BHARAT SANCHAR NIGAM LTD. & ANR.versusMOTOROLA INDIA PVT. LTD.

                               [2008] 13 S.C.R. 445


                   BHARAT SANCHAR NIGAM LTD. & ANR.                         A
                                      v.
                        MOTOROLA INDIA PVT. LTD.
                       (Civil Appeal No. 5645 of 2008)

                            SEPTEMBER 15, 2008
     ~'                                                                     B
i            [TARUN CHATTERJEE AND LOKESHWAR SINGH
                            PANTA, JJ.)

               Arbitration and Conciliation Act, 1996:
                s.11 - Excepted matter- Agreement speaking of /iabil-       c
          ity of supplier to pay liquidated damages to purchaser on ac-
          count of delay in delivery - But not pmviding for any adjudi-
          catory process for determining delay- Levy of liquidated dam-
          ages - Held: Is not excepted matter and hence is arbitrable.
                                                                            D
                s.11 - Appointment of arbitrator - Limitation - lmposi-
          tion of liquidated damages by supplier - Notice by purchaser
          for appointment of arbitrator - Supplier/Appointing authority
          failing to act within time prescribed under the Act - Petition
          under s.11 by purchaser- Right of supplier to appoint arbitra-
          tor - Held: Once minimum of 30 days had expired and peti- E
          tion under s.11 is filed in the court, appointing authority loses
          right to make appointment.
                Contract Act, 1872: s.28 - Restraint of legal proceed-
          ings - Provision in agreement that quantification of Liquidated   F
    ~·
          Damages by purchaser would be final and cannot be cha/-
          /enged - Held: Such provision would be in violation of s. 28
          and s. 74 of the Act.
               The appellant awarded the tender for turnkey project
          in favour of respondent and issued an Advance Purchase            G
          Order. The Purchase Order provided the terms for pay·
          ment and the schedule for delivery of the goods. It also
          provided for liquidated damages in the event of failure on
          the part of respondent to meet with the delivery sched-
                                     445                                    H
    446      SUPREME COURT REPORTS              [2008] 13 S.C.R.

A ule. Clause 16.2 of the general conditions of the tender
  document provided for liquidated damages to the extent
  of 0.5% of the value 'of the delayed quantity of the goods
  and services for each week of delay or the part thereof
  for a period of upto 10 weeks and thereafter charge 0.7%
B of the value of delayed quantity or part thereof, for a pe-       • .
  riod of upto 10 weeks thereafter. It was the case of appel-
  lants that the respondent failed to complete phase I and
  phase II of the project within the schedule as provided in
  the tender document, and therefore, liquidated damages
c were imposed by the appellant under clause 16.2 of the
  tender document. The respondents denied any such de-
  lay and objected to the levy of liquidated damages. On
  24th of March, 2006, the respondent invoked the arbitra-
  tion clause by sending a letter to the appellants. The ap-
  pellants in their reply did not concede and justified the
D
  imposition of liquidated damages.
       The respondent filed an arbitration application be-
  fore the High Court for appointment of arbitrator under
  section 11 of the Arbitration and Conciliation Act, 1996 in
E respect of the liquidated damages assessed by the ap-
  pellant. The appellant alleged that the liquidated damages
  assessed and quantified by the appellant under clause
  16.2 of the tender document was an excepted matter as
  per clause 20.1 of the said document and, therefore, not
F arbitrable. The High Court held that the imposition of liq-       »
  uidated damages by the appellant was not an "excepted
  matter" and therefore, was subject to arbitration. Hence
  the present appeal.
          Dismissing the appeal, the Court
G
         HELD: 1.1. From a bare reading of clause 16.2 of Sec-
    tion Ill of the tender document, it is clear that if the ten-
    derer fails to deliver the goods and services on turnkey
    basis within the period prescribed, the purchaser shall
    be entitled to recover liquidated damages and the quan-
H
         BHARAT SANCHAR NIGAM LTD. &ANR. v.              447
              MOTOROLA INDIA PVT. LTD.

tum of the liquidated damages assessed and levied by A
the purchaser would be final and not challengeable by
the supplier. The question to be decided is whether the
liability of the respondent to pay Liquidated Damages and
the ,~ntitlement of the appellant, to collect the same from
the respondent is an excepted matter for the purpose of B
clause 20.1 of the General Conditions of contract. The au-
thority of the purchaser to quantify the Liquidated Dam-
ages payable by the supplier arises once it is found that
the supplier is liable to pay the damages claimed. The
decision contemplated under clause 16.2 of the agree- c
ment is the decision regarding the quantification of the
Liquidated Damages and not any decision regarding the
fixing of the liability of the supplier. [Paras 9, 10] [458·E,F,
H; 459-A & B]
      1.2. It is clear from the reading of clause 15.2 that the D
supplier is to be held liable for payment of liquidated dam-
ages to the purchaser under the said clause and not under
clause 16.2. It was not stated anywhere in clause 15 that the
question as to whether the supplier had caused any delay
in the matter of delivery will be decided either by the appel- E
lant or by anybody who has been authorized on the terms
of the agreement. Reading clause 15 and 16 together, it is
apparent that clause 16.2 will come into operation only after
a finding is entered in terms of clause 15 that the supplier is
liable for payment of liquidated damages on account of de· F
lay on his part in the matter of making delivery. Therefore,
clause 16.2 is attracted only after the supplier's liability is
fixed under clause 15.2. The question of holding a person
liable for Liquidated Damages and the question of quantify-
ing the amount to be paid by way of Liquidated Damages G
are entirely different. Fixing of liability is primary, while the
quantification, which is provided for under clause 16.2, is
secondary to it. [Para 10] [459-D,E,F & G]
     1.3. There is no provision in the agreement, appar-
ent on the face of it, relating to a decision made by any      H
     448      SUPREME COURT REPORTS               [2008] 13 S.C.R.


