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2014 DIGILAW 385 (RAJ)

State of Rajasthan v. M/s. Bhawan Avam Path Nirman (Bohra) & Company

2014-02-06

ALOK SHARMA

body2014
JUDGMENT 1. - This miscellaneous appeal under Section 37 of the Arbitrartion and Conciliation Act, 1996 (hereinafter `the 1996 Act') has been filed against the order dated 28-7-2010 passed by the Additional District Judge No.3, Jaipur allowing the objections under Section 34 of the 1996 Act filed by respondent M/s. Bhawan Avam Path Nirman (Bohra) & Company (hereinafter `the Claimant') and setting aside the award dated 2-3-2005 passed by the Empowered Standing Committee. 2. The facts of the case are that the respondent claimant, a registered partnership firm and the appellant Public Works Department (hereinafter `the department') entered into a contract under agreement No.28/1996-97 concerning the work of improvement of Geometrics from Km.115/038 to Km. 119/240 on the National Highway 11, Agra-Jaipur. The date of commencement and completion of the work was 13-7-1996 and 12-7-1997 respectively. The agreement provided as per clause 23 that if there arose any dispute between the parties to the contract, they would be settled by a Standing Empowered Committee (hereinafter `SEC') as provided thereunder. 3. Dispute between the parties to the agreement No.28/1996-97 having arisen, the claimant sought arbitration setting up a claim for Rs. 85,79,605/-on various counts. The matter was placed before the SEC for settlement as per clause 23 of the contract aforesaid. The SEC vide its award dated 2-3-2005 allowed the claim laid to an extent of Rs. 6,77,232/-. No interest thereon was awarded. Aggrieved of the award dated 2-3-2005, the claimant filed objections thereto under Section 34 of the 1996 Act before the District Judge, Jaipur. Therefrom the matter was transferred to the court of Additional District Judge No.3 Jaipur (hereinafter `the trial court'). Reply to the objections were filed by the department. The trial court vide order dated 28-7-2010 set aside the award dated 2-3-2005 inter alia on the ground that the said award was contrary to the terms of the contract, not as per the prescribed procedure vitiated by patent illegality, thus in contravention of public policy and therefore liable to be quashed. Hence this miscellaneous appeal. 4. Heard learned counsel for the appellant department as also the respondent claimant and perused the impugned order dated 28-7-2010 as also other material available on record. 5. Hence this miscellaneous appeal. 4. Heard learned counsel for the appellant department as also the respondent claimant and perused the impugned order dated 28-7-2010 as also other material available on record. 5. It transpires from the impugned order dated 28-7-2010 that the SEC under clause 23 of the agreement No.28/1996-97 was to be constituted of five members, which included the Principal Secretary of Public Works Department, Principal Finance Secretary or his nominee not below the rank of Deputy Secretary, Principal Law Secretary or his nominee not lower than the rank of Joint Legal Remembrancer, Chief Engineer-cum-Additional Secretary of the department as also the Chief Engineer of the department. The trial court held that it was mandatory for the all members of the SEC to be present at all arbitral proceedings to consider the claim of the claimant. Even in the absence of one member of the SEC would not be a proceeding in accordance with law. The trial court noted that from the record it appeared that during the proceedings before the SEC all members of the SEC were never present except for the signing of the award dated 2-3-2005. On specifics, the trial court noted that on the day the arbitration commenced, at the meeting held on 6-12-2001 the Principal Secretary, PWD and Additional Director law, Chief Engineer and the Accounts Officer were present, as such the SEC was not duly constituted. It was also found by the trial court that the claim was not considered by the SEC as required in terms of agreement No.28/1996-97 between the parties. In fact the claimant had moved an application on 18-12-2001 under Section 12 of the 1996 Act objecting to the continuation of the Chief Engineer, as a member of the SEC in view of the fact that he had actively engaged himself in preparing the reply of the department to the claim laid by the claimant before the SEC. The said application, however, was not addressed by the SEC and was kept pending and was indicative of lack of transparency, contravention of the principles of natural justice and therefore the award dated 2-3-2005 was liable to be set aside also on this ground. The trial court also came to the conclusion that the award dated 2-3-2005 passed by the SEC was not a reasoned award contrary to the provisions of Section 31 (3) of the 1996 Act. The trial court also came to the conclusion that the award dated 2-3-2005 passed by the SEC was not a reasoned award contrary