TARAPORE.& COMPANY v. COCHIN SHIPYARD LTD. COCHIN & ANR.

'rARAPORB co. Y. COCHIN SHIPYARD (Desai, J.) BS • tgone up beyond the estimated expenditure made a volte face, the two A. positions. so adopted being entirely inconsistent with' each other Tl;tereafter, the matter was referred to arbitration. .

From the commencement i.e. from tl\e stage of inviting tenders and through the negotiations and the finalisation of the contract, at every stage, the respondent assured that foreign exchange would be B made available from 11th Yen Credir. As the equipm3nt was not available from Jap11'n, the availabilty of Yen Credit becqme otios" .from the contractor's point of view. At the instanc,e of and with the active participation of the respondent, the contractor made enquiries · in various countries and ultimately procured the necessary equipment c and technical know--how which was approved by the respondent and imported the same. In the time lag, the price as well as the foreign exchange rates in relation to rupee underwent an upward change, with the result. that the contractor had to invest, as made out by it and not seriously controverted before the arbitrator in all· Rs. 275.40 lakhs for imported pile driving equipment and spares and Rs. 18,64, D 337.61 on technical services-cum-know-how fees and a further sum for higher custom duty. Details of the claim have been set out in Annexures 1 and 2 reSf>ectivel~ to the statement of claim submitted by 'the appellant to the arbitrator. The respondent in its counter- statement did not controvert the details of the claim and the expen- diturejnvolved under the two heads-_ The whole of the counter· B claim' was concerned with the denial of its liability io compensate the contractvr coupled with the contention that the claim would not be covered by the arbitration agreement and therefore,· ihe arblt~ator , had no jurisdiction to entertain and adjudicate the claim. ·· It may also be mentioned that at,no time since the award, the res;))n1~n t· F ever disputed or questioned the amount awarded "by the arbitrator.· It is thus satisfactorily established that the contractor had to invest - j something far in excess of Rs. 2 crores ·which it was expected to -1. invest. ih foreig~ exchange for imported pile drivijig equipment and techmcal know-ho_w fe~s. The whole contract was concluded on this understanding. Being aware of the fluctuating position in this G b_ehalf, the contractor l:ad tendered two alternative rates for comple· hon of the, work as pomted earli~r ; one based on equipment being im~orted by the respondent and leased to the appellalJt and alter- na~1~ely rat~s on the basis that the contractor would import pile dnvmg equrp,ment and technical know-how. In respect of the second alternative, which was ultillllitely agreed to between the parties ·1 H was clearly and ·unmistakably understood between. the partiest h~l .. • •

SuPREME COURT REPORTS · [! 984] 3 s.c.k ·A the contractor would have to invest Rs. 2 crores and the rates were co-related to this investment with the knowledge of the fact that when work was completed, the equipment would' depreciate to the tnne of 75% of its capability and WQnld be hardly of an¥ use to the contractor. · The estimated expenditure having far exceeded, a claim for compensation would certainly be tefiable .at the instance of the . contractor. .

The High Court quoted • clauses 16, 26 hnd 31 in its judament 0 but did nof dilate upon the provisions of the clauses so a:; to co- ~

relate them with Its decisiatl. Clause 16 envisaged a situation where .. since the formation of the 'contract any fresh law is enacted which :.Cl. has the bearing on the price of materials incorporated in the works and/or wages oflabour, the terms of contract shall accordingly be varied. Clause 26 provided for supply of materials, plants, tools, · appliances etc. by the contractor. Clause 2 provides for the liability of the contractor to supply construction, plant 'and machinery .. including the items .to be imported and a further obligation. is cast D on the contractor to Juruish inventory of the same. Clause 3·1 amongst others, provided that the pile driving equipment shall be p·rocured by the contractor, and the selection of equipment shall be done by the contractor, in consultation with the responden·t. These clauses were presumably referred to in the context of. an arguwent •, that the pnce escalationdause does not cover the claim for compen- .E sation for ~dditional expenditure on imported plant and machinery . ' x and technic)ll know-how because the contract substantially provides for the s.ame- to bl supplied by the contractor.' In our opinion, this over-simplification of the clauses of the contract involving works pf such magnitude is impermissible. The whole gamut of discussions, negotiations and'correspondence must be taken into consideration to arrive at a true meaning of what was ·agreed to between the parties. And in this case there is no room for doubt that the parties agreed, that the investment of the. contractor under this head would be Rs,. 2 crores and the tendered rate& were predicated upon and co-related_ to t)lis undt!standing. When an . ag,eement is predicated upon ati agreed fact situation, if the latter ceases to exist the agree- ment to that extent becomes irrelevant or otiose. The rat.es j'lay- able to J,he contractor were r.elated to ·the investment of Rs 2 crores under this head by the contractor. Once the rates bec!lme irrelevant on account of circumstances· beyond the control of the contractor, it was open to, the. contractor to make a claim for compensation. Therefore, it appears satisfactorily est4blished that-the claim arose . · while iWplementing t.he contract and in_ relation to the contract.

