M/S. J.G. ENGINEERS PVT. LTD.versusUNION OF INDIA AND ANR.

                         [2011) 8 S.C.R. 486


A                 M/S. J.G. ENGINEERS PVT. LTD.
                                   v.
                     UNION OF INDIA AND ANR.
                   (Civil Appeal No. 3349 of 2005)
                           APRIL 28, 2011
B
      [R.V. RAVEENDRAN AND MARKANDEY KATJU, JJ.]

         Arbitration and Conciliation Act, 1996 - ss.34 and 28 -
    Respondents had awarded works contract to the appellant -
C   On ground of slow progress of the appellant-contractor, the
    respondents terminated the contract - Dispute -Appointment
    of sole arbitrator as per arbitration agreement contained in
    contract - Appellant filed statement of claims before the
    arbitrator - Respondents filed reply and also filed counter
D   claims - Arbitrator awarded sum with interest and costs in
    favour of the appellant and rejected the counter claims of the
    respondents - Respondents filed application u/s.34 for setting
    aside the award - District Judge affirmed the award - Order
    reversed by the High Court in arbitration appeal filed by the
E   respondents - The respondents' contention that the arbitrator
    had considered and allowed some claims which were
    'excepted matters' and therefore, inarbitrable, that grant of
    some other claims by the arbitrator violated the express
    provisions of clause 1O(cc) of the contract, and that the
F   counter-claims of respondents were erroneously rejected,
    found favour with the High Court - Held: On facts, the
    Arbitrator had the jurisdiction to try and decide all the claims
    of the appellant-contractor as also the claims of the
    respondents - Award of the Arbitrator on claims 1, 3 and 11
    of the appellant-contractor has to be upheld and the
G   conclusion of the High Court that award in respect of those
    claims had to be set aside as they related to excepted matters,
    cannot be sustained - Judgment of the High Court setting
    aside the award in regard to claims 2,4,6, 7,8 and 9 of the

H                                486
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 487
                     ANR.
appellant also cannot be sustained since the award on those         A
claims was upheld by the civil court and the High Court in
appeal did not find any infirmity in regard thereto - Claim No. 5
was for payment of escalation under clause 10(cc) of the
contract - The High Court erred in setting aside the award in
regard to claim No.5 a/so - Once the Arbitrator recorded the        B
finding that the contractor was not responsible for the delay
and that the termination was wrongful and that the respondents
were liable for the consequences arising out of the wrongful
termination of contract, the question of respondents claiming
any of the counter-claims from the contractor does not arise        c
- Award of the Arbitrator rejecting the counter claims,
therefore, upheld - Government Contract - Works Contract.

     Arbitration and Conciliation Act, 1996 - ss. 34 and 28 -
Arbitral award - Interference with - Jurisdiction of civil court
to examine. validity of arbitra/ award - Held: A Civil Court D
examining the validity of an arbitral award uls. 34 exercises
supervisory and not appellate jurisdiction - A court can set
aside an arbitral award, only if any of the grounds mentioned
in ss.34(2)(a)(i) to (v) or s.34(2)(b)(i) and (ii), or s.28(1)(a) or
28(3) read with s.34(2)(b)(ii), are made out - An award· E
adjudicating claims which are 'excepted matters' excluded
from the scope of arbitration, would violate s.34(2)(a)(iv) and
 34(2)(b) - Making an award allowing or granting a claim,
 contrary to any provision of the contract, would violate
s.34(2)(b)(ii) read with s.28(3).                                    F
     Arbitration - Arbitra/ award dealing with and deciding
several claims - Challenge to - Held: If an award deals with
and decides several claims separately and distinctly, even .if
the court finds that the award in regard to some items is bad,
the court will segregate the award on items which did not suffer G
from any infirmity and uphold the award to that extent.

    Contract - Breach of a condition of contract - Right to
adjudication - Held: The question whether the other party
committed breach cannot be decided by the party alleging            H
    488     SUPREME COURT REPORTS               [2011] 8 S.C.R.


A   breach - A contract cannot provide that one party will be the
    arbiter to decide whether he committed breach or the other
    party committed breach - That question can only be decided
    by an adjudicatory forum, that is, a court or an Arbitral
    Tribunal - Arbitration.
8
        The respondents had awarded the works contract of
    "extension of terminal building" at Guwahati airport to the
    appellant. On ground of slow progress of the appellant-
    contractor, the respondents terminated the contract.

C     The appellant filed writ petition. The High Court
  referred the parties to arbitration as per the arbitration
  clause contained in the works contract. The appellant filed
  its statement of claims before the arbitrator. The
  respondents filed reply and also filed four counter claims.
D By award dated 5.9.2001 (as amended on 22.9.2001) the
  Arbitrator awarded a sum of Rs.1,04,58,2981- with interest
  and costs in favour of the appellant and rejected the
  counter claims of the respondents.
       The respondents filed an application under Section
E 34 of the Arbitration and Conciliation Act, 1996 in the
  District Court for setting aside the aforesaid arbitral
  award. The District Judge dismissed the petition holding
  that none of the grounds under section 34(2) were made
  out. This order was reversed by the High Court in
F arbitration appeal filed by the respondents. The
  respondents' contention that the arbitrator had
  considered and allowed some claims which were
  'excepted matters' and therefore, inarbitrable, that grant
  of some other claims by the arbitrator violated the
G express provisions of clause 10(cc) of the contract, and
  that the counter-claims of respondents were erroneously
  rejected, found favour with the High Court.
      In the instant appeal, the appellant contended that
H the respondents had committed breach and its counter-
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 489
                           ANR.
claims were rightly rejected and further that the arbitral       A
award was legal and not open to challenge under any of
the grounds under section 34 of the Act.
     On the contentions urged in the instant appeal, the
following questions arose for consideration :                    8
     (i)     Whether the High Court was justified in setting
             aside the award in respect of claims 1, 3, and
             11 on the ground that they related to 'excepted
             matters'?
                                                                 c
     (ii)      Whether the High Court was justified in setting
               aside the award in regard to Claim Nos. 2, 4,
             · 6, 7, 8 and 9?
     (iii)    Whether High Court was justified in holding        D
              that claim 5 for escalation was barred by
              clause 10(cc) of the contract?
     (iv)     Whether the High Court was justified in setting
              aside the award rejecting counter-claims 1 to
              4?                                                 E
    Allowing the appeal, the Court

     HELD:1. A Civil Court examining the validity of an
arbitral award under section 34 of the Arbitration and
Conciliation Act, 1996 exercises supervisory and not F
appellate jurisdiction over the awards of an arbitral
tribunal. A court can set aside an arbitral award, only if
any of the grounds mentioned in sections 34(2)(a)(i) to (v)
or section 34(2)(b)(i) and (ii), or section 28(1)(a) or 28(3)
read with section 34(2)(b)(ii) of the Act, are made out. An G
award adjudicating claims which are 'excepted matters'
excluded from the scope of arbitration, would violate
section 34(2)(a)(iv) and 34(2)(b) of the Act. Making an
award allowing or granting a claim, contrary to any
provision of the contract, would violate section 34(2)(b)(ii) H
    490     SUPREME COURT REPORTS                [2011] 8 S.C.R.


