KARNATAKA ELECTRICITY BOARD Vs. BHARATH CONDUCTORS

JUDGEMENT

(1.) AN unfortunate and unusual situation has arisen in this case which I shall briefly record. The appellants are the Karnataka Electricity Board (hereinafter referred to as the K. E. B) and the respondent No. 1 M/s. Bharath Conductors Private Limited are one of the contractors of the k. E. B. The respondents had entered into a contract with the K. E. B. for the supply of certain aluminium conductors and it is the case of the Respondent No. 1 that there was an abnormal and unprecedented jump in the prices of the basic raw materials which according to them made it impossible for them to execute the contract on the original terms. They therefore referred the matter to the Chief Engineer who under normal circumstances was the authority to decide matters relating to price escalation and it is their grievance that the officer concerned did not take any decision in the matter. Therefore the respondent No. 1 decided to invoke the remedy provided under the arbitration clause at which stage the Chief Engineer is supposed to have directed that the Respt. No. 1 should complete its obligation under the contract and then take up the issue regarding escalation which would have to be within the parameters of plus or minus 20%. The respt. No. 1 thereupon invoked the arbitration clause and 3 arbitrators who are the respts. Nos. 2, 3 and 4 to this appeal came to be appointed the first of whom is a Retired Judge of the Supreme Court and the other two are eminent technical persons. At this stage, the Board filed a suit before the City Court at Bangalore being O. S. No. 3265/1995 wherein they contended that the despute was not arbitrable principally because according to the K. E. B. the respt. No. 1 could not ask for any escalation beyond the parameters prescribed in the contract namely plus and minus 20% which amount would be decided by the Chief Engineer after the respt. No. 1 had completed its obligation under contract. To summarise, what was contended by the Board was that there is nothing for the arbitrators to decide as the question of awarding the additional amount which the respt. No. 1 was claiming by virtue of the price increases was not competent since the contract had pegged the upper limits. The Board contended that if there was nothing for the arbitrators to decide that the whole exercise would be a futile one and that therefore, the arbitrator should be restrained from entering upon the reference. As indicated by me earlier, the basic plank of the contention taken up in the plaint proceeded on the footing that assuming there was a dispute that is not arbitrable. The lower Court initially granted an ad-interim injunction and after hearing the parties, through a speaking order dated 5th July 1997 vacated the interim injunction. The present appeal seeks to assail the correctness of that order.

(2.) I shall briefly summarise the contentions raised on behalf of respt. No. 1 because they are of some consequences. On facts, it was contended that the respt. No. 1 had never visualised or even anticipated that there would be such an unprecedented raise in the cost of the raw materials and respt. No. 1 sought to rely on certain documents to establish that the price had gone up 15 times within that short span which made it absolutely impossible for the respt. No. 1 to supply the conductors on the old terms. It is the case of respt. No. 1 that the limits of plus or minus 20% governed normal conditions and that if something completely foreign to the ordinary circumstances had taken place and if the situation had occurred due to circumstances that were totally beyond the control of the party that it would be governed by the force majeure clause in the contract which happens to be Clause 25. According to respt. No. 1, this clause entitled the contracting parties in situational that could be justified under that clause, to adopt a course of action that would transcend what would be permissible under normal circumstances. It was however the case of respt. No. 1 that the contract itself contrained an omnibus clausal namely clause 32 which entitled the parties to refer any dispute that arose under the contract to arbitration. A subsidiary argument canvassed on behalf of the respt. No. 1 was that whatever defence the Board had, including the contention that the prices are limited to certain parameters or even the contention that the parties are bound by the decision of the Chief Engineer, all capable of being pleaded as a defence before the arbitrators and that therefore the Civil Court ought not to come in the way of the arbitration proceeding making a headway. As indicated by me earlier, the Trial Court vacated the interim injunction and the Board had carried the matter in appeal.

(3.) MR. Gupta, learned counsel who represents the Board briefly reiterated the Boards submissions. Dealing first with the contention raised on behalf of respt. No. 1 that Clause 25 entitled the respt. No. 1 to transcend the limitations prescribed in the contract namely plus or minus 20%, he submitted that it is well settled law as is illustrated even from the explanation to clause 25 that this Clause can only have application in the case of situations such as wars, floods and the like and that market variations howsoever steep they may be, was something than can never come within the ambit of this clause. He assailed the reasoning in the impugned order and contended that the trial Court has misinterpreted the terms of the contract and that it has wrongly vacated the interim order. Mr. Gupta also submitted that the contracting party namely respt. No. 1 was totally and completely bound by what it had agreed to and that this is an attempt to rescind from the contract, that the respt. No. 1 has not completed the execution and it attempt to make excuses and fall back on all sorts of clauses was a defence for non-completion of the contract and that it is also an attempt to pressurise the Board into agreeing to demands which are unjustified. His last submission was that the Board is a public authority and that howsoever strange it may seen, that the sole purpose of fily the suit was in order to save the Board from was in order to being hauled through a lengthy and costly arbitration which is something that the Board can illafford which is an exercise on which public money should not be spent if it is as clear as day light that the entire dispute is not arbitrable.