Research › Browse › Judgment

Madhya Pradesh High Court · body

1998 DIGILAW 471 (MP)

Western Coalfields Ltd. v. Narbada Constructions

1998-07-10

S.K.DUBEY, V.K.AGRAWAL

body1998
ORDER Dubey, J. -- 1. The appellant has filed the aforesaid two appeals under section 37 (b) of the Aribitration and Conciliation Act, •1996 (No. 26 of 1996) (for short 'the Act of 1996') against common order dated 9.8.97, passed in Civil Suit No. 23-A/96 and Civil Suit No. 25-A/96 by IIIrd Additional District Judge, Chhindwara. 2. Facts giving rise to these appeals are thus: On 15.3.1990 the appellant invited tenders for construction of 198 miners quarters, 40 B' type quarters and 2 C' type quarters for mine employees of WCL at Tandsi Project in Kanhan area District Chhindwara. The work cost was estimated at Rs. 2,35,26,072,30. The respondent submitted its offer at percentage rate for the said work which was accepted by the appellant vide letter dated 4.7.1991. An agreement No. 13 of 1991-1992 was entered into between the parties and work order was issued on 13.7.91 which was to be completed within the stipulated period of 18 months from the date of work order, i.e., by 23.1.1993 in accordance with the terms and conditions of the agreement. As per terms of the agreement appellant was to arrange for cement, electricity, coal for bricks etc. at the fixed rate for the construction work. Appellant also agreed to make payment of monthly bills every month according to the progress report of the work. The respondent could not complete the construction work within the period of 18 months, hence, on three occasions vide letters dated 15.1.1993, 15.1.1994 and on 10.3.1995 applied for extension of the period. The appellant granted provisional extensions without prejudice to the rights of levy of penalty and escalation vide letters dated 23.1.94, 23.1.96 and 20.3.96, respectively. The respondent even after extensions could not complete even a substantial portion 'of the work and abandoned the work, The respondent alleged that the appellant failed to supply cement, electricity and coal and also failed to make the payment of regular monthly bills as such there was' no option for the respondent but to abandon the remaining part of the work. Therefore, the respondent on 20.3 .1996 served a notice on the appellant to appoint an arbitrator in terms of clause 13 of the agreement. Therefore, the respondent on 20.3 .1996 served a notice on the appellant to appoint an arbitrator in terms of clause 13 of the agreement. The Chairman-cum-Managing Director failed to appoint arbitrator for deciding all questions and disputes of the claim of the respondent, hence the respondent filed an application under section 20 of the Arbitration Act, 1940 (for short 'the Act of 1940) on 23.3.1996 which was allowed vide order dated 31.7.1996 passed in Civil Suit No. 25-A of 1996. 3. The Chairman-cum-Managing Director of the appellant company in compliance of the order of the Court vide letter dated 11.10.1996 appointed one Shri A.G. Watwe as sole Arbitrator to adjudicate the dispute between the two parties and to pass a reasoned award. The details of the claim and counter claims of the parties were also enclosed for the reference of the Arbitrator. The appellant filed the written statement to the claim of the respondent on 6.12.1996 while the respondent filed reply to the counter-claim of the appellant on 27.12.1996 wherein an objection to the jurisdiction of the Arbitrator to decide the counter-claim was raised as it was not entertain-able in view of the order of reference passed under section 20 (4) of the Act of 1940 whereby the Court did not direct to decide the counter claim as it was not raised in the proceedings initiated by the respondent on the application under section 20 of the Act of 1940. The Arbitrator without deciding the maintainability of the counter-claim passed a reasoned award dated 26.3.97 for Rs. 2,28,036.60 in favour of the respondent . towards the claim of respondent and also allowed the counter-claim preferred by the appellant of granting compensation to the tune of Rs. 29,35,401.16 wherein a deduction of Rs.'2,28,036.60 was made and an award of Rs. 27,08,114.56 was passed in favour of the appellant. 