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Uttarakhand High Court · body

2007 DIGILAW 432 (UTT)

UNION OF INDIA v. GUPTA SANITARY STORES

2007-08-08

B.C.KANDPAL, P.C.VERMA

body2007
JUDGMENT Coram: Hon’ble P.C. Verma, J. Hon’ble B.C. Kandpal, J. Both the Appeals U/S 39 of the Arbitration Act have been preferred against the same judgment, therefore these appeals are being decided by this common judgment. 2. A.O. No. 155/2001 has been filed against the judgment and order dated 29.8.2000 passed by Civil Judge (S.D.) Dehradun in O.S. Nos. 13/1997 and 16/97, whereas A.O. No. 649/2001 has been preferred against the aforesaid judgment passed in Misc. Case Nos. 11/97 and 14/98. 3. The facts of the case giving rise to the present appeals are that work contract No. CE-B/14 year 1980-81 was entered into between the parties. There arose some dispute with regard to aforesaid work contract between the parties. The Court appointed Sri J.P. Mittal, retired Chief Engineer, Irrigation Department as an Arbitrator in the matter. Against this appointment appeal was preferred before the Allahabad High Court, who cancelled the appointment of retired person as an Arbitrator. Thereafter Sri P.K. Pandey, Chief Engineer was appointed Arbitrator in the matter, who also retired before concluding the arbitration proceeding. Hence Sri T.N. Vidhani Superintending Engineer Jal Nigam was appointed as an Arbitrator, who gave award on 31.12.96. The said award was presented before the Court which was registered as O.S. No. 16/97. M/s Gupta Sanitary preferred application U/S 17 and 29 of the Arbitration Act to make the award rule of the Court, which was registered as O.S. No. 13/97. The Union of India preferred objection against the award which was registered as Misc. Case No. 11/97. The Court on considering the objection of the Union of India, reverted the claim No. 12 of the award of the Arbitrator to reconsider it. The Arbitrator after hearing both the parties and reconsidering the claim allowed the claim No. 12 in favour of the contractor. Thereafter the Union of India again filed objection which was registered as Misc. Case No. 14/98. 4. The objections raised on behalf of the Union of India against the impugned award were that the Arbitrator has misconducted in asking the non-judicial stamp paper worth Rs. 30,000/-. Claim No. 1 is in five parts which are false and unwarranted and there is repetition of claims. The Arbitrator instead of giving award on each claim separately has awarded a lump sum amount of Rs. 10,58,867/-. Claim No. 2 has been awarded ignoring the condition No. 63 of LAFW-2249ac. 30,000/-. Claim No. 1 is in five parts which are false and unwarranted and there is repetition of claims. The Arbitrator instead of giving award on each claim separately has awarded a lump sum amount of Rs. 10,58,867/-. Claim No. 2 has been awarded ignoring the condition No. 63 of LAFW-2249ac. Claim No. 3 has been allowed going beyond the conditions of contract agreed between the parties despite written pleadings and oral presentation. Claim No. 4 has been awarded against the conditions of the contract – Item No. 20 of Schedule A Part-II. Claim No. 5 has been awarded in violation of condition 62(E) of IAFW-2249 (Exhibit-3). In claim No. 6 the contractor claimed cost of 58 adopters whereas Ext. 84 of claimant show only 34 number and out of which only 31 numbers have been provided at site. Similarly the Arbitrator wrongly awarded cost of 32 bends as against 16 bends provided at site. Under claim No. 8 the Arbitrator has ignored the condition 1(h) added vide page no. 128 of the contract. Claim No. 10 has been allowed despite the fact that the claimant was asked to file documentary evidence but he failed to file the documents. Claim No. 11 has also been allowed without any proof/documentary evidence for having incurred expenditure on this account. Under claim No. 12 the objection of the Union of India was that the Arbitrator has only relied on the statement of the claimant/contractor and based on the same the claimed amount has been awarded in full. The contractor has not produced muster rolls, which are to be maintained mandatorily under the conditions of the contract and also under labour laws. The accounts are also to be maintained under the Income Tax Act. Neither the claimant has produced any record/accounts showing the payments made to watch and ward. Under claim No. 14 it was alleged that the contractor claimed a sum of Rs. 37,250/- and submitted the details of Rs. 35,200/- but the learned Arbitrator has awarded the claim for Rs. 42,000/- which is more than the claimed amount, hence he misconducted himself in awarding the claim. Under claim No. 15 the objection of the Union of India was that the Arbitrator has awarded a huge amount of Rs. 37,250/- and submitted the details of Rs. 35,200/- but the learned Arbitrator has awarded the claim for Rs. 42,000/- which is more than the claimed amount, hence he misconducted himself in awarding the claim. Under claim No. 15 the objection of the Union of India was that the Arbitrator has awarded a huge amount of Rs. 64.31 lakhs on account of past and pendentelite interest @ 18% per annum which is much more on higher side while the bank rate of interest is not more than 11 to 12% per annum and the future interest cannot be more than 6%. Under claim No. 16 it was alleged that the contractor has unnecessarily dragged the Union of India into Arbitrator proceedings and this award should have been given in favour of Union of India but the Arbitrator has favoured the contractor and thus has misconducted himself in the proceedings. 