B. G. Shirke Construction Technology Ltd. , Pune, Rep. By its Project Manager, Balasaheb Arjun Kale v. ETL Infrastructure Services Ltd. Chennai, rep. By its CEO, S. Thiagarajan
2009-08-20
G.RAJASURIA
body2009
DigiLaw.ai
Judgment : G. RAJASURIA, J. A ‘resume’ of facts, which are absolutely necessary for the disposal of this application would run thus: The respondent/Plaintiff filed the suit seeking the following reliefs: - to direct the defendant to pay the plaintiff a sum of Rs.1,62,47,706/- inclusive of interest at 18% till the date of the suit with future interest at the rate of 6% till the date of realization. -for costs. Whereupon the applicant/defendant filed this Application No.2635 of 2008 under Order 14 Rule 8 of Original Side Rules read with Section 8 of the Arbitration and Conciliation Act, 1996, with the following prayer: “To refer the dispute to arbitration and dismiss the above suit as not maintainable.” 2. For convenience sake, the parties are referred to here under according to their litigative status in the suit. 3. The learned senior counsel for the defendant drawing the attention of this Court to the averments as found set out in the affidavit accompanying the application as well as the averments in the plaint and the typed set of papers filed on either side, would set forth and put forth his argument to the effect that under Clauses 58 and 59 of the agreement, which emerged between the plaintiff and the defendant Arbitration clauses are contemplated and the plaintiff was not justified in filing the suit straight away. The Architect earlier issued the certificate on 16. 2007. Whereupon alone the plaintiff made his claim, as against which the defendant raised its objection that there are lot of defects to be remedied by the plaintiff in the construction made by him and as such, the retention money cannot be released as demanded by the plaintiff and instead of going for Arbitration, straight away the suit has been filed, which is liable to be dismissed. 4. Whereas in an attempt to torpedo and pulverize the argument put forth on the side of the defendant the learned counsel for the plaintiff would submit that the subject matter of the present suit is nothing to do with the Arbitration clauses as contained in Clauses 58 and 59 of the agreement. The Architect issued certificate in favour of the plaintiff and thereby the plaintiff being the contractor, was not in any way, under any necessity to invoke the Arbitration Clauses 58 and 59.
The Architect issued certificate in favour of the plaintiff and thereby the plaintiff being the contractor, was not in any way, under any necessity to invoke the Arbitration Clauses 58 and 59. There are laches on the part of the defendant in ‘Impeaching or disputing, impugning or challenging the certificate dated 16. 2007 issued by the Architect. During the pendency of the suit, the defendant’s caused the architect to revoke the earlier certificate issued by him; under Clauses 58 as well as 59; if at all the decision of the Architect is challenged by the contractor, the question of himself going for arbitration would arise and not under any other circumstances; within 14 days of receipt of the certificate issued by the Architect, the defendant should have released the amount, but it had not been doe so; and hence, for the purpose of recovering the said amount alone, this suit has been correctly filed, warranting no dismissal of the suit of referring the matter under Section 8 of the Arbitration and Conciliation Act for arbitral proceedings. 5. At this juncture, the point for consideration as to whether as per Section 8 of the Arbitration and Conciliation Act, the matter should be referred to arbitration by dismissing the suit? 6. Both the sides cited precedent. (a) On the defendant’s side the following decision are cited. (i) Executive director, Hindustan Petroleum Corporation Ltd., Mumbai and Others V. Sri Prabh Transport represented by P. Chokalinga Prabhu, Madurai (2001) 2 MLJ 719 . Certain excerpts from it would run thus at P. 721 of MLJ: “5………………….. The Supreme Court further in that matter held as follows: 8. In the matter before us the arbitration agreement covers all the disputes between the parties in the proceedings before us and even more than that. As already noted, the arbitration agreement satisfies the requirements of Section 7 of the new Act. The language of Section 8 is preemptory. It is therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising thereform. There is not question of stay of the proceedings till the arbitration proceedings conclude and the award becomes final in terms of the provisions of the new Act.