A read with section 28(3) of the Act. [Para 7] [501-E-G]

    Re: Question (i)
         2.1. As per the arbitration agreement (contained in
    Clause 25 of the contract) all questions and disputes
B   relating to the contract, execution or failure to execute the
    work, whether arising during the progress of the work or
    after the completion or abandonment thereof, "except
    where otherwise provided in the contract", had to be
    referred to and settled by arbitration. The High Court held
C   that claims 1, 3 and 11 of the contractor were not
    arbitrable as they related to excepted matters in regard
    to which the decisions of the Superintending Engineer
    or the Engineer-in-Charge had been made final and
    binding under clauses (2) and (3) of the contract. Clauses
D   (2) and (3) of the contract relied upon by the respondents,
    no doubt make 'certain decitions by the Superintending
    Engineer and Engineer-in-Charge final/final and binding/
    final and conclusive, in regard to certain matters. But
    what is made final and conclusive by clauses (2) and (3)
E   of the agreement, is not the decision of any authority on
    the issue whether the contractor was responsible for the
    delay or the department was responsible for the delay or
    on the question whether termination/rescission is valid
    or illegal. What is made final, is the decisions on
F   consequential issues relating to quantification, if there is
    no dispute as to who committed breach. That is, if the
    contractor admits that he is in breach, or if the Arbitrator
    finds that the contractor is in breach by being responsible
    for the delay, the decision of the Superintending Engineer
G   will be final in regard to two issues. The first is the
    percentage (whether it should be 1% or less) of the value
    of the work that is to be levied as liquidated damages per
    day. The second is the determination of the actual excess
    cost in getting the work completed through an alternative
    agency. The decision as to who is responsible for the
H
 J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 491
                      ANR.
 delay in execution and who committed breach is not            A
 made subject to .any decision of the respondents or its
 officers, nor excepted from arbitration under any
 provision of the contract. [Paras 11, 13 and 14) [503-D-E;
 507-F-G; 510-D-G]
                                                                8
       2.2. The question whether the other party committed
  breach cannot be decided by the party alleging breach.
  A contract cannot provide that one party will be the
  arbiter to decide whether he committed breach or the
  other party committed breach. That question can only be
  decided by only an adjudicatory forum, that is, a court or C
  an Arbitral Tribunal. The question whether appellant was
  responsible or respondents were responsible for the
  delay in execution of the work, was arbitrable. The
  arbitrator examined the said issue and recorded a
  categorical finding that the r~spondents were responsible . D
  for the delay in execution of the work and the contractor
  was not responsible. The arbitrator also found that the
  respondents were in breach and the termination of
  contract was illegal. Therefore, the respondents were not
  entitled to levy liquidated damages nor entitled· to claim E
  from the contractor. the extra cost (including any
  escalation in regard to such· extra cost) in getting the work
  completed through an alternative agency. Therefore even
  though the decision as to the rate of liquidated damages
  and the decision as to what was the actual excess cost F
  in getting the work completed through an alternative
  agency, were excepted matters, they were not relevant
  for deciding claims 1, 3 and 11, as the right to levy
  liquidated damages or claim excess costs would arise
  only if the contractor was responsible for the delay and G
. was in breach. In view of the finding of the arbitrator that
  the appellant was not responsible for the delay and that .
  the respondents were responsible for the delay, the
  question of respondents levying liquidated damages or
  claiming the excess cost in getting the work completed H
    492    SUPREME COURT REPORTS              [2011] 8 S.C.R


A as damages, does not arise. Once it is held that thf
  contractor was not responsible for the delay and the
  delay occurred only on account of the omissions and
  commissions on the part of the respondents, it follows
  that provisions which make the decision of the
8 Superintending Engineer or the Engineer-in-Charge fina'
  and conclusive, will be irrelevant Therefore, the Arbitrator
  would have jurisdiction to try and decide all the claims
  of the contractor as also the claims of the respondents.
  Consequently, the award of the Arbitrator on items 1, 3
c and 11 has to be upheld and the conclusion of the High
  Court that award in respect of those claims had to be set
  aside as they related to excepted matters, cannot be
  sustained. [Paras 15, 17] [510-H; 511-A; 513-G-H; 514-A-
  F]

D        State of Karnataka vs. Shree Rameshwara Rice Mills
    (1987 (2) SCC1601: 1987 (2) SCR 398; Bharat Sanchar
    Nigam Ltd. vs. Motorola India Ltd. (2009 (2) SCC 337: 2008
    (13) SCR 445 - referred to.
E Re : Question (ii)
       3. The High Court did not find any error in regard to
  the awards on claims 2, 4, 6, 7, 8 and 9, but nevertheless
  chose to set aside the award in regard to these six items,
  only on the ground that in the event of counter claims 1
F to 4 were to be allowed by the arbitrator on
  reconsideration, the respondents would have been
  entitled to adjust the amounts awarded in regard to claims
  2, 4, 6, 7, 8 and 9 towards the amounts that may be
  awarded in respect of counter claims 1 to 4; and that as
G the award on counter claims 1 to 4 was set aside by it
  and remanded for fresh decision, the award in regard to
  claim Nos. 2, 4, 6, 7, 8 and 9 were also liable to be set
  aside. It is now well-settled that if an award deals with
  and decides several claims separately and distinctly, even
H if the court finds that the award in regard to some items
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 493
                     ANR.
is bad, the court will segregate the award on items which       A
did not suffer from any infirmity and uphold the award to
that extent. As the awards on items 2, 4, 6, 7, 8 and 9 were
upheld by the civil court and as the High Court in appeal
did not find any infirmity in regard to the award on those
claims, ttie judgment of the High Court setting aside the       B
award in regard to claims 2,4,6,7,8 and 9 of the appellant,
cannot be sustained. The judgment to that extent is liable
to be set aside and the award has to be upheld in regard
to claims 2, 4, 6, 7, 8 and 9. [Para 18) [514-G-H; 515-A-D]
                                                                c
Re : Question (iii)
     4.1. Section 28(3) of the Act provides that in all cases
the arbitral tribunal shall decide in accordance with the
terms of the contract and shall also take into account the
usages of the trade applicable to the transaction. Sub-         D
section (1) of section 28 provides that the arbitral tribunal
shall decide the disputes submitted to arbitration in
accordance with the substantive law for the time being
in force in India. [Para 18) [515-E-F]
                                                                E
      4.2. Where the contract in clear and unambiguous
 terms, bars or prohibits a particular claim, any award
 made in violation of the terms of the contract would
 violate section 28(3) of the Act, and would be considered
 to be patently illegal and therefore, liable to be set aside
 under section 34(2)(b) of the Act. Claim No.(5) is for         F
 payment of escalation under clause 10(cc) of the contract
 for work done beyond July, 1995 till the date of
 termination. However, escalation in price shall be
 available only for the work done during the stipulated
 period of contract including such period for which the         G
 contract was validly extended under the provisions of
 clause (5) of the contract, without any action under
 clause (2) of the contract. The respondents contend that
 as the Superintending Engineer levied penalty (at 10% of
•the estimated cost of the work) for the period 10.1.1995       H
    494     SUPREME COURT REPORTS              [2011] 8 S.C.R.


