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2007 DIGILAW 618 (ORI)

Bhagheeratha Engineering Ltd. v. State of Orissa

2007-08-09

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JUDGMENT A. K. GANGULY, C.J. : This petition has been filed seeking appointment of an Arbitrator who is unconnected with the parties. 2. The relevant facts of the case are that the petitioner claims to be a Public Limited Company carrying on business on construction works throughout India and participated in the Tender called by the State of Orissa for Construction of Left Bank Canal of Rengali Irrigation Project from RD 31500 KM to 33000 KM (open Cut along with Cut and Cover) OECF Division No.I, Package No.7A. 3. The petitioner being the successful Tenderer was award¬ed the contract for an agreed value of Rs.42,21,92,459.70 and the formal documents were signed on 12.3.2001. According to the petitioner, the contract between the parties contains an Arbitra¬tion Clause. The Clauses on which the petitioner relies as con¬taining Arbitration Clause are set out below :- “23.1 If the Contractor considers any work demanded of him to be outside the scope of the contract or considers any drawing, record or ruling of the Engineer-in-Charge, on any matter in connection with or arising out of the contract or the carrying out of work to be unacceptable, he shall promptly ask the Engi¬neer-in-Charge in writing for written instruction or decision. There upon the Engineer-in-Charge shall give his written instruc¬tion or decision within a period of thirty days of such request. Upon receipt of the written instruction of decision of the Con¬tractor shall promptly proceed without delay to comply with such instruction or decision. If the Engineer-in-Charge fails to give his instruction or decision in writing within a period of thirty days after being requested or if the contractor is dissatisfied with the instruction or decision of the Engineer-in-Charge, the contractor may within thirty days after receiving instruction or decision of the Engineer-in-Charge appeal to the employer who shall afford an opportunity to the contractor to be heard and to offer evidence in support of his appeal. The employer shall give his decision within a period of thirty days after the contractor has given the said evidence in support of this appeal. 23.2. If the Contractor is dissatisfied with the decision of the Employer then the contractor within a period of thirty days from the receipt of the decision of the Employer may refer the disputes to Arbitration Tribunal.” 4. 23.2. If the Contractor is dissatisfied with the decision of the Employer then the contractor within a period of thirty days from the receipt of the decision of the Employer may refer the disputes to Arbitration Tribunal.” 4. Some disputes and differences arose between the parties and it appears that as the opposite party invoked the bank guar¬antee, the petitioner moved an application under Section 9 of the Arbitration and Conciliation Act, 1996 before the District Judge, Khurda at Bhubaneswar in Arbitration Petition No.431 of 2004 for injunction and that matter is pending in the said Court. 5. However, in terms of the Clauses 23.1 and 23.2, the petitioner demanded the decision of the dispute from opposite party No.2 i.e. Executive Engineer by its letter dated 14.9.2004 vide Annexure-2. After receiving the said letter, the Executive Engineer by his reply dated 7.10.2004 informed the petitioner that the claims of the petitioner are undue and that the Department is unable to entertain those claims which have been raised by the petitioner. The said reply of the Executive Engi¬neer is at Annexure-3. 6. From the aforesaid Arbitration Clauses set out above, it appears if the petitioner is dissatisfied with the decision of the Engineer-in-Chief, the matter can be referred to the Chief Engineer and then the Chief Engineer shall communicate his deci¬sion within thirty days. As such, the petitioner wrote to the Chief Engineer on 15.10.2004 about its dissatisfaction with the decision of the Engineer-in-Chief and appealed to the employer as per Clause 23.1 of the condition of contract. The decision was demanded from the Chief Engineer on the various claims submitted by the petitioner. The said letter of the petitioner dated 15.10.2004 is at Annexure-4. Since no reply was received from the Chief Engineer, the petitioner again wrote a letter to the Chief Engineer on 22.11.2004 stating inter alia, that as no reply was received from the Chief Engineer, they intend to refer the case for arbitration as per Clause 23.1 and accordingly requested the Chief Engineer to nominate the arbitrator as per Arbitration and Conciliation Act, 1996 and it was also made clear that the peti¬tioners will be shortly nominating their arbitrator. 7. 7. In reply to the said letter of the petitioner, the Chief Engineer wrote back by his letter dated 24.11.2004 that the petitioner’s stand of nominating their arbitrator for settling the dispute is not acceptable as per the Clause 23.2 of the conditions of contract. The Chief Engineer also made it clear that if the petitioner is dissatisfied with the decision of the employer, it may refer the dispute to the State Arbitration Tribunal. 