UNION OF INDIA versus M/S. VARINDERA CONSTRUCTIONS LTD. ETC. on 19 April 2018

[2018] 5 S.C.R. 587

UNION OF INDIA

v.

M/S. VARINDERA CONSTRUCTIONS LTD. ETC.

(Civil Appeal Nos. 3994-3995 of 2018)

APRIL 19, 2018

[R. K. AGRAWAL AND ASHOK BHUSHAN, JJ.]

Contract – Clause therein, putting bar on reimbursement ofcertain payments on account of escalation – Interpretation of –Contract between appellant and respondent-Contractor– Duringthe subsistence of contract, notification issued by which minimumwages of the labour was increased– Along with the final bill, therespondent also claimed reimbursement of wages in view of suchincrease in wages of labour – Claim of additional amount rejectedby appellant– Dispute referred to arbitration – Award passed byarbitrator in favour of the respondent – Challenge by appellant,rejected by High Court – On appeal, held: Parties are free to decidetheir own terms and conditions in case of a contract and the sameare to be construed by the courts after having regard to the intentionof the parties – In the instant case, in view of Cl.19 no reimbursementregarding any escalation whatsoever was to be made to thecontractor if any such escalation took place during the subsistenceof the contract – The word “whatsoever” as used in Cl.19 suggeststhat any escalation taking place even due to the action of thegovernment was also not to be reimbursed – Further, on reading ofCl.6.3 which also deals with the issue in question, it is evident thatno escalation was to be reimbursed – Hence, in the presence ofsuch clauses, which respondent voluntarily agreed before acceptingthe contract, any departure cannot be allowed – Respondent cannotclaim reimbursement of excess of minimum wages on account ofhike due to the Notification as it would be against Cl.19 r/w. Cl.6.3–Arbitration and Conciliation Act, 1996 – ss.5, 34.

Arbitration – Proceedings under – Object of – Discussed –Arbitration and Conciliation Act, 1996.

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588SUPREME COURT REPORTS

AAllowing the appeals, the Court

HELD: 1.1 The primary object of the arbitration is to reacha final disposition in a speedy, effective, inexpensive andexpeditious manner. In order to regulate the law regardingarbitration, legislature came up with legislation which is knownBas Arbitration and Conciliation Act, 1996. In order to makearbitration process more effective, legislature restricted the roleof courts in case where matter is subject to the arbitration. Section5 of the 1996 Act specifically restricted the interference of thecourts to some extent. In other words, it is only in exceptionalcircumstances, as provided by this Act, the court is entitled toCintervene in the dispute which is subject matter of arbitration.Such intervention may be before, at or after the arbitrationproceeding, as the case may be. In short, court shall not intervenewith the subject matter of arbitration unless injustice is causedto either of the parties. [Para 8] [592-A-C]D1.2 It is well-settled cannon of law that parties are free todecide their own terms and conditions in case of a contract. Inthe instant case, Clause 19 of the special conditions deal withissue of bar on reimbursement of certain payments on account ofescalation. On a plain reading of said clause, prima facie, it appearsEthat the appellant made it clear that the contractor shall quotetheir rate after having regard to this clause that no reimbursementregarding any escalation whatsoever be made to the contractor ifany such escalation takes place during the subsistence of thecontract which the respondent with open eyes had agreed. Theword “whatsoever” as used in Clause 19 suggests that even anyFescalation takes place due to the action of the government wouldalso 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 6.3read with Clause 19, it is evident that it was particularly madeGclear that no escalation would be reimbursed even in the case ofa regulation. Hence, in the presence of such clauses, whichrespondent voluntarily agreed before accepting the contract, anydeparture cannot be allowed. In other words, now the respondentcannot claim reimbursement of excess of minimum wages onaccount of hike due to the Notification of the Government ofH

Haryana. If any departure would be allowed from the terms andconditions of the contract, then it would destroy the basic purposeof 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 isbased on the objective view of a reasonable person, given thecontext in which the contracting parties made their agreement.The terms of the contract shall be construed by the courts afterhaving regard to the intention of the parties. Courts ought not totake any hypothetical view as it may cause prejudice to either ofthe parties. [Para 12] [594-B, D]

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3994-3995 of 2018.

From the Judgment and Order dated 28.05.2012 of the High Courtof Delhi at New Delhi in FAO (OS) 238 of 2012 and FAO (OS) 239 of2012 respectively.

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 KumarKhaitan, Advs. for the Respondent.

The Judgment of the Court was delivered by

R. K. AGRAWAL, J. 1. Leave granted.

2. These two appeals are preferred against the impugned commonjudgment and order dated 28.05.2012 passed by the High Court of Delhiat New Delhi in FAO (OS) Nos. 238 and 239 of 2012 whereby theDivision Bench of the High Court dismissed the appeals filed by theappellant herein while upholding the decision of learned single Judge ofthe High Court. Since the moot question is same in these two appeals,both would be disposed off by this common judgment.