to the provisions of Section 31 (3) of the 1996 Act. Further the claimant's affidavit filed in support of the claim and documents in support along with were not considered by the SEC. Similarly an application dated 13-12-2004 filed by the claimant for summoning of documents from the custody of the department was kept pending without any orders thereon till the passing of the impugned award dated 2-3-2005. In these circumstances, the trial court held that the award dated 2-3-2005 was patently illegal, in complete breach of principles of natural justice, going to the very root of SEC's adjudication, contrary to the terms of the contract and hence violative of public policy within the meaning Section 34 (2)(b) (ii) of the 1996 Act. 6. Learned counsel for the appellant department has submitted that the impugned award has been signed by all the members of the SEC and submitted that even otherwise no objection with regard to the SEC not being constituted in accordance with the clause 23 of the agreement during the arbitration proceedings was raised by the claimant. Contrarily, counsel for the department submitted, the claimant willingly participated in the proceedings and having failed to raise any objection at the time relevant he cannot be allowed to turn around after the passing of the award to its dissatisfaction by and belated challenge the procedure adopted. It is submitted that the award dated 2-3-2005 is a reasoned award, wholly legal and valid and hence the court below exceeded its jurisdiction in interfering therewith within the limited jurisdiction conferred upon it under Section 34 of the 1996 Act. 7. Per contra, Mr. Vishnu Sharma, appearing for the respondent claimant has submitted that it was incumbent upon the department to ensure that the SEC be constituted strictly as per clause 23 of the agreement No.28/1996-97. This was not done. Instead of the SEC conducted itself not as a private judicial forum, as an arbitration is, but held its proceedings casually as if an administrative body. Absence of even a single member of the SEC rendered it lacking in quorum consequent to which proceedings before it were wholly vitiated and without jurisdiction. This was not done. Instead of the SEC conducted itself not as a private judicial forum, as an arbitration is, but held its proceedings casually as if an administrative body. Absence of even a single member of the SEC rendered it lacking in quorum consequent to which proceedings before it were wholly vitiated and without jurisdiction. Counsel further submitted that an objection under Section 12 of the 1996 Act has been filed by the claimant on 18-12-2001 before the SEC, wherein it was pointed out that neither the SEC was constituted as per clause 23 of the agreement nor in fact all members appointed thereto were present at the hearings conducted. It was further stated in the application that the SEC suffered from partiality in view of one of its member, the Chief Engineer of the department actively engaging himself with the department by even vetting their reply/ defence to the statement of claim. It was further submitted that a bare look at the award dated 2-3-2005 indicates that the award was passed only recording the assertion of claimant on each of the claim and denial thereto by the department followed by peremptory conclusions of the SEC without reference either to specific case of the claimant or evidence relied upon by it in support of the various claims. 8. Reliance has been placed on the judgment of this court in the case of State of Rajasthan through Additional Chief Engineer Irrigation Division Kota v. M/s. Om Metals, 2012 WLC (Raj.) UC 585 , wherein this court has held that an award passed by a Committee not constituted as specified in agreement between the parties was not sustainable and was liable to be set aside. Reliance has also been placed on the judgment of Bombay High Court in case of Faze Three Exports Ltd. v. Pankaj Trading Co., 2004(2) Arb. LR 163 (Bombay) , wherein the same principle was reiterated and held that where the arbitral tribunal was to be constituted of three arbitrators as per agreement and only two arbitrators were present at the arbitration meeting/s, the award passed by such an arbitral tribunal was not sustainable. Counsel for the claimant also referred to the judgment of the Bombay High Court in the case of Haresh Chinnubhai Shah v. Rajesh Prabhakar Jhaveri, 2004(2) RAJ 179 (Bom.) for the same proposition. Counsel for the claimant also referred to the judgment of the Bombay High Court in the case of Haresh Chinnubhai Shah v. Rajesh Prabhakar Jhaveri, 2004(2) RAJ 179 (Bom.) for the same proposition. In the case of Jimmy Construction Pvt. Ltd. Nagpur v. Union of India, 2008(3) RAJ 635 (Bom.) it was held that where the constitution of the arbitral tribunal was not as per terms of the agreement between the parties, an award delivered by such an arbitral trial would per se be illegal and in contravention