Nothing remains to be decided in the original action or the appeal arising thereform. There is not question of stay of the proceedings till the arbitration proceedings conclude and the award becomes final in terms of the provisions of the new Act. All the rights, obligation and remedies of the parties would now be governed by the new Act including the right to challenge the award.” 6. In this case also the arbitration agreement covers all the issues between the parties. As held by the Supreme Court the language of Section 8 is preemptroy. The Court shall refer the matter to the arbitrator if the conditions are satisfied………” (ii) Kalpana Kothari v. Sudha Yadav and Others AIR 2002 SC 404 : (2002) 1 SCC 203 . An excerpt form it would run thus: “8……….. In striking contrast to the said scheme underlying the provisions of the 1940 Act, in the new 1996 Act, there is not provision corresponding to Section 34 of the old Act and Section 8 of the 1996 Act mandates that the judicial authority before which an inaction has been brought in respect of a matter which is the subject matter of an arbitration agreement, should refer the parties to arbitration if a party to such an agreement applies not late than when submitting his first statement. The provisions of the 1996 Act do not envisage the specific obtaining of any stay as under the 1940 Act, for the reason that not only the direction to make reference is mandatory but notwithstanding the pendency of the proceedings before the judicial authority or the making of an application under Section 8(1) of the 1996 Act, the arbitration proceedings are enabled, under Section 8(3) of the 1996 Act to be commenced or continued and an arbitral award also made unhampered by such pendency. We have to test the order under appeal on that basis.” (iii) Hindustan Petroleum Corpn. Ltd. V. Pinkcity Midway Petroleums AIR 2003 SC 2881 : (2003) 6 SCC 503 . An except form it would run thus: “15. The question then would arise: what would be the role of the civil Court when an argument is raised that such an arbitration clause does not apply to the facts of the case in hand?
Ltd. V. Pinkcity Midway Petroleums AIR 2003 SC 2881 : (2003) 6 SCC 503 . An except form it would run thus: “15. The question then would arise: what would be the role of the civil Court when an argument is raised that such an arbitration clause does not apply to the facts of the case in hand? Learned Counsel for the appellant contends that it is a matter which should be raised before the arbitrator who is competent to adjudicate upon the same and the civil Court should not embark upon an inquiry in regard to the applicability of the arbitration clause to the facts of the case. While learned counsel appearing for the respondent contends that since the applicability of the arbitration clause to the facts of the case goes to the very root of the jurisdiction of the reference to arbitration, this question will have to be decided by the Civil Court before referring the matter to arbitration even in cases where there is admittedly an arbitration clause. The answer to this argument in our opinion, is found in Section 16 of the Act itself. It has empowered the Arbitral Tribunal to rule on its own jurisdiction including rule on any objection with respect to the existence or validity of the arbitration agreement.” (B) On the plaintiff’s side, the following decision are cited: (i) United Industrial Engineers, Madurai and Others V. Sundaram Finance Services Limited, Chennai (2003) 2 MLJ 367 at p.370 of MLJ: “10. The learned counsel for the applicant relied on the decision in Ramkishorelal v. Kamalnarayan, AIR 1963 SC 890 that relating to ascertainment of intention of parties, the Court must consider document as a whole and also take into account circumstances under which particular words were used, importance of status and training of parities, document disposing of properties and conflict between different parts. Rule of harmonious construction have to be followed. 15. It is therefore clear from the aforesiad decision that the intention of the parties places a vital role in deciding the issue, whether the parties can have remedy through civil Court or through arbitration. So far this case is concerned, although Clause 15 precedes Clause 17, the intention of the parties is evidently clear and moreover, the applicant had already initiated arbitration proceedings as early as 111.
So far this case is concerned, although Clause 15 precedes Clause 17, the intention of the parties is evidently clear and moreover, the applicant had already initiated arbitration proceedings as early as 111. 2000 and only after a period of two years, the respondents taking advance of Clause 15, have approached the Civil Court on flimsy grounds, thereby indicating that the only aim of the respondents is to delay and defeat the right of the applicant because, they have to pay more than Rs. two crores. Under the Circumstance, I am of the view that there is no force in the contention of the respondents and on the other hand, the parties have to be necessarily directed to continue with the arbitration proceedings instead of continuing the suit filed belatedly.” (ii) Sukanya Holdings Pvt.Ltd. V. Jayesh H.P.Pandya and Another AIR 2003 SC 2252 : (2003) 5 SCC 531 . An excerpt from it would run thus: “15. The relevant language used in Section 8 is-“in a matter which is the subject matter of an arbitration agreement” Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of “a matter” which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced-“as to a matter” which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8, The words “a matter” indicates entire subject matter of the suit be subject to arbitration agreement.” In fact, the decision of the Hon’ble Apex Court in P. Anand Gajapathi Raju and Others v. P.V.G. Raju (died) and Others AIR 2000 SC 1886 : (2000) 4 SCC 539 : (2003) 3 MLJ 69, has been relied on by bothsides. An excerpt from it would run thus at p.71 of MLJ: “5.