A to 14.3.1996 under clause (2) of the contract, the
  contractor was not entitled to payment of escalation
  under clause 10(cc). The arbitrator held that the
  contractor was not responsible for the delay and the
  respondents were responsible for the delay. If so, the
B contractor will be entitled to a valid extension under the
  provisions of the contract, without levy of any liquidated
  damages. If the contractor is entitled to such extension
  without levy of penalty, then it follows that under clause
  10(cc), the contractor would be entitled to escalation, in
c terms of the contract for the work done during the period
  of extension. [Para 20] [516-B-H; 517-A-B]

         4.3. The stipulated date for completion was 9.1.1995.
    The respondents granted the first extension upto
    31.7.1995 without levy of liquidated damages, vide letter
D   dated 24.8.1995. In fact the respondent had paid the
    escalation in prices under clause 10(cc) upto June 1995.
    The contractor was however permitted to continue the
    work without levy of any liquidated damages, until
    termination on 14.3.1996. It was only on 30.9.1999 after
E   the contractor had submitted its statement of claim .on
    17.4.1997, the respondents chose to levy liquidated
    damages for the period 1.10.1995 to 14.3.1996. In view of
    the finding of the Arbitrator that the contractor was not
    responsible for the delay, the contractor was entitled to
F   second extension from 1.8.1995 also without levy of
    penalty. In fact, having extended the time till 31.7.1995
    without any levy of liquidated damages, the respondents
    could not have retrospectively levied liquidated damages
    on 30.9.1999 from 10.1.1995. The High Court committed
G   an error in setting aside the award in regard to claim No.5
    on the ground that it violates clause 1 O(cc) of the
    contract. [Paras 21, 22] [517-B-E; 518-A-B]
      Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.
H 2003 (5) SCC 705: 2003 (3) SCR 691 - referred to.
 J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 495
                      ANR.
 7Re : Question Civ)                                           A
      5.1. Once the Arbitrator recorded the finding on
 consideration of the evidence/material, that the contractor
 was not responsible for the delay and that the termination
 was wrongful and that the respondents were liable for the
                                                               8
 consequences arising out of the wrongful termination of
 contract, the question of respondents claiming any of the
 counter-claims from the contractor does not arise. [Para
 23] [518-C]

      5.2. The High Court proceeded on the erroneous C
  assumption that when clauses (2) and (3) of the contract
  made the decisions of the Superintending Engineer/
  Engineer-in-Charge final as to the quantum of liquidated
  damages and quantum of extra cost in getting the
  balance work completed, the said provisions also made D
  the decision as to the liability to pay such liquidated
  damages or extra cost or decision as to who committed
  breach final and therefore, inarbitrable; and that as a
  consequence, the respondents were entitled to claim the
  extra cost in completing the work (counter claims 1 and E
. 3) and levy liquidated damages (counter claim No.2) and
  the arbitration costs (counter claim No.4). Once it is held
  that the issues relating to who committed breach and
  who was responsible for delay were arbitrable, the
  findings of the arbitrator that the contractor was not F
  responsible for the delay and that the termination of
  contract is illegal are not open to challenge. Therefore,
  the rejection of the counter claims of the respondents is
  unexceptionable and the High Court's finding that
  arbitrator ought not to. have rejected them becomes G
  unsustainable. The award of the Arbitrator rejecting the
  counter claims is therefore, upheld. Consequently, the
  order of the High Court is set aside and the order of the
  District Court is restored. [Para 23 and 24] [519-A-F]
                                                               H
    496      SUPREME COURT REPORTS                (2011] 8 S.C.R.


A                         Case Law Reference:
          1987 (2) SCR 398        referred to              Para 15
          2008 (13) SCR 445       referred to              Para 16

B         2003 (3) SCR 691        referred to              Para 19

       . CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    3349 of 2005.

         From the Judgment and Order dated 08.02.2005 of the
c   Gauhati High Court (the High Court of Assam, Nagaland,
    Meghalaya, Manipur, Tripura, Mizoram and Arunachal Pradesh
    in Arbitration Appeal No. 1 of 2004.

          A.K. Ganguly, Pranab Kumar Mullick for the Appellant.

D       T.S. Doabia, Kiran Bhardwaj, Sushma Suri and V.K.
    Verma for the Respondents.

          The Judgment of the Court was delivered by
                                                       •
E        R.V.RAVEENDRAN, J. 1. This appeal is directed against
    the judgment dated 8.2.2005 of the Guwahati High Court
    allowing Arbitration Appeal No.1/2004 filed by the respondents
    and setting aside the judgment dated 12.12.2003 passed by
    Additional District Judge, Kamrup, Guwahati (by which the
 ~. District court had dismissed the petition filed by respondents
F filed under section 34 of Arbitration & Conciliation Act, 1996
    and affirmed the Award passed by the Arbitrator dated
    5.9.2001, with clerical corrections made on 22.9.2001 ).

       2. On 26.3.1993 the respondents awarded the work of
G "extension of terminal building" at Guwahati airport to the
  appellant. As per the contract, the date of commencement of
  work was 10.4.1993 and the period of completion of the work
  was 21 months, to be completed in different stages. As the
  appellant (also referred to as the 'contractor') did not complete
H the first phase of the work within the stipulated time, the
 J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 497
           ANR. [R.V. RAVEENDRAN, J.]
 respondents terminated the contract by order dated 29.8.1994.         A
 The termination was challenged by the appellant in a writ
 petition filed before the Gawahati High Court. By judgment
 dated 27.9.1994, the High Court set aside the termination and
 directed the respondents to grant time to the appellant till the
 end of January 1995 for completion of the first phase reserving       B
 liberty to the appellant to apply for further extension of time. As
 the work was not compfeted, the respondents granted an
 extension upto 31.7.1995 by letter dated 24.8.1995, without
 levying any liquidated damages. The contractor proceeded with
 the work even thereafter. However, as the progress was slow,          c
 the respondents terminated the contract on 14.3.1996 on the
.ground of non-completion even after 35 months. The appellant
 filed a writ petition, challenging the cancellation. The High Court
 by order dated 25.6.1996, noticed the existence of the
 arbitration agreement and referred the parties to arbitration. In     D
 pursuance of it, on a request by the appellant, the respondents
 appointed Mr. C.Vaswani as the sole arbitrator on 14.2.1997.

     3. On 17.4.1997, the appellant filed its statement of claims.
Claims 1 to 11 aggregated to Rs.2,38,86, 198.31 (subsequently,
reduced to Rs.2,06,70,495/-). Claim 12 was for interest at 18%         E
per annum on the total claim amount from 20.5.1996 to date of
realization. Claim 13 was for Rs.2, 13, 729/- as cost of
arbitration. On 3.2.1999, the respondents filed their reply and
also filed their four counter claims before the arbitrator
aggregating to Rs. 279,54,225/-.                                       F

     4. By award dated 5.9.2001 (as amended on 22.9.2001)
the Arbitrator awarded a sum of Rs.1,04,58,298/- with interest
and costs in favour of the appellant and rejected the counter
claims of the respondents. The particulars of the amounts              G
claimed and the awards thereon are as under:




                                                                       H
    498      SUPREME COURT REPORTS                         [2011) 8 S.C.R.