5. The Contractor supported the impugned award and alleged that the objections raised by the Union of India are baseless. The Arbitrator has not misconducted himself as well as the arbitrator proceedings. It was also alleged that the whole working site, store and designs were not provided to the contractor on 16.6.80 and that was the reason that the work was completed with delay. However, on 15.10.85 the work was completed satisfactorily. 6. The learned Civil Judge, after hearing learned counsel for the parties and going through the objections of the parties, decreed the O.S. Nos. 13/97 and 16/97 and rejected the objections (Misc. Case Nos. 11/97 and 14/908). The learned Civil Judge made the award dated 31.12.96 rule of the Court with the modification that the contractor shall be entitled to get pendentelite interest @ 6% per annum upto the date of judgment and thereafter @ 12% per annum upto the date of final payment. It was also directed that the Union of India shall make payment of the claim of M/s Gupta Sanitary Store amounting to Rs. 1,00,77,369=01 P after adjusting claim of Union of India amount to Rs. 1080=00. 7. Feeling aggrieved by the aforesaid judgment and order and the impugned award, the Union of India has preferred these appeals before this Court. 8. We have heard the learned counsel for the parties and perused the record. 9. 1,00,77,369=01 P after adjusting claim of Union of India amount to Rs. 1080=00. 7. Feeling aggrieved by the aforesaid judgment and order and the impugned award, the Union of India has preferred these appeals before this Court. 8. We have heard the learned counsel for the parties and perused the record. 9. The ground taken in the appeal by the appellant is that in view of the provisions of Arbitration and Conciliation Act, 1996 the Court of Civil Judge ceases the powers to appoint an Arbitrator and only Hon’ble Chief Justice of High Court or the person designated by him can appoint an Arbitrator. 10. The record reveals that in this case the arbitration proceedings started in the year 1991, therefore, the ground taken by the appellant in the memo of appeal appears to be devoid of any force. The provisions of the Arbitration Act, 1940 would apply in this case and in view of the provisions of Section 20 of The Arbitration Act, 1940, the Civil Judge had powers to appoint an Arbitrator, in case if the following conditions are satisfied that:- (a) there must be an arbitration agreement between the parties, (b) that the agreement with respect to the subject-matter of a suit was entered into before filing the suit, (c) that differences have arisen between the parties, to which the agreement applies and, (d) that the Court to which an application has been made has jurisdiction in the matter to which the agreement relates. 11. Record reveals that the Civil Judge (Senior Division) directed both the parties to provide panel of atleast three persons in this regard. The panels of the names of the persons to be appointed as Arbitrator were furnished by the parties. The Civil Judge vide order dated 11.10.96 appointed one Sri T.N. Vidhani as an Arbitrator as the previous Arbitrator Sri P.K. Pandey had already retired and he could not conclude the arbitration proceedings. 12. Now it is to be seen ‘whether the Civil Judge had jurisdiction to appoint Sri T.N. Vidhani as an Arbitrator in the matter? 13. The Civil Judge vide order dated 11.10.96 appointed one Sri T.N. Vidhani as an Arbitrator as the previous Arbitrator Sri P.K. Pandey had already retired and he could not conclude the arbitration proceedings. 12. Now it is to be seen ‘whether the Civil Judge had jurisdiction to appoint Sri T.N. Vidhani as an Arbitrator in the matter? 13. There is no dispute that in view of the arbitration agreement the dispute between the parties to the contract shall, after written notice by either party to the contract to the other of them, be referred to the sole arbitration of an Engineer Office to be appointed by the authority mentioned in the tender documents. It is thus clear that there is a condition in the agreement to refer disputes to the Arbitrator for reference and under these circumstances the Civil Judge had power to appoint the Arbitrator on an application moved by the parties to the contract. 