Research › Search › Judgment

Calcutta High Court · body

2010 DIGILAW 334 (CAL)

UNION OF INDIA v. Samarendra Nath Mukherjee

2010-03-30

ASHIM KUMAR BANERJEE, KISHORE KUMAR PRASAD

body2010
JUDGMENT Ashim Kumar Banerjee, J. 1. THE appellant being Eastern Railway entrusted a job to the respondent under a contract. Disputes arose by and between the parties on payment of bill. Railway claims that all dues were paid off and the respondent duly issued no claim certificate by accepting payment in full and final settlement of his claim. The respondent insisted on its claim made subsequent to the receipt of payment under the final bill. The respondent demanded arbitration in accordance with the arbitration clause. The authority refused, as, according to them, there could be no dispute between the parties after settlement of the final bill. The respondent approached the Court of Law under section 20 of the Arbitration Act, 1940 inter alia praying for filing of the arbitration agreement in Court and appointment of an arbitrator in terms of the agreement. The learned Single Judge, vide judgment -and order dated July 19,1996 finally disposed of Special Suit No. 10 of 1996 by appointing Shri Gopal Chakrabarty (since deceased), an Advocate of this Court as arbitrator. On perusal of the judgment and order of His Lordship, appearing at pages 203-204, we find that only plea taken by the Railway Administration before His Lordship was that the claim was barred by limitation in view of the effect that the same was made through letter dated September 6, 1991 and subsequent letters dated January 17, 1994 and November 6,1995. Such plea was disputed by the learned Advocate appearing for the claimant. The learned Judge observed that the claim was not barred by limitation in view of the provisions of section 37(3) of the said Act of 1940. His Lordship further observed that whether no claim certificate and/or the endorsement in the final bill made by the claimant was voluntary or under compulsion, was itself a dispute and as such was referable to arbitration. Railway preferred appeal that was dismissed. 2. THE Railway Administration accepted the judgment and order of the learned Single Judge so affirmed by the Division Bench and submitted to the jurisdiction of the arbitrator by filing pleadings. The arbitrator, however, could not conclude the proceeding as he unfortunately passed away before the proceedings could be concluded and award could be published. 2. THE Railway Administration accepted the judgment and order of the learned Single Judge so affirmed by the Division Bench and submitted to the jurisdiction of the arbitrator by filing pleadings. The arbitrator, however, could not conclude the proceeding as he unfortunately passed away before the proceedings could be concluded and award could be published. The claimant approached the learned Single Judge for change of personnel on the ground that despite 186 meetings held by the arbitrator, proceeding could not be concluded because of the dilatory tactics on the part of the Railways. They also contended that the arbitrator was ailing and it was not possible for him to continue. At that juncture, the Railways, for the first time, took the plea that there could be no arbitration at all in view of clear provision under the contract stipulated in clause 63(3)(a)(III) that in case of dispute the matter would be referred to arbitration of a Gazetted Railway Officer and, in case, it was not possible for any reason there would be no arbitration at all. In the mean time the learned Arbitrator died. His Lordship observed that in view of death of the learned Arbitrator another arbitrator should be appointed. His Lordship appointed Shri Dilip Kumar Basu, a former member of Higher Judicial Services to act as arbitrator. His Lordship observed, "I find no legal impediment in appointing the arbitrator other than the persons named in the list of Gazetted Railway Officers." The appellant, this time, did not prefer any appeal and submitted to the jurisdiction of the new arbitrator who ultimately published the award. The arbitrator allowed the claim of the claimant in part to the extent of Rs.6,97,102.25/-. The arbitrator also awarded cost of Rs.3,21,600/- and directed payment of interest at the rate of 18 per cent per annum on the principal sum of Rs.6,97.102.25/- from the date of entering upon reference by the previous arbitrator till the date of payment. 3. BEING aggrieved, Railways filed an application for setting aside the award under sections 30 and 33 of the said Act of 1940. In the said application several pleas were taken including the plea of "Quorum Non-juris" which the Railways could not succeed before the learned Single Judge at the time of appointment of the second arbitrator. 