M/S MITRA GUHA BUILDERS (INDIA) COMPANY versus OIL AND NATURAL GAS CORPORATION LIMITED

Citation: [2019] 14 S.C.R. 368 · Decided: 08-11-2019 · Supreme Court of India · Bench: R. BANUMATHI · Disposal: Dismissed

Judgment (excerpt)

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SUPREME COURT REPORTS
[2019] 14 S.C.R.
M/S. MITRA GUHA BUILDERS (INDIA) COMPANY
v.
OIL AND NATURAL GAS CORPORATION LIMITED
(Civil Appeal No. 5511 of 2012)
NOVEMBER 08, 2019
[R. BANUMATHI, A. S. BOPANNA AND
HRISHIKESH ROY, JJ.]
Arbitration :
Contract for building construction – Dispute – Arbitrator
appointed – Arbitrator allowed the claims of the contractor/
claimants, while rejected the counter-claim  for liquidated damages/
compensation – Single Judge of High Court upheld the Award –
Division Bench of High Court set aside the Award holding that
question of levy of liquidated damages was not arbitrable – Appeal
to Supreme Court – Held : The relevant clause of the contract shows
that the parties had agreed that levy of liquidated damages by the
Superintending Engineer of the respondent-Company was final –
Therefore the issue was not arbitrable being an “excepted matter”
– Division Bench of High Court rightly set aside the Award.
Contract :
Interpretation of contractual clause – Held : The entire
contract between the parties and the terms  thereon have to be read
as a whole to decide the rights and liabilities of the parties, arising
out of the contract.
Dismissing the appeals, the Court
HELD : 1. Upholding the award of the Arbitrator, the Single
Judge of High Court held that the delay in completion of the
work was on account of both parties and by applying the equitable
principles, the  Single Judge held that the damages were payable
by either of the parties. The Single Judge failed to note the
implication of Clause 2 of the contract and also various
correspondences between the parties, while affirming the award
passed by the Arbitrator. In terms of Clause 2 of the agreement
dated 05.02.1996 between the parties, the contractor is to proceed
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with the work with due diligence throughout the contract period.
By the terms of the agreement, the parties have consciously
agreed that in case the contractor fails to comply with the
conditions and complete the work with due diligence, the
Superintending Engineer may decide the compensation in terms
of Clause 2 of the agreement. [Para 13 and 14][378-C-D]
2. A reading of Clause 2 of the Contract makes it clear that
the Superintending Engineer has been conferred with not only a
right to levy compensation, but it also provides a mechanism for
determination of the liability/quantum of compensation. The very
Clause 2 would show that such a decision taken by the
Superintending Engineer shall be final. The finality clause in the
contract in terms of Clause 2 makes the intention of the parties
very clear that there cannot be any further dispute on the said
issue between the parties; much less before the arbitrator. The
intention of the parties to exclude some of the decisions of the
Superintending Engineer from the purview of arbitration is clearly
seen from clause 25 of the Contract. The very prayer to declare
the amount levied by the Superintending Engineer as illegal is
against the tenor of the terms of the contract (Clause 2) between
the parties.  By virtue of the finality clause in the contract, any
decision taken by the Superintending Engineer in levying
compensation cannot be referred to an arbitrator. The parties
have consciously agreed to have finality to the decision of the
Superintending Engineer and the same cannot be frustrated by
challenging the same as illegal. Any other meaning to the finality
clause in the contract and allowing further adjudication by another
authority would make the agreed Clause 2 and Clause 25 of the
agreement meaningless and redundant. [Paras 15 and 16][379-
E-F; 381-A-C]
3. According to the respondent, the completion time was
extended without prejudice to its right to recover compensation
in accordance with Clause 2 of the agreement. The contention of
the respondent is that by the letter dated 15.05.2001, the
contractor was put on notice that in exercise of the power conferred
on the Superintending Engineer under Clause 2, the contractor
is liable to pay 10% of the contract value by way of compensation.
The contractor was informed by the said letter dated 15.05.2001
M/S. MITRA GUHA BUILDERS (INDIA) COMPANY v. OIL AND
NATURAL GAS CORPORATION LTD.
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SUPREME COURT REPORTS
[2019] 14 S.C.R.
that the compensation is levied on him for the period of 39 weeks
at half per cent per week subject to maximum of 10% of the
contract value and that the actual amount of compensation s

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