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2015 DIGILAW 428 (UTT)

Purshotam Industries Ltd. v. State of Uttarakhand

2015-09-07

SUDHANSHU DHULIA

body2015
ORDER : Sudhanshu Dhulia, J. 1. This application has been filed before this Court by the applicant/petitioner under Section 11(6) read with Section 15 of the Arbitration and Conciliation Act, 1996 (from hereinafter referred to as "Arbitration Act"). It is admitted by the parties that a contract was executed between them on 07.03.2008 for supply of G.I. Pipes (ISI marked) by the petitioner to Payee Jal Sansadhan and Nirman Nigam (in short "Corporation"), which is a Government of Uttarakhand Corporation. It is also agreed between the parties that the said agreement has an arbitration clause, which reads as under: "28.1 In case of any dispute between the supplier and the consignee the matter shall be referred to the Engineer for his decision and in case, where the supplied is not satisfied with the decision of the Engineer, the matter shall be referred to the Managing Director. Every dispute, difference or question which may at any time arise between the parties hereto or any person claiming under them, touching or arising out of or in respect of this deed or the subject-matter thereof shall be referred to the arbitration of Managing Director or any person nominated by him. In the event of the arbitrator to whom the matter is originally referred being transferred or vacated his office or being unable to act for any reason, he shall either enter upon the reference himself or appoint another person to act as arbitrator. Such person shall be entitled to proceed with the reference from the state it was lift by his predecessor. 28.2 In all cases where the amount of the claim in dispute is Rs. 50,000/- (Rupees fifty thousand) and above, the arbitrator shall give reasons for the award. The party invoking the arbitration shall specify dispute to be referred to arbitration together with this amount or amounts claimed in respect of each such dispute, subject to the provisions of the Arbitration Act, 1940 or any rules made thereunder and for the time being in force shall apply to the arbitration proceeding." Time was given to the counsel for the Corporation to file its counter-affidavit on 30.05.2014, which was ultimately filed on 12.11.2014. In its counter affidavit, an objection has been raised by the respondents/Corporation which though admits to an arbitration clause in the contract dated 07.03.2008, yet objects that there is no "live claim" of the applicant and in fact there is no "arbitral dispute" in the matter and the jurisdiction of this Court under Section 11(6) of the Arbitration Act has been wrongly invoked. 2. Consequent to the seminal decision of the Constitutional Bench of the Hon'ble Apex Court in the SBP & Co. v. Patel Engineering Ltd. & another (reported in (2005) 8 SCC 618 ) : (AIR 2006 SC 450) an order passed under Section 11(6) of the Arbitration Act by the Chief Justice or his designated Judge is not an "administrative order" but a Judicial order and therefore before the appointment of an Arbitrator, the Court has to examine not only its jurisdiction but also whether there is an arbitration agreement in terms of Section 7 of the Arbitration Act between the parties and further whether there is an arbitral dispute exists between the parties, which can thereafter be referred to arbitration. 3. Since in the present case the preliminary objection by the respondent is that there is no arbitral dispute and the matter cannot be referred for arbitration, the matter is first being considered on this aspect, and both the Senior Advocates i.e. Mr. Arvind Vashisth and Mr. B.P. Nautiyal, who appear for the applicant and respondent respectively, were heard at length. 4. We have already referred above the contract clause dated 07.03.2008 in which admittedly there is an arbitration clause. The Corporation had given an advertisement calling for bids from eligible persons/companies. The short-term tender notice issued by the Corporation on 11.02.2008 and in terms and conditions (condition No. 5) of contract specifically states that "Purchase Preference" to State units will be given as per G.O. No. 502/Udhyog Bikas/03-143-Udhyog/2003 at 23.08.2003 of Uttarakhand Govt. 5. The Government Order dated 23.08.2003, a reference of which has been referred in the contract (referred above), was passed by the Government of Uttarakhand in order to encourage industries in Uttarakhand. It speaks of two preferences. 