Post Graduate Programme in Management (PGPM)

Course: Legal Aspects of Business (LAB)

Faculty: Prof Parul V Gupta

GROUP CASE DISCUSSION: SESSION 9

Case 9.1: Dilip Construction Company v Hindustan Steel Ltd.

By a contract, Dilip Construction Company, the appellant was employed by Hindustan Steel Ltd., the
respondent for winning and raising 45,00,000 Cft. of BF grade lime-stone ore from its Nandini Mines,
and for transporting and loading the same into wagons at the railway siding of the mines. The deed of
contract contained an arbitration clause, providing for forwarding the disputes of the parties to arbitration
except that no issues on which the final settlement was otherwise provided for in that contract would be
referred to arbitration.

Although the period stipulated in the contract between the two parties for the completion of the work was
of 12 months w.e. f. December 29, 1959. However that period was extended from time to time upto
December 15, 1961. During the period in question, the appellant could perform the contract to the extent
of 31,52,132.32 Cft. of lime stone, and received payments for the work done against running bills. Upon
termination of the contract, the respondent prepared a final bill for Rupees 21,000/-. The appellant did not
agree with the amount of the bill and it instead submitted its own bill dated May 5, 1965, raising a
demand for payment of Rs. 16,77,197.28 P. The bill was followed by a letter dated May 28, 1965,
addressed by the appellant. By writing the letter, the appellant requested the respondent for a final
settlement of accounts within 15 days.

On receiving no response from the respondent, on June 21, 1965, the appellant served the respondent with
a lawyer's notice of submission to arbitration, stating that it had named one L. V. Parekh to be its
arbitrator and requesting the respondent to nominate its arbitrator within 10 days, failing which the
arbitrator named by the appellant was to become the sole arbitrator and was to proceed with the reference.
The respondent sent a reply stating following facts dated July 21, 1965 in response to the notice of the
appellant,
“In the contract under reference between the appellant and the respondent (Hindustan Steel Limited,
Bhilai Plant), no dispute as contemplated under the Arbitration agreement has arisen, which would
entitle the appellant to refer the matter to arbitration as the claims of the appellant were under
examination by Bhilai Steel Plant and if in the course of finalisation of the claims any difference came
out, then only there would be any question of reference to arbitration. Without prejudice to the
repondents’s above contentions, and reserving their right to take such action as may be deemed
necessary in respect of the unmaintainability of the claims, they nominated Shri R. M. Ray, Sr. D. G.
M., Bhilai Steel Plant as their arbitrator.”
The arbitrators named by the parties entered upon the reference despite the protest of the respondent.
They could not arrive at an agreement and appointed one Mr. P. N. Saxena to be the umpire. Thus the
matter reached to the umpire. By an award dated April 10, 1967, the umpire directed the respondent to
pay to the appellant a sum of Rs. 8,65,000/- in full and final settlement of its claim.

On May 1, 1967 the appellant presented an application under Section 14(2) of the Arbitration Act, for the
filing of the award and to have the award made a rule of the Court. The learned District Judge directed
Mr. P. N. Saxena, the umpire to file the award. On the award being filed, the respondent made an
application under Sections 30 and 33 of the Act for setting aside the award on the grounds that, the award
had ignored the terms of the contract and was as such bad on the face of it. The respondent also contended
that the award of the umpire is a nullity as the pre-existence of a difference or dispute is a condition
precedent to the invoking of the arbitration clause. Consequently, the jurisdiction of the arbitrators and for

1
the matter of that of the umpire to enter upon and adjudicate on a submission depended on the factual
existence of such difference or dispute. In that case, there was no such difference or dispute.
On the other hand the appellant claimed that such an objection could not be raised at that stage of dispute
settlement. It was further argued that the umpire had already completed the proceedings and award had
been pronounced and therefore it was too late to register any such objection.

Discussion Point
Whether the contention of the respondent to set aside the award made by the Umpire during the
arbitration proceedings between the two parties, justified?

Case 9.2: Bharat Bhushan Bansal v U.P. Small Industries

Mr. Bharat Bhushan Bansal, the appellant entered into a contract with U.P. Small Industries, the
respondent under which the appellant undertook the work of construction of factory and allied buildings
of the respondent at India Complex, Rae Bareilly. The agreement was formed on October 19, 1973.
Clauses 23 and 24 of the agreement were as follows;

Decision of the Executive Engineer of the UPSIC to be final on certain matters (Clause 23): Except
where otherwise mentioned in the contract, the decision of the Executive Engineer shall be final,
conclusive and binding on both the parties to the contract on all questions concerning the meaning, the
specification, design, drawings and instructions herein before mentioned, and as to the quality of
workmanship or materials used on the work or as to any other question whatsoever in any way arising out
of or relating to the designs, drawings, specifications, estimates, instructions, orders or otherwise relating
to the works or the execution or failure to execute the same whether arising during the progress of the
work, or after the completion thereof or abandonment of the contract by the contractor shall be final and
conclusive and binding on the contractor.

Decision of the M.D. of the UPSIC on all other matters shall be final (Clause 24): Except as provided
in Clause 23 hereof the decision of the Managing Director of the UPSIC shall be final, conclusive and
binding on both the parties to the contract upon all questions which are related to any claim, right, matter
or thing in any way arising out of or relating to the contract or these conditions or concerning
abandonment of the contract by the contractor and in respect of all other matter arising out of this contract
and not specifically mentioned herein.

In due course of time, there arouse disputes between the appellant and the respondent in connection with
the payments to be made under the terms of the above mentioned contract and in connection with the
work of the contract. The appellant filed an application under Section 8 of the Indian Arbitration Act,
1940 for the appointment of an independent arbitrator in the place of the Managing Director of the
respondent company. The appellant contended that clause 24 of the contract contemplates arbitration and
the Managing Director of UPSIC could not be accepted as an independent arbitrator as he was
representing the respondent. The respondent on the other hand denied that there was any arbitration
clause in the contract.

Discussion Point
Whether there was any clause in the contract could be treated as arbitration clause and could be applied in
case of disputes between the parties?