TAR.I.PORE co. v. cocl!iN sHiPYARD (Desai, J.) 157 •The next question is whetherlhis claim made by the contractor A and disputed by the respondent wpuld be ccivered by the arbitratfon clause. The arbitration clause has already been extracted. Even the High Court admits th<1t clause 40 is very widely worded. It inter alia provides that.all questions and disputes relating to the meaning · of the Specifications Estimates, InstructiOns, Designs. Drawings bereinbefore mentioned and as to the quality of the Workmanship B

t or matelials. used on the work or as to the any other questions claim, right, matter or thing whatsoever .in any. way arising out of or relat- ing to the contract---:--..._-:-_ or otherwise concerning the . works or the execution---'---whether arising during the progress of the work or after completion----'--;---shall be -c ·referred to the Sole Arbitrator etc." The scope; width and the ambit of the Arbitration clause is of widest amplitude and any claim arising out of or relating to the contract or otherwise concerning the works or the execution thereof would be covered by the· arbitration clause. The material portion of clause 40 which would assist us in deciding the questions is .'claim' right matter or thing whatsoever in any way D arising out of or relating to the contract~---------·--­ . estimates or otherwise concerning the works or-the execution. etc." Briefly stated any claim arising out of or relating to the contract, estimates or otherwise concerning the works or the execution thereof would be covered by the arbitration clause. The question to be, posed is ."does the claim made by the contractor arise outof or relates to the contract, estimates, or is otherwise <:oncerning works for execution thereof? Phrases such as 'claim ·arising out of contract' or "relating to the contract' ,or 'concerning t~e contract' on proper constrnction • would mean that if while entertaining or rejecting the claim or the dispute in relation to C:1;tim may be entertained or rejected after F . ,, reference to the contract, it is a claim arising out of contract. Again the· language of cl. 40. shows that any claim arising out of the contract in relation to estimate made in the contract would be cover- ed by the arbitration clause. If it becomes necessary to have recourse to the ·contract .to settle the dispute one way or the bther than certainly it can be -said that it is a dispute arising out of the contract. G And in this case the arbitration· clause so widely worded as disputes arising out of the contract or in relation !o the contract or execution of the.works would comprehend. Within its compass a claim for compensation related to estimates .and ·arising out ofthe'contract. The test is whether it is necessary to have recourse to the contract to settle.the dispu.te that'has arise.n.'

VJ (See Russel onJ\rbitration 20th ed. pag< 85/

• 158 SUPREME COURT RllPORTS [1~84] 3 S.C~R. A We may now tum to some. decision to which our attention was drawn. The first case we would like to.refer to is A. M. Mair & Co. v. Gordhanda.•s Sagarmull.' The Court was concerned with the arbitra· tio.n clause drawn up as ; "all matters, question, disp~tes, differences • and/or claims, arising out of and/or concerning, and/or in connec- tion and/or in consequence of, or relating · fo, the contract etc." ·B The question arose whether the due date·uJJder the contract was extended within the time, earlier reserved. The arbiirator held that the due date of the contract has been extend.ed by a mutual agree· ment and the respondents were held liable to pay a sum of .Rs. 4,116 together with .interest at the rates specified in the award. It was c contended that the,dispute is not covered by the arbitration clause. This Court whilli holding that the dispute is covered by the arbi.trar tion clause observed that looking to the rival contentions, ·such a dispute, the determination of which turns on the true coristr-uction of the contract, would also seem to be a dispute. under or arising out · of or concerning the contract. The· test formulated .was that if in D . settling a dispute, a reference to the contract is necessary, such a dispute would be cove.red by the arbitration clause: •

In Ruby General lns.urance Co. Ltd v. Pearey Lal Kumar AIJa .Another, this Court was concerned with the ·clause in a. policy of insurance .which provided that differences .arising out of the policy E .11hall be referred to the decision of the arbitrator. In construing this clause, this Court observed as under:.

"The test is whether recourse to the contract by wh.ich the parties are bound is necessary for the purpose of determining the matter .in dispute between them .. If such recourse to the contract is necessary, then the matter must· come within the scope of the arbitr~tor's jurisdiction."

