Case Note & Summary
Background — The dispute arose from a contract for certain port works awarded by the Board of Trustees of Madras Port Trust to a contractor in the late 1950s. The contractor submitted a tender on 11 November 1957 with deviations, including a request that the completion period be extended for delays beyond its control and that it be entitled to compensation for such delays. The Board accepted the tender on 6 October 1958. Thereafter, because foreign exchange could not be released to the contractor for purchasing machinery on its own account, the parties agreed that the Board would import the plant and machinery on its own account and hire it out to the contractor. A formal contract was signed on 9 April 1960 without incorporating the contractor's suggested modifications. The total contract value was Rs 1,63,00,000. Delays occurred in importing the machinery: the period envisaged was about six months, but it took about twelve months. The contractor completed the work within an extended period granted by the Board. After completion, the contractor raised a dispute claiming an additional Rs 14,93,654.78, mainly for loss caused by the Board's delay in importing machinery. The arbitration clause was invoked; each side nominated a retired judge, and they in turn appointed Dr. P.V. Rajamannar, retired Chief Justice of Madras High Court, as umpire. The umpire issued a speaking award on 30 October 1965. He found that the Board's offer to import machinery was not gratuitous, but that there was no undertaking to supply the machinery within six months and the Board was not responsible for the delay. He also held that the contractor's claims fell within the scope of the arbitration clause, but that the contractor was not entitled to any compensation. If compensation were payable, he assessed Rs 5 lakhs for delays in importing machinery and Rs 1 lakh for other delays. The Board filed OP No. 276 of 1965 to make the award a rule of court; the contractor filed OP No. 213 of 1966 to set it aside under Sections 16, 30 and 33 of the Arbitration Act, 1940. A Single Judge of the Madras High Court substantially agreed with the award and made it a rule of court, overruling objections of misconduct and error apparent. On Letters Patent Appeal, a Division Bench allowed the appeal, set aside the award, and remitted the matter to the umpire for fresh consideration. The Division Bench affirmed that the contractor's claims were arbitrable and that the Board's undertaking was not gratuitous, but did not record a finding on whether the 9% extra payment covered delay compensation. The present appeal to the Supreme Court by the Board of Trustees challenged the Division Bench's order. The extracted text ends without the Supreme Court's final reasoning or decision.
Headnote
A) Arbitration - Arbitrability of Dispute - Scope of Arbitration Clause - Arbitration Act, 1940, Sections 16, 30, 33 - The contractor's claim for compensation for delayed supply of imported machinery, though based partly on correspondence rather than the formal contract, fell within the scope of the arbitration clause, and the umpire had jurisdiction to decide it. The Division Bench upheld this finding, noting that the contractor was entitled to seek a decision on the disputed claims by arbitration. Held that reservations made unilaterally did not preclude arbitration of the claims. (Paras Not mentioned) B) Arbitration - Award - Misconduct and Error Apparent - Arbitration Act, 1940, Sections 30, 33 - The contractor challenged the umpire's award on grounds of misconduct and error apparent on the face of the award. The Single Judge substantially agreed with the award and made it a rule of court, overruling these objections. The Division Bench later set aside the award and remitted the matter to the umpire for fresh consideration in light of its findings. Held that the Division Bench's decision was under appeal in the present matter. (Paras Not mentioned) C) Contract - Obligation to Supply Imported Machinery - Gratuitous Undertaking - Contract terms and corresponding agreements - The Board of Trustees had agreed to import plant and machinery and hire it to the contractor. The umpire and the Division Bench both held that this undertaking was not gratuitous but created rights and obligations; however, the umpire found no specific undertaking to supply within six months, and thus the Board was not responsible for the delay in supply of plant and machinery. Held that supply of imported machinery did not fall within the 'services' contemplated by the contract, but no finding was recorded on whether extra payment of 9% over contract price covered such delay compensation. (Paras Not mentioned) D) Arbitration - Compensation for Delay - Umpire's Assessment - Arbitration Act, 1940 - The umpire, while denying the contractor's entitlement to compensation under the main heads, assessed that if compensation were payable, Rs 5 lakhs would be fair for delays in supply of imported plant and machinery and Rs 1 lakh for other delays such as inclement weather and breakdown. Held that the contractor was not entitled to any compensation under issues 10, 11 and 14, but the assessment was contingent on an appellate finding of entitlement. (Paras Not mentioned) E) Civil Procedure - Letters Patent Appeal - Review of Arbitration Award - Arbitration Act, 1940 - The Division Bench in Letters Patent Appeal reversed the Single Judge's decision making the award a rule of court, set aside the award, and remitted the matter for fresh consideration. The present appeal before the Supreme Court challenged that order. Held that the procedural history leading to the Supreme Court was marked by initial award, confirmation by Single Judge, and reversal by Division Bench. (Paras Not mentioned)
Issue of Consideration
Whether the Board of Trustees was liable to compensate the contractor for delay in importing machinery; whether the contractor's claims fell within the arbitration clause; whether the award was liable to be set aside for misconduct or error apparent under Sections 16, 30, 33 of Arbitration Act, 1940
Final Decision
Not mentioned in extracted text; the Division Bench allowed the contractor's Letters Patent Appeal, set aside the umpire's award, and remitted the matter to the umpire for fresh consideration.
Law Points
- Arbitration clause covers disputes arising from correspondence connected with contract
- Undertaking to import machinery not gratuitous if creates obligations
- No liability for delay absent undertaking to supply within specific period
- Award set aside for error apparent/misconduct under Arbitration Act
- Unilateral reservations do not preclude arbitration