5. The Government Order dated 23.08.2003, a reference of which has been referred in the contract (referred above), was passed by the Government of Uttarakhand in order to encourage industries in Uttarakhand. It speaks of two preferences. The first i.e. "purchase preference" may be given to a large or medium scale industry, which would mean that without compromising with the quality, large and medium scale industries which are located in the territory of Uttarakhand would be given preference vis-a-vis outside industries, and in case their bid is not higher man 15% of the lowest bid, men they would be given a preference subject to the fact that they agreed to work on the lowest bid. This is called "Purchase Preference". The Government Order dated 23.08.2003 speaks of another kind of preference which is called "Price Preference". This can be given only to a small and cottage industry with maximum 15% preference in the value. A home industry would be given the contract provided the amount quoted by them though not the lowest is not higher man 15% of the minimum price fixed. This would be "Price Preference". 6. As we have already referred to the advertisement what has been advertised by the Corporation was that it would give only "Purchase Preference" in terms of the Government Order dated 23.08.2003. There is no reference of "Price Preference" here. Consequently, it appears that the applicant, being a home industry of Uttarakhand, was given a "Purchase Preference", however, before signing of the contract to the offer of the Corporation dated 07.03.2008, the present applicant wrote a letter on the same day i.e. on 07.03.2008 to the Corporation, where it asked for "price preference" as well. The relevant content of the said letter read as under: "We have carefully considered the matter at our end and department is aware we are entitled for the price preference of 15% over and above the lowest rates under the standing government policy. This price preference has been extended by the department to us in the past." 7. What exactly was the reply of the Corporation to this demand of the applicant is not on record, but it appears that the Corporation did not agree to this as that very same day i.e. on 07.03.2008, the petitioner wrote another letter to the Corporation, regarding its tender enquiry, which reads as under: "Sub: Tender Enquiry No. 356/NIVIDA/37 Dt. What exactly was the reply of the Corporation to this demand of the applicant is not on record, but it appears that the Corporation did not agree to this as that very same day i.e. on 07.03.2008, the petitioner wrote another letter to the Corporation, regarding its tender enquiry, which reads as under: "Sub: Tender Enquiry No. 356/NIVIDA/37 Dt. 01.02.08 opened on 28.02.08 for the supply of G.I. Pipes. Sir, With reference to above tender enquiry, we hereby confirm that we have accepted all terms and conditions. We, however, withdraw any of our condition found deviation in our offer. Hope you will find the above in order and informed your decision for signing the contract bond." 8. The contract, as we have already referred, was executed on the same day on 07.03.2008. Regarding "Price Preference", the contract specifically states as under: "No Price preference will be applicable on lowest rates (L-1) accepted by you. Moreover, in this connection the decision taken by Managing Director, Uttarakhand Peyjal Nigam will be final." 9. It appears that the applicant thereafter supplied the G.I pipes to the Corporation in terms of the said contract and after completion of work his earnest money of Rs. 5.00 lakh (Rupees Five lakhs only), which was deposited with the Corporation, was also withdrawn by him on 04.06.2011. 10. After a gap of one year on 08.08.2012 the applicant sends a letter to the Corporation, although this letter is not on record, but the reply to this letter, which is by the Corporation dated 08.08.2012 shows that the applicant vide its letter dated 08.08.2012 demanded an amount which, according to him, was liable to be given in terms of the "price preference", which now comes to about Rs. 7-8 crores, excluding interest if any. Vide letter dated 08.08.2012 the Corporation rejected the claim of the applicant by saying that the entire amount has already been given to him and the Corporation has nothing to pay now as all bills have been paid. 11. At this juncture, the applicant gave a notice to the Corporation on 14.09.2012 to appoint an Arbitrator as per contract (referred above). 