Case Note & Summary
The dispute arose from a construction agreement between the appellant and the Union of India regarding the construction of a Farmers’ Community Centre Building. The agreement included clauses for compensation for delays, which were to be determined by the Superintending Engineer. Following disputes, the matter was referred to arbitration, where the arbitrator awarded compensation to both parties. The Single Judge of the High Court dismissed the respondents' objections but allowed part of the contractor's claims. The Division Bench reversed this decision, asserting that a bona fide dispute existed regarding the contractor's liability for compensation, thus justifying arbitration. The Supreme Court was then approached to determine the jurisdiction of the arbitrator concerning compensation under Clause 2. The court found that Clause 2 explicitly required the Superintending Engineer to determine compensation, thereby excluding the arbitrator's jurisdiction. The court restored the Single Judge's decision, deleting the arbitrator's award of Rs.20,000 in favor of the Government. The appeal was allowed without costs.
Headnote
A) Arbitration Law - Jurisdiction of Arbitrator - Compensation Determination - Arbitration Act, 1940, Sections 3, 14, 25 - The court held that the determination of compensation for delay under Clause 2 of the contract was exclusively within the jurisdiction of the Superintending Engineer and not subject to arbitration. The decision emphasized that the clause provided a complete machinery for determining compensation, thus excluding the arbitrator's jurisdiction. (Paras 297-300).
Issue of Consideration
Whether the arbitrator had jurisdiction to award compensation under Clause 2 of the contract, which mandated that compensation for delay be determined solely by the Superintending Engineer.
Final Decision
The Supreme Court restored the Single Judge's decision, deleting the arbitrator's award of Rs.20,000 in favor of the Government, affirming that the determination of compensation under Clause 2 was outside the arbitrator's jurisdiction.
Law Points
- Arbitration agreement
- Compensation for delay
- Jurisdiction of arbitrator
- Finality of decision
- Penal clause
- Essence of contract