of Section 34(2)(v) as also 29 of the 1996 Act. Learned counsel for the claimant then relied upon a judgment in the case of Trading Engineering v. Union of India, 2008(4) Arb.LR 120 (Delhi) wherein it has been held that where the arbitrator did not consider the material relied upon by the parties before it and the award was an unreasoned one, such an award was liable to be quashed and set aside on objections thereto under Section 34 of the 1996 Act. 9. Counsel for the claimant has submitted that the impugned award dated 2-3-2005 was also rightly set aside by the court below for failure of the arbitral tribunal to address the claimant's objections under Section 12 of the 1996 Act impugning the impartiality of the arbitral tribunal by virtue of one of its member i.e. the Chief Engineer engaging himself in preparing/ vetting defence of the department. In support of his contention reliance has also been placed on a judgment in case of Murlidhar Roongta v. S. Jagannath Tibrewala, 2005(1) RAJ 278 (Bom) wherein it has been held that Section 12 of the Act of 1996 is to ensure the Arbitrator/s impartiality and casts a solemn duty on the arbitrator/s to disclose in writing any circumstance likely to give rise to a justifiable doubt as to his/ their independence or impartiality. Not discharging of said duty by the arbitrator/s is a ground to challenge the award made. Finally reliance has been placed on Section 31 (3) of the 1996 Act to contend that it was incumbent upon the arbitrator to state reasons on which the claims were adjudicated and the award was based. Counsel submitted that it was nobody's case that arbitration agreement between the parties provided for reasons not being assigned for the award. 10. Finally reliance has been placed on Section 31 (3) of the 1996 Act to contend that it was incumbent upon the arbitrator to state reasons on which the claims were adjudicated and the award was based. Counsel submitted that it was nobody's case that arbitration agreement between the parties provided for reasons not being assigned for the award. 10. Heard learned counsel for the appellant department as also for the respondent claimant and perused the impugned order dated 28-7-2010 as also other material available on record. 11. The power of the court under Section 34 of the 1996 Act is indeed supervisory not appellate. Section 34 (2)(a)(v) of the 1996 Act provides that the award of the arbitral tribunal may be set aside by the court inter alia on the issue of the composition of the arbitral tribunal being not as agreed or its procedure not being in accordance with the agreement between the parties. Further Section 34 (2)(b) (ii) provides that an arbitral award could also be set aside when it is in conflict with the public policy of India. Judgments of the Hon'ble Supreme Court have interpreted public policy as a ground of interfering with awards rather expansively to include patent illegality, perversity, contravention of the conditions of the contract in issue, etc. It has been held by the court below on the basis of record of the arbitral proceedings that all five members of the SEC were largely not present during the arbitration proceedings. This tantamounted to clear contravention of Section 32 (2)(v) of the 1996 Act. Aside of the aforesaid, it is obvious from the reading of the award dated 2-3-2005 that it is a wholly unreasoned award and it is nobody's case that there was an agreement between the parties that reasons for award were not to be assigned by the Arbitrators. Consequently, there is categorical contravention of Section 31 (3) of the 1996 Act, which mandates that the award should be reasoned one quite obviously for reasons of transparency with was a casualty in the awards under the Act of 1940. Consequently, there is categorical contravention of Section 31 (3) of the 1996 Act, which mandates that the award should be reasoned one quite obviously for reasons of transparency with was a casualty in the awards under the Act of 1940. Further it is also established from the record that the SEC did not comply with the principles of natural justice, inasmuch as neither documents, required by the claimant, were summoned from the department, nor evidences laid by the claimant in support of its claim before the SEC considered in contravention of fairness and non-arbitrarinessan essential component of public policy in a country governed by the rule of law and hence in the cross hair of Section 34 (2)(b) of the 1996 Act. 12. The upshot of the foregoing discussions is that the trial court has rightly held that the award dated 2-3-2005 was liable to be set aside and the objection filed at the instance of claimant deserving to be allowed. This appeal under Section 37 of the 1996 Act is without merit and no case contrary to the one found by the court below has been made out in the appeal.Consequently, I find no force in the miscellaneous appeal and the same is dismissed.Appeal dismissed. *******