11. At this juncture, the applicant gave a notice to the Corporation on 14.09.2012 to appoint an Arbitrator as per contract (referred above). Thereafter vide letter dated 24.08.2013 the Corporation informed the applicant that they are ready to appoint an Arbitrator, and on 05.09.2013 the applicant gave its consent and left it open to the Corporation either to appoint Managing Director as Arbitrator or any other person nominated by the Managing Director of the Corporation. Vide letter dated 11.09.2013, Mr. Ravindra Kumar - Managing Director, Uttarakhand Payjal Sansadhan and Nirman Nigam appointed Mr. T.N. Vidhani, who was a retired Chief Engineer of the Corporation, as a sole Arbitrator in the matter. Meanwhile, the applicant has filed its claim before the Arbitrator, but vide letter dated 04.10.2013 the new Managing Director of the Corporation cancelled the appointment of Mr. T.N. Vidhani. Hence, the present applicant moved the present arbitration application under Section 11(6) read with Section 15 of the Arbitration Act before this Court with the following prayer: "It is therefore, most respectfully prayed that this Hon'ble Court may be pleased to allow this application order/declare that Shri T.N. Vidhani, the arbitrator appointed by Managing Director Uttarakhand Paye Jal Sansadhan and Nirman Nigam vide letter No. 922/Pra.Ni. Camp-Go. Karya Samanya-60 dated 11-9-2013, has a right, power to arbitrate the dispute between the applicant and respondent No. 2 to 4. In alternative this Hon'ble court may further be pleased to direct Sri T.N. Vidhani, the arbitrator appointed by Managing Director Uttarakhand Paye Jal Sansadhan and Nirman Nigam vide letter No. 922/Pra. Ni. Camp-Go.Karya Samanya/60 dated 11-9-2013 to proceed with arbitration and/or such other arbitrator as this Hon'ble court may deem fit and proper to proceed with the matter in question." 12. At this juncture, certain admitted facts must also be noted. These facts also tell us as to why the applicant did not raise their claim for "price preference" earlier and had in fact withdrawn their earnest money. The erstwhile Managing Director of the Corporation Mr. Ravindra Kumar had appointed an Arbitrator vide his order dated 11.09.2013. All the same, on the said date he had no legal authority to pass such an order, as he was not the Managing Director of the Corporation on the date. This is so as Mr. The erstwhile Managing Director of the Corporation Mr. Ravindra Kumar had appointed an Arbitrator vide his order dated 11.09.2013. All the same, on the said date he had no legal authority to pass such an order, as he was not the Managing Director of the Corporation on the date. This is so as Mr. Ravindra Kumar was appointed as a Managing Director of the Corporation on 03.05.2012 and consequently his appointment as Managing Director was challenged by one Bhajan Singh (another claimant to the said post), in a writ petition before this Court being WPSB No. 153 of 2012. The writ petition was dismissed by the Division Bench of this Court, but later Mr. Bhajan Singh filed an SLP before the Hon'ble Apex Court wherein leave was granted and his appeal was ultimately allowed vide judgment and order dated 27.08.2013 and the order of the Division Bench of this Court was set aside holding that the appointment of Mr. Ravindra Kumar as Managing Director to be illegal. The order of the Hon'ble Apex Court dated 27.08.2013 precedes order dated 11.09.2013 (the date by which Mr. Ravindra Kumar had appointed the Arbitrator). Since the judgment was effective on the date of its pronouncement and it will be deemed that Mr. Ravindra Kumar had knowledge of the said judgment on 27.08.2013 passed by the Hon'ble Apex Court that he had seized to be the Managing Director of the Corporation, hence he should not have passed the order dated 11.09.2013 appointing an Arbitrator. In any case, the order dated 11.09.2013 is totally without jurisdiction, in fact a nullity in law. 13. We have also noticed that the claim of the applicant for appointment of an Arbitrator the acceptance of the factual situation and agreement in principle for appointment of an Arbitrator was all done within the same period when Sri Ravinder Kumar was the Managing Director of this Corporation. 14. Though, the learned Senior Counsel for the applicant Mr. Arvind Vashisth, would argue that on principle the decision to appoint an Arbitrator had already been taken on 24.08.2013 when Mr. Ravindra Kumar was still the Managing Director of the Corporation and the subsequent order (dated 11.09.2013) by which the Arbitrator was appointed is a mere formality, however, the Court is not inclined to accept this argument, as the effective date of appointment of Arbitrator will be 11.09.2013. Ravindra Kumar was still the Managing Director of the Corporation and the subsequent order (dated 11.09.2013) by which the Arbitrator was appointed is a mere formality, however, the Court is not inclined to accept this argument, as the effective date of appointment of Arbitrator will be 11.09.2013. As per the terms and conditions of the contract 07.03.2008, an Arbitrator could only have been nominated by the Managing Director and since 11.09.2013 Mr. Ravindra Kumar was not holding the post of Managing Director in view of the decision of Hon'ble Apex Court (referred above), the order (by which Arbitrator was appointed) has no validity in law. Therefore, if the said order has been cancelled or recalled later vide order dated 04.10.2013, no anomaly can be found in the said order. 