2002 JTR(SC) 626
2002 AIR(SC) 2437 ; 2002 AIR(SCW) 2676 ; 2002 48 AllLR 278 ; 2002 3 AllMR(SC) 920 ; 2002 2 ArbLR 1 ; 2002 6 BomCR(SC) 184 ; 2002 3 CivLJ 478 ; 2002 3 ICC 1032 ; 2002 2 JCR(SC) 150 ; 2002 4 JT 599 ; 2002 3 MLJ 4 ; 2002 2 RAJ 203 ; 2002 2 RCR(Civ) 812 ; 2002 4 Scale 440 ; 2002 5 SCC 433 ; 2002 3 SCR 866 ; 2002 2 UJ 980 ; 2002 1 WLC 437 ; 2002 KHC 1758 ; 2002 4 Supreme 95
2002(4) Supreme 95
SUPREME COURT OF INDIA
(From Mumbai High Court)
R.C. Lahoti and B.N. Agrawal, JJ.
M/s. Build India Construction System -Appellant
versus
Union of India -Respondent
Civil Appeal No. 3364 of 2002
(Arising out of S.L.P. (C) No. 14948/2001)
Decided on 7-5-2002
Counsel for the Parties :
For the Appellant : Rakesh Singh and Arun K. Sinha Advocates.
For the Respondent : Prateek Jalan, R.N. Poddar and B.V. Balaram Das, Advocates.
IMPORTANT POINT
Division Bench of High Court fell into the error of entertaining plea of non-speaking award which was neither in arbitration clause nor in reference and in disposing of the appeal by upholding the same though the plea was not even available to the respondents to be raised at that stage.
Act
Referred
:ARBITRATION ACT : S.17, ., S.30
ARBITRATION AND CONCILIATION ACT : S.31(3)
CONTRACT ACT : S.2
(A) The Arbitration Act and the Contract Act govern the enforceability and interpretation of arbitration clauses within commercial contracts. Section 17 of the Arbitration Act, Section 2 of the Contract Act, Section 31(3) of the Arbitration and Conciliation Act, and Section 30 of the Arbitration Act are relevant provisions. The case examines whether an arbitration clause requiring an unreasoned award can be subjected to a later amendment mandating reasoned awards, and whether such an amendment binds the parties without their explicit consent. The tender acceptance and the subsequent amendment dated 4.9.1986, effective 3.10.1986, are central to determining the applicable terms of arbitration.
(B) A party cannot unilaterally amend contractual terms, including an arbitration clause, without the consent of the other party. An arbitration clause does not imply an obligation on the arbitrator to provide a reasoned award unless expressly stipulated. An amendment to a contract takes effect only from the date specified and cannot retrospectively alter the obligations agreed upon earlier. General references to arbitration do not impose a duty to give reasons unless the clause is amended by mutual agreement.
Facts of the case:
The appellant submitted a tender in response to an invitation, which was accepted, forming a contract on 29.5.1985 with an arbitration clause requiring disputes to be referred to an engineer officer. The Government of India issued an amendment on 4.9.1986, effective 3.10.1986, stipulating that awards involving claims exceeding Rs. 1 lakh must be reasoned. Disputes led to the contract's cancellation and the appointment of an arbitrator, who issued an unreasoned award in favor of the appellant. The High Division Bench set aside the award, relying on the amendment, prompting this appeal.
Findings of Court:
The acceptance letter dated 22.2.1985 showed the appellant agreed to the general conditions as provided, with no authorization for unilateral modification. The amendment could not retrospectively apply to the contract formed in 1985, as it lacked the appellant's consent and took effect after the contract's formation. The respondents failed to raise the plea of an unreasoned award before the arbitrator or the single judge, making the Division Bench's reliance on the amendment erroneous.
Issues:
Whether the 1986 amendment applies to the arbitration clause of a contract entered into in 1985. Whether the arbitrator was obliged to provide a reasoned award under the original clause. Whether the respondents were estopped from raising the unreasoned award issue at a later stage.
Ratio Decidendi:
The arbitration clause remained unamended as the appellant did not authorize unilateral modification, and the amendment could not apply retrospectively. The absence of a reasoned award was not a ground to set aside the award, as the obligation to provide reasons was not part of the original clause and the issue was not raised in prior proceedings.
Result:
The appeal is allowed. The Division Bench's judgment is set aside, and the original decree of the learned Single Judge dated 20th October 1999 is restored.
