10 June 2024


Supreme Court

The State Of Madhya Pradesh vs. Sew Infrastructure Limited




Rights and duties of the parties to the contract subsist or perish in terms of the contract itself

Present appeal is against the decision of the High Court in an Arbitration Revision under Section 19 of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 whereby the award of the Arbitral Tribunal was upheld. By Award, the Arbitrator accepted the claim raised by the Contractor and awarded an amount of Rs. 5,51,03,040 with 9% interest in favour of the Contractor. The revision filed by the State against the Award under Section 19 of the Adhiniyam was dismissed by the order impugned herein. The High Court rejected arguments of the State and allowed the claim of the Contractor.

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. Further, the claim is admissible only upon the written order of the Superintending Engineer in charge of the work. Both conditions are satisfied. In the first instance, the inspection report dated 31.10.2002 clearly indicates that the original quarry is depleted of the sand and therefore an alternative quarry is necessary for the execution of the contract. Secondly, this is a circumstance which is certainly beyond the control of the Contractor. Further, the permission granted by the Superintending Engineer dated 12.11.2002 is in complete satisfaction of the requirement of the clause. The claim for escalation is in full satisfaction of the terms of the contract.

A contractual clause which provides for the finality of rates quoted by the Contractor and disallows any future claims for escalation is conclusive and binding on the parties. If the clause debarring future claims permits escalation subject to certain conditions, no claim is admissible if the conditions are not satisfied. However, if the conditions are satisfied, the Contractor will have a right to claim escalation. This is a contractual right. The right originates and subsists by virtue of the contract itself. It is the duty of the Court, while interpreting the contract to decipher the true and correct meaning the parties intended and enforce the rights arising out of the contract. Officers administering the contract will not have any discretion whatsoever to admit or deny escalation after the conditions specified in a contract are satisfied.

The rights and duties of the parties to the contract subsist or perish in terms of the contract itself. Even if a party to the contract is a governmental authority, there is no place for discretion vested in the officers administering the contract. Discretion, a principle within the province of administrative law, has no place in contractual matters unless, of course, the parties have expressly incorporated it as a part of the contract. It is the bounden duty of the court while interpreting the terms of the contracts, to reject the exercise of any such discretion that is entirely outside the realm of the contract.

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 dated 31.10.2002 followed by the letter of the Superintending Engineer dated 12.11.2002. There are no errors of jurisdiction or acts of misconduct or events of invalidity or impropriety in the conduct of proceedings by the Arbitrator. High Court has rightly refrained from exercising its revisional jurisdiction under Section 19(2) of the Adhiniyam by not interfering with the award passed by the Arbitral Tribunal. Appeal dismissed.

Tags : Agreement Award Legality

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