1989 (3) TMI 373 - SC - Companies Law

Whether the dispute mentioned in the contractor s application could have been referred to arbitration at all? Held that - In the light as read from the facts unable to accept the position that the claim raised by the plaintiff in this application before the High Court was not covered by the arbitration clause. The clause as read gave the respondent a right to be considered. The respondent s grievance was if properly considered his performance being 300% achievement he was entitled in the facts and circumstances set out hereinbefore to the grant of the contract and further similarly placed persons had been so given. That right had not been duly considered. That is the dispute in the present case and that dispute is clearly referable to the arbitration clause as mentioned hereinbefore therefore unable to accept the position that the order of reference passed by the High Court is bad. Rhe interim directions given by the High Court that the contractor be allowed to do the remaining work of extraction of timber of standing marked trees in compartment No. 59 Marwah was beyond the competence of the Court. In this respect we agree with High Court.

Summary

Issues Involved:
1. Whether the dispute could be referred to arbitration.
2. Whether the High Court was justified in granting interim relief allowing the contractor to execute additional work.
3. Interpretation of the arbitration clause and its applicability to the dispute.
4. Validity of the High Court's comments on the merits of the dispute.

Detailed Analysis:

1. Whether the dispute could be referred to arbitration:
The main issue was whether the dispute mentioned in the contractor's application could be referred to arbitration. The contractor's claim was based on "procedure", "practice", "custom", and "assurances" extended by the Corporation. The High Court emphasized that the trees in question had already been marked for extraction and criticized the Corporation's attitude. However, the Supreme Court held that if the foundation of the claim was any alleged assurance or custom, it could not be said that such a claim arose out of the written agreement between the parties. Therefore, the prayer for reference was rejected. The court concluded that the dispute did not arise under the arbitration agreement and could not be referred to arbitration.

2. Whether the High Court was justified in granting interim relief allowing the contractor to execute additional work:
The High Court permitted the contractor to execute the additional work claimed by him without waiting for the award. The Supreme Court found this interim order to be erroneous. The relevant provision in the Jammu & Kashmir Arbitration Act, 2002 (Smvt.), s. 41(b), allows the Court to make interim orders in relation to arbitration proceedings. However, the Court's power to issue interim orders is limited to preserving the subject matter of the reference and not to frustrate the arbitration proceedings. The High Court's interim order, which allowed the contractor to execute the extraction work, was beyond its competence and was set aside.

3. Interpretation of the arbitration clause and its applicability to the dispute:
The arbitration clause (Clause 42 of the agreement) stated that any dispute arising between the parties in respect of the work to be executed under the agreement shall be referred to arbitration. The contractor relied on paragraph 15 of the tender notice, which mentioned that extension for additional volume would not be claimed as a matter of right but may be considered by the management if the achievement was 100%. The Supreme Court held that the contractor's right extended only to a consideration of his case by the management and not to an immediate allotment of additional work. The claim for immediate allotment of additional work was not covered by the arbitration clause or any other provision of the agreement.

4. Validity of the High Court's comments on the merits of the dispute:
The Supreme Court found that the High Court had erred in commenting on the merits of the dispute while considering whether it should be referred to arbitration. The Court emphasized that a court should refrain from expressing its opinion on the merits of the dispute, which may embarrass the arbitrator. The High Court's comments on the Corporation's conduct and the contractor's entitlement to additional work were deemed unjustified.

Separate Judgment by Sabyasachi Mukharji, J.:
Justice Sabyasachi Mukharji dissented, holding that there was a subsisting arbitration agreement covering the dispute. He emphasized the long-standing relationship between the contractor and the Corporation and the practice of granting additional work in similar situations. He argued that the dispute regarding the contractor's entitlement to additional work was referable to arbitration under the broad terms of the arbitration clause. However, he agreed with the majority that the High Court's interim order allowing the contractor to execute the additional work was beyond its jurisdiction.

Conclusion:
The Supreme Court allowed the appeal, set aside the High Court's judgment, and dismissed the respondent's application for reference. The interim order permitting the contractor to execute additional work was also quashed. The respondent was ordered to pay the costs of the appeal and the High Court proceedings to the appellant Corporation.