4. 3. BEING aggrieved, Railways filed an application for setting aside the award under sections 30 and 33 of the said Act of 1940. In the said application several pleas were taken including the plea of "Quorum Non-juris" which the Railways could not succeed before the learned Single Judge at the time of appointment of the second arbitrator. 4. THE learned Judge, by judgment and order dated April 9, 2009, appearing at pages 228-249 of the paper book, dismissed the application. Analysis of the judgment reveals as follows : i) Petitioner did not file any appeal against the order of the Division Bench dated October 15, 1996 affirming the order dated July 19, 1996 passed by the learned Single Judge in the application made under section 20 appointing an Advocate of this Court as arbitrator. ii) Once the order of appointment of arbitrator attained finality at the Division Bench and the Railways having submitted to the jurisdiction of the arbitrator the issue raised by the Railways was barred by the res judicata. iii) A party participating in arbitration proceeding without protest could not, afterwards, challenge the whole proceeding on the ground of jurisdiction after the award had been published by the arbitrator. iv) THE decision of the Apex Court in the case of Union of India vs. Krishna Kumar was delivered in the context of the new arbitration law and had no application in a case covered by the said Act of 1940. v) THE jurisdiction of Court could not be equated with the jurisdiction of the arbitrator. While the jurisdiction of the Court was created by statute arbitrator derived jurisdiction from agreement. vi) A decision in the case of Union of India vs. M.P. Gupta, reported in 2004(10) SCC 504 , did not have any application in the present case inasmuch as the said decision upset the order of appointment which was a subject-matter of challenge before the Apex Court. vii) THE Court could not scrutinize the reasonableness of the reasons given by the arbitrator. viii) Following three Division Benches referred to in the said judgment, the learned Judge upheld awarding of interest by the arbitrator. We heard Mr. Jayanta Banerjee, learned Senior Advocate for the appellant and Mr. Moloy Kumar Ghosh, learned Counsel for the respondent. The parties relied on the following decisions : (i) Union of India and Anr. vs. MP. viii) Following three Division Benches referred to in the said judgment, the learned Judge upheld awarding of interest by the arbitrator. We heard Mr. Jayanta Banerjee, learned Senior Advocate for the appellant and Mr. Moloy Kumar Ghosh, learned Counsel for the respondent. The parties relied on the following decisions : (i) Union of India and Anr. vs. MP. Gupta, 2004(10) SCC 504 ; ii) Union of India vs. Pam Development Pvt. Ltd., 2008 CWN(112) 162; iii) Union of India vs. Budhlani Engineering Private Limited, 2008 CWN(112) 1195; iv) Niraj Kumar Bohra vs. Union of India, AIR 2009 Cal 59 ; v) Union of India vs. Builders Corporation Private Limited, 2009(4) CHN 252 . 5. THE core issue, as suggested above, was discussed by two Division Benches in the case of Union of India vs. Builders Corporation Private Limited (supra) and Niraj Kumar Bohra vs. Union of India (supra). In both the said cases, the award was published under the new Act whereas the case, in hand, relates to the old Act being the Act of 1940 which is, perhaps, covered by the other Division Bench decision in the case of Union of India vs. Builders Corporation Private Limited (supra) wherein the Division Bench negated identical contention of the Railways made therein. 6. THE clause in the arbitration agreement referred to above is stipulated in the agreement for a long time. The said clause was prevalent during the period when the said Act of 1940 was in force. The said clause continued to be prevalent when the Arbitration and Reconciliation Act, 1996 came into force. We are in full agreement with the two Division Benches in the case of Builders Corporation Private Limited (supra) and Niraj Kumar Bohra (supra). It is true that the parties conferred jurisdiction on the arbitrator by agreement. The agreement admittedly stipulated that there could not be any arbitration by any individual other than a Gazetted Railway Officer. Hence, an Advocate of this Court could not have been appointed as arbitrator. If we stop there the award itself would go as an obvious consequence. Mr. Ghosh however, made a thin line of distinction between the