Kashinath Kesh v. Steel Authority of India Ltd — 1992 DIGILAW 433 (CAL)

Judgment 1. THIS revisional application is directed against an order No. 12 dated 26. 3. 92 passed by Sri T. K. Palodhi, Assistant District judge, Durgapur in Misc. Case No. 2 of 1992, whereby the learned Assistant district Judge, Durgapur, rejected the application under Section 33 of the arbitration Act, along with another application under Section 41 (b) of the arbitration Act filed by the petitioner. 2. THE case of the petitioner inter alia is that he entered into four contracts with the Steel Authority of India Ltd. representing the Durgapur Steel Plant viz. (a) supply of trucks without labour vide tender No. CRDWD/genl/87-88, (b)handling the refractory materials vide tenden No. CRDWD/6402/88-89, (c)cleaning and allied works in the ceased plant vide tender No. CRDWD/0400/ 87-88 and (d) transportation of materials to refractory department vide tender no. CRDWD/5560/88-89. It is the case of the petitioner that he carried out the jobs as covered by the four contracts and submitted his bills. The bills were not paid and were with held wrongfully. Thereafter came a termination order of three contract jobs as referred to (b), (c) and (d) above by letters dated 14. 1. 89 and 16. 1. 89. The petitioner impugned such action of the opposite party No. 1 by filing a writ application. The said writ application ultimately came up for hearing before Hon'ble Mr. Justice A. M. Bhattacharjee as his Lordship then was, who recorded an order in the form of consent by the respective parties that the claims of the petitioner in respect of works rendered by him would be determined by arbitration in accordance with the arbitration agreement governing the parties in respect of the contracts in dispute. His Lordship further held that once the matter is referred to arbitration, the Arbitrator shall dispose of the matter with utmost expedition. This order is dated 26. 9. 89. The opposite party No. 1, thereafter appointed Sri N. C. Nandi (opposite party No. 2) as the sole arbitrator for adjudication of the claims of the petitioner. The opposite party filed its counter-claim in the arbitration proceedings but did not put forward any claim of relief by way of counter-claim under the said works orders. 9. 89. The opposite party No. 1, thereafter appointed Sri N. C. Nandi (opposite party No. 2) as the sole arbitrator for adjudication of the claims of the petitioner. The opposite party filed its counter-claim in the arbitration proceedings but did not put forward any claim of relief by way of counter-claim under the said works orders. Only after a long lapse of time the opposite party No. 1 filed an application to the effect that it suffered certain losses and damages for non-execution of four contract jobs on the lines indicated by the opposite party No. 1. It may be recalled that at the time of nominating the arbitrator the opposite party No. 1 referred the dispute as arising out of all the four contracts to arbitration and it was not really confined to three arbitration agreements for whose cancellation the petitioner came to the High Court in the writ application. By a letter dated 6. 12. 91 the petitioner through his advocate wrote to the arbitrator the opposite party No. 2 in answer to a letter dated 22. 11. 91 that the appointment of arbitrator was palpably beyond the scope and against the terms of Clauses 9. 9 of Special Conditions of Contract which clearly gives out that the "dispute difference between the contractor arising out of, in connection with, or in any way relating to the contract shall not (sic) be the subject matter of or be referred to arbitration". The petitioner thus opposed the appointment of the arbitrator being contradictory to the terms of contract and contended that the appointment of the arbitrator was illegal and beyond jurisdiction. It is Indeed true that on 21. 10. 89 the petitioner wrote the opposite party No. 1 making a claim of 17 lakhs alleging inter alia that there was no clear arbitration Clause in the contract and enclosed a draft arbitration agreement for execution. On 30th November, 1989 the petitioner wrote to the opposite party No. 1 again referring to the earlier draft agreement and requested that expeditious steps should be taken in this matter. It is indeed true that the opposite party No. 1 purportedly adverting to the terms of the arbitration clause in the contract, appointed the opposite party No. 2 as the sole arbitrator for adjudication of disputes between the parties in relation to the petitioner's claim. It is indeed true that the opposite party No. 1 purportedly adverting to the terms of the arbitration clause in the contract, appointed the opposite party No. 2 as the sole arbitrator for adjudication of disputes between the parties in relation to the petitioner's claim. On 10th October, 1991 the opposite party appointed the opposite party no. 2 to adjudicate all the dispute between the parties in relation to the opposite party Nos. 1 claim against the petitioner and it was then that the real trouble arose in between the parties over the extent and ambit of the arbitration proceedings. On 16th December, 1991 as stated earlier the petitioner through his advocate wrote to the opposite party No. 2 raising objection as to his appointment to adjudicate the disputes relating to the opposite party No. 1's claims against the petitioner. It is an admitted position which is borne out on record that between 6th December, 1991 and 22nd January 1992 the opposite party No. 2 held sittings for arbitration proceedings in relation to the claim of opposite party No. 1. 