Srinivasan (Contracts Mgr) 02 November 2012

Legality of a construction contract

Dear Experts,

We all know the Essentials Elements of a Valid Contract:

1. Proposal and acceptance
2. Consideration -- lawful consideration with a lawful object
3. Capacity of parties to contract -- competent parties
4. Free consent
5. An agreement must not be expressly declared to be void.
6. Writing and Registration if so required by law
7. Legal relationship
8. Certainty
9. Possibility of performance
10. Enforceable by law.

Having known and said that every Contract must be Enforceable by Law, Herewith Iam putting forward you all a question on a Particular Condition which keeps the Arbitrators, Jusrisdiction, Adjudication vide High/ Supreme Court away from the picture by introducing a new Condition/ system called "EXCEPTED MATTERS" and how can this become a Valid Contract in the first place?

As we all know the explanation of the same which is copied below:

Enforceable by Law:
A contract in order to be valid must be enforceable by law which element distinguishes agreement and contract. If it is enforceable by law it is contract otherwise it is an agreement. The aggrieved party should be able to obtain relief through law in the event of breach of contract. An agreement can also be inferred from correspondence exchanged between the parties.

If the so-called "Excepted Matters" are introduced in a Contract and agreed by both Contracting parties which clearly keeps away the above legal proceedings, then what is the remedy available to the aggreived party (Contractor) when there is an unsettled Dispute.

In other words, I shall try to put the point wise scenario for better understanding:

1. A dispute is established by the Contracted parties (due to the breach of Contract) which is an Excepted Matter under the Contract.

2. An in-house remedy is available in the Contract in order to treat them as "Excepted Matters"

3. In-house remedy did not provide a fair and reasonable solution to settle the Dispute.

4. Due to the same being an "Excepted Matter", the said matters cannot be Arbitrated/ Adjuducated.

The same scenarios happened and are still happening in many cases across our country and there are several Judgments awarded in favour of the Employer who has drafted such discriminatory Conditions...One of a similar case became a Landmark Judgment which is Union of India Vs. Sarvesh Chopra (IN THE SUPREME COURT OF INDIACIVIL APPELLATE JURISDICTIONCIVIL APPEAL NO. 1791 OF 2002(Arising out of SLP© No.20727/2000)

Now what is the solution? Do you think the above Judgment is correct?

I further and fully understand that, if this is what the Conditions agreed for, Court cannot interfere or not available to re-negotiate with the Parties. But my fundamental question is

1. Whether such agreements are Valid?

2. Can the Employers draft such conditions to keep the Legal system away from the Business?

3. Based on Good-faith, several Contracts are being executed in India, Is Good-faith not entertained in this Country?

4. If such Contracts are Void, then what happens to such Void Contracts (on this Ground)?

Now, when we talk about discriminatory Conditions drafted with supreme bargaining power, what happens if there is no Justice given to the Contracted Party.

Can anyone provide me a resaonable solution or ways to take the Dispute to Court, since there is no prima-facie available apart from this to quash the Contract under the Law.

Kind regards,

Srinivas

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5 Replies

Srinivasan (Contracts Mgr) 07 November 2012

Dear Experts,

Hope I have not asked a senseless or a hypothetical query, If any one could provide me with an answer to these questions, it would be of a great help. Please be also advised that the intention of this query to get an answer is not just for the knowledge, it is to challenge.

Kind regards,

Srinivas

AAK (Advocate) 20 November 2012

Pls give clear facts.. what is the dispute? what solution you want?

If for excepted matters the contracts states that you cannot approach arbitrator, then the parties are at liberty to approach the court for remedy.

If the clause is indirectly restrain the persons from approaching court, then its void.

Srinivasan (Contracts Mgr) 21 November 2012

Dear Mr. AAK,

Thanks for replying my query, I shall give you a lucid picture of the actual scenario...

Contract:

A Construction Contract is signed based on General Conditions stipulated by Northern Railways, in which Sub-Clauses: 8,18,22(5), 39, 43(2), 45(a), 55, 55(A5), 57, 57A, 61(1), 61(2), 62(I) to (XIIB) and any Special Conditions of Contract are exclusively termed as "Excepted Matters" for which remedy available for any disputes shall be decided by the Railway Authority which shall be final and binding and more importantly any disputes relating to above Sub-Clauses cannot be referred to Arbitration.

Understanding:

From the above, it is evident that Railway Authority shall be the only person to act as an "Adjudicator" to deal with the disputes, and his decisions shall be final and binding. Should there be any disagreement with the decision given by the Authorities, Contract does not provide remedy therefrom as they are "Excepted Matters" be it by Arbitration or any other means.

Dispute & its Mechanism:

There was a dispute which has arisen in one of the above said sub-clauses for which the Railway Authorities should act and shall provide solution to it and their such decision shall be final and binding, but the said Authorities have not taken a fair stand and failed to consider the actual circumstances involved and given his biased decision favoring the Employer for which the Contractor does not agrees to his decision. Now comes the real problem, since the Contract does not provide a mechanism for further referal to Arbitration, here comes a Question that what is the option left out to the Contractor to find Justice?

Equivalent Citations:

When we were in search of such equivalent cases appealed in front of Law, we came across a case Law which has become a Landmark Judgment - SLP-20727/2000 - General Manager - Union of India Vs. Sarvesh Chopra, Judgment is clear that for any Excepted Matters Arbitral proceedings are not allowed

From this it is evident that there is no option left out for the Contractor other than to avail remedy under the Court of Law...

Therefore, now Iam limiting my Questions to:

1. Will Court of Law have powers to deal such disputes related to Excepted Matters?

2. If yes, please let me know under what Sections/ Act can we apply to the Court to have our case admitted?

Kind regards,

Srinivas

Srinivasan (Contracts Mgr) 16 January 2013

Can this be challenged under the "LAWS OF TORT" ???

R.S.Poonia 06 February 2018

Well I am not an advocate yet I elaborate on the issue and hintwhat needs to be changed or understood. Firstly, the excepted matters are those which will not be referred to arbitrator but would be resolved through in-house mechanism whcih is nothing but an officer of the department will act or should act as sole arbitrator.

Conceptually what claims/disputes should come under excepted matter? World over the concept is that where criminal angle is attached to a dispute or type of relief sought is inadmissible ( not in monetary form).. A dispute is considered non-arbitrable if the subject matter is not capable of being settled by agreement between the parties. This is the case e.g. if the relief requested would be illegal, . A dispute is also likely non-arbitrable in cases where third party’s consent is required . Besides, a claim for relief, which can exclusively be granted by a court or a state authority, is non-arbitrable.

Therefore, putting every thing and anything under excepted matters is not correct. Executives do have the propensity to classify inconvenient disputes under this head. For example, payment of interest, dispute in measurements, extension of time etc can be arbitrated very easily but to put contractors in problem these are temed as Excepted matters. We fail to understand, how officer of a deparment will resolve the dispute which cannot be assigned to arbitrator.

The in-house exercise have to fair and transparent. Claimant and department should be heard by the authority and speaking order passed.Being accepted matter does not give the liberty to ignore natural law of justice.

The finality has not been defined. If issue is not settled, it hasto find way out. After all no dispute can remain without remedy. Therefore, like award made by arbitrator is appealable, the decision of authority should be appealable in competent court. Court has not denied the access to aggrieved parties. Finality seems to be a presumption.

There may be instances where dispute as per agreement is not referred to authority for adjudication. In such cases too Claimant may move High court under section 11(6) with the plea that department has not exercised its right or has waived it off.

To be continued................................