The Supreme Court ruled that the officers administering the contract will not have any discretion whatsoever to admit or deny escalation after the conditions specified in a contract are satisfied.
This appeal is against the decision of the High Court of Madhya Pradesh in an Arbitration Revision No. 4 of 2009 under Section 19 of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 19831 whereby the award of the Arbitral Tribunal was upheld.
Saurabh Mishra, Additional Advocate General for the State of Madhya Pradesh submitted that the claim made by the Contractor is barred by res judicata.
He argued that the letter of the Superintending Engineer followed by the letter of the Executive Engineer was implicitly accepted by the Contractor in letter and spirit and without any protest.
Advocate Menaka Guruswamy submitted that sand is an essential ingredient for the execution of the contract.
She argued that the first arbitral award dated rejecting the previous claim will have no bearing on the present proceedings as the former related to the first part of the clause and the present arbitration would relate to a period thereafter.
She submitted that as the request for arbitration relates to the later part of the clause, the earlier award cannot operate as res judicata.
The division bench of Justice A.S. Bopanna and Justice Pamidighantam Sri Narasimha observed that 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.
It further observed that the claim is admissible only upon the written order of the Superintending Engineer in charge of the work.
The court opined that the claim for escalation is in full satisfaction of the terms of the contract.
It was noted that the request for arbitration was made in 2002 itself; there was no proof of the fact that the Contractor was in a position which is beyond his control; there was no written order by the Superintending Engineer granting sanction for the change of quarry; there were in fact letters of the Superintending Engineer as well as the Executive Engineer rejecting the claim for an alternate quarry.
The court said that these factors make all the difference between the first arbitral award and the present proceedings. Hence, the principle of res judicata is not applicable.
The court held that the Executive Engineer has acted beyond the scope of clause 3.11(A).
It was further added that the role of the Executive Engineer was only to forward the decision of the Superintending Engineer and enable the Contractor to raise a claim for escalation.
The bench opined that the Arbitrator was justified in granting the claim for escalation as the conditions precedent for raising a plea for escalation are admittedly satisfied by the inspection report followed by the letter of the Superintending Engineer.
The court held that the High Court has rightly refrained from exercising its revisional jurisdiction under Section 19(2) by not interfering with the award passed by the Arbitral Tribunal.
Case title: The State of Madhya Pradesh v/s M/S Sew Construction Limited & Ors.
Citation: Civil appeal no. 8571__/2022