3. ON an application being filed under Section 33 of the Arbitration Act by the petitioner challenging the existence or validity of the arbitration agreement and another application being filed under Section 4 (b) for an appropriate order staying further proceedings before the arbitrator, the learned Assistant district Judge after hearing the submissions of both the parties rejected both the applications holding inter alia that since the arbitrator has been appointed under the order of the Hon'ble High Court for determination of claims of the petitioner in respect of the works done by the petitioner, it cannot be the intention of the said Hon'ble Court that the opposite party No. 1 will be debarred from making any counter-claim against the petioner. Hence the dispute raised by the opposite party No. 1 by its letter dated 7. 10. 91 fall under the same reference for which the opposite party No. 2 was appointed the arbitrator. Thus there was no illegality done by the arbitrator in issuing a letter dated 22. 11. 91 fixing the date of the proceeding. The application under Section 41 (b) was also rejected accordingly. 4. MR. Bijitendra Mohan Mitra, appearing on behalf of the petitioner in the first place contended by drawing our attention to Clause 9. Thus there was no illegality done by the arbitrator in issuing a letter dated 22. 11. 91 fixing the date of the proceeding. The application under Section 41 (b) was also rejected accordingly. 4. MR. Bijitendra Mohan Mitra, appearing on behalf of the petitioner in the first place contended by drawing our attention to Clause 9. 9 of the arbitration agreement that it amounted to a negative clause to the effect that any dispute or difference between the contractors arising out of or in connection with or in any way relating to the contract "shall not be subject matter or be referred to arbitration". We have no hesitation whatsoever to find that it was an apparent misprinting because the word "no" does mot carry any sense and that apart, it can never be the intention of the parties that the difference or dispute "between the contractors shall not be the subject matter of or be referred to arbitration". The petitioner obviously did not try to take advantage of the situation and expressly called upon the opposite party No. 1 to enter into a specific agreement of arbitration in respect of all the four contracts by writing a letter dated October 21, 1991. The petitioner stated that in the absence of a clear arbitration clause in the contracts it is necessary that there should be a separate arbitration agreement between the parties to refer the question of dispute and difference arising out of or in connection with the subject contracts to be settled by arbitration. 11 is indeed true that a draft arbitration agreement was also sent along with the said letter. On 30. 11. 89 the petitioner again wrote to the Managing Director of the Durgapur Steel Plant that the job of handling of the refractory materials in CSD which was opened on 22. 11. 89 was not issued to his concern and the Letter of intent for the job of cleaning and allied work in the Sinter Plant was going to be issued very soon and that the opposite party No. 1 was asked to kindly direct the CRDWD Cell to the honour the judgment of the Calcutta High Count dated 26. 6. 89. It is only on 14. 7. 90 that the Superintendent, CRDWD Department of the opposite party No. 1 referred to arbitration the disputes arising out of all the four contract. By a letter dated 7. 6. 89. It is only on 14. 7. 90 that the Superintendent, CRDWD Department of the opposite party No. 1 referred to arbitration the disputes arising out of all the four contract. By a letter dated 7. 10. 91 the CRDWD Department of opposite party No. 1 asked the arbitrator also to decide the claims of the opposite party No. 1 arising out of the said contracts against the petitioner. We overrule the contention raised by Mr. Mitra that since the writ application pertained to three contracts, the fourth contract regarding supply of trucks without labour being Contract/work order/No. CRDWD/genl/87-88/8 dated 8. 3. 88. was not referred to arbitration and could not be decided upon by the arbitrator. If claims are referred to arbitrator in respect of the claims of the petitioner against the opposite party No. 1 we flail to appreciate the contention of Mr. Mitra raised on behalf of the petitioner that the counter-claims could not be the subject matter of the arbitration proceedings which the arbitrator can validly decide in the arbitration proceedings. 