An excerpt from it would run thus at p.71 of MLJ: “5. The conditions which are required to be satisfied under Sub-sections (1) and (2) of Section 8 before the Court can exercise its powers are: (1) there is an arbitration agreement; (2) a party to the agreement brings an action in the Court against the other party; (3) subject-matter of the action is the same as the subject-matter of the arbitration agreement; (4) the other party moves the Court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. This last provision creates a right in the person bringing the action to have the dispute adjudicated by the Court, once the other party has submitted his first statement of defence. But if the party, who wants the matter to be referred to arbitration, applies to the Court after submission of his statement and the party who has brought the action does not object, as is the case before us, there is no bar on the Court referring the parties to arbitration.” The learned counsel for the plaintiff would also cite the decision of the Hon’ble Apex Court in Rachappa Guruadappa, Bijapur V. Gurusiddappa Nuraniappa and Others AIR 1989 SC 635 : (1989) 3 SCC 245 . An except from it would run thus: “4. An analysis of the aforesaid Section makes it clear that in order to have the proceedings in the suit stayed, there must be an arbitration agreement between the parties covering the disputes in question.
An except from it would run thus: “4. An analysis of the aforesaid Section makes it clear that in order to have the proceedings in the suit stayed, there must be an arbitration agreement between the parties covering the disputes in question. The Section stipulates that, in order that stay may be granted under the Section, it is necessary that the following conditions are fulfilled: (i) the proceedings must have been commenced by a party to an arbitration agreement against any other party to the agreement; (ii) the legal proceeding, in this case the suit, which is sought to be stayed must be in respect of a matter agreed to be referred; (iii) the applicant for stay must be a party to the legal proceeding the suit in this case; (iv) the applicant must have taken no steps in the proceeding after appearance; (v)the applicant must satisfy that only the applicant was at the time when the proceedings were commenced, ready and willing to do everything necessary for the proper conduct of the arbitration; and (vi) the Court must also be satisfied that there was no sufficient reason why the matter should not be referred to arbitration.” 8. A plain reading of those two decisions would unambiguously and unequivocally highlight and spotlight the fact that the subject matter of the arbitration agreement and the suit should be one and the same. Wherefore, it is just and necessary to interpret Clauses 56 and 59 of the agreement, which emerged between the plaintiff and the defendant. 9. Clauses 58 and 59 of the Condition of Contract (definitions and interpretation) are extracted here under for ready reference: “58. Excepted matters: The decision, opinion , direction, certificate (except for payment) with respect of all or any of the matters under clauses 6,10,19,27,28,38,42 and 50 hereof (which matter are herein referred to as the excepted matters) shall be final and conclusive and binding on the parties hereto and shall be without appeal. If any disagreement or any other decision, opinion, direction, certificate or valuation of the Architect or any refusal of the Architect to give any of the same shall be subject to a reference to Arbitration as covered under Indian Arbitration Act in force.” (emphasis supplied) 59.
If any disagreement or any other decision, opinion, direction, certificate or valuation of the Architect or any refusal of the Architect to give any of the same shall be subject to a reference to Arbitration as covered under Indian Arbitration Act in force.” (emphasis supplied) 59. Disputes: If the Contractor be dissatisfied with the decision of the Architect on any matter, question or dispute of any kind (except any of the excepted matters) or as to the withholding by the Architect of any certificate to which the Contractor may claim to be entitled then and in any such case either party (the Employer or the Contractor) may seek settlement through Arbitration proceedings in accordance with Indian Arbitration and Conciliation Act, 1996 in force. The venue of Arbitration shall be in Chennai. The Governing Law of this Agreement and of the relations of the parties arising from it and of any arbitration pursuant to it shall be the laws of the Republic of India. Provided always that the Employer shall not withhold the payment of an Interim Certificate nor the Contractor except with the consent in writing of the Architect in any way delay the carrying out of the works by reason of any such matters, question or dispute being referred to Arbitration but shall proceed with the work with all due diligence and shall until completion of Arbitration proceedings, relieve the Contractor of his obligations to adhere strictly to the Architects instructions with regard to the actual carrying out of the works. Further disagreement, if any after the Arbitration Award may be resolved through Court of Law. All such disputes arising out of matters in connection with this agreement shall be deemed to have arisen at Chennai and only Courts in chennai Shall have the Jurisdiction to determine the same. The work shall however be progressed as per time scheduled, independent of such exigencies unless the employed desires otherwise.” 10.