A                         Claims by appellant

    Claim Particulars of Claim                    Amount       Amoun
    No.                                           claimed      awarded
                                                  by appellant by Arbitrator
B
    1     Claim for the balance                   Rs.11,26,518 Rs.11,26,518
          paymen~ of 34th Running account

    2,4,5 2) Claim for the payment due
          under 35th Running Account bill                        Rs.8,70,517

c         4) Claim for the payment for Extra      Rs.65,64,544
          items of work executed                                 Rs.3,27,335

          5) Claim for escalation in rates for
          works executed after July 1995 till                    Rs.14,59,320
D         the date of termination
    3     Claim for the refund of Security        Rs.1,00,000    Rs. 1,00,000
          Deposit
    6     Claim for the difference in scale       Rs. 37,608     Rs. 37,608
          weight and sectional weight of
          steel
E
    7&8 7) Claim for "on site' overheads and
        establishment expenses during the
        extended period of 14 months
        beyond the stipulated date of
        completion.                          Rs.25,57,295 Rs.17,50,000
F         8) Claim for 'off-site' overheads and
          establishment expenses during the
          extended period of 14 months
          beyond the stipulated date of
          completion.
    9     Claim for loss of hire charges of    Rs.30,79,160 Rs.8,75,000
G         machinery, shuttering materials etc.
          engaged for execution of the
          work for the period beyond the
          stipulated date of completion.
    10    Claim for compensation for the       Rs.18,01, 701      Nil
H         unutilized proportionate expenses
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 499
          ANR. [R.V. RAVEENDRAN, J.]

        incurred for establishing the site,                                   A
        and setting-up of infrastructure
        required for performance of full
      . value of work.
11      Claim for the loss of anticipatory Rs.54,03,669 Rs.39, 12,000
        profit @ .15% on the value of
                                                                              B
        balance work which could not be
        executed due to termination of
        Contract
                      Total                 Rs.2,06, 70,495 Rs.104,58,298

                                                                              c
                 Counter Claims by respondents

Counter Particulars of Counter Claim        Amount            Amount
Claim                                       claimed           ~warded
No                                          by                by Arbitrator
                                            Respondents                       D

 1.      Excess cost of getting the work    Rs.1,46,69,227        Nil
         executed through an alternative
         agency - recoverable as per
         clause (3) of the agreement
                                                                              E
 2.      Liquidated damages levied under Rs.56,84,998             Nil
         clause (2) of the agreement
 3.      Escalation that would be payable Rs.75,00,000            Nil
         to the alternative agency in
         regard to execution of remaining
         work (tentative).                                                    F
 4.      Cost of Arbitration                Rs.1,00,000           Nil
                    Total                   Rs.2, 79,54,225       Nil



The Arbitrator awarded to the contractor, simple interest @ 9% G
per annum on Rs.38,21,298 for the period 14.9.1996 to
31.3.1997 and simple interest @ 15% per annum on
Rs.1,04,58,298 for the period 1.4.1997 to date of payment
(under Claim No.12). The Arbitrator also awarded Rs.39,610/
                                                                              H
    500      SUPREME COURT REPORTS                  [2011] 8 S.C.R.


A - towards costs (under Claim No. 13). All the counter claims of
  respondents were rejected.

         5. On 12.12.2001, the respondents filed an application
    (Misc. Arbn. Case No.590/2001) under Section 34 of the
    Arbitration and Conciliation Act, 1996 (for short, 'the Act') in
8
    the District Court, Guwahati for setting aside the aforesaid
    award. The respondents filed an additional petition in the said
    proceedings, under section 34 of the Act on 27.1.2003, raising
    additional grounds of challenge. The learned District Judge,
C   Guwahati dismissed the petition vide order dated 12.12.2003,
    holding that none of the grounds under section 34(2) were
    made out. This order was reversed by the Guwahati High Court,
    by the impugned judgment dated 8.2.2005, in Arbitration
    Appeal No.1/2004 filed by the respondents, recording· the
    following findings: (i) The award on claim Nos.1, 3 and 11
D   related to 'excepted matters' which were beyond the ccope of
    the arbitration agreement and could not be adjudicated by the
    Arbitrator. (ii)· The award on Claim No.5 was contrary to the
    terms of price escalation clause (clause 10(cc) of the contract)
    and being patently illegal, required to be set aside. (iii) The
E   rejection of the counter claims of respondent, by ignoring the
    agreed terms of contract and the legal provisions, was also
    patently illegal. As a consequence, the award was liable to be
    set aside fully, as the respondents would have been entitled to
    adjust the amounts found due and payable against claims 2,
F   4, 6, 7, 8, 9 against their counter-claims, if allowed. In view of
    the said findings the High Court directed as follows :

          "In view of the above, the appeal filed by the appellants is
          allowed. The award passed by the Arbitrator on 5.9.2001
          and corrected on 22.9.2001 as well as the order dated
G
          12.12.2003 passed by the learned.Adhoc Additional
          District Judge No.2, Kamrup, Guwahati in Misc.
          (Arbitration) Case No.590/2001, are set aside. The
          arbitration proceeding is remitted back to the learned
          arbitrator for reconsideration of the counter claims of the
H
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 501
          ANR. [R.V. RAVEENDRAN, J.]
    necessary adjustment of the amount payable to the                P.
    contractor/claimant against his claim nos. 2,4,6,7,8,9 and
    13 in terms of the finding recorded by this Court."

      6. The respondents' contention that the arbitrator has
considered and allowed some claims which were 'excepted              8
matters' and therefore, inarbitrable, that grant of some other
claims by the arbitrator violated the express provisions of clause
10(cc) of the agreement, and that the counter- claims of
respondents have been erroneously rejected, have found favour
with the High Court. The appellant contends that the award does      C
not violate clauses (2) and (3) of the agreement making certain
decisions of Superintending Engineer/Engineer-in-Charge
final, nor clause 1O(cc) of the agreement relating to escalations,
It is also contended that respondents committed breach and
the counter-claims were rightly rejected. The appellant contends
the award is legal and not open to challenge under any of the        D
grounds under section 34 of the Act.

Questions for consideration

      7. A Civil Court examining the validity of an arbitr-al award E
under section 34 of the Act exercises supervisory and not
appellate jurisdiction over the awards of an arbitral tribunal. A
court can set aside an arbitral award, only if any of the grounds .
mentioned in sections 34(2)(a) (i) to (v) or section 34(2)(b)(i)
and (ii), or section 28(1)(a) or 28(3) read with section 34(2)(b)(ii)
of th.e Act, are made out. An award adjudicating claims which
                                                                      F
are ..excepted matters' excluded from the scope of arbitration,
would violate section 34(2)(a)(iv) and 34(2)(b) of the Act.
Making an award allowing or granting a claim, contrary to any
provision of the contract, would violate section 34(2)(b)(ii) read
with section 28(3) of the Act. On the contentions urged, the G
following questions arise for our consideration :

      (i)   Whether the High Court was justified in setting
            aside the award in respect of claims 1, 3, and 11
            on the ground that they related to 'excepted.            H
                                                                          .
    502          SUPREME COURT REPORTS              [2011] 8 S.C.R


A                 matters'?

          (ii)    Whether the High Court was justified in setting
                  aside the award in regard to Claim Nos. 2, 4, 6, 7,
                  8 and 9?
B         (iii)   Whether High Court was justified in holding that
                  claim 5 for escalation was barred by clause 10(cc)
                  of the contract?

          (iv)    Whether the High Court was justified in setting
c                 aside the award rejecting counter-claims 1 to 4?

