Holding

The Supreme Court dismissed the appeals, affirming that there is no breach by the contractor and no substantial question of law for interference.

Summary

The Tamil Nadu Water Supply & Drainage Board entered into a contract with Mis. Sathyanarayana Brothers Pvt. Ltd. for a drinking water project, but the contractor alleged delays and sought arbitration. An umpire awarded amounts to both parties, which the High Court Single Judge set aside on grounds of legal mala fides, while the Division Bench later affirmed the award and passed a decree. The contractor appealed, and the matter reached the Supreme Court after a prior Special Leave Petition was remitted to the High Court. The Supreme Court held that the appellant’s claim that the contractor alone caused the delay was unfounded and that the issues raised were factual, not legal, with both the Single Judge and Division Bench having concurred that the contractor was not in breach. Consequently, the Court dismissed the appeals, finding no substantial question of law warranting interference.

Issues considered

Whether the contractor is liable for delay and breach of contract under the project agreement.
Whether the High Court's decree in terms of the umpire's award should be set aside.
Whether any substantial question of law exists for the Supreme Court to entertain.
Whether the award of the umpire is vitiated by legal mala fides.

Subjects

ArbitrationContract breachProject delaySpecial Leave PetitionSupreme CourtHigh CourtLegal mala fidesGovernment contract

Judgment

TAMIL NADU WATER SUPPLY & DRAINAGE BOARD A
v.
MIS. SA TYANARAYANA BROTHERS PVT. LTD.

FEBRUARY 7, 2007

[DR. AR. LAKSHMANAN AND AL TAMAS KABIR, JJ.] B

:x Constitution of India, 1950-Article 136-Drinking water project
formulated by State Government-Delay in execution of-Disputes-Appellant
not raising any substantial question of law that needs to be considered by
Supreme Court-Questions raised are only question offact-Matter was fully
c
heard in the earlier round by Supreme Court whereupon matter was remitted
to High Court-Well-considered judgment rendered by High Court on
remission does not call for any interference.

Certain disputes arose between Respondent-contractor and Appellant- D
Board over delay in execution of drinking water project formulated by State
~ Government. Arbitral proceedings were initiated in which both the parties
~ appointed an arbitrator each who in turn appointed an Umpire. Umpire passed
an arbitral award which was set aside by the Single Judge of High Court.
Division Bench however passed decree in terms of the award passed by the
Umpire. Respondent filed SLP before the Supreme Court which remitted the E
matter to Division Bench ofthe High Court. On remission, the Division Bench
held in favour of the Respondent holding that it had not committed any breach
of contract. Hence the present appeal.

Dismissing the appeals, the Court
.... F
HELD: The appellant is still proceeding under a false premise that the
contractor is solely responsible for the delay in the execution of the work
and the breach of contract which have been conclusively found against the
appellant by the Single Judge as well as the Division Bench of the High Court
while setting aside the award passed by the Umpire in the present case. The
G
appellant has not raised any substantial question of law that needs to be
.). i, considered by this Court. The questions raised are only questions of fact and
in view of the concurrent findings by both the Single Judge and the Division
Bench, no interference by this Court is called for particularly when a matter

347 H
348 SUPREME COURT REPORTS (2007) 2 S.C.R.

A was fully heard in the earlier round by the Supreme Court. The matter was
remitted to the Division Bench of the High Court by this Court only after
considering all aspects and the questions involved in the case. Now, it has
been conclusively found that the respondent-contractor was not responsible
for any breach of contract. The High Court, has decided the matter strictly in
accordance with the remand order made by this Court. The High Court also
B has not entered into any finding regarding the respective claims of the parties
but set aside the award of the Umpire only on the ground oflegal malafidcs.
The well-considered judgment rendered by the High Court on remission from
this Court does not call for any interference. [Paras 13 to 15)
[352-D-E, G; 353-A] ":Y

c Sathyanarayana Brothers (P) Ltd., v. T.N. Water Supply & Drainage
Board, [2004) 5 SCC 314, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2880-2881 of
2005.
D From the Final Judgment and Order dated ·24.3.2004 of the High Court
of Judicature at Madras in O.S.A. Nos. 248/1989 and 59 of 1993.
~
Mohan Parasaran, A.S.G., Senthil Jagadeesan and Rakesh K. Shanna for
the Appellant. •
E Dipankar P. Gupta, T.L. Viswanatha Iyer, P.S. Nair, Indira Nair, Krishnan
Nandakumar and T.G. Narayanan Nair for the Respondent.