All such disputes arising out of matters in connection with this agreement shall be deemed to have arisen at Chennai and only Courts in chennai Shall have the Jurisdiction to determine the same. The work shall however be progressed as per time scheduled, independent of such exigencies unless the employed desires otherwise.” 10. The learned counsel for the plaintiff would submit that simply because the employer viz., the defendant failed to comply with the demand for payment, there is not indication in those two clauses that the contractor should go for an arbitration; whenever there is any non-payment on the part of the employer in favour of the Contractor, it is for the Contractor under Section 9 of the Code of Civil Procedure to invoke the civil Court’s jurisdiction for recovery of the amount and he cannot be shackled by interpreting Clauses 58 and 59 of the agreement to his detriment. 11. Whereas the learned counsel for the defendant would submit that all disputes under the agreement are arbitrable except the decision, opinion, direction and certificate emerged under Clauses 6,10,19,27,28,30,42 and 50(8 clauses). 12. In my opinion, Clause 58 comprised of two segments, the first segment is extracted here under: “There decision, opinion, direction, certificate (except for payment) with respect of all or any of the matters under clauses 6,10,19,27,28,38,42 and 50 hereof (which matters are herein referred to as the excepted matters) shall be final and conclusive and binding on the parties hereto and shall be without appeal.” This is actually the portion of the clause excluding arbitration. A plain reading of it would indicate and highlight that if anything emerges under clauses 6,10,19,27,28,30,42 and 50 (8 clauses) the question of going for arbitration does not arise at all. But, on the other hand, if there is any laches on the part of the employer in making payment, it is certainly arbitrable and the matter should be referred to arbitration. 13.
But, on the other hand, if there is any laches on the part of the employer in making payment, it is certainly arbitrable and the matter should be referred to arbitration. 13. The second segment of Clauses 58 would make the point clear and it is extracted here under: “if any disagreement or any other decision opinion, direction, certificate or valuation of the Architect or any refusal of the Architect to give any of the same shall be subject to a reference to Arbitration as covered under Indian Arbitration Act in Force.” (emphasis supplied) As such, a poring over and perusal of the second segment extracted supra would point out that all disputes between the contractor and the employer are arbitrable except the disputes relating to those 8 clauses referred to supra. Clause 59 is an adjunct to Clause 58 and it would further indicate that all dispute could be settled by way of arbitration except those disputes excluded from the purview of arbitration as set out supra. 14. The learned counsel for the plaintiff would submit that even though the certificate emerged during the month of June 2007 at the instance of the architect, nonetheless, the employer who is allegedly aggrieved by the said certificate had not invoked such arbitration clause, but he kept quite and only after the filing of this suit, purely for the purpose of putting the plaintiff in trouble and inconvenience, the defendant had chosen to invoke the arbitration clause for which the learned counsel for the defendant would highlight that simply by pleading alleged laches on the part of the defendant, the arbitration clauses cannot be prevented from being invoked. 15. I cannot come across any decision to the effect that simply because at the earliest point of time, the defendant had not invoked the arbitration clause before the filing of the suit by the plaintiff/the defendant is precluded from filing an application under Section 8 of the said Act. 16. A summation and summarization of the dicta as found exemplified in the decision of the Hon’ble Apex Court cited Supra is that if there is an arbitration clause necessarily the Court should order for arbitration and there is no option at all for the civil Court to assume jurisdiction and adjudicate thereon ignoring such arbitration clause. 17.