A specified authority on the issue of levy of Liquidated Dam-
  ages, as is contemplated under clause 20.1 of the agree-
  ment which is excepted from the purview of arbitration. It
  is clear from Clause 20.1 that matters which will not fall
  within the arbitration clause are questions, disputes or
B differences, the decision to which is specifically provided
  under the agreement. Clause 16.2 is not a clause wherein
  a.ny decision making power is specifically provided for
  with regard to any question, dispute or difference between
  tf'le parties relating to the existence of breach or the very
C lack of liability for damages, i.e. the levy of Liquidated
  Damages. [Paras 10, 11J [459-G,H; 460-A,G,H; 461-A & BJ
          Vishwanath Sood v. UOI (1989) 1 SCC 657; General
     Manager, Northern Railway v. Sarvesh Chopra (2002) 4 SCC
     45 - distinguished.
D          Food Corporation of India v. Sreekanth Transport 1999(4)
    ' SCC 491; State of Kamataka v. Shree Rameshwara Rice Mills,
      (1987) 2 sec 160- referred to.
           1.4. Clause 16.2 cannot be treated as an excepted
E    matter. Admittedly, it does not, provide for any adjudica-
     tory process for decision on a question, dispute or differ-
     ence, which is the condition precedent to lead to the stage
     of quantification of damages nor is it a no claim or no li-
     ability clause. The quantum of damages calculated by the
F    appellant in respect of clause 16.2 of the tender document,
     simply cannot have the effect of rendering all the above
     disputes as not being arbitrable. The true essence of any
     arbitration agreement is to arbitrate the matters in a cor-
     dial way in respect of issues where there is a dispute be-
     tween the parties. To construe such limited words in
G    clause 16.2 as being so all encompassing would destroy
     the very foundation of the bargain between the parties.
     The appellant in the present case is acting in an unfair
     way by seeking to exclude, from arbitration, what it has
     agreed to arbitrate in the first place. [Paras 12, 13J [461-
H    C,D; 462-A,B & CJ
             BHARAT SANCHAR NIGAM LTD. & ANR. v.            449
)
                  MOTOROLA INDIA PVT. LTD.

          2. The submission of appellants before this courtthat A
    it was the appellant, which had the right to appoint the
    arbitrator cannot be accepted. The respondent had in-
    voked the arbitration clause on the ground that there was
    no delay on its part by sending a letter to this effect to the
    appellants on 24th of March, 2006. On 25th April, 2006, B
    the appellants replied that they had rightly recovered the
    Liquidated Damages and that the recovery of the dam-
    ages was not arbitrable. The appointing authority in this
    matter, i.e., CGM Kerala, did not respond to the notice re-
    quiring the appointment of arbitrator and failed to act c
    within the time prescribed under the Arbitration and Con-
    ciliation Act 1996. Since the appointing authority ap-
    pointed no arbitrator, the respondent filed a petition un- ·
    der Section 11 of the said Act before the High Court. Once
    a minimum of 30 days is expired and a petition is filed to
                                                                   0
    the court, the appointing authority loses the right to make
    the appointment. Therefore, the appellant has now lost
    its right to appoint any arbitrator for settling the disputes
    under the agreement. Further, appellant had already taken
    a decision as is evident from his letter dated 25th of April,
    2006, that the appellant was right in imposing the liqui- E
    dated damages and therefore, the question of such a per-
    son becoming an arbitrator does not arise as it would not
    satisfy the test of impartiality and independence as re-
    quired under s.12 of the Arbitration and Conciliation Act,
    1996. Moreover it would also defeat the notions laid down F
    under the principles of natural justice wherein it has been
    recognized that a party cannot be a judge in his own
    cause. (Paras 15, 16] (462-F,G & H; 463•A,B,C,D & E]
         Datar Switchgear v. Data Finance Lt. (2000) 8 SCC 151; G
    Pun) Llyod Ltd. v. Petronet MHB Ltd. (2006) 2 SCC 638 -
    relied on.
         State of Karnataka v. Shree Rameshwara Rice Mills
    (1987) 2 sec 160 - referred to.
                                                                  H
      450      SUPREME COURT REPORTS                (2008] 13 S.C.R.