    Re : Question (i):

        8. Claim No. (1) for Rs.11,26,518 relates to the payment
  due in regard to the 34th running bill withheld by the respondent.
D It comprises Rs.5,90,000/- levied as compensation under
  clause (2) of the agreement, Rs.3, 17,468 withheld towards
  alleged risk cost in getting the work executed by an alternative
  agency and Rs.2, 19,050 being the escalation in regard to the
  period January 1995 to July 1995 which was admitted by the
E respondents to be due. The Arbitrator allowed the entire claim
  holding that the appellant was not responsible for the delay and
  consequently the rescission/termination was illegal and levy of
  liquidated damages and recovery of excess cost in getting the
  work completed through an alternative agency was not
F permissible, was bad.

      9. Claim No.3 was for refund of security deposit of
  Rs.100,000/-. The respondents had encashed the bank
  guarantee for Rs.1 lakh which had been issued in lieu of security
G deposit and forfeited the same on the ground that the contractor
  was in breach. The arbitrator held the contractor was not in
  breach and the forfeiture was illegal and directed that the said
  sum of Rupees one lakh should be refunded to the contractor.

       1O. Claim No.11 was for Rs.54,03,669 being the loss of
H anticipated profit in regard to the value of the unexecuted work
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 503
             ANR. [R.V. RAVEENDRAN, J.]
which would have been executed by the contractor if the contract   A
had not been rescinded by the respondent~. The contractor
contended that the termination was in breach of the contract
and but for such termination the contractor would have
legitimately completed the work and earned a profit of 15%.
The arbitrator held that the respondents were responsible for      8
the delay, that the contractor was not in breach and the
termination was therefore illegal. He held that the value of the
work which could not be executed by the contractor due to
wrongful termination, was Rs.3,91,21,589 and 10% thereof
would be the standard estimate of the loss of profits and          C
consequently awarded Rs.39, 12,000/- towards the loss of
profits, which the contractor would have earned but for the
wrongful termination of the contract by the respondents.

      11. As per the arbitration agreement (contained in Clause
25 of the contract) all questions and disputes relating to the     D
contract, execution or failure to execute the work, whether
arising during the progress of the work or after the completion
or abandonment thereof, "except where otherwise provided in
the contract", had to be referred to and settled by arbitration.
The High Court held that claims 1, 3 and 11 of the contractor      E
were not arbitrable as they related to excepted matters in
regard to which the decisions of the Superintending Engineer
or the Engineer-in-Charge had been made final and binding
under clauses (2) and (3) of the agreement.
                                                                   F
     12. We may refer to the relevant provisions of the said
contract d'ocument, that is, clauses 2, 3(Part} and 25 (Part} to
decide whether the claims 1, 3 and 11 were excepted matters,
excluded from Arbitration:

    Clause (2):                                                    G

    "The time allowed for carrying out the work as entered in
    the tender.shall be strictly observed by the contractor and
    shall be deemed to be essence of the' contract and shall
    be reckoned from the tenth day after the date on which the     H
    504       SUPREME COURT REPORTS                   [2011] 8 S.C.R.


A         order to commence the work is issued to the contracto::.
          The work shall throughout the stipulated period of the
          contract be proceeded with· all due diligence and the
          contractor shall pay as compensation an amount equed
          to one percent or such smaller amount as thfJ
B         Superintending Engineer (whose decision in writing shall
          be final) may decide on the amount of the estimated cost
          of the whole work as shown in the tender, for every day·
          that the work remains uncommenced or unfinished after the
          proper dates. And further to ensure good progress during
          the execution of the work, the contractor shall be bound in
c         all cases in which the time allowed for any work exceeds,
          one month (save for special jobs) to complete one.,;eighth
          of the whole of the work before one-fourth of the whole time
          allowed under the contract has elapsed, three eighths of
          the works, before one-half of such time has elapsed and
D         three-fourths of the work; before three-fourths of such time
          has elapsed. However for special jobs if a time-schedule
          has been submitted by the Contractor and the same has
          been accepted by the Engineer-in-Charge. The contractor
          shall comply with the said time schedule. In the event of
E         the contractor failing to comply with this condition, he shall ·
          be liable to pay as compensation an amount equal to one
          percent or such small amount as the Superintending
          Engineer (whose decision in writing shall be final) may
          decide on the said estimated cost of the whole work for
F         every day that the due quantity of work remains incomplete.
          Provided always that the entire amount of compensation
          to be paid under the provisions of this clause shall not
          exceed ten per cent, on the estimated cost of the work as
          shown in the tender."
G
          Clause 3 :
          "The Engineering-in-charge may without prejudice to his
          right against the contractor in respect of any delay or
          inferior workmanship or otherwise or to any claims for
H
J.G. ENGINEERS PVT. LTD. 11. UNION OF INDIA AND 505
          ANR. [R.V. RAVEENDRAN, J.]
   damage in respect of any breaches of the contract and           A
   without prejudice to any rights or remedies under any of
   the provisions of this contract or otherwise and whether the
   date of completion has or has not elapsed by notice in
   writing absolutely determine the contract in any of the
   following cases:                                                B
   (i) If the contractor having been given by the Engineer-in-
   charge a notice in writing to rectify, reconstruct or replace
   any defective work or that the work is being performed in
   any inefficient or other improper or unworkmanlike manner,      C
   shall omit to comply with the requirements of such notice
   for a period of seven. days thereafter or if the contractor
   shall delay or suspend the execution of the work so that
   either in the judgment of the Engineer-in-charge (whose
   decision shall be final and binding) he will be unable to
   secure completion of the work by the date of completion         D
   or he has already failed to complete the work by that
   date ...
   (ii) x x x x (not relevant) . ·
   (iii) If the contractor commits breach of any of the terms
   and conditions of this contract.
   (iv) If the contractor commits any acts mentioned in Clause
   21 hereof.
                                                                   F
   When the contractor has made himself liable for action
   under any of the cases aforesaid, the Engineer-in-Charge
   on behalf of the President of India shall have powers:

   (a) To determine or rescind the· contract as aforesaid (of
   which termination or rescission notice in writing to· the G
   contractor under hand of the Engineer-in-Charge shall be
   conclusive evidence) upon such determination or
   rescission the security deposit of the contractor shall be
   liable to be forfeited and shall be absolutely at the disposal
                                                                   H
    506       SUPREME COURT REPORTS                 [2011) 8 S.C.R.


A         of Government.

          (b) xx x x (not relevant)

          (c) After giving notice to the contractor to measure up the
          work of the contractor and to take such part thereof as
B         shall be unexecuted out of his hands and to give it to
          another contractor to complete in which case any expenses
          which may be incurred in excess of the sum which would
          have been paid to the original contractor if the whole work
          had been executed by him (of the amount of which excess
c         the certificate in writing of the Engineer~in-Charge shall
          be final and conclusive) shall be borne and paid by the
          original contractor and may be deducted from any money
          due to him by Government under this contract or on any
          other account whatsoever or from his security deposit or
D         the proceeds of sales thereof or a sufficient part thereof
          as the case may be."