cases under the old Act and the cases under the new Act. To support his contention he also relied on a Single Bench decision in the case of Pam Development (supra). We are rather persuaded by such argument. Mr. Ghosh however, made a thin line of distinction between the cases under the old Act and the cases under the new Act. To support his contention he also relied on a Single Bench decision in the case of Pam Development (supra). We are rather persuaded by such argument. We still feel that the order appointing an Advocate of this Court as arbitrator was contrary to the agreement. Court of Law was not competent to pass any order under Section 20 appointing arbitrator contrary to the arbitration agreement. If we closely read section 20 we would find that the scope of the Court was to find out whether there was any valid arbitration agreement between parties and whether the alleged dispute between the parties was covered by the said agreement. If the test is positive the Court can direct filing of the arbitration agreement and appointment of arbitrator in terms of the agreement. Clause 63(3)(a)(III) clearly stipulates that the arbitration must be done by a Railway Gazetted Officer. It does not stop there. It makes it more clear by the negative covenant that, in case, it is not possible there would be no arbitration at all. We are not sure whether the railways took the plea at the initial stage before the learned Single Judge, at least it is not clear from the judgment. We find that railways filed appeal, they were unsuccessful. In our view they should have approached the Apex Court if they were so aggrieved. Once the order attained finality there could be no scope to reopen the issue more particularly when the railways invited the arbitrator to decide on the issue by appearing before him and arguing the matter on merit. Once the award went against them they were not competent to raise the said issue which would be hit by principle of res judicata. The learned Judge was correct on that score. 7. SITUATION in the case of Niraj Kumar Bohra (supra) or the Builders Corporation (supra) was some what different. There, similar plea was taken. It was negated by the Court. In the case of Niraj Kumar Bohra the plea was taken at the forty-fourth sitting of the arbitration. The Division Bench held that such plea was valid and the award could not be sustained. There, similar plea was taken. It was negated by the Court. In the case of Niraj Kumar Bohra the plea was taken at the forty-fourth sitting of the arbitration. The Division Bench held that such plea was valid and the award could not be sustained. The Division Bench held so in view of clear provision of section 16 of the said Act of 1996 which was absent in the said Act of 1940. Section 16 gives power to the arbitrator to rule on his jurisdiction. It further gives right to the unsuccessful party to raise such plea again at the time of making application for setting aside of the award if he so likes. 8. THE learned Single Judge in the case of Pam Development (supra) held that the doctrine of quorum non juris would not be applicable in the case of an arbitration as the arbitrator derives jurisdiction by agreement of parties. The logic is accurate. However applicability of such ratio would depend on the backdrop of each case. If a party to the arbitration agreement raised contemporaneous objection with regard to an appointment of non- railway arbitrator, in our view, he would be entitled to succeed on that score both under the old law as well as under the new law. The new law only extends his right up to the stage of setting aside of the award. Such extension is, however, not available under the old law. If we closely look to the provisions of section 16 of the said Act of 1996 we find that the intention of the legislature was to caution the party that he must raise such plea at the earliest opportunity. If he is unsuccessful therein he is entitled to raise such plea again and again till the award is not set aside. In the case of Niraj Bohra (supra) the plea was taken before the arbitrator at the forty-fourth sitting. The arbitrator ignored such plea. Hence, the Division Bench was right in setting aside the award as there was no agreement between the parties to the extent of appointment of non-railway arbitrator. In the case of Bohra (supra) as well as Builders Corporation (supra) the other party contended that once the railways failed to appoint arbitrator the Chief Justice was entitled to appoint arbitrator in terms of section 11 of the new law being the said Act of 1996. In the case of Bohra (supra) as