  A__      3. The provision under clause 16.2 that quantifica-
     tion of the Liquidated Damages shall be final and cannot
      be challenged by the supplier is clearly in restraint of le-
      gal proceedings under s.28 of the Indian Contracts Act.
      So the provision to this effect has to be held bad. [Para
  B 17] [464-A]
            4. Pursuant to s.4 of the Arbitration and Conciliation
     Act, 1996, a party who knows that a requirement under
     the arbitration agreement has not been complied with and
     still proceeds with the arbitration without rais1ng an ob-
  C . jection, as soon as possible, waives their right to object.
      The High Court had appointed an arbitrator in response
      to the petition filed by the appellant. At this point, the mat-
     ter was closed unless further objections were to be raised.
      If further objections were to be made after this order, they
  D should have been made prior to the first arbitration hear-          \_·
      ing. But the appellant had not raised any such objections.
      The appellant therefore had clearly failed to meet the
      stated requirement to object to arbitration without d~lay.
      As such their right to object is deemed to be waived. [Para
· E 18] [464-8,C & D]
           5. The contention of the Respondent that Clause 62
    referring to special clauses has an overriding effect on
    Clause 16.2, cannot be accepted .. There is in fact no con-
    flict between clause 62 and 16.2. Clause 62 has two parts
  F in it. One part referring to the Liquidated damages and the
    other part refers to incentives in case the respondent per-
    forms its part of the contract within time. The part dealing
    with Liquidated Damages under clause 62 in fact refers it
    back to clause 16.2 dealing with the quantification of Liq-
  G uidated Damages. So it is apparent that there is no dispute
    between clause 62 and clause 16.2. [Para 19] [464-E & F]
                             Case Law Reference
            1999(4) sec 491              referred to       Para 7
  H         (1987) 2 sec 160             referred to       Para 10
                    BHARAT SANCHAR NIGAM LTD. & ANR. v.                451
      )
                         MOTOROLA INDIA PVT. LTD.

               (1989) 1 sec 657               distinguished     Para 12       A
               (2002) 4 sec 45                distinguished     Para 12
               (2000) 8 sec 151               relied.on         Para 15
               (2006) 2 sec 638               relied on         Para 15
               (1987) 2 sec 160               referred to       Para 16       B

               CIVILAPPELLATE JURISDCTION: Civil Appeal No. 5645
          of 2008
               From the Judgment and Order dated 26.10.2006 of the
          High Court of Kerala at Ernakulam in A.R. No. 18/2006               c
               Gopal Subraminiam A.S.G., Mukul Rohtagi Maninder
          Singh, Prathiba M. Singh, Sumeet Bhatia, Gaurav 5harma and
          Yoginder Hondoo for the Appellants.
                Dr. A.M. Singhvi, R.F. Nariman, Ciccu Mukhopadhya, Kirat D
          Singh and Shadan Rarasat (for M/s. Suresh A.,Shroof & Co.)
          for the Respondent
               The Judgment of the Court was delivered by
               TARUN CHATTERJEE, J. 1. Leave granted.                         E
                2. This appeal is directed against the judgment and final
          order dated 26th of October, 2006 of the High Court of Kera la at
          Ernakulam in AR No 18 of 2006 whereby, the High Court had
          allowed the prayer for appointment of the arbitrator at the in-
~
          stance of the respondents and directed the parties to submit        F
          their disputes to arbitration.
              3. The pivotal questions that need to be decided in this
          appeal are:
               i)    Whether the levy of liquidated damages under clause G
                     16.2 of the tender document is an "excepted matter"
,..                  in terms of clause 20.1 of the said document so that
                     the same cannot be referred to arbitration or looked
                     into by the arbitrator.
                                                                          H
    452         SUPREME COURT REPORTS               [2008] 13 S.C.R.

