THE STATE OF MADHYA PRADESH versus M/S SEW CONSTRUCTION LIMITED & ORS.

Citation: [2022] 9 S.C.R. 731 · Decided: 18-11-2022 · Supreme Court of India · Bench: A.S. BOPANNA · Disposal: Dismissed

Judgment (excerpt)

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THE STATE OF MADHYA PRADESH
v.
M/S SEW CONSTRUCTION LIMITED & ORS.
(Civil Appeal No. 8571 of 2022)
NOVEMBER 18, 2022
[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
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
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
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
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
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
[2022] 9 S.C.R. 731
731
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SUPREME COURT REPORTS
[2022] 9 S.C.R.
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
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 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 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
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
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 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
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 control of the Contractor exists and the Superintending
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 impo

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