16. A summation and summarization of the dicta as found exemplified in the decision of the Hon’ble Apex Court cited Supra is that if there is an arbitration clause necessarily the Court should order for arbitration and there is no option at all for the civil Court to assume jurisdiction and adjudicate thereon ignoring such arbitration clause. 17. The learned counsel for the defendant also by inviting the attention of this Court to page Nos. 269 and 301 of the typed set of papers would develop his-argument that even before the filing of the suit by the plaintiff the defendant raised the dispute that the Architect was not justified in giving such a clean chit to the plaintiffs as though the plaintiff had completed properly the construction and that too, in the wake of the defendant having listed lot of defects in carrying out the work by the plaintiff. 18. At this juncture, my mind is reminiscent and redolent of the well settled proposition of law that arbitration clauses are incorporated in the agreement purely for the purpose of preventing punctilios of Court procedures coming in the way of deciding certain technical and engineering matters. When Civil Court is called upon to adjudicate on civil engineering matters, etc., there would be lot of details and naturally the parties might find it difficult to establish precisely and concisely their contentions. But on the other hand, before the arbitrator cutting across all technicalities, the realities could be seen in a short span of time and a decision could be arrived at and that too based on engineering technicalities. 19. As such, I could see that the very purpose of having incorporated Clauses 58 and 59 in the agreement, is only for getting heir dispute settled before the arbitrator and now the plaintiff cannot wriggle out of it. 20. The learned counsel for the plaintiff would submit that the very architect is not a party to the proceedings and, even if, the matter is referred to arbitration, the architect, who is not a signatory to the agreement and who is not also a party to the suit may refrain from participating in the proceeding and pay even question the legality of the arbitration proceedings. 21.
21. I would like to make it clear that this Court, Which is seized of the matter under Section 8 of the Act, can consider the pros and cons of the matter and pass orders, I hereby hold that the architect is having no say about the forum. Not to put too fine a point, the rival parties are only the contractor and the employer and the agreement also emerged only between the two. It is too late in the day on thepart of the plaintiff to contend that the architect himself is not a signatory to it and that he might raise objection. The Architect is not having any locus standi to raise any such objection as apprehended by the learned counsel for the plaintiff. 22. The learned counsel for the plaintiff would submit that the conduct of the defendant is so deplorable that during the pendecny of the suit, the defendant has stage managed to get the certificate dated 16. 2007 issued by the Architect revoked. I make it clear that this application under Section 8 of the act, is being decided de hors such revocation because the situation prevailing as on the date of the filing of the suit alone should be taken into account and not the subsequent developments. 23. The learned counsel for the plaintiff by inviting the attention of this Court to page No. 125 of the typed set of papers filed by him, would develop his argument that as per the Summary of Notice Inviting Tender and Condition of Contract itself under clause 9(c ) relating to payment of bills by the employer, only 14 days time limit is contemplated. 24. In this connection, I would like to point our that the said Summary of Notice Invting Tender and condition of Contract at Clause No.8(b) contemplates retention of money of 10% of each running account bill, subject to a maximum of 5% of the agreement value; in fact, that retention money alone is in dispute now. What is contemplated under Section 9(c) is relating to payment of bills by the employer for which 14 days notice is contemplated and it has nothing to do with said clause 8(b). 25.
What is contemplated under Section 9(c) is relating to payment of bills by the employer for which 14 days notice is contemplated and it has nothing to do with said clause 8(b). 25. The learned counsel for the defendant would invite the attention of this Court to the typed set of papers including the latest correspondence found at page No. 279 and as per which there is no defunct on the part of the employer in paying the bills as per the said clause 9( c) of the agreement. As such, I am of the view that the invocation of clauses 9(b) in the Summary of notice Inviting tender and Condition of contract by the plaintiff and thereby trying to argue that arbitration clause is ousted, cannot be upheld. 26. To the risk of repetition and pleonasm but, without being tautologous, I would like to point out that clause 8(b) is different from 9(c) under the said Summary of Notice Inviting Tender and Condition of Contract. 27. The gist and kernel and the whole kit and caboodle of the facts and figures involved in this case found exemplified from the records would convey and portray, that in this case, according to the employer, there are defects in the construction, such as seepages of the ceiling etc and the employer wants to retain that retention money, for which the contractor is objecting. As such, they are at loggerheads and they cannot see eye to eye on the point relating to the completion of the work satisfactorily. On the one hand, the contractor would state that he completed the work properly and due to some defect in maintenance alone such alleged defects are projected by the employer. Whereas the employer would state there are inherent defects in carrying out the construction work by the contractor. A fortiori, for deciding this sort of disputes alone, normally arbitration clauses are added in building contracts and this dispute should be certainly be held as an arbitrable one and the arbitrator alone should deal with it in accordance with Clauses 58 and 59 of the agreement. 28. Accordingly, I am of the considered opinion that this Application under Order 14 Rule 8 of Original Side Rules read with Section 8 of the Arbitration and Conciliation act, 1996 is allowed and the matter shall be got settled by resorting to arbitration proceedings and the suit is dismissed.