14. It is now to be seen that whether the Civil Judge had acted within the scope and ambit of Section 20 of the Arbitration Act, 1940 in appointing Sri T.N. Vidhani as an Arbitrator. The record reveals that the Union of India furnished panel of three names and all the three persons in the panel were the Engineers, out of which one was an Army Engineer, another was a Brigadier Engineer and the third was Sri S.K. Rao, an Engineer. The respondent also furnished the names of three Engineers belonging to Meerut, Ghaziabad and Dehradun, but the Civil Judge ignored all the names furnished by the parties to the contract to be appointed as an Arbitrator and appointed Sri T.N. Vidhani, who was not one of those persons so named. Therefore, we are of the view that the Civil Judge had travelled beyond the scope and applicability of Section 20 of the Arbitrator Act, 1940 in appointing Sri T.N. Vidhani as an Arbitrator in this case. 15. It will again be relevant to have a look on clause-70 of the arbitration agreement, which stipulates as under :- ’70. Therefore, we are of the view that the Civil Judge had travelled beyond the scope and applicability of Section 20 of the Arbitrator Act, 1940 in appointing Sri T.N. Vidhani as an Arbitrator in this case. 15. It will again be relevant to have a look on clause-70 of the arbitration agreement, which stipulates as under :- ’70. Arbitration – All disputes, between the parties to the contract (other than those for which the decision of the C.W.E. or any other person is by the contract expressed to be final and binding) shall, after written notice by either party to the contract to the other of them, be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents. Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the works or termination or determination of the contract under Condition Nos. 55, 56 and 57 hereof. Provided that in the event of abandonment of the works or cancellation of the contract under condition Nos. 52., 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalized by the Government to get the works completed by or through any other Contractor or Contractors or Agency or Agencies. Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner militate against the Government’s right of recovery from the contractor as provided in condition 67 hereof.” 16. Proviso to the clause-70 provides that the reference shall not take place until alternative arrangements have been finalized by the Government to get the works completed by or through any other Contractor or Contractors or Agency or Agencies. Perusal of the impugned award shows that the State/Appellant cancelled the contract of the contractor/respondent on 17.10.1989, therefore, the reference to Civil Court U/S 20 by the contractor in the year 1988 was premature and the Arbitrator neither acquired nor could acquire any jurisdiction to enter into the reference in gross violation of aforesaid arbitration clause. The Hon’ble Apex Court in the matter of Municipal Corporation Jabalpur and others Versus Rajesh Construction Co. The Hon’ble Apex Court in the matter of Municipal Corporation Jabalpur and others Versus Rajesh Construction Co. reported in (2007) 5 Supreme Court Cases 344 has held that ‘no reference can be made to the Arbitrator without fulfilling the conditions prescribed in the contractor before the appointment as demonstrated earlier, reference is specifically barred prior to the cancellation of the present contract and awarding it to the other contractor/agency.’ 17. The impugned award further reveals that the total work awarded to the contractor/respondent was for Rs. 40,16,595-00. However the learned Arbitrator awarded Rs. 1,00,77,369-01 P. along with 18% interest per annum, which appears to be more than the double cost of the contract work. 18. The Arbitrator awarded the claims under 13 heads and we shall discuss all the claims separately. 19. Claim No. 1 has been awarded for the breach of contract to the tune of Rs. 10,58,867-00 and yet again the Arbitrator awarded another claim No. 15 for financial losses at Rs. 64,31,217-00. The Arbitrator has given the reason that the amount under claim No. 1 has been awarded for breach of contract but it appears to be self-contradictory as had there been a breach of contract then there could not be any additional expenses on contractor unless and until it is found that the contractor incurred any additional expenses to get the same work done after a gap of time. It is neither party’s case that after termination of the contract by the department the work was restored after some time on persuasion of the contractor. The award given by the Arbitrator under claim No. 1 is a result of non-application of mind and comes within the ambit of misconduct. Likewise the award under claim No. 15 given by the Arbitrator cannot be justified since total cost of contract was only Rs. 40,16,595-00, therefore, we are of the view that the Arbitrator awarded the amount under these two heads without any basis and beyond the arbitration clause. The Hon’ble Apex Court in a decision Food Corporation of India Vs. Chandu Cosntruction and another, reported in (2007) 4 Supreme Court Cases 697, has held that ‘the contractor’s claim is to be adjudicated on the specific terms of the agreement and no other.’ 