          In the event of any one or more of the above courses being
          adopted by the Engineer-in-Charge the contractor shall
          have no claim to compensation for any loss sustained by
E
          him by reason of his having purchased or procured any
          materials or entered into any engagements or made any
          advances on account or with a view to the execution of the
          work or the performance of contract. And in case action
          is taken under any of provisions aforesaid. The contractor
F         shall not be entitled to recover or be paid any sum for any
          work thereof or actually performed under this contract
          unless and until the Engineer-in-Charge has certified in
          writing the performance of such work and the value
          payable in respect thereof and he shall only be entitled to
G         be paid the value so certified.

          Clause 25:

          "Except where otherwise provided in the contract all
H
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 507
          ANR. [R.V. RAVEENDRAN, J.]
     questions and disputes relating to the meaning of the            A
     specifications, designs, drawings, and instructions
     hereinbefore mentioned and as to the quality of
     workmanship or materials used on the work or as to any
     other question, claim, right, matter or thing whatsoever in
     any way arising out of or relating to the contract designs,      B
     drawings, specifications, estimates, instructions, orders or
     these conditions or otherwise concerning the works or the
     execution of failure to execute the same whether arising
     during the progress of the work or after the completion or
     abandonment thereof shall be referred to the sole                c
     arbitration of the person appointed by the Chief Engineer,
     C.P.W.D. in charge of the work at the time of dispute or if
     there be no Chief Engineer the administrative head of the
     said C.P.W.D. at the time of such appointment. It will be
     no objection to any such appointment that the arbitrator so
                                                                      0
     appointed is a Government servant, that he had to deal
     with the matters to which the contract relates and that in
     the course of· his duties as Government servant he has
     expressed views on all or any of the matters in dispute or
     difference."
                                                                      E
                                            {emphasis supplied)

        13. Clauses (2) and (3) of the contract relied upon by the
 respondents, no doubt make certain decisions by the
 Superintending Engineer and Engineer-in-Charge final/final and       F
lbinding/final and conclusive, in regard to certain matters. But
lthe question is whether clauses (2) and (3) of the agreement
•stipulate that the decision of any authority is final in regard to
lthe responsibility for the delay in execution and consequential
!breach and therefore exclude those issues from being the
subject matter of arbitration. We will refer to and analyse each      G
 :>f the 'excepted matters' in clauses (2) and (3) of the agreement
to find their true scope and ambit :

     (i) Clause (2) provides that if the work remains
     uncommenced or unfinished after proper dates, the                H
    508       SUPREME COURT REPORTS                      [2011] 8 S.C.R.


A         contractor shall pay as compensation for everyday's delay
          an amount equal to 1% or such small amount as the
          Superintending Engineer (whose decision in writing shall
          be final) may decide on the estimated cost of the whole
          work as .shown in the tender. What is made final is only
B         the decision of the Superintending Engineer in regard to
          th'3 percentage of compensation payable by the
          contractor for everyday's delay that is whether it should
          be 1% or lesser. His decision is not made final in regard
          to the question as to why the work was not commenced
c         on the due date or remained unfinished by the due date
          of completion and who was responsible for such delay.

          (ii) Clause (2) also provides that if the contractor fails to
          ensure progress as per the time schedule submitted by the
          contractor, he shall be liable to pay as compensation an '
D         amount equal to 1% or such smaller amount as the
          Superintending Engineer (whose decision in writing shall
          be final) may decide on the estimated cost of the whole
          work for everyday the due quantity of the work remains
          incomplete, subject to a ceiling of ten percent. This
E         provision makes the decision of the Superintending
          Engineer final only in regard to the percentage of
          compensation (that is, the quantum) to be levied and not
          on the question as to whether the contractor had failed
          to complete the work or the portion of the work within the
F         agreed time schedule, whether the contractor was
          prevented by any reasons beyond its control or by the
          acts or omissions of the respondents, and who is
          responsible for the delay.

          (iii) The first part of clause (3) provides that if the contractor
G         delays or suspends the execution of the work so that either
          in the judgment of the Engineer-in-Charge (which shall be
          final and binding), he will be unable to secure the
          completion ef the work by the date of completion or he has
          already failed to complete the work by that date, certain
H
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 509
          ANR. [R.V. RAVEENDRAN, J.]
   consequences as stated therein, will follow. What is made       A
    final by this provision is the decision of the Engineer-in-
    Charge as to whether the contractor will be able to secure
    the completion of the work by the due' date. of completion,
    which could lead to the termination of the contract or other
    consequences. The question whether such failure to             B
    complete the work was due to reasons for which the
    contractor was responsible or the department was
    responsible, or the question whether the contractor was
   justified in suspending the execution of the work, are not
   matters in regard to which the decision of Engineer-in-         c
    Charge is made final.

   (iv) The second part of clause (3) of the agreement
   provides that where the contractor had made himself liable
   for action as stated in the first part of that clause, the
   Engineer-in-Charge shall have powers to determine or            0
   rescind the contract and the notice in writing to the
   contractor under the hand of the Engineer-in-Charge shall
   be conclusive evidence of such termination or rescission.
   This does not make the decision of the Engineer-in-
   Charge as to the validity of determination or rescission,       E
   valid or final. In fact it does not make any decision of
   Engineer-in-Charge final at all. It only provides that if a
   notice of termination or rescission is issued by the
   Engineer-in-Charge under his signature, it shall be
   conclusive evidence of the fact that the contract has been      F
   rescinded or determined.

   {v) After determination or rescission of the contract, if the
   Engineer-in-Charge entrusts the unexecuted part of the
   work to another contractor, for completion, and any             G
   expense is incurred in excess of the sum which would
   have been paid to the original contractor if the whole work
   had been executed by him, the decision in writing of the
   Engineer-in-Charge in regard to su.ch excess shall be final
   and concl~s.ive, shall be borne and paid by the original
                                                                   H(
    510       SUPREME COURT REPORTS                  [2011) 8 S.C.R.


A         contractor. What is made final is the actual calculation
          of the difference or the excess, that is if the value of the
          unexecuted work as per the contract with the original
          contractor was Rs. 1 lakh and the cost of getting it
          executed by an alternative contractor was Rs.1,50,0001-
B         what is made final is the certificate in writing issued by
          the Engineer-in-Charge that Rs.50,000 is the excess
          cost. The question whether the determination or
          rescission of the contractor by the Engineer-in-Charge is
          valid and legal and whether it was due to any breach on
c         the part of the contractor, or whether the contractor could
          be made liable to pay such excess, are not issues on
          which the decision of Engineer-in-Charge is made final.

         14. Thus what is made final and conclusive by clauses (2)
    and (3) of the agreement, is not the decision of any authority
D   on the issue whether the contractor was responsible for the
    delay or the department was responsible for the delay or on
    the question whether termination/rescission is valid or illegal.
    What is made final, is the decisions on consequential issues
    relating to quantification, if there is no dispute as to who
E   committed breach. That is, if the contractor admits that he is in
    breach, or if the Arbitrator finds that the contractor is in breach
    by being responsible for the delay, the decision of the
    Superintending Engineer will be final in regard to two. issues.
    The first is the percentage (whether it should be 1% or less) of
F   the value of the work that is to be levied as liquidated damages
    per day. The second is the determination of the actual excess
    cost in getting the work completed through an alternative
    agency. The decision as to who is responsible for the delay in
    execution and who committed breach is not made subject to
G   any decision of the respondents or its officers, nor excepted
    from arbitration under any provision of the contract.