A         ii)   Whether clause 62 of the special conditions of the
                tender document will prevail over clause 16.2 of the
                general conditions of the contract.
        4. The relevant facts, which would assist us in appreciat-
  ing the controversy involved are narrated in a nutshell, which         ._
B are as follows:
         The appellant had issued a notice inviting tender dated
  4th of January, 2001, calling upon the eligible bidders for turn
  key project on planning, engineering, supply, installation and
c commissioning of Indian Mobile Personal Communications Sys-
  tem in the telecom circles of Kerala, Karnataka, Tamil Nadu
  and Andhra Pradesh. The respondent submitted its bid in re-
  sponse to the notice inviting tender and after the technical, com-
  mercial and. fin,ancial bid evaluation, the respondent was
  awarded th·e tender and an Advance Purchase Order (APO)
0
  dated 5th of September, 2001 for phase I and Phase II was is-
  sued to it by the appellant. The purchase order provided, inter
  alia, the terms for payment and the schedule for delivery of the
  goods. It also provided for liquidated damages in the event of
  failure on the part of the respondent to meet with the delivery
E schedule. Clause 16.2 of the general conditions of the tender
  document provided for liquidated damages to the extent of 0.5%
  of the value of the delayed quantity of the goods and services
  for each week of delay or the part thereof for a period of upto
   10 weeks and thereafter charge 0. 7% of the value of delayed
F quantity or part thereof, for a period of upto 10 weeks thereaf-
  ter. It is the case of the appellants that the respondent had failed
  to complete phase I and phase II of the project within the sched-
  ule as provided in the tender document, and therefore, liqui-
  dated damages were imposed by the Tamil Nadu Circle of the
G appellant on 21•1 of May, 2004 under clause 16.2 of the tender
   document, quantification of which was beyond the purview of
  the arbitration agreement. There was an exchange of corre-
   spondence between the Tamil Nadu Circle of the appellant al-
   leging the delay in the purchase of goods and the respondents
H denying any such delay and objecting to the levy of liquidated
           BHARAT SANCHAR NIGAM LTD. & ANR. v.       453
       MOTOROLA INDIA PVT. LTD. [TARUN CHATIERJEE, J.]

    damages. On 24th of March, 2006, the respondent invoked the A
    arbitration clause by sending a letter through its counsel to the
    appellants to which they did not concede and justified the im-
    position of liquidated damages. The respondent filed an arbi-
    tration application before the High Court of Kera la at Ernakulam
    for the appointment of arbitrator under section 11 of the Arbitra- B
    tion and Conciliation Act, 1996 in respect of the liquidated dam-
    ages assessed by the appellant. In the counter affidavit filed in
    the High Court, the appellant alleged that the liquidated dam-
    ages assessed and quantified by the appellant under clause
    16.2 of the tender document was an excepted matter as per c
    clause 20.1 of the said document and, therefore, not arbitrable.
    The High Court, as noted herein earlier, by the impugned judg-
    ment allowed the arbitration request of the respondents hold-
    ing that the imposition of liquidated damages by the appellant
    was not an "excepted matter" and therefore, subject to arbitra-
                                                                       0
    tion. It is this judgment of the High Court, which is impugned in
    this appeal, in respect of which leave has already been granted.
          5. Before proceeding further, we deem it appropriate to
    note the relevant clauses of the tender document and the pur-
    chase order, which would assist us in determining whether the E
    matters alleged are an excepted matt~r.
         Clause 16.2 reads as under:-
         "16.2. Should the tenderer fail to deliver the goods and
          services on turn key basis within the period prescribed, F
         "the purchaser shall be entitled to recover 0.5% of the
          value of the delayed quantity of the goods & services, for
          each week of delay or part thereof, for a period up to 10
          weeks and thereafter at the rate of 0. 7% of the value of
          the delayed quantity of the goods and services for each G
          week of delay or part thereo(for another 10 weeks of
          delay In the present case of turn key solution of supply,
          installation and commissioning, where the delayed
          portion of the delivery and provisioning of services
,         materially hampers effective user of the systems, H
    454       SUPREME COURT REPORTS                 [2008) 13 S.C.R.


A         Liquidated Damages charged shall be levied as above
          on the total value of the concerned package of the
          purchase order. Quantum of liquidated damages
          assessed and levied by the purchaser shall be final and
          not challengeable by the supplier."
B         Clause 20.1 which is the arbitration clause and provides
    for excepted matters, i.e., those matters the decision to which
    is specifically provided in the agreement itself reads as under:-
          20. 1 In the event of any question, dispute or difference
c         arising under this agreement or in connection there-with
          (except as to the matters, the decision to which is
          specifically provided under this agreement), the same
          shall be referred to the sole arbitration of the CGM, Kera/a
          Telecom Circle, BSNL or in case his designation is
          changed or his office is abolished, then in such cases to
D
          the sole arbitration of the officer for the time being
          entrusted (whether in addition to his own duties or
          otherwise) with the functions of the CGM, Kera/a Telecom
          Circle, BSNL or by whatever designation such an officer
          may be called (hereinafter referred to as the said officer),
E         and if the CGM Kera/a Telecom Circle or the said officer
          is unable or unwilling to act as such, then to the sole
          arbitration of some other person appointed by the CGM,
          Kera/a Telecom Circle or the said officer. The agreement
          to appoint an arbitrator will be in accordance with the
F         Arbitration and Conciliation Act, 1996.
          There will be no objection to any such appointment on
          the ground that the arbitrator is a Government Servant or
          that he has to deal with the matter to which the agreement
          relates or that in the course of his duties as a government
G
          servant he has expressed his views on all or any of the
          matters in dispute. The award of the arbitrator shall be
          final and binding on both the parties to the agreement.
          In the event of such an arbitrator to whom the matter is
          originally referred, being transferred or vacating his office   •
H
               BHARAT SANCHAR NIGAM LTD. & ANR. v.        455
    )      MOTOROLA INDIA PVT. LTD. [TARUN CHATIERJEE, J.)