The Judgment of the Court was delivered by

DR. AR. LAKSHMANAN, J. I. Heard Mr. Mohan Parasaran, learned
F Additional Solicitor General for the appellant and Mr. Dipanker P. Gupta and
Mr. T. L. V. Iyer, learned senior counsel for the respondent. ...
2. Aggrieved against the order passed by the Division Bench of the
High Court of Madras dt.24.03.2004 in OSA Nos. 248of1989 and 59 of 1993,
the above two appeals were filed.
G
3. The case on hand has a chequered history.

lbe Government of Tamil Nadu fonnulated a scheme known as "Veeranam ~ A

Project" to provide drinking water to the city of Chennai and thereby overcome '
the problem of acute water scarcity in the city of Chennai. In order to
H implement the aforesaid scheme, the Government invited tenders for
~-
TAMIL NADU WATER SUPPLY & DRAINAGE BOARD 1·. SA n· ANARAYANA BROTHERS PVT.LTD. jLAKSHMANAN. J.J 349

manufacturing, supplying and delivering 1676 mm pre-stressed concrete pipes A
-.......,~ and fittings including transporting to site, laying, jointing and testing for raw
water and clear water conveying, from Veeranam Tank to Chennai City. The
Secretary to Government, Public Works Department requested for clearance
of foreign exchange from the Government of India. This was done with a view
to avoid delay in the project. The respondent herein submitted their tender.
The tender submitted by the respondent was the lowest tender and on B
negotiation the same was accepted by the Government and the Government
issued G.O.Ms.No.1607 Public (Twad) Department accepting the tender of the
respondent. Subsequently, the Government suggested that the respondent
x should approach ICICI Ltd. for foreign exchange loan. The Government accepted
the request of the respondent for a hike in the tender amount in view of the c
reduction on foreign exchange component. An agreement was entered into
between the respondent and the Chief Engineer, Public Works Department.
The Government oflndia also approved the foreign collaboration arrangements.
The import license for the gasket manufacturing unit was also cleared and a
factory at Thirukalikundram was commenced and the equipment for
manufacturing pipes was also received. The factory at Panrutti also commenced D
the operation and the equipment for manufacturing rubber gaskets was received
...( in two shipments. The respondent sought extension of time till 31.12.1975 in
order to complete the work. On considering the prevailing circumstances, the
~
time for completion of work was extended till 30.06.1975. Again the respondent
wrote to the appellant informing it that the work will not be completed even E
by 30.06.1976 and that it is impossible for them to carry out the work as per
the original agreement, unless the rates are revised and on 30.06.1975, the
work was abandoned by the respondent. Again a request was made for
1. further extension of time and the time was also extended for completion of the
work till 31.12.1975. The respondent stated that they were prepared to continue
the work only if the rates are revised. The appellant further extended the time F
-~
for completion of the work till 31.03.1976.

4. Since disputes arose between the parties, the respondent invoked the
arbitration clause in the agreement and appointed Sri.P.S.Subramaniam as their
Arbitrator. The appellant appointed Sri.C.K. Sreenivasan as their Arbitrator.
Both the Arbitrators appointed Hon'ble Mr.Justice K.S.Palaniswamy, a retired G
Judge of the High Court as their umpire. The arbitrators entered upon the
~- 1 reference on 18.03.1978. The statement of claim ofRs.13,92,00,478.17 was also
filed by the respondent before ;he Arbitrators. The appellant Board also made
a claim ofRs.50,29,63,320/- filed before the Arbitrators.
H
350 SUPREME COURT REPORTS (2007] 2 S.C.R.