5. MR. Mitra contended further that mere acquiescence by a party to the jurisdiction of an arbitrator and admission of liability before him would not stop such party from questioning arbitrator's jurisdiction. He referred to a decision of M/s. Gangaram Ratardal vs. M/s. Simplex Mills Co. Ltd. reported in air 1982 Bombay 72 in this context wherein the principle was reiterated that unless there is an arbitration agreement in writing, the result would be that there is initial lack of jurisdiction on the part of the arbitrator and it could not have been cured by oral acquiescence on the part of the party and any admission of liability by such party before the arbitrator cannot confer on the other side any right to bank upon such admission because it is made before an authority, for want of an arbitration agreement as defined in Section 2 (a)initially lacking jurisdiction to act as an arbitrator and he is therefore incompetent to make an award. Lack of jurisdiction goes to the root of the matter and it is not merely an irregularity which can be cured by oral acquiescence. Mr. Mitra in this context cited a Supreme Court decision in khardahco. vs. Raymon and Co. Lack of jurisdiction goes to the root of the matter and it is not merely an irregularity which can be cured by oral acquiescence. Mr. Mitra in this context cited a Supreme Court decision in khardahco. vs. Raymon and Co. reported] in AIR 1962 SC 1810 at Page 1811 where it was held by the Supreme Court that a party applying under Section 33 of the Arbitration Act is not estopped by its conduct in appearing before the arbitrators and even though taking part in the proceedings before the arbitrators, from questioning the validity of the award. Mr. Mitra also cited before us a Single Bench decision of the Orissa High Court in National aluminium Co. Ltd. vs. M/s. Panda Engineering Works Pvt. Ltd. and Ors. reported in AIR 1991 Orissa 297 where: it was held that determination of whether or not a dispute is covered by the arbitration agreement is determination to the effect of the existence of arbitration agreement within the meaning of Section 33 of the Act. Section 33 is an independent provision permitting a party to an arbitration proceeding to challenge before the court, the arbitrability of any of the claims raised before the arbitrator. Thus merely because the parties have entered appearance before the arbitrator and the arbitrator is in sensing of the proceedings, the court is not ousted of jurisdiction to give a finding upon the arbitrability. In the facts of the said case when the parties to a dispute were fighting other issues before the Supreme Court and the High Court relating to the release of the bank guarantee which was initially connected with the liability of the contractor and claims and counter-claims were being raised by the parties against each other and there was an existing agreement for arbitration, there was direction given by the court that they should settle their disputes in arbitration proceeding. It was held in the facts of the case that the court had wrong notion that there was a definite dispute of the parties before the High Court and the Supreme Court which the court desired to be settled by the arbitrates. It was held in the facts of the case that the court had wrong notion that there was a definite dispute of the parties before the High Court and the Supreme Court which the court desired to be settled by the arbitrates. It was a case therefore of the subordinate Judge having failed to exercise the jurisdiction that was vested in him in disposing of the application under Section 33 by giving his decision as to whether if any of the claims made before the arbitrators was not arbitrable according to the agreement. The Subordinate Judge in the acts of the said case refused to go into that question on a wrong apprehension that the disputes were referred to the arbitrators by the High Court and it was also confirmed by the Supreme Court. Admittedly there was no arbitrator appointed by party by the time the matter was concluded by the Court. It was only a direction of the High Court that the parties should settle their disputes in arbitration proceeding which does not mean that anything referred to the arbitrator would be decided by him. The parties can still question the maintainability or arbitrability of each or all of the claims before the arbitrators. So when the matters were referred to arbitrators and the petitioner found that some of the claims or all claims according to him, are not arbitrable as they pertained to disputed question of facts and are required to be decided by the Engineer before the matter could be arbitrated upon and other matters which according to the petitioner were not at all arbitrable apart form this, there was nothing wrong from the