             or being unable to act for any reason whatsoever, the A
             CGM, Kera/a Telecom Circle, BSNL or the said officer
             shall appoint another. person to act as an· arbitrator in
             accordance with the terms of the agreement and the
             person so appointed shall be entitled to proceed from
~            the stage at which it was left out by his B
             pre decessors ... ...... . "
              Clause 15.2 of Section 111 of the tender document, which deals
        with the "delays in the supplier's performance" reads as under:
              "Delay by the Supplier in the performance of its delivery        c
              obligations shall render the Supplier liable to any or all
            . of the following sanctions, forfeiture of its performance
              security, imposition of liquidated damages, and/or
              termination of the contract for default".
             Clause 62 of Section IV of the tender document which D
        deals with liquidated damages and incentive reads as under:-
              'The bidder shall be charged liquidated damages at the
             rates as defined in the General conditions of contract as
             contained in Section Ill for any delay in the turnkey job
             entrusted to the bidder. However he shall be provided an · E
             incentive @ 0. 5% of the cost of the network of each service
             area (Telecom Circle), for each week of early commissioning
             of the entire network in that service area, subject to a
             maximum of 3% of the value of the contract of the circle".
                                                                          F
             6. Since this appeal arises out of an order, which appointed
        an arbitrator, to decide the dispute referred to by the respon-
        dent, we, in this appeal, need to decide that whether in view of
        the arbitration clause in the tender document provided under
        clause 20 of the said document, the breach specified in 16.2 is G
        an "excepted matter".
              7. Mr. Gopal Subramaniam, Additional Solicitor General
        of India appearing on behalf of the appellant contended that in
        view of the decision of this Court in Vishwa Nath Sood vs. UO/
        [(1989) 1 sec 657], a conjoint reading of clause 16.2 and clause       H
    456      SUPREME COURT REPORTS                    (2008] 13 S.C.R.


A 20.1 would clearly show that clause 16.2 is covered under the
  excepted matters as provided in clause 20.1 of the tender docu-
  ment. He further contended that the High Court had erred in
  holding that the quantification of the liquidated damages was
  subsequent to the decision of liability of liquidated damages to
8 be payable to the appellant. Therefore, he contended that the
  respondent had specifically subscribed to each and every clause
  of the agreement without any objection at the tender stage and
  accordingly, it was not open to them to claim immunity from the
  contractual obligations. Thus, the matter in respect of which the
C respondent sought reference to arbitration was "excepted mat-
  ter" in terms of clause 16.2 of the tender agreement.
        In order to satisfy us in the aforesaid contentions, the learned
  Additional Solicitor General, Mr. Gopal Subramanium placed
  strong reliance in the case of Food Corporation of India Vs.
D Sreekanth Transport 1999 (4) SCC 491, which has given the
  following principles relating to "Excepting matters" as under:-          \..-



          "1. These appeals by the grant of Special Leave pertains
          to the effect of the usual 'excepted clause' vis-a-vis the
          arbitration clause in a Government contract. While it is
E         true and as has been contended, that the authorization
          of the arbitrators to arbitrate, flows from the agreement
          but the High Court in the judgment impugned thought it
          fit to direct adjudication of 'excepted matters' in the
          agreement itself by the arbitrators and hence these
F         appeals before this Court.
          2. At the outset, it is pertinent to note that in the usual
          Government contracts, the reference to which would be
          made immediately hereafter, there is exclusion of some
          matters from the purview of arbitration and a senior officer
G         of the Department usually is given the authority and power
          to adjudicate the same. The clause itself records that
          the decision of the senior officer, being the adjudicator,
          shall be final and binding between the parties - this is
                                                                             ..
          what popularly known as 'excepted matters' in a
H         Government or Governmental agencies' contract.
 )
              BHARAT SANCHAR NIGAM LTD. & ANR. v.        457
          MOTOROLA INDIA PVT. LTD. [TARUN CHATIERJEE, J.]

            3. 'Excepted matters' obviously, as the parties agreed, A
            do not require any further adjudication since the
            agreement itself provides a named adjudicator -
            concurrence to the same obviously is presumed by
.)
            reason of the um~quivocal acceptance of the terms of
            the contract by the parties and this is where the courts B
            have found our lacking in its jurisdiction to entertain an
            application for reference to arbitration as regards the
            disputes arising therefrom and it has been the consistent
            view that in the event the claims arising within the ambit
            of excepted matters, 'question of assumption of c
            ;urisdiction of any arbitrator either with or without the
            intervention of the court would not arise; the parties
            themselves have decided to have the same adjudicated
            by a particular officer in regard to these matters; what are
            these exceptions however are questions of fact and
            usually mentioned in the contract documents and forms
                                                                         D
            part of the agreement as such there is no ambiguity in
            the matter of adjudication of these specialized matter;s
            and termed in the agreement as the excepted matters ..... "
             Keeping the aforesa.id principles in mind, let us proceed     E
       further.
              We may keep  on    record that the appellants alleged that re-
        spondents had not completed phase I and phase II of the project
        within the schedule as provided in the tender document where-
        upon the appellants had to impose liquidated damages and in- F
        voke clause 16.2 of the tender document. But the respondents
        refuted these allegations. The contention of the respondent in this
        case was that the delay, if any, was caused due to the appellant's
      , delay in supplying necessary inputs to the respondent. So the re-
        spondent contends that it had performed its part of the contract in G
        time and the blame for delay lies on the appellant. Thus it is to be
 ~·     noted that there is a dispute between the parties on the question
        whether any breach was committed in this case.
             8. The appellant had contended before the High Court of
                                                                           H
    458      SUPREME COURT REPORTS                   [2008] 13 S.C.R.