3. Brief facts:-

(a) The appellant herein is the Union of India and the respondentherein is the Contractor. On 30.10.2006, the appellant floated two tendersfor the construction of the residential accommodations at Hissar. Pursuantto that, the appellant received tenders of various companies.

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A(b) Being the lowest quotation of the respondent- Contractor, itstender was accepted by the appellant. The lump sum amount of thesetwo contracts were Rs. 39,09,80,362.61 and Rs. 35,21,99,854.30respectively. Consequently, the appellant and the respondent-Contractorentered into formal contract and laid down terms and conditions of thecontract by which it was decided that both would be bound and alsoBadded the clause of arbitration in case of dispute.

(c) As per the terms of the contract, respondent started the workof construction as per the schedule on 20.03.2007 and finally completedthe work within the stipulated extended time period of completion. Atthis juncture, respondent submitted the final bill along with some additionalCclaims. The claim of additional amount was rejected by the appellant.As a result, the respondent invoked the arbitration clause and the disputewas referred to learned Arbitrator Shri Sunil Chopra, Chief Engineer(Contract) as provided under the Contract.

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

E(e) Feeling aggrieved, the appellant filed OMP Nos. 890 and 891of 2011 before the High Court of Delhi. Learned single Judge of theHigh Court, vide common order dated 16.03.2012, dismissed both thepetitions and upheld the Award passed by learned Arbitrator.

(f) Being aggrieved with the said order, the appellant preferredFtwo separate first appeals being FAP (OS) Nos. 238 and 239 of 2012respectively. However, the same two appeals also got dismissed by theDivision Bench of the High Court in limini vide judgment and orderdated 28.05.2012.

(g) As a result, the appellant has filed these two appeals by wayGof special leave before this Court.

4. We have given our thoughtful consideration to the submissionsof learned senior counsel for the parties and perused the material onrecord placed before us.

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Point(s) for consideration:-

5. The present case is confined only to the extent as to whetherthe Award of the arbitrator and the findings of the High Court are contraryto the express provision of Clause 19, according to which no escalationis permissible to the contractor for, inter alia, increase in wages oflabour due to statutory hike, which the contractor may have to incurduring the execution of the work on any account?

Rival contentions:-

6. At the outset, learned senior counsel for the appellant-Union ofIndia contended that the relationship of the appellant and respondent isgoverned by the terms and conditions of the contract and as per Clause19 of the special conditions, it is clearly mentioned that “No escalation,reimbursement whatsoever shall be made to the contractor forincrease in, inter-alia, wages of the labor during the execution ofthe contract”. Hence, the Notification issued by the State of Haryanawhich increased the minimum wages of the labour during the subsistenceof the contract does not vest any right to the contractor to claim anyextra amount on account of labour wages. Hence, the impugned decisionof the High Court is liable to be set aside.

7. Per contra, learned counsel for the respondent submitted thatthis Court need not interfere with the order passed by the High Courtand the arbitral Award under the question as the challenge in the instantappeal does not fall within the contours of Section 34 of the Arbitrationand Conciliation Act, 1996 (for brevity “the Act”). The alleged challengespertain to certain claims relating to interpretation of the contract whichfalls within the jurisdiction of the Arbitrator and findings of facts whichare final and binding between the parties, hence, this Court ought not tointerfere if the interpretation taken is plausible one and does not shocksthe conscience of this Court. Further, it was submitted that the impugneddecision of learned single Judge as well as the Division Bench of theHigh Court is well-reasoned and based on the cannon of laws whichdoes not call for interference by this Court. Therefore, these appealsbeing devoid of merits and deserve to be dismissed.

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ADiscussion:-

8. The primary object of the arbitration is to reach a final dispositionin a speedy, effective, inexpensive and expeditious manner. In order toregulate the law regarding arbitration, legislature came up with legislationwhich is known as Arbitration and Conciliation Act, 1996. In order toBmake arbitration process more effective, legislature restricted the roleof courts in case where matter is subject to the arbitration. Section 5 of

the Act specifically restricted the interference of the courts to someextent. In other words, it is only in exceptional circumstances, as providedby this Act, the court is entitled to intervene in the dispute which issubject matter of arbitration. Such intervention may be before, at orCafter the arbitration proceeding, as the case may be. In short, court shallnot intervene with the subject matter of arbitration unless injustice iscaused to either of the parties.

