VISHWANATH SOOD versus UNION OF INDIA & ANR.

Citation: [1989] 1 S.C.R. 288 · Decided: 24-01-1989 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
c 
D 
VISHWANATII SOOD 
v. 
UNION OF INDIA & ANR. 
JANUARY 24, 1989 
[SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.] 
Arbitration Act, 1940: Section $, 14, 17, 30, 31 and '13-Arbi-
tration agreement-Clause providing penalty as compensation to 
Department for default on part of contractor in adhering to time 
schedule-Compensation to be determined by Superintending Engi-
neering and none else-Award of compensation-Whether liable to be 
questioned before Arbitrator. 
The appellant undertook the construction of a Farmers' Com-
munity Centre Building hy an agreement entered into with the Union of 
India and the State ofHimachal Pradesh, the respondents in the appeal. 
The agreement dated June 20, 1968 provided, by Clause 2, for the 
payment of compensation for delay, if the contractor should have been 
guilty of delay in commencing the work or in completing it, the 
quantum of compensation to he determined hy the Superintending 
Engineer and that his decision was final. Clause 25 provided for settle-
E ment of disputes hy arbitration. It excluded from arbitration matters or 
disputes in respect of which provision had been made elsewhere or 
otherwise in the contract. 
F 
Certain disputes arose between the parties, and in terms of clause 
25 of the agreement they were referred to a sole arbitrator. 
The Contractor submitted a claim in respect of 9 items, and the 
department filed a counter claim to the effect that they were entitled to 
receive from the Contractor a sum of Rs.24,000 on account of payment 
of 10 per cent compensation for not executing the work in accordance 
with the terms and conditions of the agreement. The arbitrator gave his 
G award, and the same was filed in the Court. 
The Contractor filed objections for modification in respect of 
items 1, 8 and 9 of his claim and item no. 1 of the respondents' counter 
claim. The department also filed its objections. 
H 
The Single Judge dismissed the objections of the respondents and 
288 
VISHWANATH SOOD v. U.O.J. 
289 
~ allowed the appellants' claim only in respect of item no. I of the respon-
dents' counter claim. The single Judge took the view that a reading of 
A 
clause 2 with clause 25 made it clear that any compensation under clause 
2 could be adjudicated upon only by the Superintending Engineer or 
the Development Commissioner and that it was not open to the 
arbitrator to have entered upon a reference in regard to this claim at 
~-
all. 
B 
' 
Both parties filed appeals to the Division Bench. The Bench 
~ 
reversed the order of the Single Judge and restored the award to its 
original terms. It held that inasmuch as a bonafide dispute can he raised 
by the contractor in regard to his liability to compensation under clause 
2 and as no machinery was provided in clause 2 for the resolution of c 
such dispute, there is ample justification for holding that resort can he 
,._ 
bad to arbitration under clause 25. On this view of the matter, the 
Bench did not agree with the Single Judge that the arbitrator had 
travelled outside his jurisdiction in awarding compensation to the 
Government against the contractor for the delay in executing the work. 
D 
In the appeal to this Court it was contended on behalf of the 
appellants that the terms of Clause 2 clearly envisage the determination 
A. 
of the amount of compensation for the delay in the execution of the work 
only by the Superintending Engineer and specifically mentions that the 
decision of the Superintending Engineer in writing shall be final. The 
opening words of Clause 25, "Except otherwise provided in the con-
E 
tract" clearly take out of the purview of Clause 25 any dispute in 
respect of a claim under Clause 2. Even if Clause 25 be held applicable, 
the question of submitting a dispute in this regard to the arbitrator 
~ 
could only arise if there bad been a determination and a dispute under 
Clause 2. It was further submitted that there was no dispute at all 
between the parties on the question of compensation and that a dispute 
F 
cannot be said to arise merely because a counter-claim was for the first 
time pot forward by the Department before the arbitrator. 
On behalf of the respondent-Department the appeal was contested 
by contending that Clause 2 was in the nature of a penal clause which 
automatically takes effect irrespective of any default. The clause made 
G 
" 
the contractor liable for the penalty prescribed therein whenever there 
was a delay in the completion of the contract,

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