A Kerala that the levy of the liquidated damages on the respon-
  dent was a matter outside the purview of the scope of arbitra-
  tion proceedings as it "squarely falls within the exception pro-
  vided under Clause 20 of Section 111, being the matters for which
  mode of decision is provided under the Agreement itself."
B       The respondent on the other hand contended that the claim
    of the petitioner that the dispute pertaining to levy of liquidated
    damages falls outside the arbitration agreement being an ex-
    cepted matter is fallacious.

c          The High Court held that there was no reason why the ar-
    bitration request on behalf of the respondent should not be al-
    lowed. It held that clause 16.2 is not an excepted matter under
    clause 20 of the tender document.
         9. Having heard the learned counsel for the parties and
D after examining the judgment of the High Court and the other
  materials on record, we are of the view that this appeal must be
  dismissed. Clause 20 is the arbitration clause and provides that
  any question, dispute or difference arising under this agreement
  or in connection therewith would be referred to arbitration. To this,
E an exception is also provided which lays down that the matters,
  the decision to which is specifically provided under this agree-
  ment, would not be referred to arbitration. From a bare reading
  of clause 16.2 of Section Ill of the tender document, it is clear that
  if the tenderer fails to deliver the goods and services on turnkey
F basis within the period prescribed, the purchaser shall be en-
  titled to recover liquidated damages and the quantum of the liq-
  uidated damages assessed and levied by the purchaser shall
  be final and not challengeable by the supplier.
       10. We are in full agreement with the findings of the High
G Court that there was a dispute as to whether the respondent
  had at all acted in breach of any terms and conditions of the
  tender document.
         The question to be decided in this case is whether the
H liability of the respondent to pay Liquidated Damages and the
                BHARAT SANCHAR NIGAM LTD. &ANR. v.        459
            MOTOROLA INDIA PVT. LTD. [TARUN CHATTERJEE, J.]

         entitlement of the appellant, to collect the same from the re- A
         spondent is an excepted matter for the purpose of clause 20.1
         of the General Conditions of contract. The High Court has
         pointed out correctly that the authority of the purchaser (BSNL)
         to quantify the Liquidated Damages payable by the supplier
~        Motorolla arises once it is found that the supplier is liable to pay 8
         the damages Claimed. The decision contemplated under clause
          16.2 of the agreement is the decision regarding the quantifica-
         tion of the Liquidated Damages and not any decision regard-
         ing the fixing of the liability of the supplier. It is necessary as a
         condition precedent to find that there has been a delay on the        c
         part of the supplier in discharging his obligation for delivery
          under the agreement.
                 It is clear from the reading of clause 15.2 that the supplier
          is to be held liable for payment of liquidated damages to the
          purchaser under the said clause and not under clause 16.2. The D
~
           High Court in this regard correctly observed that it was not stated
           anywhere in clause 15 that the question as to whether the sup-
         . plier had caused any delay in the matter of delivery will be de-
           cided either by the appellant/BSNL or by anybody who has been
           authorized on the terms of the agreement. Reading clause 15 E
           and 16 together, it is apparent that clause 16.2 will come. into
           operation only after a finding is entered in terms of clause 15 that
           the supplier is liable for payment of liquidated damages on ac-
           count of delay on his part in the matter of making delivery. There-
.:-,       fore, clause 16.2 is attracted only after the supplier's liability is F
           fixed under clause 15.2. It has been correctly pointed out by the
           High Court that the question of holding a person liable for Liqui-
           dated Damages and the question of quantifying the amount to
           be paid by way of Liquidated Dmages are entirely different. Fix-
           ing of liability is primary, while the quantification, which is pro-
                                                                                 G
           vided for under clause 16.2, is secondary to it.

    ,.         There is no provision in the agreement, apparent on the
          face of it, relating to a decision made by any specified authority
          on the issue of levy of Liquidated Damages, as is contemplated
          under clause 20.1 of the agreement which is excepted from the H
    460       SUPREME COURT REPORTS                   [2008] 13 S.C.R.