A 5. The learned Arbitrator Sri.P.S.Subramaniam gave an award in favour ,.
of the contractor for a sum ofRs.6,98,54,780/-. However, the other Arbitrator,
namely, Sri.C.K.Sreenivasan gave notice of his Jisagreement to the award.
Therefore, on 02.04.1979, the Umpire entered upon the reference. The Umpire
passed his award, inter alia, holding that the respondent-contractor is entitled
B to Rs.40,02,59 II- from the appellant and that after allowing deduction for the
same the respondent is liable to pay to the appellant a sum of
Rs.2,69,93,674/- with interest at 9% p.a. from the date of the Award. Out of
the said Award only a sum ofRs.5,000/- was awarded as damages for breach
of contract.

c was numbered
6. The Umpire filed the Award in the High Court of Madras and the same
as O.P.No.428of1979. The appellant filed Application No.560
of 1980 in O.P.No.428 of 1979 praying for a decree to be passed in terms of
the Award. Aggrieved by the Award, the respondent filed O.P.No.122of1980
before the High Court for setting aside the aforesaid Award dated 10.09.1979.
The learned Single Judge allowed O.P.No.122of1980 filed by the respondent
D and set aside the award passed by the Umpire and consequently application
No.560 of 1980 in O.P.No.428 of 1979 and O.P.No.428 of 1979 were dismissed.
On the same day, C.S.No.176of1978 was also dismissed. Aggrieved by the >
order allowing O.P.No.122 of 1980, the appellant preferred an appeal in
O.S.A.No.248 of 1989 and aggrieved by the order dismissing Application
•
No.560of1980 in O.P.No.428of1979, the appellant herein preferred an appeal
E
in O.S.A.No.59 of 1993. Aggrieved by the order dismissing C.S.No.176 of
1978, the appellant herein preferred an appeal in O.S.A.No.211of1990.

7. The Division Bench allowed O.S.A.Nos.248of1989 and 59of1993,
preferred by the appellant, inter alia, holding that the respondent had stopped
F work without any cause, that the respondent had abandoned the work, that i-
the award amount arrived at by the Umpire is correct and, therefore, passed
a decree in terms of the Award dated 10.09.1979 passed by the Umpire. It was
further held that the appellant is entitled to costs throughout and to interest
at 9% p.a. from the date of Award.

G 8. Aggrieved by the aforesaid order, the respondent herein preferred
Special Leave Petition (Civil) Nos.2096-2097 of 2002. The Division Bench
dismissed O.S.A.No.211 of 1990. The Special Leave Petition (Civil) Nos.2096- -;- A

2097 of2002 were filed which were re-numbered as Civil Appeal Nos.9136-
9137 of2003 and this Court remitted the matter to the Division Bench of the
High Court to be considered in the light of the observation made in the
H
TAMIL NADU WATER SUPPLY &DRAINAGEBOARD r. SATVANARAYANABRO'ffiERSP\7 LTD !LAKSHMANARJ,J 351

paragraph 16 of the Judgment. [Sathyanarayana Brothers (P) Ltd v. T.N. Water A
Supply & Drainage Baord, reported in [2004] 5 SCC 314]. On remiosion, the
Division Bench dismissed the appeals holding that foreign exchange was to
be obtained by the joint efforts of the appellant and the respondent, that the
Government was not extending the time reasonably but in piecemeal, that the
respondent had not committed breach of contract.
B
9. Aggrieved by the order dt.24.03.2004, the appellant preferred the
above appeals.

I0. It is also pertinent to notice that the SLP filed by the respondent-
contractor against the very same judgment was also dismissed by this Court C
at the admission stage.

l I. Before dealing with the matter on merits, it is beneficial to refer to
the order passed by this Court in Sathyanarayana Brothers (P) Ltd v.
T.N. Water Supply & Drainage Baord, reported in [2004] 5 SCC 314. This
Court after an elaborate consideration of the entire materials placed before it D
held that the learned Single Judge has given it as one of the reasons to hold
that it vitiated the award. The Division Bench was of the view that the learned
Single Judge was right in inferring that such an infirmity would vitiate the
award: However, this Court held that the order of the Division Bench, reversing
the decision of the Single Judge was not sustainable and the matter be
required to be remitted to be considered in the light of the "handing over E
note" of the Chief Engineer in respect whereof an application was moved by
the appellant before the Arbitrator as well as before the Umpire which remained
unattended to by the forum and which later did not accede to the request.
Considering the fact that it is an old matter and it being a speaking award,
the matter having also been considered by the learned Single Judge, this F
Court felt that it would better serve the ends of justice to ensure expeditious
disposal of the matter and, therefore, the Division Bench of the High Court
was requested to consider the matter afresh taking into account the "handing
over note" of the Chief Engineer of the project and other relevant documents.
In the result, this Court allowed the appeals filed by the contractor-
Sathyanarayana Brothers (P) Ltd.- and set aside the order of the Division G
Bench of the High Court and remitted the matter to the High Court for being
decided afresh by the Division Bench in the light of the observations made
in the Judgment.

