minimum Wages Act, 1948. We note that the
                                                                              G
        learned arbitrator has granted the benefits under the said head,
        but not fully recompensing the contractor the 37.46% increase in
        minimum wages. The reasoning given by the learned arbitrator is
        that the contractor could have envisaged that there would be some
        increase in wages during the period of contract.
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594             SUPREME COURT REPORTS                             [2018] 5 S.C.R.


A            7. The interpretation by the learned arbitrator, if at all is faulty, is
             to the detriment of the contractor, for the reason Clause 25, which
             commences with the expression? However? is required to be read
             as an exception to Clause 19 and, if so read, the entire increase in
             minimum wages which was result of a government notification
             was required to be recompensed.”
B
             12. It is a settled law that the process of interpretation is based on
      the objective view of a reasonable person, given the context in which
      the contracting parties made their agreement. On a perusal of the said
      two paragraphs of the impugned judgment, we fail to understand that on
      what parameters the High Court has interpreted Clause 19 in light of
C     Clause 25 of the Contract. Both the clauses stand on different footing.
      Clause 19 deals, inter alia, with the matter of wages whereas Clause
      25 deals with the matter of Octroi Sales Tax and other Duties. Such
      interpretation adopted by the High Court is against the cardinal principle
      of law which says that the terms of the contract shall be construed by
D     the courts after having regard to the intention of the parties. Courts
      ought not to take any hypothetical view as it may cause prejudice to
      either of the parties.
             13. It is pertinent to note here that Clause 19 does not start with
      any word “Subject to”. Moreover, there is no other provision in the
      contract which specifically allow the reimbursement of wages in case
E     of escalation. In the absence of these things, we are of the considered
      view that it is not permissible in law that Clause 19 ought to be interpreted
      in light of Clause 25. Also in the impugned judgment, the High Court
      without having regard to the title and first part of Clause 25, interpreted
      Clause 19, along with the second part of Clause 25, which is against the
F     cannons of law.
             14. To sum up, Clause 19 cannot be read in the light of second
      Part of Clause 25 as both stands on different footing i.e., deal with
      separate issues. Hence, the respondent-Contractor in the present case
      is not entitled to claim any escalation in minimum wages as it would be
      against the condition of Clause 19 read with Clause 6.3.
G
             15. In view of the above detailed discussion, we are of the
      considered view that the High Court erred in law. Accordingly, we are
      inclined to allow these appeals and set aside the decision of the courts
      below as also the Award. Parties to bear their own cost.
H     Divya Pandey                                                    Appeals allowed.
H