Arbitral Award – Arbitrator, being creature of contract & the parties, can’t travel beyond terms of the contract

On 2.7.2001, the contract for repair of bathrooms and other allied works was executed between the parties.     Time was extended upto 19.1.2002.

On 13.2.2002, the respondent – contractor submitted the final bill with no claim certificate.   However, the bill was not paid inspite of many reminders.

On 25.2.2003, the respondent submitted list of additional claims and claimed in the letter that the final bill should be considered as under protest.

According to the respondent, the affidavit dated 24.5.2003 prepared by the appellant was signed for withdrawal of the letter dated 25.2.2003.   Not only that but an undertaking was also got signed on 12.9.2003 from the respondent.

However, on 14.11.2003, the respondent had revoked the affidavit and undertaking for non-payment of bill and invoked arbitration clause.

Thereafter, on 25.11.2003, the appellant made payment of Rs.100358/-.

On 8.9.2004, the respondent had invoked arbitration and appointment of arbitrator.

The Arbitrator filed an application under Section 16 of AA for dismissal of the claims, invoking clauses 65 and 65A of the Contract.  This was rejected by the order dated 4.3.2009 of the Arbitrator.   The appellant did not file appeal against the said order.

Clause 65 provides, to the extent relevant – “…. No Further claims shall be made by Contractor after submission of the Final Bill and these shall be deemed to have been waived and extinguished.”

On 16.7.2009, the Arbitral ward was passed, allowed three out of ten claims of the respondent and disallowed seven claims.

The petition under Section 34 of the AA filed by the appellant was allowed by the District Court, whereas, the said order was set-aside in appeal under Section 37 of AA by the High Court.

HELD – By the Order dated 4.3.2009, the Arbitrator had not allowed the plea either under Section 16(2) or under Section 16(3) but rejected the plea of the appellant.    In such a case, no appeal under section 37 would lie against such an order.  However, since the order rejecting the plea under Section 16 being part of the Award itself, it can be challenged in section 34 petition.

If the final bill or no claim certificate were not result of duress or coercion or vitiating factors, the clauses 65 and 65A of the Contract would operate and the Arbitrator cannot travel outside the contract to pass an Award.

The Civil Appeals were allowed and the judgment of the High Court was set-aside.   However, in view of the facts of the case and inordinate delay in payment of final bill, a sum of Rs.3 lakhs in full and final satisfaction of the claims was directed to be paid to the respondent. 

Civil Appeal Nos.3441-3442 of 2015 (Reportable) Union of India and others Vs. Bharat Enterprise