Bombay High Court
The Solapur Municipal Corporation vs M/S. Garuda Aviation Services Pvt. Ltd on 18 March, 2013
Author: R.D. Dhanuka
Bench: R.D. Dhanuka
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION APPEAL NO. 13 OF 2008
The Solapur Municipal Corporation,
A corporation Constituted under the
provisions of Bombay Provincial Municipal
Corporation Act, 1949 and having its office
at Indra Bhuvan, Solapur, Maharashtra .. Appellant
Versus
M/s. Garuda Aviation Services Pvt. Ltd.
A Corporation incorporated under the provisions
of Indian Companies Act and having its office
at 3, B-Wing, Manasarover, Suchidham,
Film City Road, Mumbai 400 097 .. Respondent
Mr. Vineeth Naik, Sr. Advocate alongwith Mr. I.M. Khairdi for the appellant.
Mr. V.J. Hegde for the respondent.
CORAM : R.D. DHANUKA,J.
RESERVED ON : 26TH FEBRUARY, 2013
PRONOUNCED ON : MARCH 18, 2013
ORAL JUDGMENT :
By this appeal filed under section 37 of the Arbitration & Conciliation Act, 1996 (for short "Arbitration Act, 1996"), the appellant seeks to challenge the order dated 14th January, 2008 passed by the learned ad hoc District Judge, Solapur in Civil Misc. Application No. 295 of 2005 dismissing the said application filed by the appellant under section 34 of the Arbitration Act, 1996 by which application the appellant had impugned the arbitral award made by the learned arbitrator on 18th August, 2005 allowing the claims made by the respondents.
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2. Some of the relevant facts for the purpose of deciding this appeal are as under :
(a) The appellant decided to appoint private agent to collect octroi by exercising powers under section 149(1) and 457(7) of the Bombay Provincial Municipal Corporation Act, 1949. By resolution No. 234 dated 31 st March, 2003 and standing committee by resolution No. 504 dated 25 th July, 2003 respectively, the appellant decided to appoint an agent to collect octroi.
Pursuant to the said resolution, the appellant invited offers by issuing public notice in the newspapers. Pursuant to the said advertisement, the respondent furnished its tender on 27th August, 2003 and entered into an agreement with the appellant. On 29th August, 2003, petitioner issued work order in favour of the respondent. With effect from 3rd September, 2003 the respondent commenced collection of octroi as per the terms and conditions of the agreement entered into between the parties. The respondent was required to pay deposit amount of Rs.1,28,00,016/- per week with the appellant.
(b) On or about 12th September, 2003, respondent requested for extension of time for payment of the installment as the installment was due on the same date. The appellant granted extension by permitting the respondent to pay installment due on 12th September, 2003 and 19th September, 2003 on a condition that the respondent would pay the said amount with interest at the rate of 24% p.a. On 12th September, 2003 the appellant issued notice to the ::: Downloaded on - 09/06/2013 19:45:11 ::: 3/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw respondent alleging that the respondent had not performed their contractual obligations and invited their attention to clause 11 of the agreement. By letter dated 17th October, 2003, the respondent informed the appellant that they were unable to continue the contract and therefore, they should be relieved from performing the said contract.
(c ) By letter dated 17th October, 2003, the appellant relieved the respondent from continuing with the said contract and returned the bank guarantees to the respondent. The respondent thereafter demanded return of the cash security deposit of Rs.4,09,00,000/- from the appellant.
(d) The appellant vide their letter dated 19 th February, 2004 informed the respondent that the respondent was liable to deposit the amount of Rs.1,28,00,016/- every week from 12th September, 2003 to 17th October, 2003 which amount was not paid by the respondent and the said amount was being adjusted by the appellant from the cash security deposit of the respondent.
(e) By letter dated 9th March, 2004 the respondent sought appointment of the arbitrator. By letter dated 16th March, 2004 the appellant informed the respondent that the reliance placed on clause 25 of the tender document was misplaced as the said clause had already been deleted by consent of both the parties when the agreement was executed.
(f) Respondent thereafter filed Arbitration Application under section 11 of ::: Downloaded on - 09/06/2013 19:45:11 ::: 4/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw the Arbitration Act, 1996 (92 of 2004). The designate of the Hon'ble Chief Justice by order dated 8th June, 2004 allowed the said application and appointed Mr. Justice H. Suresh, former Judge of this court. It is not in dispute that the appellant herein who was joined as party respondent to the said application was absent when the said order dated 8 th June, 2004 was passed.