15. In any case, it still has to be seen as to whether under these circumstances an Arbitrator can still be appointed by this Court by the power given under Clause (6) of Section 11 of the Arbitration Act. Mr. Arvind Vashisth, learned Senior Advocate for the applicant would argue that all this Court has to see is whether there is an arbitration clause or not. Whether the "dispute" is an arbitral dispute or not, has to be seen by the Arbitrator. Mr. B.R Nautiyal, learned Senior Advocate for the Corporation on the other hand would argue that whether the "dispute" exists or not has also to be seen by this Court before an Arbitrator is appointed. 16. In view of the law laid down by Hon'ble Apex Court in the Constitutional Bench judgment in SBP & Co. v. Patel Engineering Ltd. & another, reported in (2005) 8 SCC 618 : (AIR 2006 SC 450) wherein certain guidelines were made in paragraph 47. The relevant guideline for the purpose of the present case is in paragraph 47(iv), which reads as under: "(iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be, his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. These will be, his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the Judge designated would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the Judge designate." 17. The preliminary aspect which has to be examined by the court while appointing an Arbitrator have been referred to in detail in paragraph Nos. 30, 31 and 32 of the said judgment SBP & Co. AIR 2006 SC 450) (supra), which reads as under:-- "30. With respect, what was the effect of the Chief Justice having to decide his own jurisdiction in a given case was not considered by the Bench. Surely, the question whether the Chief Justice could entertain the application under Section 11(6) of the Act could not be left to the decision of the arbitral tribunal constituted by him on entertaining such an application. We also feel that adequate attention was not paid to the requirement of the Chief Justice having to decide that there is an arbitration agreement in terms of Section 7 of the Act before he could exercise his power under Section 11(6) of the Act and its implication. The aspect, whether there was an arbitration agreement, was not merely a jurisdictional fact for commencing the arbitration itself, but it was also a jurisdictional fact for appointing an arbitrator on a motion under Section 11(6) of the Act, was not kept in view. A Chief Justice could appoint an arbitrator in exercise of his power only if there existed an arbitration agreement and without holding that there was an agreement, it would not be open to him to appoint an arbitrator saying that he was appointing an arbitrator since he has been moved in that behalf and the applicant before him asserts that there is an arbitration agreement. Acceptance of such an argument, with great respect, would reduce the high judicial authority entrusted with the power to appoint an arbitrator, an automaton and subservient to the arbitral tribunal which he himself brings into existence. Our system of law does not contemplate such a situation. 31. With great respect, it is seen that the court did not really consider the nature of the rights of the parties involved when the Chief Justice exercised the power of constituting the arbitral tribunal. The court also did not consider whether it was not necessary for the Chief Justice to satisfy himself of the existence of the facts which alone would entitle him or enable him to accede to the request for appointment of an arbitrator and what was the nature of that process by which he came to the conclusion that an arbitral tribunal was liable to be constituted. When, for example, a dispute which no more survives as a dispute, was referred to an arbitral tribunal or when an arbitral tribunal was constituted even in the absence of an arbitration agreement as understood by the Act, how could the rights of the objecting party be said to be not affected, was not considered in that perspective. In other words, the Constitution Bench proceeded on the basis that while exercising power under Section 11(6) of the Act there was nothing for the Chief Justice to decide. With respect, the very question that fell for decision was whether there had to be an adjudication on the preliminary matters involved and when the result had to depend on that adjudication, what was the nature of that adjudication. It is in that context that a reconsideration of the said decision is sought for in this case. The ground of ensuring minimum judicial intervention by itself is not a ground to hold that the power exercised by the Chief Justice is only an administrative function. As pointed out in the order of reference to that Bench, the conclusion that it is only an administrative act is the opening of the gates for an approach to the High Court under Article 226 of the Constitution, for an appeal under the Letters Patent or the concerned High Court Act to a Division Bench and a further appeal to this Court under Article 136 of the Constitution of India. 