12. We have carefully perused the order passed by the Division Bench
H
352 SUPREME COURT REPORTS (2007] 2 S.C.R.

A in O.S.A.Nos.248 of 1989 and 59 of 1993 after remittance. After hearing
extensive arguments advanced by Mr.Mohan Parasaran, learned ASG and
countered by two learned senior counsel appearing on behalf of the
respondent, we are of the view that on remand, the learned Judges of the
Division Bench have considered the entire matter afresh and came to the
conclusion that the reasons recorded in the said Judgment and that the
B sustainability of the claims of the contractor need not be considered in these
appeals and equally the Board is also not entitled to any decree on the basis
of the Award for the reasons given in the said Judgment. It was also further
observed that the Bench was not dealing with the respective claims of the
contractor and the Board against each other on different headings and they
C were inclined to set aside the award passed by the Umpire.

13. In the instant case, the appellant is still proceeding under a false
premises that the contractor is solely responsible for the delay in the execution
of the work and the breach of contract which have been conclusively found
against the appellant by the learned Single Judge as well as the Division
D Bench of the High Court while setting aside the award passed by the Umpire
in the present case. The appellant has not raised any substantial question of
law that needs to be considered by this Court. The questions raised are only
question of fact and in view of the concurrent findings by both the learned
Single Judge and the Division Bench, no interference by this Court is called
E for particularly when a matter was fully heard in the earlier round by the
Supreme Court. The matter was remitted to the Division Bench of the High
Court by this Court only after considering all aspects and the questions
involved in the case. Now, it has been conclusively found that the respondent-
contractor was not responsible for any breach of contract. According to the
contractor, all the advances were granted only for the mobilization of the work
F with specific condition that pro-rata deductions will be made in the bills for
the work carried out by the contractor and now the completion of the contract +-
the advances will be adjusted from the bills for the dues to be paid to the
contractor.

14. As already noticed, the appellant has not raised any ground that
G warrants interference with the impugned judgment. The High Court, in our
opinion, has decided the matter strictly in accordance with the remand order
made by this Court in the judgment in Civil Appeal Nos.9136-9137 of2003
reported in [2004] 5 SCC 314. The Higa Court also has not entered into any ,.t ,.
finding regarding the respective claims of the parties but set aside the award
H of the Umpire only on the ground of legal mala jides.
TAMIL NADU \\'ATER SUPPL\'&. DRAINAGE BOARD 1. SA TYAN.\R.A YAN,\ BROTHERS P\T l. rD IL·\f.:.Sll.\\,\NA;-:. l.I 353
~I 15. In our opinion. the well-considered judgment rendered by the High A
Court on remission from this Court does not call for any interference. We,
therefore, affinn the order passed by the Division Bench and dismiss the Civil
Appeal Nos.2880-2881 of 2005 filed by the appellant.

16. We also make it clear that if any claim survives with reference to this
particular contract, the parties will be free to agitate the same before the sole B
Arbitrator in terms of the Arbitration Clause. For the said purpose, we. by
consent of both parties, appoint Hon'ble Mr.Justice S.Mohan, a retired Judge
of this Court as the sole arbitrator. The parties are at liberty to file any claim
if it survives and also documents, records etc. The sole arbitrator is requested
to dispose of the arbitration proceedings within six months from the date of C
entering upon the reference.

17. The Arbitrator is at liberty to fix his remuneration and other expenses
to be equally shared by both the appellant and the respondent.

18. The Arbitrator should file his Award in this Court. D
19. The Civil Appeals stand dismissed. No costs.

B.B.B. Appeals dismissed.