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2010 DIGILAW 5464 (MAD)

The State Of Tamil Nadu Rep By Its Secretary Public Works v. Chandragiri Constructions Company

2010-12-09

B.RAJENDRAN, D.MURUGESAN

body2010
(Judgment of the Court was delivered by D. MURUGESAN,J.) 1. The civil miscellaneous appeal is filed against the judgment and decree dated 30-09-2009 made in Arbitration Original Petition No.23 of 2005 passed by the Principal District Court, Coimbatore confirming the award of the sole-arbitrator dated 23-09-2004. The respondent submitted a tender for the work of rehabilitation of contour canal from L.S.0.000KM to 25.490KM in Pollachi Taluk, Coimbatore District on 19-12-1997 to the Superintending Engineer, PWD/WRO Parambikulam Aliyar Basin Circule, Pollachi – 642 003. The said tender was accepted on 11-05-1998 and an agreement dated 23-05-1998 was also executed between the respondent and the appellant herein. As disputes arose between the parties, the dispute was referred to the Sole Arbitrator viz., one Thiru.K.K. Alukkusamy, the Superintending Engineer of the appellant department in terms of the arbitration agreement. On consideration of the claims, the Arbitrator passed the following award dated 23-09-2004: "An award is passed in favour of the claimant for Rs.2,13,96,134/- Rupees Two Crores, Thirteen Lakhs Ninety Six Thousand One Hundred and Thirty four only) directing the respondents to pay the same together with interest at 12% /annumfrom 23-09-2001 till this date, except on interest awarded on late interim payments and delayed price adjustment payments, and the entire awarded amounts including interest awarded at 12%/annum from this date till date of payment or realization. The entire awarded amount shall be paid within 2 months of date of receipt of copy of the award and interest will not run for this grace period for enabling the respondents to make the payment. If the payment of the entire awarded amount is not made within 2 months specified, interest will run for that period also continuously." Not satisfied with the award, the appellant filed the arbitration original petition before the Principal District Judge, Coimbatore and the award was confirmed by the judgment and decree dated 30-09-2009. As against the said judgment and decree, the present appeal has been filed. 2. At the outset, the learned counsel appearing for the appellant would submit that both the award as well as the judgment and decree of the learned Principal District Judge, Coimbatore are questioned only on the ground that if the value of the contract exceeds Rs.50 millions and in case any dispute or difference arises between the employer and the contractor, it shall be referred to an Arbitral Tribunal which shall consist of three arbitrators. In this case the value of the contract is above 50millions, and hence the dispute ought to have been referred to the above Arbitral Tribunal. On the other hand, it was referred to only a Sole Arbitrator, and therefore, the appointment of an sole-arbitrator is contrary to the agreement and consequently, he would not have jurisdiction to entertain any dispute as a necessary corollary the award passed by the Sole Arbitrator is ex-facie illegal. 3. Heard Mrs. Bhavani Subbarayan, learned Special Government Pleader appearing for the appellant and Mr. R. Krishnamoorthy, learned Senior Counsel appearing for the respondent. 4. As per the arbitration agreement, the procedure for arbitration runs as follows(clauses that are relevant for the disposal of this appeal alone are extracted): "25.3(a) In case of Dispute or difference arising between the Employer and a domestic contractor relating to any matter arising out of or connected with this agreement, such disputes or difference shall be settled in accordance with the Arbitration and Conciliation Act, 1996. The arbitral tribunal shall consist of 3 arbitrators one each to be appointed by the Employer and the Contractor. The third Arbitrator shall be chosen by the two Arbitrators so appointed by the Parties and shall act as Presiding arbitrator. In case of failure of the two arbitrators appointed by the parties to reach upon a consensus within a period of 30 days from the appointment of the arbitrator appointed subsequently, the Presiding Arbitrator shall be appointed by the President of the Institution of Engineers (India). .... (c) If one of the parties fails to appoint its arbitrator in pursuance of sub-clause (a) and (b) above within 30 days after receipt of the notice of the appointment of its arbitrator by the other party, then the Presiding arbitrator shall be nominated by President of the Institution of Engineers (India), both in cases of the Foreign Contractor as well as Indian Contractor, shall appoint the arbitrator. A certified copy of the order of the President of the Institution of Engineers (India), making such an appointment shall be furnished to each of the parties. .... (f) Where the value of the contract is Rs.50 millions and below, the disputes or differences arising shall be referred to the Sole Arbitrator. A certified copy of the order of the President of the Institution of Engineers (India), making such an appointment shall be furnished to each of the parties. .... (f) Where the value of the contract is Rs.50 millions and below, the disputes or differences arising shall be referred to the Sole Arbitrator. The Sole Arbitrator should be appointed by agreement between the parties; failing such agreement, by the appointing authority, namely by the President of the Institution of Engineers(India)." Therefore, from the arbitration