32. 32. Moreover, in a case where the objection to jurisdiction or the existence of an arbitration agreement is overruled by the arbitral tribunal, the party has to participate in the arbitration proceedings extending over a period of time by incurring substantial expenditure and then to come to court with an application under Section 34 of the Arbitration Act seeking the setting aside of the award on the ground that there was no arbitration agreement or that there was nothing to be arbitrated upon when the tribunal was constituted. Though this may avoid intervention by court until the award is pronounced, it does mean considerable expenditure and time spent by the party before the arbitral tribunal. On the other hand, if even at the initial stage, the Chief Justice judicially pronounces that he has jurisdiction to appoint an arbitrator, that there is an arbitration agreement between the parties, that there was a live and subsisting dispute for being referred to arbitration and constitutes the tribunal as envisaged, on being satisfied of the existence of the conditions for the exercise of his power, ensuring that the arbitrator is a qualified arbitrator, that will put an end to a host of disputes between the parties, leaving the party aggrieved with a remedy of approaching this Court under Article 136 of the Constitution. That would give this Court, an opportunity of scrutinizing the decision of the Chief Justice on merits and deciding whether it calls for interference in exercise of its plenary power. Once this Court declines to interfere with the adjudication of the Chief Justice to the extent it is made, it becomes final. This reasoning is also supported by sub-section (7) of Section 11, making final, the decision of the Chief Justice on the matters decided by him while constituting the arbitral tribunal. This will leave the arbitral tribunal to decide the dispute on merits unhampered by preliminary and technical objections. In the long run, especially in the context of the judicial system in our country, this would be more conducive to minimising judicial intervention in matters coming under the Act. This will leave the arbitral tribunal to decide the dispute on merits unhampered by preliminary and technical objections. In the long run, especially in the context of the judicial system in our country, this would be more conducive to minimising judicial intervention in matters coming under the Act. This will also avert the situation where even the order of the Chief Justice of India could be challenged before a single Judge of the High Court invoking the Article 226 of the Constitution of India or before an arbitral tribunal, consisting not necessarily of legally trained persons and their coming to a conclusion that their constitution by the Chief Justice was not warranted in the absence of an arbitration agreement or in the absence of a dispute in terms of the agreement." 18. In view of the above decision of the Hon'ble Apex Court, it is absolutely clear that appointment of Arbitrator is not merely an administrative order of the Hon'ble Chief Justice or the designated Judge, but it is a Judicial order where inter alia the court has to examine whether an arbitral dispute exists in the matter at all. The above decision of the Hon'ble Apex Court has been followed in various other decisions by the Hon'ble Apex Court, reference of two of the judgments would be in order.-- (i) In Shree Ram Mills Ltd. v. Utility Premises (P) Ltd., reported in 2007 (4) SCC 599 : (AIR 2007 SC (Supp) 200) the Hon'ble Apex Court has held as under: "A glance on this para would suggest the scope of the order under Section 11 to be passed by the Chief Justice or his designate. Insofar as the issues regarding territorial jurisdiction and the existence of the arbitration agreement are concerned, the Chief Justice or his designate has to decide those issues because otherwise the arbitration can never proceed. Thus, the Chief Justice has to decide about the territorial jurisdiction and also whether there exists an arbitration agreement between the parties and whether such party has approached the court for appointment of the arbitrator. The Chief Justice has to examine as to whether the