A purview of arbitration. No decision coming within the scope of
  excepted matters under clause 20.1 is envisaged by any por-
  tion of the agreement regarding the liability of the supplier to
  liquidated damages.
         Quantification of liquidated damages may be an excepted
8 matter as argued by the appellant, under clause 16.2, but for
  the levy of liquidated damages, there has to be a delay in the
  first place. In the present case, there is a clear dispute as to the
  fact that whether there was any delay on the part of the respon-
  dent. For this reason, it cannot be accepted that the appoint-
c ment of the arbitrator by the High Court was unwarranted in this
  case. Even if the quantification was excepted as argued by the
  appellant under clause 16.2, this will only have effect when th9
  dispute as to the delay is ascertained.

D         Clause 16.2 cannot be treated as an excepted matter because
    of the fact that it does not provide for any adjudicatory process for   ~'

    decision on a question, dispute or difference, which is the condition
    precedent to lead to the stage of quantification of damages.
        The above stated position can be ascertained through the
E judgment of this Court in the case of State of Karnataka vs.
  Shree·Rameshwara Rice Mills, (1987) 2 SCC 160. This Court
  in the said case, made a clear distinction between adjudicat-
  ing upon an issue relating to a breach of condition of contract
  and the right to assess damages arising from a breach of con-
F dition. It was held that the right conferred to assess damages
  arising from a breach of condition does not include a right to
                                                                            ,,
  adjudicate upon a dispute relating to the very breach of condi-
  tions and that the power to assess damages is a subsidiary
  and consequential power and not the primary power.
G        11. Clause 20.1 regarding excepted matters reads "In the
    event of any question, dispute or difference arising under this
    agreement or in connection there-with (except as to the mat-
    ters, the decision to which is specifically provided under this
    agreement) ... ". Therefore it is clear from this provision, mat-
H ters which will not fall within the arbitration clause are questions,
                 BHARAT SANCHAR NIGAM LTD. & ANR. v.        461
             MOTOROLA INDIA PVT. LTD. [TARUN CHATTERJEE, J.)

          disputes or differences, the decision to which is specifically A
          provided under the agreement. Clause 16.2 is riot a clause
          where in any decision making power is specifically provided
          for with regard to any question, dispute or difference between
          the parties relating to the existence of breach or the very lack of
~         liability for damages, i.e. the levy of Liquidated Damages.         B
               12. The learned senior counsel for the appellant relied on
          the decisions of this court in Vishwanath Sood vs. UOI [(1989)
          1 SCC 657], and General Manager, Northern Railway vs.
          Sarvesh Chopra [(2002) 4      sec
                                      45]. These cases, we are
          afraid, will not be of any help to the appellants being distinguish- c
          able on facts and having different contractual clauses. We may
          note that clause 16.2 cannot be treated as an excepted matter.
          This is because admittedly, it does not, provide for any adjudi- .
          catory process for decision on a question, dispute or difference,
          which is the condition precedent to lead to the stage of quanti- D
.......
          fication of damages nor is it a no claim or no liability clause.
                In Vishwanath Sood's case (supra), it was held by this court
          that a particular claim of the government was excluded because
          the Superintendent Engineer acted as the revisional authority
          to decide disputes between the two parties by an adjudicatory E
          process, there being a complete machinery for settlement of
          the disputes in the relevant clause and most importantly, the
          Superintendent Engineer had the discretion on consideration
          of the facts and circumstances including mitigating facts, held
          no damages was payable. Again in the case of Sarvesh F
          Chopra, this court had held that the claims covered by the no
          claims clause, i.e., where the contractor had given up the right
          to make a claim for breach on the part of the government was
          not arbitrable in terms of the arbitration clause contained therein
          and clause 63 of the general conditions of the contract which G
          provided for exclusion because no claim clause was excepted
          as such claims were simply not entertainable. In view of the dis-
  ·~
          cussions made hereinabove, we hold that the disputes raised
          by the respondents are arbitrable and not excepted from scope
          of arbitration.                                                     H
    462      SUPREME COURT REPORTS                 [2008] 13 S.C.R.


A        13. We feel that there are certain other issues that are to
  be discussed while disposing of this appeal. The respondent
  contended in its written submission filed before this court on
  14th May, 2007 that the quantum of damages calculated by the
  appellant in respect of clause 16.2 of the tender document, sim-
B ply cannot have the effect of rendering all the above disputes
  as not being arbitrable. We find that there is considerable merit
  in this argument. The true essence of any arbitration agreement
  is to arbitrate the matters in a cordial way in respect of issues
  where there is a dispute between the parties. To construe such
c limited words in clause 16.2 as being so all encompassing would
  destroy the very foundation of the bargain between the parties.
  The appellant in the present case is acting in an unfair way by
  seeking to exclude, from arbitration, what it has agreed to arbi-
  trate in the first place.
D       14. The appellant contended that it has the unilateral right
  to determine the Liquidated damages under clause 16.2 and
  that the quantum of Liquidated Damages decided by the ap-
  pellant, even if it is exorbitant, would be final and cannot be
  challenged. We find the contention of the respondent that if the
E said contention of the appellant is supported, it would mean
  that a party would be held liable to damages of whatever amount
  the other party demands without recourse to a remedy, to be
  relevant and should be given due importance. Such a conten-
  tion by the appellant would be in violation of Section 28 and
F Section 74 of the Indian Contract Act.
        15. The learned counsel of the appellants had submitted
  before this court that it was the appellant, which had the right to
  appoint the arbitrator. This submission cannot be accepted. The
  respondent had invoked the arbitration clause on the ground
G that there was no delay on its part by sending a letter to this
  ~ffect to the appellants on 24th of March, 2006. On 25th April,
  2006, the appellants/BSNL replied stating that they had rightly
  recovered the Liquidated Damages and that the recovery of
  the damages was not arbitrable. The appointing authority in this
H matter, i.e., CGM Kerala, did not respond to the notice requir-
                                                                   . ~'