3A. The appellant filed an application under section 36 of the Act of 1996 for enforcement of the award whereas the respondent filed an application under section 34 of the Act of 1996 read with section 30 of the Act of 1940 for setting aside the award passed against it and for grant of his claim. The learned Court below after hearing the parties set. aside the arbitral award which dealt with the counter-claim not contemplated by the order of reference made to the Arbitrator by the Court. The learned Court below after hearing the parties set. aside the arbitral award which dealt with the counter-claim not contemplated by the order of reference made to the Arbitrator by the Court. After dealing with the various claims of the respondent the Court held that the delay was on the pan of the appellant in not supplying the required material like cement, etc. for construction of quarters and also observed that during the stipulated period of 18 months or even during the extended period of 57 months only one-fifth quantity of cement was supplied though it had stock of cement. Similarly the supply of electricity and coal was irregular and payment of monthly bills was not made. Therefore, observed that the Arbitrator has ignored all the aforesaid facts and hence set aside the award in both the disputes and directed the Chairman-cum-Managing Director of WCL to appoint an impartial Arbitrator for adjudicating the dispute and to pass an award. If any counter-claim is filed by the appellant in the Court the same shall be connected with the applications filed by the respondent and shall be forwarded Ito Chairman-cum-Managing Director so that the claim and counter-claim be disposed of simultaneously. 4. Learned counsel for the appellant referred to the order passed on application under section 20 of the Act of 1940 and submitted that on the statement of both the parties and their counsel disputes between the parties regarding the construction of the quarters were referred to the sole Arbitrator to be appointed by the Chairman-cum-Managing Director of the WCL. The order does not say that the Arbitrator shall decide the disputes in relation to the claims raised by the respondent only. Even otherwise from the order of appointment of the Arbitrator it is evident that the claims and counter-claims of the parties were to be adjudicated upon. Though the respondent objected to the entertain ability of the counter-claim but did not approach the Court for seeking an order about the entertain-ability of counter-claim by the Arbitrator. On the other hand the respondent participated in the proceedings before the Arbitrator. As the arbitration proceedings did not conclude within the prescribed period, the respondent made joint applications for extension of time, therefore, it was not open for the respondent to challenge the entertain ability of the counter-claim. On the other hand the respondent participated in the proceedings before the Arbitrator. As the arbitration proceedings did not conclude within the prescribed period, the respondent made joint applications for extension of time, therefore, it was not open for the respondent to challenge the entertain ability of the counter-claim. When once the dispute is referred either by the parties or through the reference under section 20 and in relation to the disputed claims, and wherein the counterclaim is made, the Arbitrator has to adjudicate upon the same, to avoid multiplicity of proceedings otherwise it amounts to misconduct. Besides, in the order impugned the learned Court below has directed that if the counter-chum is filed in the case that be also sent to the newly appointed arbitrator for adjudicating the same. The award passed by the Arbitrator is a reasoned award which could not have been set aside, except on the grounds enumerated in section 34 of the Act of 1996. To support the contentions learned counsel cited Prasun Roy v. The Calcutta Metropolitan Development Authority and another ( AIR 1988 SC 205 ), M/s. Neelkantan & Bros. Construction v. Superintending ,Engineer, National Highways, Salem and others ( AIR 1988 SC 2045 ), K. V. George v. Secretary to Govt. Water and Power Department Trivandrum and another ( AIR 1990 SC 53 ), M/s. Indian Drugs & Pharmaceuticals Ltd. v. M/s. Indo Swiss Synthetics Gem Manufacturing Co. Ltd. and others ( AIR 1996 SC 543 ), Trustees of the Port of Madras v. Engineering Construction Corporation Limited ( AIR 1995 SC 2423 ), Pannalal v. State of M.P. (1963 JLJ 492 = AIR 1995 SC 2423 ), State of Orissa v. Laxminarayan Samantaray and another ( AIR 1982 Ori. 93 ). 5. Learned counsel for the respondent submitted that the subject matter of the reference under section 20(4) of the Act of 1940 was the claims of the respondent in dispute. There was no reference of counter-claim lodged by the appellant, therefore, the Arbitrator could not have adjudicated upon the said counter-claim. When the reference is made under section 20 of the Act of 1940 the said reference covers only such dispute as has been specifically included in it which have arisen by the time the reference is made. By entertaining the counter-claim the Arbitrator enlarged the scope of reference which was not permissible. When the reference is made under section 20 of the Act of 1940 the said reference covers only such dispute as has been specifically included in it which have arisen by the time the reference is made. By entertaining the counter-claim the Arbitrator enlarged the scope of reference which was not permissible. Therefore, the compensation awarded on the counter-claim lodged by the appellant is, without jurisdiction. It is a fundamental principle that a decree or award passed by