clause 25.3(a) it is true that in case of dispute or difference arising between the Employer and a domestic contractor relating to any matter arising out of or connected with this agreement, the same shall be settled in accordance with the Arbitration and Conciliation Act, 1996 by the arbitral tribunal consisting of 3 arbitrators one each to be appointed by the Employer and the Contractor and the third Arbitrator shall be chosen by the two Arbitrators so appointed by the Parties and shall act as a Presiding arbitrator. According to clause 25.3(c), in case if one of the parties fails to appoint its arbitrator, then the Presiding arbitrator shall be nominated by President of the Institution of Engineers(India), both in cases of the Foreign Contractor as well as Indian Contractor, shall appoint the arbitrator. In terms of clause 25.3(f), if the value of the contractor is Rs.50 millions and below, the dispute or difference arising shall be referred to the Sole-Arbitrator. 5. As per Clause 25.3(a), both the appellant, the employer and the respondent, the domestic contractor have agreed to settle the disputes/differences between the parties in accordance with the Arbitration and Conciliation Act, 1996. Section 11 of the Arbitration and Conciliation Act also gives liberty to the parties to agree on a procedure for appointing the arbitrator or arbitrators, which includes the number of Arbitrators as well. 6. Reliance was placed upon AIR 2007 SC 817 (Krishna Bhagya Jala Nigam Ltd., Vs. G. Harischandra Reddy and Anr.), wherein the Apex Court while considering as to whether the State after submitting to the Arbitrator could later on proceed with the questioning of the Arbitrator held thus: " 12. Clause 23 of the Agreement is undoubtedly not an arbitration clause and the sitting Chief Engineer, to whom earlier reference was made, could not have acted as an arbitrator and made the award. Clause 23 of the Agreement is undoubtedly not an arbitration clause and the sitting Chief Engineer, to whom earlier reference was made, could not have acted as an arbitrator and made the award. The sitting Chief Engineer to whom initial reference was made did not complete the arbitration proceedings. The substituted arbitrator was a retired Chief Engineer and parties agreed to his appointment and submitted to his jurisdiction. By consent of parties, he was chosen sole arbitrator and disputes were referred to him. The State, without demur or protest, submitted to the jurisdiction of the arbitrator and participated in the proceedings. The State is estopped on the doctrine acquiescence and waiver from raising objection to the competence of the substituted arbitrator and validity of the arbitration proceedings by taking recourse to clause 23 of the agreement on the basis of which initial reference was made to sitting Chief Engineer." 7. Subsequently, AIR 2005 SC 2795 (State of Rajasthan Vs. M/s. Nav Bharat Construction Co.,) a similar question was considered and in paragraph Nos. 9 and 10 it is observed thus: "9. We do not find any merit in the above arguments. The plea of "no arbitration clause" was not raised in the written statement filed by Jala Nigam before the Arbitrator. The said plea was not advanced before the civil court in Arbitration Case No.1 of 2001. On the contrary, both the courts below on facts have found that Jala Nigam had consented to the arbitratio of the disputes by the Chief Engineer. Jala Nigam had participated in the arbitration proceedings. It submitted itself to the authority of the Arbitrator. It gave consent to the appointment of the Chief Engineer as an Arbitrator. It filed its written statements to the additional claims made by the contractor. The executive engineer who appeared on behalf of Jala Nigam did not invoke Section 16 of the Arbitration Act. He did not challenge the competence of the arbitral tribunal. He did not call upon the arbitral tribunal to rule on its jurisdiction. On the contrary, it submitted to the jurisdiction of the arbitral tribunal. It also filed written arguments. It did not challenge the order of the High Court dated 10.9.99 passed in C.M.P.No.26/99. He did not challenge the competence of the arbitral tribunal. He did not call upon the arbitral tribunal to rule on its jurisdiction. On the contrary, it submitted to the jurisdiction of the arbitral tribunal. It also filed written arguments. It did not challenge the order of the High Court dated 10.9.99 passed in C.M.P.No.26/99. Suffice it to say that both the parties accepted that there was an arbitration agreement, they proceeded on that basis and, therefore, Jala Nigam cannot be now allowed to contend that Clause 29 of the Contract did not constitute an arbitration agreement. 10. Before concluding on this issue, one clarification needs to be mentioned. On 26.7.2005 a three-Judge Bench of this Court has referred the question involving interpretation of Clause 29 of the Contract to the Constitution Bench in the case of M/s. P. Dasaratharama Reddy Complex V. Government of Karnataka and Another Civil Appeal No.1586 of 2004. Placing reliance on the said order, learned counsel for Jala Nigam submitted that the hearing of this civil appeal be postponed pending disposal of the above reference by the Constitution Bench. We do not find any merit in this argument. As stated above, the plea that Clause 29 of the Contract was not an arbitration clause, was raised in the present case for the first time only in Miscellaneous First Appeal No.1785 of 2002 filed under Section 37(1)(b) of the Arbitration Act before the High Court. As stated above, Jala Nigam, on the