In Union af India v. Salween Timber Cou;truction (lndia) & Ors.• this Court observed that the test for determining the question is whether recpurse to the contract by .which both the parties are bound is necessary for the purpose of determining whether the claim of the respondent.firm is justified or'otherwise. If it is necessary to . take recourse to the terms of the contract for the purpose of deci- ding the matter in dispute, it must be held that the matter is within

ff · (1)[i950]S.C.R. 792. (2} ]19521 S.C.R. 501. . (3) [1%9] 2 S.C.\l. µ4,

TAll.APORB CO. v. COCHIN SHIPYARD (Desai, J.) 159

the scope of the arbitratron clause and the aiitrators have jurisdiction A to decide the same. In so stating the proportion of [aw, reliance was placed on Heyman & Anr. v. Danvins Ltd.'. in which it was held that 'where the parties are atone in asserting that they entered into . • a' binding contract, but a difference l!as arisen between them whether there has been a breach by one side or the other, or whether circum- B stances have arisen which have discharged ·one or both parties froln further performance, such differences should be regarded as differe- nces which have arisen in resp\'Ct of or 'with .regard to, or 'under' j the contract, .and an arbitration clause whicl\ uses these, or. similar expressions should be construed accordingly. The Court affirme.a,. the decision in Ruby General lnsurance Co. Ltd. case. c

In Astro Vencedor Compania Naviera S. A. of Panama v. · Mabanaft G. M. B. H. ·The J)iamianos' a question arose whether a claim in tort would be covered by the arbitration clause? It was admitted that "1'e claim for wrongful arres\ is a claim in tort. And D it was contended that a claim in to1 t cannot come within the arbitra- tion clause. The Court of Appeal speaking through Lord Denning held that the claim in tort would be co".ered by the arbitration clause, if the claim or the issue has a sufficiently close connection with the claim under the contract. E

In Gunter ilenck v. Andre & ClE. S. A.' the Court (Queen's 'BenchDivisb n (Commerci'al Court) help thit the words 'arising out of clearly extend the mooning than would otherwise be applied to the clause were it limited: to 'all disputes ·arising under the ~onfract. F

In t the facts before .us, th~ respond en~ ~n para of its counter• slatement filed before 'the arbitrator spec1f1ca!ly referred to clause. 16 of the General Conditions of Contract and to the AaditiOnal Terms and Conditions Modifications forming part of 'the contract G document. In paragarph II, it was stated that th~ claim of the appel- lant was completely outside the purview of the contract and the same does not fall within the purview of the first paragraph of Clause 40

O> [19421 A.c. 3S6 @ 366. (2) (19711 2 Q.B, 588. H .. (3) (1970) I Lloyd's Law Reports 235,

160 SUPREME CO:URT REPORTS (1984) 3 S.C.l\o ' ·A . it was further stated in paragraph 13 that contract provides for escalation in certain respects and that is the only escalation which is admissible in terms of. the contract ~d the claim made by the appellant does not ·come within the escalation clanse nor in the agreed. formula relating· to such escalatjon. The contratcor relied B - upon Clause 13 of 'the .Additional Terms and Co~ditions Modfications .which form part of the contract document to sustain its claim. From the pleadings, it cl~arly transpires that both the parties had recourse ' to the contract which is admittedly entered into in support. of. the . C rival contentions and ,therefore, the ,claim made by the ·appellant . would be covered by the arbitration clause, which is of the widest .amplitud.e, It is thus satisfactorily esfablished that the claim made by tlie contractor would be covered by the arbitration clause.

D Mr. Nariman also wanted us to examine whether ihe claill) made by the arbitrator would•. be admissible on the principle of quantu#i meriut. lt is not necessary to ex~mine this aspect at all° in ·the view which we are taking.

E He also wanted us to adopt an approach that the effort of the court must be to uphold the award and not to reject it. We, consider it llnnecessary to dilate upon it .

F The discussion leads to the .ine.scapable conclusion that a specific question.if law touching the jurisdiction of the arbitrator was specifically referred to the arbitrator and therefore the arbitrator decision is binding on the parties and the award cannot be s~t aside . G on the sole ground that there was an erro~ Qf law apparent on . the face of the award. It is also established that the claim for compensa- tion made by the arbitrator which led to the dispute was covered by the arbitration clause. The quantum of compensation awarded by

H the arbitrator was never disputed nor qU:estioned. Therefore, the High Court was clearly in error reversing the decision of the trial ,...; ~ ~. 901,1rt.

TARAPORE CO. v. COCHIN SHIPYARD (De~i, J.) 161

Accordingly this appeal succeeds and is allowed and the Judg- ment of the High Court is set aside and the Judgment atid order of the Subordinate Judge, Ernakulam dated March 30, 1979 is restored with costs throughout-

B • N.V.K. 'Appeal gllowed. . _\ •