petitioner-company to approach the arbitrators with no application to decide those questions as preliminary Issues but making such an application does not amount to conferring right on the petitioner to force the arbitrators to decide those matters as a preliminary issue. The arbitrators were free to take a decision as to which of the issues they can hear as preliminary issues. It was held in the said case that the Subordinate Judge failed to exercise his jurisdiction that was vested in him in disposing of the application under Section 33 of the Arbitration Act by giving his decision as if any of the claims made before the arbitrators was not arbitrable according to the agreement. It was held in the said case that the Subordinate Judge failed to exercise his jurisdiction that was vested in him in disposing of the application under Section 33 of the Arbitration Act by giving his decision as if any of the claims made before the arbitrators was not arbitrable according to the agreement. The learned Subordinate Judge having refused to go into that question on the wrong apprehension that the disputes then were already referred to the arbitrator by the High Court and confirmed by the Supreme court had thus the sanction of the High Court or the Supreme Court was clearly wrong and he was clearly wrong in his exercise of jurisdiction that was vested on him. 6. DRAWING this analogy Mr. Mitra further referred to a decision reported in air 1989 SC 839 in I. T. C. Ltd. vs. George Joseph Fernandes and anr. The said decision also reiterated the principle that the very jurisdiction of the arbitrator is dependent upon the existence of the arbitration clause under which he is appointed and the parties have no right to invoke a clause which perished with the contract if the contract is either substituted by a new contract or is subjected to rescission or alteration. That dispute cannot be referred to the arbitration because that arbitration itself would perish with either the substitution, rescission or alteration. In case of rescission it would put an end to the rights of the parties to the contract in future. It may permit claiming of damages either for the previous breaches or for the breach which constitutes the termination. The contract being consensual the question whether the arbitration clause survives or perishes would depend on the nature of the controversy and its effect upon the existence or survival of the contract itself. A dispute as to the binding nature of the contract cannot be determined by taking resort to arbitration because the arbitration clause itself stands or falls according to the determination of the question in dispute. Mr. A dispute as to the binding nature of the contract cannot be determined by taking resort to arbitration because the arbitration clause itself stands or falls according to the determination of the question in dispute. Mr. Mitra further contended before us that even if the original contract itself contained an arbitration clause and even though the High Court referred to the disputes with regard to the three out of four of the contracts to arbitration and the parties ultimately agreed to go in for arbitration in that context, it did not confer any jurisdiction on the arbitrator to decide any dispute arising out of the fourth contract which was beyond the subject matter of the writ proceedings and hence not amenable to the High Court Order. That apart the counter-claim arising out of the contracts could not at all be decided upon by the arbitrator and what the arbitrator could decide is only the claim of the petitioner against the opposite party No. 1 and not the counter claim of the opposite party No. 1 against the petitioner. Mr. Chatterji appearing for the opposite party No. 1 placed before us a full Bench decision of the Punjab High Court in M/s. Ram Lal Jagan Nath vs. Punjab State reported in AIR 1966, Punjab 436. As was observed in the said decision there is nothing peculiar or extraordinary about arbitration agreements. The same rules of construction and interpretation apply to such agreements as applied to agreements generally and they, also apply to such arbitration agreements. The court has to seek to give effect to the intention of the parties as evidenced by the agreement itself, without being over-technical in its interpretation. Such intention must be gathered from the whole context, even though the immediate object of the enquiry be the meaning of an isolated clause. The court has to seek to give effect to the intention of the parties as evidenced by the agreement itself, without being over-technical in its interpretation. Such intention must be gathered from the whole context, even though the immediate object of the enquiry be the meaning of an isolated clause. That aspect that an arbitration agreement has the effect of ousting the jurisdiction of the established courts of taw should not be given undue weight in view of the other aspect that the settlement of dispute by arbitration