a Court or an Arbitrator without jurisdiction is a nullity and its invalidity could be set up whenever or where ever it is tried to be enforced and realised upon even at the stage of execution or even in a collateral proceedings. A defect of inherent lack of jurisdiction cannot be cured even by consent of parties. Hence, the question of acquiescence or estoppels does not arise. The error of law is apparent. By deciding the counter-claim the Arbitrator has misconducted himself. Counsel cited Kiran Singh and Others v. Chaman Paswan and others ( AIR 1954 SC 340 ), Gobardhan Das v. Lachhmi Ram and others ( AIR 1954 SC 689 ), M/s. lagan Nath Phool Chand v. Union of India and others (AIR 1982 Delhi 93), Ramgopal Lath v. The Comman wealth Assurance Co. Ltd. ( AIR 1973 Cal. 504 ). On merits it was submitted that the learned Court below has rightly observed that the Arbitrator has failed to take note of the defaults made by the appellant in not supplying the material as per agreement and in not making the payment which has obstructed the respondent in execution of the contract. It was also submitted that till now the appellant could not get the construction of quarters completed because of their own lapses in not supplying the material etc. and the quarters are lying unconstructed as it was left over by •the respondent. That itself shows that the appellant was not interested in construction of the quarters hence committed lapses for which the appellant has been awarded a heavy compensation. The Arbitrator was an employee of the appellant who misconducted himself in passing the award without considering the relevant facts for adjudicating upon the counter-claim. 6. That itself shows that the appellant was not interested in construction of the quarters hence committed lapses for which the appellant has been awarded a heavy compensation. The Arbitrator was an employee of the appellant who misconducted himself in passing the award without considering the relevant facts for adjudicating upon the counter-claim. 6. Before dealing with the contentions advanced by the learned counsel for the parties it would be appropriate to refer to arbitration clause in agreement, the order dated 31.7.96 passed on the application u/s 20 in Civil Suit No. 25-A/96 which we quote: "13. Arbitration: Except where otherwise provided for in the contract, all questions and disputes relating to meaning of the specification, designs, drawings and as to the quality of workmanship or materials used on the work or as to any other question, claim right matter or thing whatsoever, in any way arising out of or relating to the contract, designs, drawings, specification, estimates, instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitrator appointed by the Chairman-cum-Managing Director of the Company or any other person authorised by the Board to appoint such arbitrator. It will be no objection to any such appointment that the arbitrator so appointed is an employee of the Company and that in the course of his duties as an employee of the Company he had expressed views on all or any of the matters in dispute of difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason whatsoever the CMD of the Company or any such person authorised by the Board to appoint an arbitrator as aforesaid, at the time of such transfer, vacation of office or inability to act, shall appoint another person to act as arbitrator in his place in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor, it is also a term of this contract that no person other than a person appointed by the company as aforesaid should act as arbitrator and if for any reason that is not possible, the matter is not to be referred to arbitration at all. In all cases where the amount of the claim in dispute is Rs. 50,000/- (Rupees fifty thousand) and above, the arbitrator shall give reason for the award. Subject as aforesaid the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the Rules made there under and for the time being in force shall apply to the, arbitration proceeding under this clause." Order dated 31.7.96 : "Upon reading application u/s 20 of Arbitration Act, 1940 filed on 23rd day of March 1996 and upon reading of the application filed today along with the notice dated 20.3.96 and statement regarding disputes and minutes dated 3.11.95 and on statement of both the parties through their counsel that the disputes between the parties regarding construction of 198 M.A. 48 B' Type and 2 C' Type Quarters at Tandsi be referred to the sole Arbitrator to be appointed by Chairman-cum-Managing Director of Western Coalfields Limited, or any other person authorised by the Board to appoint such Arbitrator, it is ordered that the disputes mentioned in notice dated 20.3.96 and statement filed by applicant before this Court on 31.7.96 (copy of notice and statement are being annexed with this order and shall be deemed to be part of this order) be referred for determination to the sole Arbitrator for deciding all these disputes and to make his award in writing on or before 31.12.96. Both the parties shall be noticed by the Arbitrator so appointed to appear before him and the applicant shall be at liberty to file claims about disputes and documents, and the non-applicant shall also have liberty to file suitable reply, documents and the Arbitrator shall proceed in the matter according to the Provisions of Arbitration Act, and give his award as stated on or before 31.12.96. In case due to some unavoidable reason the Arbitrator is not able to complete arbitration and give award before 31.12,96, he or parties can apply to this Court for extension of time which shall be considered on its merits." 