(g) The appellant challenged the said order passed on 8 th June, 2004 appointing the learned arbitrator by filing Writ Petition (310 of 2005) in this court. By order dated 17th February, 2005, the Division Bench of this court allowed the appellant to withdraw the said petition and dismissed the said petition as withdrawn. The Division Bench however, granted liberty to the petitioner to raise all the contentions before the learned arbitrator in the arbitration proceedings. It was recorded that all those contentions shall be decided in accordance with law.
(h) Before the learned arbitrator, the appellant filed written statement contending that the learned arbitrator do not have jurisdiction to proceed with arbitration as there was no arbitration clause and requested the learned arbitrator to decide the said issue as preliminary issue. The appellant also made counter claim against the respondent.
(I) By order dated 26th April, 2005, the learned arbitrator held that clause 25 of the tender read with clause 21 of the agreement constitutes arbitration ::: Downloaded on - 09/06/2013 19:45:11 ::: 5/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw agreement and rejected the plea of jurisdiction raised by the appellant. The learned arbitrator thereafter proceeded with the arbitration proceedings.
(j) By an award dated 18 th August, 2005, the learned arbitrator directed the appellant to pay sum of Rs.409 lacs to the respondent with interest at the rate of 12% per annum from 1st March, 2004 till payment and further awarded sum of Rs.14.58 lacs in favour of the respondent and against the appellant and directed to pay the said amount together with interest at the rate of 12% per annum from 2 nd August, 2004 till payment. The learned arbitrator rejected the rest of the claims made by the respondents and also rejected the counter claims made by the appellant.
(k) Being aggrieved by the said award dated 18 th August, 2005, the appellant filed an application under section 34 of the Arbitration Act, 1996 being Civil Misc. Application No. 295 of 2005 for setting aside the impugned award before the District Court, Solapur.
(l) By order dated 14th January, 2008, the learned Ad Hoc District Judge, II, Solapur dismissed the said arbitration application filed by the appellant.
(m) Being aggrieved by the said order, the appellant have filed this appeal under section 37 of the Arbitration Act, 1996.
(n) Clause 25 of the tender document reads as under :
"25. In any case of any dispute, the same shall be ::: Downloaded on - 09/06/2013 19:45:11 ::: 6/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw referred to the Commissioner of the corporation and his decision shall be final and binding on the Agent.
If the agent is not satisfied with such decision, the agent shall within a period of 30 days from receipt of the decision, shall intimate his intention to refer the dispute to arbitration, failing which the said decision shall be conclusive and the same shall not be questioned subsequently.
Within 30 days of receipt of notice from the agent or his intention to refer the dispute to arbitration, the Municipal Commissioner, shall send to the agent a name of two officers of the rank of not less than Deputy Secretary to the Government of Maharashtra and who are not connected with the work under the contract. The agent shall within 15 days of the receipt of such letter select one of them and such person shall be appointed as sole arbitrator by the Municipal Commissioner, Solapur.
The Arbitration shall be conducted in accordance with the provisions of Arbitration Act and Conciliation Act, 1996.
Only because matter is referred to arbitration will not entitle the agent to continue the agreement without making payment of installments due and payable as per the agreement and without fulfilling all other terms and conditions and clauses of the agreement. The Corporation shall be entitled to terminate the contract as per the terms and conditions of the agent agreement, even though the matter is referred to arbitration. "
(o) Clause 21 of the agreement dated 27 th August, 2003 entered into between the parties is extracted as under :
"21. That, notice inviting the offer, terms and condition of the contract, tender form, form of agreement and form of performance of guarantee shall be part and parcel of this agreement/contract."::: Downloaded on - 09/06/2013 19:45:11 ::: 7/17 ARBITRATION APPLICATION NO. 13
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3. Mr. Vineeth Naik, senior advocate appearing on behalf of the appellant submits as under :
(a) That clause 25 of the tender document which provided for arbitration clause was subsequently deleted by consent of both the parties and was not in existence when the notice for appointment of arbitrator was issued by the respondent on 9th March, 2004. The learned counsel submits that clause 21 of the agreement which recorded that notice inviting offer, terms and conditions of the contract, tender form, form of agreement and form of performance guarantee would be part and parcel of the agreement and would not include clause 25 of the tender document as the same was already deleted before entering into the agreement dated 27 th August, 2003. The doctrine of incorporation under section 7(5) of the Arbitration Act, would thus not apply to the facts of this case.