       BHARAT SANCHAR NIGAM LTD. & ANR. v.       463
   MOTOROLA INDIA PVT. LTD. [TARUN CHATTERJEE, J.]

ing the appointment of arbitrator and failed to act within theJime A
prescribed under the Arbitration _and Conciliation Act 1996,.
Since the appointing authority appointed no arbitrator, the re-
spondenUMotorolla, on 25th. of May, 2006, filed a petition under
Section 11 of the said Act before the High Court at Kerala. In
the case of Oatar Switchgear vs. Data Finance Lt. [(2000) 8 B
SCC 151), which was affirmed in Punj Llyod Ltd. vs. Petronet
MHB Ltd. [(2006) 2 sec 638], it was held that once a minimum
of 30 days is expired and a petition is filed to the court, the
appointing authority loses the right to make the appointment.
Therefore, the appellanUBSNL has now lost its right to appoint c
any arbitrator for settling the disputes under the agreement.
      16. Further, CGM Kerala Circle has already taken a deci-
sion as is evident from hisJetter dated 25th of April, 2006, that
the appellant was right in ifTll?OSing the liquidated damages and
therefore, the question of such a person becoming an arbitra- D
tor does not arise as it would not satisfy the test of impartiality
and independence as required under Section 12 of the Arbitra-
tion and Conciliation Act, 1996. Moreover it would also defeat.
the notions laid down under the principles of natural justice
wherein it has been recognized that a party cannot be a judge E
in his own cause. The judgment of this Court in State of
Karnataka vs. Shree Rameshwara Rice Mills, (1§HJ7) 2 SCC
160, is significant in this matter. The Court had stated:
     "..... Even assuming that the terms of Clause 12 afford
     scope for being construed as empowering the officer of F
     the State to decide upon the question of breach as well
     as assess the quantum of damages, adjudication by the
     officer regarding the breach of the contract can not be
     sustaine9 under law because a party to the agreement
     cannot be an arbiter in his own cause. Interest of justice G
     and equity require that where a party to a contract disputes
     the committing of any breach of conditions the
     adjudication should be by an independent person or
     body and not by the other party to the contract".
                                                                  H
        464      SUPREME COURT REPORTS                   [2008] 13 S.C.R.

A             17. The provision under clause 16.2 that quantification of
        the Liquidated Damages shall be final and cannot be challenged
        by the supplier Motorolla is clearly in restraint of legal proceed-
        ings under section 28 of the Indian Contracts Act. So the provi-
        sion to this effect has to be held bad.
8        18. Pursuant to· section 4 of the Arbitration and Concilia-
  tion Act, 1996, a party who knows that a requirement under the
  arbitration agreement has not been complied with and still pro-
  ceeds with the arbitration without raising an objection, as soon
  as possible, waives their right to object. The High Court had
C appointed an arbitrator in response to the petition filed by the
  appellant. At this point, the matter was closed unless further
  objections were to be raised. If further objections were to be
  made after this order, they should have been made prior to the
  first arbitration hearing. But the appellant had not raised any
D such objections. The appellant therefore had clearly failed to
  meet the stated requirement to object to arbitration without de-
   lay. As such their right to object is deemed to be waived.
        19. Finally we are of the opinion that the contention of the
  Respondent that Clause 62 referring to special clauses has an
E overriding effect on Clause 16.2, cannot be accepted .. There
  is in fact no conflict between clause 62 and 16.2. Clause 62
  has two parts in it. One part referring to the Liquidated dam-
  ages and the other part refers to incentives in case the respon-
  dent/Motorolla performs its part of the contract within time. The
F part dealing with Liquidated Damages under clause 62 in fact
  refers it back to clause 16.2 dealing with the quantification of
  Liquidated Damages. So it is apparent that there is no dispute
  between clause 62 and clause 16.2.
G              20. For the reasons aforesaid, we are of the view that the
         High Court was justified in passing the impugned judgment and
         there is no infirmity in the impugned order for which we can
        .interfere with the order of the High Court. The appeal is there-
         fore dismissed. There will be no order as to costs.
 '- .
H D.G.                                                Appeal dismissed.