contrary, had consented to the Chief Engineer, acting as an Arbitrator. For the aforestated reasons and particularly in view of the fact that there has been considerable delay in the litigation no useful purpose would be served by keeping the matter pending in this Court awaiting the decision of the Constitution Bench. As stated above, Jala Nigam, on the contrary, had consented to the Chief Engineer, acting as an Arbitrator. For the aforestated reasons and particularly in view of the fact that there has been considerable delay in the litigation no useful purpose would be served by keeping the matter pending in this Court awaiting the decision of the Constitution Bench. Therefore, on the facts and circumstances of this case and in view of the conduct of the parties, we hold that Jala Nigam cannot be allowed to urge that Clause 29 of the Contract is not an arbitration clause." A reading to Section 4 of the Arbitration and Conciliation Act, 1996 would reveal that if a party needs that any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object. 8. A combined reading of the above clauses would show that in the normal course, the arbitral proceedings are to be referred to the arbitral tribunal which consists of three Arbitrators. However, only in a case where the value of the contract is less than 50 millions, the dispute can be referred to a Sole-Arbitrator. On the facts of this case, as against clause 25.3(a), in stead of referring the matter to the Arbitral Tribunal consisting of three Arbitrators, the appellant had referred the matter to the Sole-Arbitrator. This course adopted by the appellant was not disputed or objected to by the respondent, the domestic contractor. The question of jurisdiction of the Sole-Arbitrator was not raised before the learned Arbitrator and the learned Principal District Judge, before whom the arbitration original petition was filed, questioning the award. The Sole-Arbitrator had proceeded to deal with the dispute, as the parties showed their active participation and the same is stated in the Award at paragraph No.11 as follows: "Both the parties participated in the Arbitration proceedings actively and without any demur or protest. The parties did not intimate need or desire for any further hearing." When the award was questioned, the appellant herein has not admittedly raised the question of jurisdiction of the Sole-Arbitrator as one of the grounds. The parties did not intimate need or desire for any further hearing." When the award was questioned, the appellant herein has not admittedly raised the question of jurisdiction of the Sole-Arbitrator as one of the grounds. In fact, the appellant had raised a general ground that if the Arbitrator is a creature of a contract between the parties and if he ignores the specific terms of the contract, it would be considered as a jurisdictional error, which has been occurred in the case. Except the above ground, no specific ground has been raised before the Sole-Arbitrator. In fact, the learned Principal District Judge has also observed that both the domestic contractor viz., the respondent and the appellant had agreed for the appointment of the sole-arbitrator on 14-06-2004. The challenge to both the arbitral award as well as the judgment and decree of the learned Principal District Judge is only on the basis of the jurisdictional point which is raised for the first time in this appeal. 9. In our considered opinion, the appellant is not entitled to raise that jurisdictional point when it had failed to raise it at the appropriate time. Even assuming that the dispute would not have been referred to an Arbitral Tribunal consisting of three Arbitrators in terms of Clause 25.3(a), the appellant would be entitled to appoint only one Arbitrator, with a choice to the domestic contractor to appoint another Arbitrator. 10. On 14-06-2004, the domestic contractor had agreed to the appointment of the Arbitrator by the appellant herein. In that view of the matter, the Sole-Arbitrator represents both the appellant as well as the respondents. Only in the event of appointment of two different Arbitrators, one by the employer and the other by a domestic contractor, the question of appointment of the third Arbitrator would arise. May be for that reason only the parties have agreed to go before the Sole-Arbitrator to resolve the dispute. When the appellant had admitted to the appointment of a Sole-Arbitrator, in our opinion, that would constitute a mutual agreement between the employer as well as the domestic contractor to have a Sole-Arbitrator and in that sense, merely because Clause 25.3(a) contemplates a reference to an Arbitral Tribunal consisting three Arbitrators, the parties cannot refer the matter to the Sole-Arbitrator on their discretion or will. On the above two grounds, the appellants are not entitled to assail the jurisdiction of the Sole-Arbitrator to enter into the dispute/difference between the parties and pass the award. Hence, we are not inclined to entertain that submission in the appeal. The appeal does not raise any other point as to the factual aspect, rightly so, as this Court would not be sitting as a Appellate Court over the conclusion arrived at by the learned Arbitrator on factual aspects. 11. For all the above reasons, we are not inclined to accept the challenge of jurisdiction of the Sole-Arbitrator to deal with the dispute between the employer and the respondent and to pass the award. Accordingly, the appeal fails and the same is dismissed. However, there will be no order as to costs. The connected miscellaneous petition is also dismissed.