9. It is well-settled cannon of law that parties are free to decidetheir own terms and conditions in case of a contract. In the instant case,DClause 19 of the special conditions deal with issue of bar onreimbursement of certain payments on account of escalation. It is apt tore-produce the said clause 19 herein below:

“19. Reimbursement/Refund of Variation in Prices:- Noescalation, reimbursement what so ever shall be made to theEcontractor for increase in price of materials and fuels and wagesof labour which the contractor may have to incur during executionof the work on any account. The contractor shall quote their ratesaccordingly.”

On a plain reading of abovementioned clause, prima facie, itFappears that the appellant made it clear that the contractor shall quotetheir rate after having regard to this clause that no reimbursementregarding any escalation whatsoever be made to the contractor if anysuch escalation takes place during the subsistence of the contract whichthe respondent with open eyes had agreed. The word “whatsoever” asGused in Clause 19 suggests that even any escalation takes place due tothe action of the government would also not be reimbursed.

10. At this juncture, we would also like to mention that Clause 6.3of special conditions, particularly, deals with the present issue. For thesake of convenience, it is reproduced herein below:

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“Minimum Wages Payable:

6.1. Refer condition 51 of DG MAP general conditions of contracts.The Contractor shall not pay wages lower than minimum wagesof labour as fixed by the Govt of India/State Govt/Union Territorywhichever is higher.

6.2 The fair wage referred to in condition 51 of DG MAP generalconditions of contracts will be deemed to be the same as theminimum wages payable as referred to above.

6.3. The contractor shall have no claim whatsoever, if onaccount of local factor and /or regulations he is required topay the wages in excess of minimum wages as described”above during the execution of work.

(Emphasis supplies by us)

On a plain reading of Clause 6.3 read with Clause 19, it is evidentthat it was particularly made clear that no escalation would be reimbursedeven in the case of Regulation. Hence, in the presence of such clauses,which respondent voluntarily agreed before accepting the contract, anydeparture cannot be allowed. In other words, now the respondent cannotclaim reimbursement of excess of minimum wages on account of hikedue to the Notification of the Government of Haryana. If any departurewould be allowed from the terms and conditions of the contract, then itwould destroy the basic purpose of the contract provided such conditionsshall 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 beread harmoniously. Whereas Clause 19 prohibits escalation to bepaid with respect to the wages of labour, Clause 25 requiresminimum wage increase to be reimbursed to the contractor uponthere being an impact thereon by a law declared by the StateGovernment. The minimum wages, as we all know, are statutorilynotified under the Minimum Wages Act, 1948. We note that thelearned arbitrator has granted the benefits under the said head,but not fully recompensing the contractor the 37.46% increase inminimum wages. The reasoning given by the learned arbitrator isthat the contractor could have envisaged that there would be someincrease in wages during the period of contract.

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7. The interpretation by the learned arbitrator, if at all is faulty, isto the detriment of the contractor, for the reason Clause 25, whichcommences with the expression? However? is required to be readas an exception to Clause 19 and, if so read, the entire increase inminimum wages which was result of a government notificationwas required to be recompensed.”

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12. It is a settled law that the process of interpretation is based onthe objective view of a reasonable person, given the context in whichthe contracting parties made their agreement. On a perusal of the saidtwo paragraphs of the impugned judgment, we fail to understand that onwhat parameters the High Court has interpreted Clause 19 in light ofCClause 25 of the Contract. Both the clauses stand on different footing.Clause 19 deals, inter alia, with the matter of wages whereas Clause25 deals with the matter of Octroi Sales Tax and other Duties. Suchinterpretation adopted by the High Court is against the cardinal principleof law which says that the terms of the contract shall be construed byDthe courts after having regard to the intention of the parties. Courtsought not to take any hypothetical view as it may cause prejudice toeither of the parties.

13. It is pertinent to note here that Clause 19 does not start withany word “Subject to”. Moreover, there is no other provision in thecontract which specifically allow the reimbursement of wages in caseEof escalation. In the absence of these things, we are of the consideredview that it is not permissible in law that Clause 19 ought to be interpretedin light of Clause 25. Also in the impugned judgment, the High Courtwithout having regard to the title and first part of Clause 25, interpretedClause 19, along with the second part of Clause 25, which is against theFcannons of law.

14. To sum up, Clause 19 cannot be read in the light of secondPart of Clause 25 as both stands on different footing i.e., deal withseparate issues. Hence, the respondent-Contractor in the present caseis not entitled to claim any escalation in minimum wages as it would beagainst the condition of Clause 19 read with Clause 6.3.G

15. In view of the above detailed discussion, we are of theconsidered view that the High Court erred in law. Accordingly, we areinclined to allow these appeals and set aside the decision of the courtsbelow as also the Award. Parties to bear their own cost.

HHDivya Pandey

Appeals allowed.