8. In this matter, a counter affidavit has been filed by the State. In the counter affidavit the State has urged that in view of the provisions of Section 7 of Arbitration and Concilia¬tion Act, 1996 (hereinafter called as ‘ABC’) when there is an agreement in writing between the parties they can refer the dis¬pute to the named Arbitrator only. Therefore, in the instant case, it is the Arbitration Tribunal which can decide the dis¬pute. The case made out in the petition under Section 11 of ABC was controverted on merit. This Court is not concerned with that controversy. In paragraph 14 it has been stated by the State that in the agreement between the parties there is no provision for appointing an arbitrator by the employer. That is why the employ¬er suggested the matter to be referred to the State Arbitration Tribunal, if the petitioner is dissatisfied with the decision of the employer as per Clause 23.2 of the Conditions of contract. It is also stated that there is no reference to ABC, rather mention is made of referring the dispute to the State Arbitration Tribu¬nal which exists in the State of Orissa. As such, the matter can be referred to the State Arbitration Tribunal only and not to the sole Arbitrator as suggested by the petitioner. 9. In paragraph 16 of the counter affidavit State admitted that State Arbitration Tribunal is not defined in the contract. It also does not appear that there is any definition of State Arbitration Tribunal in the agreement. But in paragraph 17 of the counter affidavit it has been stated that State Arbitration Tribunal exists. 10. But the learned counsel for the petitioner submitted that after the coming into effect of ABC w.e.f. 25.1.1996, the State Arbitration Tribunal which is created under the Arbitration Act, 1940 does not exist in the eye of law. It is true that State Arbitration Tribunal has not been defined anywhere in the con¬tract. 10. But the learned counsel for the petitioner submitted that after the coming into effect of ABC w.e.f. 25.1.1996, the State Arbitration Tribunal which is created under the Arbitration Act, 1940 does not exist in the eye of law. It is true that State Arbitration Tribunal has not been defined anywhere in the con¬tract. 11. This Court finds that by Notification dated 26th March, 1983, Orissa Act 3 of 1983 came into existence seeking to amend the Arbitration Act, 1940 in its application to the State of Orissa. By Section 2 of the said amending Act to Section 2 of Arbitration Act, 1940 after clause (a), clause (a-I) has been added to the following effect : “Clause (a-I). “Arbitration Tribunal” means the Arbitration Tribunal constituted under this Act;” 12. By the said amending Orissa Act 3 of 1983, after Sec¬tion 41 of Arbitration Act, 1940, Section 41-A has been inserted. The said added Section 41-A (I) is as follows :- “41-A. (I). Notwithstanding anything contained in this Act or in any contract or any other instrument, but without prejudice to the provisions contained in Section 47, in all cases where the State Government,a local or other authority controlled by the State Government, a statutory corporation or a Government Company is a party to the dispute, all references to arbitration shall be made to the Arbitration Tribunal.” 13. The constitution of the Arbitration Tribunal was pro¬vided under Section 41-A(2) and (3). Those Sections are set out below :- “(2) The State Government shall constitute an Arbitration Tribunal consisting of the following members, namely :- (a) one member chosen from among the officers belonging to the Orissa Superior Judicial Service (Senior Branch); (b) one member chosen from among the officers of the Public Works Department of the State Government not below the rank of a Superintending Engineer; (c) One member chosen from among the officers belonging to the Orissa Finance Service not below the Superior Administrative Cadre in Class I. (3) The member chosen from the Superior Judicial Service (Senior Branch) shall be the Chairman of the Tribunal.” 14. There has been a further State Amendment of the Arbi¬tration Act in its application to the State of Orissa by Orissa Act No.1 of 1990. Section 41-A of the Arbitration Act, 1940, was further amended. There has been an amendment to the said Arbitra¬tion Act, 1940 by Orissa Act 17 of 1984. There has been a further State Amendment of the Arbi¬tration Act in its application to the State of Orissa by Orissa Act No.1 of 1990. Section 41-A of the Arbitration Act, 1940, was further amended. There has been an amendment to the said Arbitra¬tion Act, 1940 by Orissa Act 17 of 1984. Section 41-A was further amended which is set out below :- “3. In Section 41-A of the principal Act- (i) to Sub-section (1) the following proviso shall be added namely :- “Provided that reference to arbitration of the disputes specified in Sub-section (I) involving claims of rupees one crore or above may be made by the State Government to a Special Arbi¬tration Tribunal comprising of one or more retired High Court Judges, as may be constituted by State