(A) The Arbitration Act and the Contract Act govern the enforceability and interpretation of arbitration clauses within commercial contracts. Section 17 of the Arbitration Act, Section 2 of the Contract Act, Section 31(3) of the Arbitration and Conciliation Act, and Section 30 of the Arbitration Act are relevant provisions. The case examines whether an arbitration clause requiring an unreasoned award can be subjected to a later amendment mandating reasoned awards, and whether such an amendment binds the parties without their explicit consent. The tender acceptance and the subsequent amendment dated 4.9.1986, effective 3.10.1986, are central to determining the applicable terms of arbitration.
(B) A party cannot unilaterally amend contractual terms, including an arbitration clause, without the consent of the other party. An arbitration clause does not imply an obligation on the arbitrator to provide a reasoned award unless expressly stipulated. An amendment to a contract takes effect only from the date specified and cannot retrospectively alter the obligations agreed upon earlier. General references to arbitration do not impose a duty to give reasons unless the clause is amended by mutual agreement.
Facts of the case:
The appellant submitted a tender in response to an invitation, which was accepted, forming a contract on 29.5.1985 with an arbitration clause requiring disputes to be referred to an engineer officer. The Government of India issued an amendment on 4.9.1986, effective 3.10.1986, stipulating that awards involving claims exceeding Rs. 1 lakh must be reasoned. Disputes led to the contract's cancellation and the appointment of an arbitrator, who issued an unreasoned award in favor of the appellant. The High Division Bench set aside the award, relying on the amendment, prompting this appeal.
Findings of Court:
The acceptance letter dated 22.2.1985 showed the appellant agreed to the general conditions as provided, with no authorization for unilateral modification. The amendment could not retrospectively apply to the contract formed in 1985, as it lacked the appellant's consent and took effect after the contract's formation. The respondents failed to raise the plea of an unreasoned award before the arbitrator or the single judge, making the Division Bench's reliance on the amendment erroneous.
Issues:
Whether the 1986 amendment applies to the arbitration clause of a contract entered into in 1985. Whether the arbitrator was obliged to provide a reasoned award under the original clause. Whether the respondents were estopped from raising the unreasoned award issue at a later stage.
Ratio Decidendi:
The arbitration clause remained unamended as the appellant did not authorize unilateral modification, and the amendment could not apply retrospectively. The absence of a reasoned award was not a ground to set aside the award, as the obligation to provide reasons was not part of the original clause and the issue was not raised in prior proceedings.
Result:
The appeal is allowed. The Division Bench's judgment is set aside, and the original decree of the learned Single Judge dated 20th October 1999 is restored.
JUDGMENT
R.C. Lahoti, J.-Leave granted.
2. In response to a Notice Inviting Tenders (NIT) issued by the respondent on 12.9.1984, the appellant submitted the tender based on the tender document issued by the respondents. The tender submitted by the appellant was accepted. On 22.2.1985, the appellant signed a letter to the following effect:-
"CA No. (GE) B-10 OF 85 86 SERIAL PAGE No. 23
(GENERAL CONDITIONS OF CONTRACT - IAFW-2249)
(1976 PRINT)
LUMP SUM CONTRACT FOR IAFW-2159
TERM CONTRACT FOR ARTIFICERS WORK (IAFW-1821)
MEASUREMENT CONTRACT-IAFW-1779 & 1779A
1. A copy of GENERAL CONDITIONS OF CONTRACTS (IAFW-2249 1976 PRINT) with Errata No. 1 to 27 and Amendment No. 1 to 27 has been supplied to me/us and as in my/our possession. I/We have read and understood the provisions contained in the aforesaid GENERAL CONDITIONS OF CONTRACTS before submission of this tender and I/We agree that I/We shall abide by the terms and conditions thereof, as modified, if any elsewhere in these tender documents.
2. It is hereby further agreed and declared by me/us, that the GENERAL CONDITIONS OF CONTRACTS-IAFW-2249 (1976 PRINT) including Conditions 70 there pertaining to settlement of disputes by arbitration containing 30 pages (Serial Page Number 1 to 30) with Errata Numbers 1 to 27 and amendment Numbers 1 to 27 form Part of these Tender documents.
Sd/- Sd/-
SIGNATURE OF ACCEPTING CONTRACTOR OFFICER
Dated :................
3. The respondents accepted the tender and a contract was entered into between the parties on 29.5.1985. It is not a dispute that the contract contains an arbitration clause requiring all disputes, between the parties to the contract (other than those for which the decision of the CWE or any other person is by the contract expressed to be final and binding) shall, after written notice by either party to the contract to the other of them, be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents. There are other recitals contained in the arbitration clause which are not relevant for our purpose. What is relevant to mention is that the clause does not provide for a reasoned award or a speaking award being given by the arbitrator. There is nothing in the arbitration clause spelling out an obligation on the part of the arbitrator to give reasons for the findings arrived at by him.