        15. In fact the question whether the other party committed
    breach cannot be decided by the party alleging breach. A
    contract cannot provide that one party will be the arbiter to
H
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIAAND 511
          ANR. [R.V. RAVEENDRAN, J.]
decide whether he committed breach or the other party                 A
committed breach. That question can only be decided by only
an adjudicatory forum, that is, a court or an Arbitral Tribunal. In
State of Karnataka vs. Shree Rameshwara Rice Mills (1987
(2) SCC 160) this Court held that adjudication upon the issue
relating to a breach of condition of contract and adjudication        B
of assessing damages arising out of the breach are two
different and distinct concepts and the right to assess damages
arising out of a breach would not include a right to adjudicate
upon as to whether there was any breach at all. This Court held
that one of the parties to an agreement cannot reserve to             c
himself the power to adjudicate whether the other party has
committed breach. This court held :

     "Even assuming for argument's sake that the terms of
     Clause 12 afford scope for being. construed as
     empowering the officer of the State to decide upon the D
     question of breach as well as assess the quantum of
     damages, we do not think that adjudication by the other
     officer regarding the breach of the contract can be
     sustained under law because a party to the agreement
     cannot be an arbiter in his own cause. Interests of justice E
     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. The position will, however,
     be different where there is no dispute or there is F
     consensus between the contracting parties regarding the
     breach of conditions. In such a case the officer of the State,
     even though a party to the contract will be well within his
     rights in assessing the damages occasioned by the
     breach in view of the specific terms of Clause 12.             G

     We are, therefore, in agreement with the view of the Full
     Bench that the powers of the State under an agreement
     entered into by it with a private person providing for
     assessment of damages for breach of conditions and
                                                                      H
    512       SUPREME COURT REPORTS                   [2011] 8 S.C.K


A         recovery of the damages will stand confined only to those ·
          cases where the breach of conditions is admitted or it is
          not disputed.•

         16. The question whether the issue of breach and liability
    are excluded from arbitration, when quantification of liquidated
8
    damages are excluded from arbitration was considered by this
    Court in Bharat Sanchar Nigam Ltd. vs. Motorola India Ltd.
    (2009 (2) SCC 337). This court held :

          "The question to be decided in this case is whether the.
c         liability of the respondent to pay liquidated damages and
          the entitlement of the appellant, to collect the same from
          the respondent 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
D         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 the damages claimed. The
          decision contemplated under Clause 16.2 of the
          agreement is the decision regarding the quantification of
E         the liquidated damages and not any decision regarding
          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 part of the supplier in discharging his obligation
          for delivery under the agreement.
F         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 High Court in this regard correctly observed that
          it was not stated anywhere in Clause 15 that the question
G         as to whether the supplier had caused any delay in the
          matter of delivery will be decided either by the appellant/
          BSNL 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
H         operation only after a finding is entered in terms of Clause
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 513
          ANR. [R.V. RAVEENDRAN, J.]
    15 that the supplier is liable for payment of liquidated            A
    damages on account of delay 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. It has
    been cqrrectly pointed out by the High Court that the
    question of holding a person liable for Liquidated                  B
    Damages and the question of quantifying the amount to be
    paid by way of Liquidated Dmages are entirely different.
    Fixing of liability is primary, while the quantification, which
    is provided for under Clause 16.2, is secondary to it.

    Quantification of liquidated damages may be an c
    excepted 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 respondent. For this D
    reason, it cannot be accepted that the appointmentofthe
    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 the dispute as to the delay is ascertained. Clause E
    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." .                               F
                                             (emphasis supplied)

      17. In view of the above, the question whether appellant
was responsible or respondents were responsible for the delay
in execution of the work, was arbitrable. The arbitrator has            G
examined the said issue and has recorded a categorical
finding that the respondents were responsible for the delay in
executiofl of the work and the contractor was not responsible.
The arbitrator also found that the respondents were in breach
and the termination of contract was illegal. Therefore, the             H
    514      SUPREME COURT REPORTS                   [2011] 8 S.C.R.


A   respondents were not entitled to levy liquidated damages nor
  · entitled to claim from the contractor the extra cost (including any
    escalation in regard to such extra cost) in getting the work
    completed through an alternative agency. Therefore ever
    though the decision as to the rate of liquidated damages and
B the decision as to what was the actual excess cost in getting
    the work completed through an alternative agency, were
    excepted matters, they were not relevant for deciding claims
    1, 3 and 11, as the right to levy liquidated damages or claim
    excess costs would arise only if the contractor was responsible
c for the delay and was in breach. In view Qf the finding of the
    arbitrator that the appellant was not responsible for the delay
    and that the respondents were responsible for the delay, the
    question of respondents levying liquidated damages or claiming
    the excess cost in getting the work completed as damages,
0   does   not arise. Once it is held that the contractor was not
    responsible for the delay and th~ delay occurred only on account
    of the omissions and commissions on the part of the
    respondents, it follows that provisions which make the decision
    of the Superintending Engineer or the Engineer-in-Charge final
    and conclusive, will be irrelevant. Therefore, the Arbitrator would
E have jurisdiction to try and decide all the claims of the contractor
    as also the claims of the respondents. Consequently, the award
    of the Arbitrator on items 1, 3 and 11 has to be upheld and the
    conclusion of the High Court that award in respect of those
    claims had to be set aside as they related to excepted matters,
F cannot be sustained.

    Re : Question (ii)

         18. The arbitrator had considered and dealt with claims
G (1 ), (2, 4 and 5), (6), (7 and 8), (9) and (11) separately and
  distinctly. The High Court found that the award in regard to
  items 1, 3, 5 and 11 were liable to be set aside. The High Court
  did not find any error in regard to the awards on claims 2, 4, 6,
  7, 8 and 9, but nevertheless chose to set aside the award in
H regard to these six items, only on the ground that in the event
 J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 515
           ANR; .[R.V. RAVEENDRAN, J.]
. of counter claims 1 to 4 were to be allowed by the arbitrator . A
 . on reconsideration, the respondents would have been entitled ·
. to adjust the amounts awarded in regard to claims 2, 4, 6, 7, 8
   and 9 towards the amounts that may be awarded in respect of
. counter claims 1 to 4; and that as the award on counter claims
   1 to 4 was set aside by it and remanded for fresh decision, B
   the award in regard to claim Nos. 2, 4, 6, 7, 8 and 9 were also
   liable to be set aside. It is now well-settled that if an award deals
   with and decides several claims separately and distinctly, even
   if the court finds that the award in regard to some items is bad,
   the court will segregate the award on items which did not suffer c
   from any infirmity and uphold the award to that extent. As the
   awards on items 2, 4, 6, 7, 8 and 9 were upheld by the civil
   court and as the High Court in appeal did not find any infirmity
   in regard to the award on those claims, the judgment of the
   High Court setting aside the award in regard to claims 2,4,6,7,8 D
  and 9 of the appellant, cannot be sustained. The judgment to
  that extent is liable to be set aside and the award has to be
  upheld in regard to claims 2, 4, 6, 7, 8 and 9.

