LexINDIAN OIL CORPORATION LTD. versus M/S. SPS ENGINEERING LTD.
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A B [2011) 2 S.C.R. 512 INDIAN OIL CORPORATION LTD. V. M/S. SPS ENGINEERING LTD. (Civil Appeal No. 1282 of 2011) FEBRUARY 03, 2011 [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
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