7. A reading of clause 13 of the agreement shows that all questions and disputes, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract designs, drawings, specifications concerning the work or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof are to be referred to the sole Arbitrator appointed by the Chairman-cum-Managing Director of the Company or any person authorised by the Board to appoint such Arbitrator. The clause also provides that there will be no objection to appointment of such Arbitrator that the Arbitrator so appointed is an employee of the Company. The clause further provides a duty on the Arbitrator to give a reasoned award. 8. On the disputes having arisen between the parties the Arbitrator was not appointed, therefore, the respondent approached the Court by an application u/s 20 of Act of 1940 for filing of the agreement and for making a reference to the sole Arbitrator. The Court thereafter passed an order on the said application wherein on the statement of both the parties that the disputes regarding construction of 198 MQ 48 B' and 2 C' Type quarters at Tandsi be referred to the sole Arbitrator to be appointed by Chairman-cum-Managing Director of WCL, or any other person authorised by the Board to appoint such Arbitrator, be referred to, ordered that the disputes mentioned in notice dated 20.3.1996 and the statement filed by the applicant before the Court on 31.3.1996 be referred to the sole Arbitrator for deciding all these disputes and to make his award in writing. The respondent was given liberty to file claims about the disputes and the appellant was given liberty to file suitable reply. In compliance of the order of the Court the Chairman-cum-Managing Director appointed sole Arbitrator and sent the details of claims and counter-claims of the parties to which respective replies were filed by the parties before the Arbitrator. 9. The respondent was given liberty to file claims about the disputes and the appellant was given liberty to file suitable reply. In compliance of the order of the Court the Chairman-cum-Managing Director appointed sole Arbitrator and sent the details of claims and counter-claims of the parties to which respective replies were filed by the parties before the Arbitrator. 9. True, the order of reference does not speak of counter-claim but as the disputes having arisen between the parties in relation to the claims and counterclaims of the parties concerning the contract covered by Arbitration agreement Arbitrator was bound to decide and a separate reference on counter-claims was not necessary. The word "dispute" means if one party asserts a right and other party repudiates the same that is a "dispute" within the meaning of the Act of 1940. Any question of which the parties join issue is a "dispute" before an Arbitrator to be inquired into. In Black's Law Dictionary, 6th edition, page 472, "Dispute" means a conflict or controversy; a conflict of claims or rights; an assertion of a right; claim; or demand on one side, met by contrary claims or allegations on the other. The subject of litigation; the matter for which a suit is brought and upon which issue is joined, and in relation to which jurors are called and witnesses examined. The word' 'claim" is of very extensive signification embrased in every species of legal demand. It is one of the largest word of law and includes "demand" and "debt". A "claim" means the assertion of a cause of action which includes relief and also any grounds of obtaining relief. "Counter-claim" is a claim set up against the plaintiff lodging a claim in the same suit being based on a cause of action which if established will defeat or diminish the plaintiff's claim. See Black Law Dictionary, 6th edition, at page 349. The main purpose of allowing a defendant to set up a counter-claim is to avoid multiplicity of proceedings between the parties. 10. When on an order of reference the Arbitrator was appointed and for deciding all disputes the claims and counter-claims were sent to the Arbitrator by the Chairman-cum- Managing Director there was no option for the Arbitrator but to decide the claims and counter-claims based on the same cause of action. 