 Re : Question (iii)
                                                                         E
       19. Section 28(3) of the Act provides that in all cases the
 arbitral tribunal shall decide in accordance with the terms of the
 contract and shall also take into account the usages of the trade
 applicable to the transaction. Sub-section (1) of section 28
 provides that the arbitral tribunal shall decide the disputes           F
 submitted to arbitration in accordance with the substantive law
 for the time being in force in India. Interpreting the said
 provisions, this court in Oil & Natural Gas Corporation Ltd. vs;
 Saw Pipes Ltd. [2003 (5)     sec    705] held that a court can set
 aside an award under section 34(2)(b)(ii) of the Act, as being
 in conflict with the public policy of India, if it is (a) contrary to   G
 the fundamental policy of Indian Law; or (b) contrary to the
 interests of India; or (c) contrary to justice or morality; cir (d)
 patently illegal. This Court explained that to hold an award to
 be opposed to public policy, the patent illegality should go to         H
    516      SUPREME COURT REPORTS                    [2011] 8 S.C.R.


A   the very root of the matter and not a trivial illegality. It is also
    observed that an award could be set aside if it is so unfair and
    unreasonable that it shocks the conscience of the court, as then
    it would be opposed to public policy.

       20. It is well-settled that where the contract in clear and
8
  unambiguous terms, bars or prohibits a particular claim, any
  award made in violation of the terms of the contract would
  violate section 28(3) of the Act, and would be considered to
  be patently illegal and therefore, liable to be set aside under
C section 34(2)(b) of the Act. Claim No.(5) is for payment of
  escalation under clause 10(cc) of the contract for work done
  beyond July, 1995 till the date of termination. Clause 10(cc) of
  the agreement reads thus:

          Clause 10(cc)
D
          "... subject to the condition that such compensation for the
          escalation in prices shall be available only for work done
          during the stipulated period ofthe contract including such
          period for which the contract is validly extended under the
          provisions of clause 5 of the contract without any action
E
          under clause 2 and also subject to the condition that no
          such compensation shall be payable for a work for which
          the stipulated period of completion is 6 months or less".

  Thus, escalation in price shall be available only for the work
F done during the stipulated period of contract including such
  period for which the contract was validly extended under the
  provisions of clause (5) of the contract, without any action under
  clause (2) of the contract. The respondents contend that as the
  Superintending Engineer levied penalty (at 10% of the
G estimated cost of the work) for the period 10.1.1995 to
  14.3.1996 under clause (2) of the contract, the contractor was
  not entitled to payment of escalation under clause 1O(cc). The
  arbitrator held that the contractor was not responsible for the
  delay and the respondents were responsible for the delay. If so,
H the contractor will be entitled to a valid extension under the
J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 517
          ANR. [R.V. RAVEENDRAN, J.]
provisions of the contract, without levy of any liquidated           A
damages. If the contractor is entitled to such extension without
levy of penalty, then it follows that under clause 10(cc), the
contractor would be entitled to escalation, in terms of the
contract for the work done during the period of extension.
                                                                     B
      21. As noticed above, the stipulated date for completion
was 9.1.1995. The respondents granted the first extension upto
31.7.1995 without levy of liquidated damages, vide letter dated
24.8.1995. In fact the respondent had paid the escalation in
prices under clause 10(cc) upto June 1995. The contractor was        C
however permitted to continue the work without levy of any
liquidated damages, until termination on 14.3.1996. It was only
on 30.9.1999 after the contractor had submitted its statement
of claim on 17.4.1997, the respondents chose to levy liquidated
damages for the period 1.10.1995 to 14. 3.1996. In view of the
finding of the Arbitrator that the contractor was not responsible    D
for the delay, the contractor was entitled to second extension
from 1.8.1995 also without levy of penalty. In fact, having
extended the time till 31.7.1995 without any levy of liquidated
damages, the respondents could not have retrospectively levied
liquidated damages on 30.9.1999 from 10.1.1995. Be that as           E
it may.

    22. We extract below the reasoning of the Arbitrator for
grant of escalation for the work done from 1.8.1995 to
14.3.1996 under clause 1O(cc) of the contract :                      F

    "The escalation upto July'95 has been covered under claim
    no.1. The respondent has not paid any further escalation
    beyond July, 95, since the extension thereafter has not
    been granted and the contract was re.scinded ........ The
    respondent has denied the claim as the escalation is             G
    payable only for the stipulated period and period extended
    without levy of penalty. As I have already decided that the
    action of rescission of the contract and the action of levying
    the compensation/penalty under Clause 2 by the
    respondent is incorrect and the claimant was not                 H
    518           ·SUPREME COURT REPORTS                [2011] 8 S.C.R.


A         responsible for the delay, the escalation for the total work
          done, automatically becomes payable."

    The High Court therefore committed 9n error in setting aside
    the award in regard to claim No.5 on the.ground that it violates
8   clause 10(cc) of the contract.

    Re : Question (iv)

         23. Once the Arbitrator recorded the finding on
    consideration of the evidence/material, that the contractor was
c   not responsible for the delay and that the termination was
    wrongful and that the respondents were liable for the
    consequences arising out of the wrongful termination of
    contract, the question of respondents claiming any of the
    following from the contractQr does not arise:               --
D
           (i).     Extra expenditure incurred in getting the balance of
                    work completed through another contractor under
                    clause 3 of the agreement [counter claim (1) for
                    Rs.1,46,69,277].

E          (ii)     Levy of liquidated damages under clause 2 of the
                    agreement at 10% of estimated cost of work for the
                    delay between 10.1.1995 to 14.3.1996 '[counter
                    claim No.(2) for Rs.56,84,998].

F          (iii)    Claim on account of expected demand for
                    escalation in rates payable to the alternative
                    contractor in getting the work completed, in addition
                    to the extra expenditure claimed under counter
                    claim No.1 [counter claim No.(3) for tentative sum
                    of Rs. 75 lakhs to be ascertained after the work was
G                   actually completed and the bill of the new agency
                    is settled].

           (iv)     Claim for cost of arbitration [counter claim No.(4)
                    for Rs.100,000/-].
H
 J.G. ENGINEERS PVT. LTD. v. UNION OF INDIA AND 519
           ANR. [R.V. RAVEENDRAN, J.]
 The High Court proceeded on the erroneous assumption that             A
 when clauses (2) and (3) of the agreement made the decisions
  of the Superintending Engineer/Engineer-in-Charge final as to
  the quantum of liquidated damages and quantum of extra cost
  in getting the balance work completed, the said provisions also
  made the decision as to the. liability to pay such liquidated        B
. damages or extra cost or decision as to who committed breach
  final and therefore, inarbitrable; and that as a consequence, the
  respondents were entitled to claim the extra cost in completing
  the work (counter claims 1 and 3) and levy liquidated damages
  (counter claim No.2) and the arbitration costs (counter claim        c
  No.4). Once it is held that the issues relating to who committed
  breach and who was responsible for delay were arbitrable, the
  findings of the arbitrator that the contractor was not responsible
 for the delay and that the termination of contract is illegal are
  not open to challenge. Therefore, the rejection of the counter       D
 claims of the respondents is unexceptionable and the High
  Court's finding that arbitrator ought not to have rejected them
 becomes unsustainable. The award of the Arbitrator rejecting
  the counter claims is therefore, upheld.

Conclusion                                                             E

    24. No part of the decision of the High Court is sustainable.
The appeal is therefore allowed, the impugned order of the High
Court is set aside and the order of the District Court dated
12.12.2003, is restored.
                                                                       F
 B.B.B.                                          Appeal allowed.