is not deemed to be contrary to our public policy, but is a recognised method for settling disputes in which the parties create their own forums, pick their own judges, waive all but limited rights of control by courts, dispense with the unnecessary technicalities of rules of evidence and procedure and leave the issues to be determined in accordance with the sense of justice and equity they believe their self-chosen judges possess. There is also no distinction between those to which the Government is a party and those between private parties. An arbitration agreement may be contained in a clause quite collateral to the main purpose of an agreement and such an agreement may even arise by incorporation of one document containing an arbitration clause in another under which the dispute arises. There is indeed no quarrel with this proposition of law as enunciated by the Full Bench Punjab decision but then we find in the facts and circumstances of the present case that there is existence of arbitration agreement which left the parties not only to arbitration but both the parties have joined the arbitration proceedings and continued with the same. As was held in the case of Prasun Roy vs. the Calcutta Metropolitan Development authority and Anr. , reported in AIR 1938 SC 205 where even though a party is aware from the beginning that by reason of some disability the matter is legally incapable of being submitted to arbitration but still participated in arbitration proceedings and then when he sees that the ultimate decision is going against him, comes forward to challenge the whole of the arbitration proceedings as without jurisdiction on the ground of a known disability, the same cannot be allowed. This principle applies both before and after making of the award. This principle applies both before and after making of the award. The principle is that a party shall hot be: allowed to blow not and cold simultaneously. Long participation and acquiescence in the proceeding preclude such a party from contending that the proceedings were without jurisdiction. In this context a Judicial Committee decision in Chowdhury Murtaza Hossein vs. Mussumat Bibi Bechunnissa (1876 3 Indian Appeal 209 at page 220 and the observations of the Supreme Court in N. Chellappan vs. Secretary, Kerala State electricity Board reported in AIR 1975 SC 230 were relied upon. Mr. Chatterji further relied upon another Supreme Court judgment in neelkantan and Bros. Construction vs. Superintending Engineer, National High ways, Salem and Ors. , reported in AIR 1988 SC 2045 where it was held by the supreme Court that if the parties to the reference either agree beforehand to the method of appointment or afterwards acquiesce in the appointment made, with full knowledge of all the circumstances, they will be precluded from objecting to such appointment as invalidating subsequent proceedings. 7. WITH a view to appreciating the participation of the petitioner as well as the opposite party No. 1 against the petitioner, we called for the records from the Arbitrator, the opposite party No. 2. We perused the records with proper circumspection. We are afraid the petitioner consciously participated in the arbitration proceedings not only with regard to the fourth item of the contract which was beyond the scope of the High Court proceedings but also in respect of the counter-claim made by the opposite party No. 1 against the petitioner. It is too late in the day now for the [petitioner to come round and contend that there is no valid arbitration agreement pursuant to which the arbitration proceedings can go on or he can resort to a printing mistake in the contract pertaining to the arbitration agreement or contend further that only claims of the petitioner against the opposite party No. 1 are within the ambit of the arbitration agreement and not the counter-claim of the opposite party No. 1 against the petitioner. We are of the confirmed opinion that the learned assistant District Judge has rightly rejected both the applications one under section 33 and the other under Section 41 (b) of the Act. We are of the confirmed opinion that the learned assistant District Judge has rightly rejected both the applications one under section 33 and the other under Section 41 (b) of the Act. There is no error in failure to exercise jurisdiction or exercise of jurisdiction illegally or with material irregularity calling for an interference by this court in this revisional jurisdiction. Thus the revisional application stands rejected. 8. THERE will be no order as to costs. The learn Arbitrator is directed to proceed expeditiously with the arbitration proceedings so as to make his award, preferably, within a period of three months from the communication of this order. All interim orders stand vacated. 9. LET a xerox copy of the order countersigned by the Assistant Registrar (Court) be handed over to both the parties as also the Arbitrator on usual undertaking. Revisional application rejected.