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2010 DIGILAW 28 (RAJ)

Rajasthan State Mines and Minerals Ltd. v. R. A. M. Earth Movers Pvt. Ltd.

2010-01-05

SANGEET LODHA

body2010
Hon'ble LODHA, J.—This writ petition is directed against order dated 17.10.04 by the Sole arbitrator whereby an application preferred by the petitioner-non claimant u/S. 16 of the Arbitration & Conciliation Act, 1996 (in short "the Act") questioning the jurisdiction of Arbitral Tribunal to proceed with the arbitration proceedings, stands rejected. 2. The facts relevant in nutshell are that the petitioner, a Government company issued a Notice Inviting Tender (`NIT') dated 28.8.95 for the work "Transportation of Gypsum (ROM) from Ballar Gypsum Mines to Lalgarh Railway Siding and Anoopgarh Railway Siding." In pursuant thereto, the respondent No. 1 and some other persons submitted their tender. The rates quoted by the respondent No. 1 was the lowest, accordingly, its tender was accepted and the work order dated 9.2.96 was issued by the petitioner company in favour of the respondent No. 1 on the terms and conditions set out in the NIT as modified after negotiation. The term of the contract was three years from the date of start of the work. However, the work could not commence on account of alleged non creation of working conditions by the petitioner company and therefore, the respondent No. 1 vide letter dated 7.8.96 raised a claim against the petitioner company for a sum of Rs. 35,90,087.65 on account of the losses suffered by it and requested for payment thereof within a period of three weeks. After due deliberations, the matter was amicably settled between the parties and a fresh work order dated 4.3.99 was issued in favour of the respondent No. 2 and accordingly, the respondent No. 3 withdrew all its claim and agreed to work as per the rates agreed upon under the fresh work order dated 4.3.99. 3. In pursuance of the fresh work order, the respondent No. 1 started the work on 6.5.99, however, a contract was executed between the parties on 23.6.99. 3. In pursuance of the fresh work order, the respondent No. 1 started the work on 6.5.99, however, a contract was executed between the parties on 23.6.99. After commencement of the work as aforesaid, the petitioner company felt that contract is not viable and the rates agreed upon were excessive, prejudicial and against the interest of the petitioner company, therefore, the General Manager of the petitioner company terminated the contract granted in favour of the respondent No. 1 by giving 30 days notice invoking clause 17.3 of the contract which reads as under:- "17.3."- Notwithstanding anything hereinabove, the Company in its absolute discretion, made at any time, terminate the contract without assigning any reason thereof by giving 30 days' notice in writing to the contractor at their last known notified address and in that event, the contractor shall not be entitled to raise any claim or demand for compensation and/or damages and/or loss by reason of such earlier termination on any ground whatsoever." 4. The notice was replied by the respondent No. 1 vide communication dated 19.11.99 alleging therein that the contract has been wrongly terminated and the action of the respondents in terminating the contract is outcome of male fide. The said communication was not responded therefore, the respondent No. 1 made an application to the Chairman of the petitioner company for appointment of an Arbitrator which was rejected by the Chairman vide communication dated 31.1.2000. In these circumstances, the respondent No. 1 preferred an application u/S. 11 of the Act before the District Judge, Bikaner for appointment of an Arbitrator and also preferred an application for grant of temporary injunction u/S. 9(e) of the Act read with Order XXIX Rule 1 & 2 of the Civil Procedure Code, 1908 praying therein that till the disposal of the application u/S. 11 of the Act by the Court, the petitioner company herein may be restrained from treating the work contract granted in favour of respondent No. 1 herein as cancelled. However, the application preferred by the respondent No. 1 for injunction as aforesaid, was disposed of by the District Judge holding that it will not be appropriate to restrain the respondents from issuing the fresh work order. 5. After termination of the contract as aforesaid, the petitioner company proceeded to invite fresh tenders vide. NIT dated 26.4.2000. The respondent No. 1 also submitted its tender. As against the rate Rs. 5. After termination of the contract as aforesaid, the petitioner company proceeded to invite fresh tenders vide. NIT dated 26.4.2000. The respondent No. 1 also submitted its tender. As against the rate Rs. 182.97 per metric ton agreed upon between the petitioner company and the respondent No. 1 under the earlier contract, the lowest rate received in pursuant to fresh NIT was Rs. 129.36 per metric ton. 6. While the application preferred by the respondent No. 1 u/S. 10 & 11 of the Act was pending consideration before the District Judge, Bikaner, vide notification dated 22.2.2001 issued by the Chief Justice of the Rajasthan High Court, it was provided