Government from time to time”; (ii) for Sub-section (5) the following Sub-section shall be substituted, namely :- “(5) The business of the Arbitration Tribunal or Special Arbitration Tribunal shall be conducted in such manner as the Tribunal may determine and awards made and signed shall be sup¬ported by reasons”; (iii) to Sub-section (7) the following proviso shall be added, namely :- “Provided that the State Government may by order in writing direct that the arbitration proceedings relating to disputes and claims involving rupees one crore or above, pending before any Arbitrator or Board of Arbitrators on the date of the commence¬ment of the Arbitration (Orissa Amendment) Act, 1982 shall be transferred to any Special Arbitration Tribunal constituted under the proviso to Sub-section (1) for disposal in accordance with law.” 15. The learned counsel for the State while placing his argument relied on a decision of this Court in the case of Gaya¬tri Projects Ltd. v. State of Orissa, reported in 2004 (Supp.) OLR 342. 16. Therefore, the question before this Court is whether the Arbitration Tribunal constituted under the provisions of the Arbitration Act, 1940, as amended, (hereinafter referred to as “1940 Act”) continued to exist even after the coming into opera¬tion of ABC in 1996. 17. It is difficult for this Court to accept the plea that such an Arbitration Tribunal continues or exists as on date. 18. First of all, in the contract there is no such indica¬tion. After ABC has come into existence w.e.f. 25.1.1996 the statutory provision for arbitration is governed by ABC. Section 85 of ABC provides for repeal and savings. 17. It is difficult for this Court to accept the plea that such an Arbitration Tribunal continues or exists as on date. 18. First of all, in the contract there is no such indica¬tion. After ABC has come into existence w.e.f. 25.1.1996 the statutory provision for arbitration is governed by ABC. Section 85 of ABC provides for repeal and savings. The said Section has some relevance in the facts of the case.The said Section is set out below: “85. Repeal and savings (1) The Arbitration (Protocol and Convention) Act, 1973 (6 of 1937), the Arbitration Act, 1940 (10 to 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed. (2) Notwithstanding such repeal- (a) the provisions of the said enactments shall apply in rela¬tion to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force; (b) all rules made and notification published, under the said enactments shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act.” 19. From a perusal of Section 85 (1) (a) of ABC, the fol¬lowing position is clear. (i) the proceedings of 1940 Act shall apply in relation to arbi¬tral proceedings which commenced before ABC came into force unless otherwise agreed to by the parties. (ii) ABC will apply in relation to arbitral proceedings which commenced on or after ABC came into force. 20. In the instant case, it is nobody’s claim that any arbitral proceedings between the parties commenced prior to 25.1.1996. Nor is it the contention of any one of the parties that the agreement between the parties makes any reference to the application of 1940 Act. The agreement does not indicate to that effect nor has the same been ascertained by the State in its counter affidavit. In fact, such a contract also may not be sus¬tainable if it seeks to switch over to the old Act after the new Act has come into force. The general principles is that agreement between the parties cannot bypass a statutory provi¬sions. 21. In fact, such a contract also may not be sus¬tainable if it seeks to switch over to the old Act after the new Act has come into force. The general principles is that agreement between the parties cannot bypass a statutory provi¬sions. 21. The effect of Section 85 of ABC was considered by the Supreme Court in the case of Thyssen Stahluniorn GMBH v. Steel Authority of India, reported in AIR 1999 SC 3923 . In that case, the fact were that the Arbitration Award was made under the 1940 Act even after coming into effect of ABC. The enforcement of that award are sought to be made under the 1940 Act. While allowing the enforcement of the award under 1940 Act, the learned Judges held in paragraph-44 at page 3940 of the report that the parties cannot agree to the applicability of the 1940 Act after the ABC has come into force when arbitral proceedings under the 1940 Act have not commenced even though the arbitral agreement was under the 1940 Act. In the instant case, the Arbitral proceeding cer¬tainly has not commenced when the 1940 Act was in force. Even the agreement between the parties also was not entered into when the 1940 Act was in force. Admittedly, the agreement between the parties was signed on 12.3.2001. 