4. On 4.9.1986, the Government of India, Ministry of Defence, New Delhi sanctioned an amendment in the general conditions of the contract which reads as under :-"Amendment Page Particulars No. No.
48 24 Condition 70 Sub 1978 para 9 Add the fol- Print lowing at the end of the sub paras :
"If the value of the claims or counter claims in an arbitration reference exceeds Rs. 1 lakh the arbitration shall given reasons for the award.
2. Sanction of the Government is also accorded for incorporation of the above mentioned amendment at the appropriate place in the earlier prints of IAFW 2249.
3. This amendment shall come into effect from 3.10.1986."
5. Disputes arose between the parties leading to cancellation of contract by the respondents on 3.11.1987 and again on 4.4.1990. On 31.5.1991, the respondents appointed a Senior Engineer Officer as the sole arbitrator in accordance with the arbitration agreement. On 28.9.1995, the arbitrator published his award allowing the appellant s claim to the extent of Rs. 80,000/- only and rejecting the respondents counter claim. The award was made a rule of the court by the learned Single Judge of the High Court. In an appeal preferred by the respondents, the decree passed by the learned Single Judge has been set aside by the Division Bench of the High Court which has also directed the award to be set aside and remitted back to the arbitrator for proceeding a fresh and making a reasoned award. For doing so the Division Bench has relied on the amendment dated 4th September, 1986 and held it to be applicable to the contract between the parties. Feeling aggrieved by the judgment of the Division Bench, the appellant has preferred this appeal by special leave.
6. The singular question arising for decision in this appeal is whether the amendment dated 4.9.1986 applies to the general conditions of contract as applicable to the parties, and therefore, the arbitration clause should have been read as amended casting an obligation on the arbitrator to give a reasoned award.
7. Shri Rakesh Singh, learned counsel for the appellant, has submitted that the amendment dated 4.9.1986 applies only to the contracts entered into on and after that date and in any case the respondents could not have amended the general conditions of contract all by themselves and without the consent of the appellant and, therefore, the arbitration clause governing the parties was the one as contained in the general conditions of contract which existed and were applicable on 29.5.1985, the date on which the contract was entered into between the parties. Shri Prateek Jalan, learned counsel for the respondents, has, however, submitted that the acceptance letter signed by the appellant on 22.2.1985 should be read and interpreted as the appellant having authorized the respondents to amend the general conditions of contract and also as the appellant having agreed to bind itself by the general conditions of contract as modified from time to time and, therefore, the parties and the arbitrator should all be held bound by the amendment dated 4.9.1986 and any award given in breach of the arbitration clause as amended should be held as avoid.
8. A plain reading of the acceptance letter dated 22.2.1985 signed by the appellant clearly suggests a copy of general conditions of contract with (i) errata numbers 1 to 27, and (ii) amendment numbers 1 to 27 having been supplied by the respondents to the appellants and having been read and understood by the appellant followed by appellant s agreement to abide by the terms and conditions thereof. The expression as modified , qualifies the terms and conditions contained in the general conditions of contract as on and till that day. There is nothing contained in the acceptance letter, either expressly or by necessary implication, to spell out the appellant having authorized the respondents to carry out modifications in the terms and conditions of the contract otherwise than by mutual agreement and to hold the appellant bound by such modifications though not consented to by him and though not even brought to his knowledge.
9. The learned counsel for the respondents has placed forceful reliance on a single bench decision of Calcutta High Court in Benode Behary Roy v. The General Assurance Society Ltd., AIR 1950 Calcutta 232, as also on a few other authorities. Benode Behary Roy s case (supra) related to a service dispute. The plaintiff took up an employment with the respondent company the bye-laws whereof provided for the release of gratuity on retirement. Subsequently the company amended the bye-laws and provision for gratuity was deleted. The plaintiff laid a claim for gratuity submitting that on the date of plaintiff s entering into contract of employment with the company there was a provision for gratuity and the bye-laws could not have been amended without the consent of the plaintiff so as to take away his right to gratuity. The learned single Judge held that the letter of appointment did not make gratuity an express term in the contract of service and the claim for gratuity could only be based on the bye-laws. The bye-laws contained an express provision that they could be altered or added to at any time by the Board of Directors. The contract did not give the plaintiff any vested right, in fact or in law, to the gratuity. Right to claim gratuity depended not on the contract but on the bye-laws and such right could arise only "on retirement". In this background the learned single Judge of Calcutta High Court laid down the principle that there is nothing repugnant to the law of contract to have as one of the express terms of the contract itself that it will be alterable at the instance of one party alone. If one contracting party gives to the other contracting party the right to alter the terms of the contract between them the Court ought to uphold the sanctity of a contract. But then it is necessary for the Courts to examine with care the terms and true construction of such contract; else there is the risk or danger of misdirected righteousness in the name of sanctity of contract.