10. When on an order of reference the Arbitrator was appointed and for deciding all disputes the claims and counter-claims were sent to the Arbitrator by the Chairman-cum- Managing Director there was no option for the Arbitrator but to decide the claims and counter-claims based on the same cause of action. As it was the duty of the Arbitrator to adjudicate upon claims and counter-claim before making the award otherwise he would have misconducted himself. 11. Part I of the Act of 1996 deals with Arbitration of which Chapter I relates to general provisions. Section 2 of the Act of 1996 in Chapter I of Part I is a 'Definitions' provision. Sub-section (9) of section 2 reads thus: "(9) Where this part, other than clause (a) of section 25 or clause (a) of sub-section (2) of section 32, refers to a claim, it shall also apply to a counter-claim, and w here it refers to a defence, it shall also apply to a defence to that counter-claim." From a bare reading of sub-section (9) of Section 2 it is clear that counterclaims are equally arbitrable as claims. It will not now be open for a claimant to raise a controversy that a counter-claim is not entertain-able by an arbitral tribunal. The law so far was not different under the Act of 1940. Where the claimant goes before the Arbitrator with a set of claims, and the other party resists by filing counter-claim or advances counter-claims, if there be any, it is the duty of the Arbitrator to consider both claim and counter-claim before making the award otherwise the Arbitrator misconducts himself. See the decision of Supreme Court in K. V. George case (supra). 12. Therefore, there is no foundation in the contention that the Arbitrator has exceeded his authority in travelling outside the powers conferred upon him by the reference by entertaining the counter-claim and adjudicating the same unless the two parties join in, making a combined reference or the appellant also ought to have applied for reference about its claim in dispute to be decided under arbitration clause. The decisions relied by the learned counsel for the respondent are distinguishable which nowhere lay down that in a reference on the dispute between the parties in relation to claim if the counter-claim is lodged by the other . The decisions relied by the learned counsel for the respondent are distinguishable which nowhere lay down that in a reference on the dispute between the parties in relation to claim if the counter-claim is lodged by the other . party that would mean enlarging the scope of the reference and beyond the competence of the Arbitrator. 13. Besides, the learned Court below, after setting aside the award, directed the Chairman-cum-Managing Director to appoint an independent Arbitrator for deciding the claim of the respondent and also directed that if the counter-claim is filed in the Court, the same be also sent for adjudication by the Arbitrator. Clearly, therefore, the learned lower Court directed that the counter-claim based on the same cause of action on which the dispute between the parties was based and which had arisen by the time of reference, be also adjudicated by the Arbitrator, so as to avoid multiplicity of proceedings. In the circumstances, filing of counter-claim in the Court was merely procedural for onward transmission to Arbitrator, which was covered by the order of reference. 14. In the circumstances, the order of the learned Court below• that the Arbitrator exceeded its authority while deciding the counter-claim, and of appointment of an independent Arbitrator cannot be sustained. 15. Coming to the merits of the claims learned counsel submitted that the Court below illegally as an appellate Court has observed that the Arbitrator has not considered the defaults made by the appellant resulting in abandonment of the contract by the respondent. The approach is erroneous, therefore, the award be made rule of the Court We are not inclined to express our opinion at this stage as the grievance of the respondent is that the Court below has not dealt with other legal questions and also factual aspects which the Arbitrator has failed to take a note, besides the alleged bias of the Arbitrator. In the circumstances, this Court is of the opinion that the cases should go back to the Court below to decide the• objections of the parties on the applications u/s 34 and 36 of the Act of 1996 afresh in accordance with law after hearing the parties. 16. In the result the appeals are allowed. In the circumstances, this Court is of the opinion that the cases should go back to the Court below to decide the• objections of the parties on the applications u/s 34 and 36 of the Act of 1996 afresh in accordance with law after hearing the parties. 16. In the result the appeals are allowed. The common order passed in the two cases is set aside and the cases are sent back to the Court below to decide the applications u/s 34 & 36 of the Act of 1996 afresh, in accordance with law expeditiously. In the circumstances, parties to bear their own costs.