22. Therefore, in view of the law laid down in Thyssen, the Arbitration Proceeding cannot take place under a Tribunal created under the 1940 Act. 23. While commenting on the repeal of the 1940 Act by the ABC with effect from 25.1.1996, the Supreme Court held by refer¬ring the judgment of Chief Justice Tindal in the case of Kay v. Goodwin (1830) 6 Bing 576 = 130 ER 1403, that the effect of repealing a statute is to obliterate it as completely from the records of the Parliament as if it had never been passed and it must be considered as a law that never existed, except for the purpose of those actions which were commenced, prosecuted and concluded whilst it was an existing law. Learned Judges further stated that the provisions of a repealed statute cannot be relied upon after it has been repealed. But, if any right has been acquired under the old Act, the same cannot be disturbed. Learned Judges further stated that the provisions of a repealed statute cannot be relied upon after it has been repealed. But, if any right has been acquired under the old Act, the same cannot be disturbed. But, if any new or further step is needed to be taken under the repealed Act, that cannot be taken even after the Act is repealed. In coming to the said conclusion, learned Judges also considered the provisions of Section 6 of the General Clause Act. 24. Following the said ratio, this Court hold that in the fact of this case, no steps were taken under the 1940 Act, so the Arbitration Tribunal created under the 1940 Act cannot exist for deciding the disputes which have arisen out of an agreement en¬tered into after the 1940 Act was repealed. 25. In so far as the decision of Gayatri (supra) as has been referred to, this Court finds that the same has been chal¬lenged before this Court under Article 226 of the Constitution of India and the same is pending in a writ petition being W.P.(C) No.3191 of 2004. A Division Bench of this Court by an order dated 2.8.2004 has granted stay of Arbitration Proceeding before the Orissa Arbitration Tribunal. This Court therefore, refrains from making any comment on the correctness or otherwise of the said judgment. At that point of time, the legal position was that an order passed by the Chief Justice under Section 11 of the ABC for appointment of an Arbitrator was an administrative order. So a writ petition was considered an appropriate remedy. 26. But this Court finds that in the case of Gayatri, the Arbitration Agreement was different. In Gayatri’s case, the procedure for resolving the disputes was as follows : “25. Procedure for Disputes. 25.1 The Adjudicator shall give a decision in writing within 28 days of receipt of a notification of a dispute. 25.2 The Adjudicator shall be paid daily at the rate speci¬fied in the Contract Data together with reimbursable expenses of the types specified in the Contract Data and the cost shall be divided equally between the Employer and the Contractor, whatever decision is reached by the Adjudicator. Either party may refer a decision of the Adjudicator to an Arbitrator within 28 days of the Adjudicator’s written decision. Either party may refer a decision of the Adjudicator to an Arbitrator within 28 days of the Adjudicator’s written decision. If neither party refers the dispute to arbitration within the above 28 days, the Adjudica¬tor’s decision will be final and binding. 25.3 The Arbitration shall be conducted in accordance with the arbitration procedure published by the institution named and in the place shown in the Contract Data.” In the contract data, it was provided as follows : “Institution whose arbitration procedures shall be used : Orissa Arbitration Tribunal. Arbitration will take place in accordance with Orissa Arbi¬tration Tribunal, 1979 Act.” 27. Learned Judge delivering the judgment in Gayatri’s case held what is meant by the Arbitration Tribunal was indicated and this is noted in paragraph-4 of the judgment. In the present case, the Arbitration Agreement is different and there is no indication about what is meant by Arbitration Tribunal. Therefore the deci¬sion in Gayatri’s case was rendered on different facts and is not applicable to the present case. 28. For the reasons stated above, this Court is unable to accept the contention of the State. Apart from that, this Court is also of the opinion that the decision in Gayatri’s case does not cover the fact situation in the present case. The Arbitration Tribunal set up by 1940 Act cannot exist as on date and the present dispute between the parties cannot be referred to the said Tribunal, which does not exist in the eye of law. 29. Since in the instant case, there is no agreement of the parties about the number of Arbitrators, the Arbitration Tribunal shall consist of sole of Arbitrator. This seems to be the mandate of Section 10(2) of ABC. Therefore, this Court decides that the Arbitration must take place under ABC and before a sole arbitra¬tor. 30. This Court therefore, appoints Mr. Justice Debendra Mohan Patnaik, a retired Judge of this Court as the Arbitrator to decide the dispute between the parties. 31. The Arbitrator so appointed shall enter upon the reference within a period of four weeks from the date of service of this order upon him. The remuneration and other charges of the Arbitrator will be fixed by the Arbitrator himself. The Arbitra¬tor after entering upon the reference shall decide the dispute between the parties within a period of six months. This petition is allowed to the extent indicated above. Order accordingly.