claim is a dead one or in the sense whether the parties have already concluded the transaction and have recorded satisfaction of their mutual rights and obligations or whether the parties concerned have recorded their satisfaction regarding the financial claims. The Chief Justice has to examine as to whether the claim is a dead one or in the sense whether the parties have already concluded the transaction and have recorded satisfaction of their mutual rights and obligations or whether the parties concerned have recorded their satisfaction regarding the financial claims. In examining this if the parties have recorded their satisfaction regarding the financial claims, mere will be no question of any issue remaining. It is in this sense that the Chief Justice has to examine as to whether there remains anything to be decided between the parties in respect of the agreement and whether the parties are still at issue on any such matter. If the Chief Justice does not, in the strict sense, decide the issue, in that event it is for him to locate such issue and record his satisfaction that such issue exists between the parties. It is only in that sense that the finding on a live issue is given. Even at the cost of repetition we must state that it is only for the purpose of finding out whether the arbitral procedure has to be started that the Chief Justice has to record satisfaction that there remains a live issue in between the parties........" "It is for this reason that it was pointed out in the above para that it would be appropriate sometimes to leave the question regarding the live claim to be decided by the Arbitral Tribunal. All that he has to do is to record his satisfaction that the parties have not closed their rights and the matter has not been barred by limitation." (ii) This view has again been reiterated by the Hon'ble Apex Court in M/s. Tata Industries Ltd. & another v. M/s. Grasim Industries Ltd., reported in 2008 (5) Supreme 142 : ( AIR 2008 SC 2970 ). 19. Reference to another judgment of the Hon'ble Apex Court in M/s. KSS KSSHPL Consortium Thro. Its constituted Attorney Mr. Davendra Kumar v. M/s. Gail (India) Ltd., reported in 2015 (2) Supreme 129 where the Hon'ble Apex Court held that before appointing the Arbitrator on an application moved under Clause (6) of Section 11 of the Arbitration Act, the Court has to be satisfied about the existence of an arbitral dispute in the matter. 20. Its constituted Attorney Mr. Davendra Kumar v. M/s. Gail (India) Ltd., reported in 2015 (2) Supreme 129 where the Hon'ble Apex Court held that before appointing the Arbitrator on an application moved under Clause (6) of Section 11 of the Arbitration Act, the Court has to be satisfied about the existence of an arbitral dispute in the matter. 20. In the light of the above observation of the Hon'ble Apex Court, let us examine the claim of the present applicant. It is an admitted fact that for the said contract, applicant was the successful bidder and won the contract with the Corporation, which was executed between him and the Corporation on 07.03.2008 on certain terms and conditions. The earlier correspondence (a reference of which already referred above) as well as the specific clause of contract makes it clear that there was no provision for "price preference" being given to the applicant. The applicant's correspondence with the Corporation clearly suggest that he had executed the contract knowing fully well that he is not liable to be given any "price preference", yet he raised this claim of "price preference" after completing the contract in the year 2011 by making unnecessary demand of "price preference", which were rightly denied by the Corporation. He thereafter resorted to the arbitration clause and as we have already seen an Arbitrator was appointed by the Managing Director vide his order dated 11.09.2013 which is nothing but a nullity in the eyes of law. 21. Keeping all these aspects aside, even if we examine the matter purely on the limited question as to whether this Court can appoint the Arbitrator, the minimum this Court has to see is its jurisdiction and the fact that there is an Arbitration clause and that there is an arbitral dispute in the matter. As far as jurisdiction and the arbitration clause in the agreement is concerned, there is no dispute regarding the matter, but there is absolutely no doubt in the mind of this Court that there is no arbitral dispute, inasmuch as, the claim of the present applicant regarding "price preference", was never a part of the contract or was in the terms of the contract, hence it could never be referred to arbitration, on the issue of price preference. With the aforesaid observation, the present petition fails and is hereby dismissed. Petition Dismissed