that the District Judge as an authority designate of the Chief Justice shall deal with the request for appointment of Arbitrator in terms of Section 11 of the Act where value of subject matter exceeds Rs. 50,000 but does not exceed Rs. 5 lacs. In these circumstances, the respondent No. 1 withdrew the application for appointment of Arbitrator from the Court of District Judge, Bikaner and filed a fresh application before this Court. The application was contested by the petitioner company by filing a reply thereto. However, after due consideration, the application preferred by the petitioner for appointment of arbitrator was allowed by the authority designate of the Chief Justice vide order dated 29.3.04 and Hon'ble Mr. Justice B.R. Arora (Retd.) was appointed as Sole Arbitrator to adjudicate upon the dispute between the parties. 7. The respondent No. 1 submitted his statement of claim before the Sole Arbitrator. The petitioner company preferred an application u/S. 16 of the Act praying for rejection of the claim petition on the ground that the Sole Arbitrator has got no jurisdiction to entertain the same. After consideration of the rival submissions, the application preferred by the petitioner company has been rejected by the Sole Arbitrator. Hence, this petition. 8. It is contended by the learned counsel for the petitioner that the contract as entered into between the parties was prejudicial to the interest of the petitioner company and therefore, it was well within its rights to terminate the contract by giving 30 days notice invoking clause 17.3 of the contract. Hence, this petition. 8. It is contended by the learned counsel for the petitioner that the contract as entered into between the parties was prejudicial to the interest of the petitioner company and therefore, it was well within its rights to terminate the contract by giving 30 days notice invoking clause 17.3 of the contract. The learned counsel submitted that under clause 17.3 it has been specifically provided that in the event of termination of the contract, the contractor shall not be entitled to raise any claim or demand for compensation and/or damages and/or loss by reason of such earlier termination on any ground whatsoever and therefore, when the contract stands terminated in accordance with law, the contractor cannot claim any damages on account of earlier termination of contract. 9. The learned counsel contended that the Sole Arbitrator has seriously erred in holding that despite the termination of the contract, the arbitration clause contained therein stands apart from the rights and obligation under the contract inasmuch as, the same is incorporated with the object of providing for the settlement of a dispute arising in relation to or in connection with the contract. The learned counsel submitted that Sole Arbitrator has also erred in holding that the repudiation of the contract by one party alone does not terminate the contract. According to the learned counsel in view of clause 17.3 of the agreement, the respondent No. 1 was not entitled to raise any claim therefore, the objection raised in this regard was required to be decided on merit and the Arbitrator could not have refused to decide the same on merits observing that inspite of the termination of the contract in terms of clause 17.3, the dispute: whether the termination of the contract was valid and whether the alleged full and final settlement of the claim under the contract was made to the respondent No. 1 herein still exists. The learned counsel contended that under the Act it is not open for the Arbitrator to determine the legality and validity of termination of the contract. The learned counsel further submitted the Sole Arbitrator has seriously erred in holding that the arbitration clause contained in the contract is separable and the same survives notwithstanding the termination of the contract. The learned counsel contended that under the Act it is not open for the Arbitrator to determine the legality and validity of termination of the contract. The learned counsel further submitted the Sole Arbitrator has seriously erred in holding that the arbitration clause contained in the contract is separable and the same survives notwithstanding the termination of the contract. The learned counsel further submitted that the respondent No. 1 has acquiesced with the cancellation of the contract itself inasmuch as, it has already received the entire amount against the bills of completed work and the security deposit has also been released and, therefore, no dispute between the parties survive which could be referred to arbitration. In support of his contentions, the learned counsel has relied upon the decisions of the Hon'ble Supreme Court in "Executive Engineer, R.E.O., vs. Suresh Chandra Panda (Dead) through Lrs," (1999) 9 SCC 92 & "Bharat Bhushan Bansal vs. U.P. Small Industries Corporation Ltd., Kanpur", AIR 1999 SC, 899 and decision of this Court in "M/s. Sisram Bir Singh & Ors. vs. Union of India & Anr., 2006(3) WLC (Raj.), 574. 