well as Builders Corporation (supra) the other party contended that once the railways failed to appoint arbitrator the Chief Justice was entitled to appoint arbitrator in terms of section 11 of the new law being the said Act of 1996. Such plea was perfect. However, the scope of the Hon'ble Chief Justice was limited to the extent that His Lordship would have to appoint arbitrator in terms of the agreement. The agreement provide that arbitrator must be a Railway Gazetted Officer. Hence, Chief Justice was not entitled to appoint any person other than a Gazetted Railway Officer which would be beyond the agreement. Hence, we do not find any conflict between Niraj Kumar Bohra (supra), Builders Corporation (supra) with Pam Development (supra) or Budhlani Engineering (supra). From the order of the learned Single Judge dated July 19, 1996 it is not clear whether specific plea was taken before His Lordship to the said effect. If no plea was taken the right of the railways was deemed to have been waived by them. If the plea was taken in the pleadings and not pressed before His Lordship or not considered by His Lordship would also not change the situation in view of the fact that the railways failed before learned Single Judge. They also lost before the Division Bench and the order attained finality as the railways did not go higher up. When the second arbitrator was appointed the railway took the plea as would appear from the judgment and order dated November 25, 2003. They could not succeed. They also did not go higher up. On both the occasions, they appeared before the learned Arbitrators submitting to their jurisdiction. Hence, such plea was not available while making any application under sections 30 and 33 of the old Act of 1940. Had it been a case under the new law in the present circumstances such plea could have been available to the railways in an application for setting aside of the award under section 34 of the new law being the Act of 1996. 9. WE thus hold that the plea taken by the railways pertaining to Clause 63 is not tenable and as such is rejected. 10. WE have examined the award carefully. 9. WE thus hold that the plea taken by the railways pertaining to Clause 63 is not tenable and as such is rejected. 10. WE have examined the award carefully. The learned Arbitrator allowed the claim of the claimant to the extent of Rs.6,97,102.25/- and rejected the balance part of the claim. Learned Single Judge was of the opinion that reasonableness of the reasons shown by the arbitrator while awarding the said sum was not available for judicial review. WE fully agree and approve. The learned Arbitrator awarded cost to the extent of Rs. 3,21,600/-. Neither any break up of the said sum nor any details are available from the award. It is true that from the order dated November 25, 2003 we find that there had been at least one hundred eighty six sittings before the first arbitrator. The second arbitrator might have held some more sittings. WE, however feet that in absence of any proof as to the fact that the railways were only responsible for delaying the conclusion of the arbitration proceedings it would not be fair on our part to approve the part of the award which awarded cost of Rs.3,21,600/-. When we pointed out this fact to Mr. Ghosh, he, in his usual fairness, left the matter to the discretion of the Court. WE feel that considering the claim so awarded by the arbitrator on account of principal sum and considering the prolonged proceeding of the arbitration, interest of justice would subsurb if we reduce the cost to the extent of rupees one lac only. The arbitrator awarded interest at the rate of 18 per cent from the date of entering of reference by the first arbitrator. WE feel that such rate is on the higher side considering the prevalent bank rate. Interest of justice would sub-serve if we reduce the same to the extent of 10 per cent instead of 18 per cent. The award is, thus, modified to the extent that the respondent/claimant would be entitled to cost of rupees one lac only instead of Rs.3,21,600/- and interest at the rate of 10 per cent instead of 18 per cent as awarded by the arbitrator. , 16. The order of the learned Single Judge dated April 9, 2009 as well as the award dated January 31, 2005 published by the arbitrator stand modified as above. , 16. The order of the learned Single Judge dated April 9, 2009 as well as the award dated January 31, 2005 published by the arbitrator stand modified as above. The appeal is disposed of accordingly without any order as to costs. Urgent xerox certified copy would be given to the parties, if applied for.