10. The abovesaid analysis of Benode Behary Roy s case (supra), clearly points out that reliance thereon by learned counsel for the respondents is entirely misconceived so far as the facts of the present case are concerned. Shri Jalan also invited our attention to a few passages from Anson s Law of Contract (27th Edition, 1998, at p. 494), Treital s Law of Contract (10th Edition, 1999, at p. 55) and speech of Staughton LJ in Court of Appeal in Lombard Tricity Finance Ltd. v. Paton, 1989(1) All ER 919, taking the view that a contract may also give one of the parties the power unilaterally to vary the obligations and if such power can be spelled out from the terms of the contract and is held to be lawful then a unilateral variation of obligation by one party shall be binding on the other party to the contract. On principle, there may not be a dispute with the legal proposition so forcefully advanced by the learned counsel. However, the question is of its applicability to the case at hand. As we have already pointed out, the letter of acceptance dated 22.2.1985 cannot be so read as to spell out the appellant having conferred any authority on the respondents to modify or alter the terms of the contract except of mutual agreement and to bind itself by such variations. The arbitration clause is contained in the contract entered into between the parties. Its terms could not have been varied except by mutual agreement. Moreover the amendment dated 4.9.1986 itself provides for its coming into effect from 3.10.1986, i.e. on 30th day after the date of the amendment. That amendment clearly cannot have any relevance for interpreting the arbitration clause contained in the contract entered into between the parties much before the date of amendment coming into effect.
11. There are several other factors which preclude the respondents from urging such a plea. The reference to arbitrator does not suggest an obligation having been cast on the arbitrator to give reasons for the award. Such a plea, as has been urged in this Court, was not taken by the respondents before the arbitrator. Even in the objections filed in the court, the validity of the award has not been specifically questioned on the ground of its having been given in breach of any obligation of arbitrator to give reasons as spelled out by the arbitration clause. The judgment of the learned single Judge does not show such a plea having been urged before him. In the objection petition there is a vague and general plea raised that rejecting the claims forming subject matter of cross objection and allowing the claim of the appellant without assigning any reason was bad. Such an omnibus and general plea cannot be read as submitting that the amendment dated 4.9.1986 applied to the contract between the parties and that in view of the amended arbitration clause the unreasoned award was bad. It appears that the plea was for the first time raised at the appellate stage before the Division Bench of the High Court. Unwittingly the Division Bench fell into the error of entertaining such a plea and disposing of the appeal by upholding the same though the plea was not even available to the respondents to be raised at that stage.
12. At the end, the learned counsel for the respondents made an alternative submission that assuming the ground which prevailed with the Division Bench for setting aside the award does not appeal to this court, then the matter should be sent back to the Division Bench for dealing with such other objections to the validity of the award as may be available to the respondents. Reliance was placed on Food Corporation of India v. Jagdish Chandra Saha, 1995 Suppl. (4) SCC 521. In the facts and circumstances of this case, we are not inclined to accept that submission. The judgment of the Division Bench does not show any plea, other than the one on which the decision of the Division Bench is based, having been taken before the Division Bench yet not having been dealt with by the Division Bench as unnecessary in view of its opinion formed on one of the pleas raised by the appellants. The learned single Judge has noted in his judgment- the entire arguments of the learned counsel were on the facts of the case. He has not pointed out any legal flaw or error in the award of the arbitrator. Thus, there is no substance in the objection raised." We do not also find any other plea deserving consideration having been taken up either in the objection petition before the learned single Judge or before the Division Bench which may call for a remand by this Court for further hearing.
13. For the foregoing reasons, the appeal is allowed. The judgment of the Division Bench is set aside and the decision dated 20th October, 1999 by the learned single Judge is restored.
(N.K.R.) Appeal allowed.
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Parallel Citations of other Journals :
Build India Construction System v. Union of India, 2002(4) Supreme 95 : 2002(4) JT 599 : 2002(2) Arb.L.R. 1 : 2002(2) CCC 230 : (2002) 5 SCC 433 : AIR 2002 SC 2437 : 2002(2) UJ (SC) 980 : 2002(3) Civ.L.J. 478
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