10. It is further submitted by the learned counsel that while passing the impugned order the Sole Arbitrator has acted without jurisdiction and have misconducted in not deciding the specific objection raised in accordance with law and therefore, the impugned order deserves to be set aside. In support of his contentions, the learned counsel has relied upon the decisions of the Hon'ble Supreme Court in the matters of "Continental Construction Co. Ltd. vs. State of Madhya Pradesh," AIR 1988 SC, 1166, "Steel Authority of India Ltd. vs. J.C. Budharaja, Government & Mining Contractor," (1999) 8 SCC 122 , "Bharat Coking Coal Ltd. vs. Annapura Construction," (2003) 8 SCC, 154, "Shree Subhlaxmi Fabrics Pvt. Ltd. vs. Chand Mal Baradia & Ors.," 2005 AIR SCW 1807. 11. Per contra, in the first instance the learned counsel appearing on behalf of the respondents has raised a preliminary objection that conjoint reading of sub-section 1(a) & (b), 5 and 6 of Section 16 of the Act makes it clear that the ruling of the arbitral tribunal on the question of jurisdiction in terms of Section 16 can only be challenged by way of an application under Section 34 of the Act. The learned counsel submitted that the Arbitral Tribunal having ruled that it has jurisdiction to entertain the dispute, it is under an obligation to continue with the arbitration proceedings. The learned counsel submitted that the scheme and spirit of the Act is to provide speedy and smooth justice therefore, the parties to the arbitration proceedings cannot be permitted to protractor prolong the proceedings on one and another pretext. The learned counsel submitted that the orders passed during the arbitration proceedings are not subject to judicial review by this Court in exercise of its extra ordinary jurisdiction under Article 226/227 of the Constitution of India and therefore, the writ petition deserves to be dismissed for this reason alone. In support of his contention, the learned counsel has relied upon the decision of the Hon'ble Supreme Court in the matter of "SBP & Co. vs. Patel Engineering Ltd. & Anr.", 2005(8) SCC, 618 = RLW 2006(2) SC 1386 and "Asian Thermal Insulation (I) P Ltd. vs. Bridge & Roofs Co. (I) Ltd.", JT 2007(10) SC, 172. The learned counsel submitted that the termination of the contract in no manner terminate the arbitration clause contained in the contract and all dispute including validity of the termination contract has to be examined by the Arbitral Tribunal and therefore, the objection raised on behalf of the petitioner questioning the jurisdiction of the Arbitral Tribunal on the ground that no dispute exists between the parties and the arbitration clause does not survive, has rightly been rejected by the Arbitral Tribunal. In this regard, the learned counsel has relied upon the decisions of the Hon'ble Supreme Court in "National Agriculture Co-op. Marketing Federation India Ltd. vs. Gains Trading Ltd.", AIR 2007 SC, 2327, "Maharashi Dayanand University & Anr. vs. Anand Co-op. L/C, Society Ltd. & Anr., AIR 2007 SC, 2441 and "Nandan Biomatrix Limited vs. DI Oils Limited, (2009) 4 SCC, 495. 12. Replying the preliminary objection raised on behalf of respondent No. 1, the learned counsel for the petitioner submitted that the jurisdiction of the Arbitrator is confined to four corners of the contract and he cannot ignore the provisions of the contract otherwise he would be acting without jurisdiction and against any order passed without jurisdiction by the Arbitrator the petitioner cannot be denied the remedy of judicial review under Article 226 of the Constitution of India. In support of his contentions, the learned counsel has relied upon the decisions of the Supreme Court in the matter of "Minvera Mills vs. Union of India," 1980 SC, 1789 "Bhart Coking Coal Ltd. vs. Annapura Construction," (2003) 8 SCC, 154 and Mahmadhusen Abdulrahim Kalota Shaikh vs. Union of India & Ors.," (2009) 2 SCC, 1. 13. I have considered the rival submissions and perused the material on record. 14. In the first instance, it will be appropriate to deal with the preliminary objection raised on behalf of the respondents regarding the maintainability of the writ petition against the order impugned before this Court. 15. Indisputably, Section 16 empowers the arbitral tribunal to rule on its own jurisdiction including on any objections with respect to validity of arbitration agreement. Moreover, as per clause (a) of sub-section (1) of Section 16, an arbitration clause which form parts of contract shall be treated as an agreement independent of the other terms of contract and as per clause (b) thereof, even a decision of the arbitral tribunal that the contract is null and void shall not entail ipso jure the validity of the arbitration clause. Further, as per Sub-section (5) of Section 16 specifically mandates if the arbitral tribunal takes a decision rejecting the plea that the arbitral tribunal does not have the jurisdiction, it shall continue with the arbitral proceedings and make an arbitral award. That apart, sub-section (6) of Section 16 specifically provided that a party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34. Therefore, the validity of the ruling by the arbitral tribunal on the question of jurisdiction in terms of Section 16 can always be questioned by way of an application u/S. 34 which may be filed for setting aside the arbitral award. 