"Arbitrator Was Justified In Granting Claim For Escalation": SC While Upholding Decision Of MP High Court

The Supreme Court upheld the decision of the Madhya Pradesh High Court in an appeal filed challenging such a decision under Section 19 of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983, and held that the Arbitrator was justified in granting the claim for escalation.

The Bench comprising Justice A.S. Bopanna and Justice Pamidighantam Sri Narasimha held –

"For the reason stated above, we are of the opinion that 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. … Having examined the matter in detail, we are of the opinion that there are no errors of jurisdiction or acts of misconduct or events of invalidity or impropriety in the conduct of proceedings by the Arbitrator. For this reason, the High Court has rightly refrained from exercising its revisional jurisdiction under Section 19(2) by not interfering with the award passed by the Arbitral Tribunal."

Additional Advocate General Saurabh Mishra appeared on behalf of the appellant i.e., the State while Senior Advocate Menaka Guruswamy appeared for the respondent i.e., M/s Sew Construction Limited.

Brief Facts –

The State of M.P. had issued a tender notice for the construction of a Masonry Dam and eventually, the respondent i.e., the contractor was selected as the successful bidder. A contract was entered into in the year 1993 for a total consideration of Rs. 1,22,81,86,600/- to be completed within a period of sixty months. However, the work was suspended for a long time and it resumed in the year 2000. While carrying out the construction work under the contract, the Contractor requested an alternate quarry in the year 2002 which was denied by the Executive Engineer. The decision of the Executive Engineer was also confirmed by the Superintending Engineer. The Contractor decided to seek a reference of the matter to arbitration.

While the above-referred claim for an alternative quarry followed by the reference to the arbitration was pending, the Contractor renewed the request for an alternate quarry, for excavating sand from Mahuar quarry. Based on this request, a committee of two Executive Engineers and one Sub-Divisional Officer conducted an inspection of the original quarry that was allotted to the Contractor. The inspection report suggested that there was no sand available in the quarry and there was justification for the request made by the Contractor for allotment of the Mahuar quarry which had sufficient stock of sand available. The Superintending Engineer granted permission to the Contractor while the Executive Engineer granted conditional permission for the same. Despite that, the Contractor raised a claim of Rs. 5,51,03,040/- towards escalation for the enhanced cost incurred in the transportation of sand. However, such a request was rejected by Superintending Engineer. The Contractor, therefore, went for resolution of the dispute through statutory arbitration and the arbitrator accepted the claim raised by the respondent. Thereafter, the State filed a revision against the award but the High Court rejected the same and allowed the claim of the contractor. The matter was hence before the Supreme Court.

The Supreme Court after hearing the arguments of both parties observed –

"The Executive Engineer has in our opinion acted beyond the scope of clause 3.11(A). Under the clause, if a circumstance beyond the control of the Contractor exists and the Superintending Engineer, in charge of work grants a written order to the effect, a right to seek escalation arises. When the two conditions provided under clause 3.11 (A) were satisfied, there was no discretion left with the Executive Engineer to impose any further conditions for claiming escalation."

It was further noted by the Court that "The Executive Engineer, in our opinion, has certainly acted beyond the scope of the contract. The role of the Executive Engineer was only to forward the decision of the Superintending Engineer and enable the Contractor to raise a claim for escalation."

The Court also stated –

"… whether the escalation is justified or not is another matter, and it is for the Arbitral Tribunal to decide the admissibility of the claim depending on the evidence on record. That will be a finding of fact, with which we are not concerned."

Accordingly, the Court dismissed the appeal.

Cause Title – The State of Madhya Pradesh v. M/s Sew Construction Limited & Ors.

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