20. The Arbitrator awarded an amount of Rs. 21,640-00 under claim No. 2 for payment for increase in wages of labour during original contract period. Chandu Cosntruction and another, reported in (2007) 4 Supreme Court Cases 697, has held that ‘the contractor’s claim is to be adjudicated on the specific terms of the agreement and no other.’ 20. The Arbitrator awarded an amount of Rs. 21,640-00 under claim No. 2 for payment for increase in wages of labour during original contract period. The contract does not provide anywhere for any extra payment for increase of wages of labour during the contract period. Therefore, the award under claim No. 2 has also been given by the Arbitrator beyond scope of terms and conditions of the contract. 21. The Arbitrator also awarded claim No. 3 for payment on account of incorrect measurement of earth work by the department. As the contractor has nowhere pleaded that he did any extra work beyond the terms of the contract, as the works required to be done by the contractor are mentioned in the contract, hence there was no question of incorrect measurement. had there been a case of excessive work, the contractor could have claimed for extra payment. Therefore, in absence of any extra work, grant of claim under incorrect measurement is totally wrong and unjustified. 22. Claim No. 4 pertains to Circular Sloping Brick Works in man holes, claim No. 5 pertains to supply and fixing complete detachable joints and cast iron alloy, claim No. 6 relates for payment of C.I. Bends and Specials, claim No. 8 relates to pumping out of water for building and claim No. 10 for 200 mm thick blanket in oxidation pond. 23. Perusal of record shows that item pertaining to claim No. 4 is specified in the contract itself, therefore it does not come under the definition of excessive work beyond specification of contract, hence there was no justification with the Arbitrator to grant extra payment for the same work which was specified in the contract itself. Further the work done for which the award has been given under claim No. 5 is a part of the contract and no extra payment is also prescribed for this work in the contract. The work done under claim Nos. 6, 8 and 10 for which the award has been given, are also covered within the work awarded under the contract. As the aforesaid works are not the extra works, therefore there was no question for awarding extra payment beyond the scope of the contract. 24. The work done under claim Nos. 6, 8 and 10 for which the award has been given, are also covered within the work awarded under the contract. As the aforesaid works are not the extra works, therefore there was no question for awarding extra payment beyond the scope of the contract. 24. Further, the Arbitrator has awarded a sum of Rs. 12,000/- under claim No. 11 and a sum of Rs. 19,28,367-00 under claim No. 12 for watch and ward of sewage installation. The awards under the aforesaid claims given by the Arbitrator are also unjustified as it was the duty of the contractor to protect the site by his own staff until and unless the same is handed over by the contractor to the department. The total amount of the contract was Rs. 40,16,595-00, therefore it is beyond imagination that for watch and ward staff an expenditure of Rs. 19,28,367-00 would be there out of the total amount of the contract. The award given by the Arbitrator under the aforesaid head appears to be the result of non-application of mind and clearly comes within the ambit of misconduct. 25. The Arbitrator has also awarded an amount of Rs. 42,000/- under claim No. 14 for non-release of bank guarantee after extended date of completion. The Arbitrator in giving the award under the aforesaid claim has failed to appreciate that bank guarantee was furnished by the contractor as guarantee to complete the work. Once both the parties admit that work is not completed by the contractor and the department had to award the work to other agency and got completed the work by the other agency then therefore no question of release of bank guarantee before completion of work. 26. It is thus quite clear that the Arbitrator has committed misconduct by awarding a sum of Rs. 1,00,58,867-00 for incomplete work while the contract for the total work was given for Rs. 40,16,595-00. The court below has not taken into account the relevant aspects of the case while making the award as rule of the court. The impugned award given by the Arbitrator as well as the judgment passed by the court below are liable to be set aside. 27. The appeals are allowed. 40,16,595-00. The court below has not taken into account the relevant aspects of the case while making the award as rule of the court. The impugned award given by the Arbitrator as well as the judgment passed by the court below are liable to be set aside. 27. The appeals are allowed. The impugned award dated 31.12.1996 and the judgment and order dated 29.8.2000 passed by the Civil Judge (S.D.) Dehradun, rejecting the objections of the Union of India and making the award rule of the court, are hereby set aside. No order as to costs. 28. Let a copy of this judgment be placed in the file of A.O. No. 649/2001.