16. It is to be noticed that u/S. 34 of the Act, the invalidity of the arbitration agreement and that the arbitral award deals with the dispute not contemplated or not falling within the terms of submission of arbitration or it contains decisions on matters beyond the scope of submission to arbitration or the subject matter of the dispute is not capable of settlement under the law for the time being in force are amongst the grounds specified for setting aside an arbitral award. Therefore, the petitioner shall be well within its right to raise all these grounds set out in the writ petition while assailing the arbitral the arbitral award if any passed against it. 17. There is yet another aspect of the matter which is required to be noticed is that an order of the arbitral tribunal accepting the plea referred in sub-section(2) or sub-section (3) of Section 16 is appealable u/S. 37 of the Act. Thus, if the arbitrator rules against the party seeking arbitration resulting in termination of the arbitration proceedings then, the aggrieved party shall be entitled to invoke the appeal u/S. 37(i)(a) of the Act but, if the arbitrator rejects the plea then, the person challenging the jurisdiction of the arbitrator has no right to appeal whatsoever. 18. Thus, the Scheme of the Act reveals that once the arbitrator enters into reference, the challenge to his jurisdiction questioning his independence or impartiality or otherwise has to be made before the arbitrator himself. Even before the arbitrator such challenge cannot be made by the party to the proceedings belatedly at his whims and fancy. Moreover, if the challenge of the party to the arbitrator fails then the arbitrator will proceed with the arbitration proceedings and the party aggrieved has to wait till the passing of the award and thereafter, the validity of the award can be assailed by the aggrieved party only by invoking the provisions of Section 34 of the Act. 19. In "M/s. S.B.P. & Company vs. M/s. Patel Engineering," 2005 (8) SCC, 618, the Hon'ble Apex Court while dealing with the question as to whether any order passed by the arbitral tribunal during the arbitration proceedings would be capable of being challenged before the High Court under Article 226 or 227 of the Constitution of India, held that:- "45. It is seen that some High Courts have proceeded on the basis that any order passed by an Arbitral Tribunal during arbitration, would be capable of being challenged under Arts. 226 or 227 of the Constitution. We see no warrant for such an approach. Section 37 makes certain orders of the Arbitral Tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating its grievances against the award including any in-between orders that might have been passed by the Arbitral Tribunal acting under Section 16 of the Act. 226 or 227 of the Constitution. We see no warrant for such an approach. Section 37 makes certain orders of the Arbitral Tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating its grievances against the award including any in-between orders that might have been passed by the Arbitral Tribunal acting under Section 16 of the Act. The party aggrieved by any order of the Arbitral Tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The Arbitral Tribunal is, after all, a creature of contract between the parties, the arbitration agreement, even though, if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the Arbitral Tribunal. It will still be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the Arbitral Tribunal is capable of being corrected by the High Court under Arts. 226 or 227 of the Constitution. Such an intervention by the High Courts is not permissible." 20. Thus, keeping in view the mandate of the provisions of Sections 16, 34 and37 of the Act so also the overall scheme of the Act and the authoritative pronouncement of the Hon'ble Supreme Court in S.B.P.'s case supra, this Court is of the considered opinion that the order passed by the Arbitral Tribunal rejecting the petitioner's objection to the jurisdiction of the Arbitral Tribunal to proceed with the arbitration proceedings does not warrant any interference by this Court in exercise of its extra ordinary jurisdiction under Article 226/227 of the Constitution of India. 21. In view of the conclusion arrived at as above, it is not considered necessary to deal with the other contentions raised by the learned counsel for the parties. 22. In the result, the writ petition fails, it is hereby dismissed. Needless to say that it will be open for the petitioner to raise all the grounds set out in this petition regarding the jurisdiction of the Arbitral Tribunal to deal with the dispute while taking proceedings u/S. 34of the Act if ultimately, any arbitral award is passed against it by the Arbitral Tribunal. Needless to say that it will be open for the petitioner to raise all the grounds set out in this petition regarding the jurisdiction of the Arbitral Tribunal to deal with the dispute while taking proceedings u/S. 34of the Act if ultimately, any arbitral award is passed against it by the Arbitral Tribunal. No order as to costs.