(b) The learned counsel submit that the learned arbitrator in his ruling did not consider this aspect and wrongly proceeded on the premise that there was no dispute about the existence of clause 25 of the tender document. The learned arbitrator while rendering such finding did not record any reasons as to why he came to the conclusion that clause 25 of the tender document stood incorporated in the agreement dated 27 th August, 2003. The learned counsel submits that in Para 21 of the impugned order passed by the learned District Judge, finding is recorded that it was undisputed that in the original form of tender, there was clause of arbitration but both the parties by their ::: Downloaded on - 09/06/2013 19:45:11 ::: 8/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw consent deleted the said clause. The learned senior counsel also invited my attention to para 30 of the impugned order again rendering a finding that both the parties with their consent of each other had removed clause of arbitration from the agreement. The learned counsel submits that inspite of such finding rendered by the learned District Judge that by consent of both the parties the arbitration clause in the tender document was deleted, dismissed the arbitration application filed under section 34 by the appellant and did not set aside the impugned award though the same was without jurisdiction.
(c ) Mr. Naik, the learned counsel for the appellant submits that in the impugned order, the learned District Judge placed reliance upon the judgment of the Supreme Court in the case of M/s. SBP & Co. Vs. Patel Engineering Ltd. and another (2005) 8 Supreme Court Cases 618. In para 26 of the impugned order, the learned District Judge held that after service of due notice, the Hon'ble Chief Justice had appointed Mr. Justice H. Suresh, former Judge of this Court as arbitrator. The learned District Judge placed reliance upon para 44 of the judgment of the Supreme Court in the case of SBP & Co.
(supra) which reads thus :
"44. Once we arrive at the conclusion that the proceeding before the Chief Justice while entertaining an application under Section 11(6) of the Act is adjudicatory, then obviously, the outcome of that adjudication is a judicial order. Once it is a judicial order, the same, as far as the High Court is concerned would be final and the only avenue open to a party feeling aggrieved by the order of the Chief Justice would be to approach to the Supreme Court under Article 136 of the Constitution of India. If it were an ::: Downloaded on - 09/06/2013 19:45:11 ::: 9/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw order by the Chief Justice of India, the party will not have any further remedy in respect of the matters covered by the order of the Chief Justice of India or the Judge of the Supreme Court designated by him and he will have to participate in the arbitration before the Tribunal only on the merits of the claim. Obviously, the dispensation in our country, does not contemplate any further appeal from the decision of the Supreme Court and there appears to be nothing objectionable in taking the view that the order of the Chief Justice of India would be final on the matters which are within his purview, while called upon to exercise his jurisdiction under Section 11 of the Act. It is also necessary to notice in this context that this conclusion of ours would really be in aid of quick disposal of arbitration claims and would avoid considerable delay in the process, an object that is sought to be achieved by the Act."
(d) The senior counsel also placed reliance upon para 47(x) of the said judgment which reads thus :
"(x) Since all were guided by the decision of this Court in Konkan Railway Corporation Ltd. and Anr. v.
MANU/SC/0653/2000 : Rani Construction Pvt. Ltd. (2000)2SCC388 and orders under Section 11(6) of the Act have been made based on the position adopted in that decision, we clarify that appointments of arbitrators or arbitral tribunals thus far made, are to be treated as valid, all objections being left to be decided under Section 16 of the Act. As and from this date, the position as adopted in this judgment will govern even pending applications under Section 11(6) of the Act."
(e) The learned counsel submits that the judgment of the Supreme Court in the case of SBP & Co. (supra) was delivered on 26 th October, 2005 i.e. after appointment of the arbitrator by the designate of the Hon'ble Chief Justice in this case i.e. on 8 th June, 2004. It is submitted that the said appointment made by the designate of Chief Justice was thus covered by the ::: Downloaded on - 09/06/2013 19:45:11 ::: 10/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw principles laid down by the Supreme Court prior to the judgment in the case of SBP & Co. when the order of Hon'ble Chief Justice or his designate was considered as an administrative order. The learned counsel submits that this issue was clarified by the Supreme Court in Para 47(x) that the appointment of the arbitrator or arbtiral tribunal made so far be treated as valid, all objections being left to be decided under section 16 of the Act. It was also clarified that as and from the date of the said judgment, the position as adopted in that judgment will govern even pending applications under section 11(6) of the Act. The learned counsel thus submits that the entire order passed by the learned District Judge proceeding on the basis that the appointment of the arbitrator cannot be challenged by the appellant under section 16 of the Arbitration Act, 1996, before the learned arbitrator is totally perverse and contrary to the judgment of the Supreme Court in the case of SBP & Co. (supra).
(f) The learned counsel submits that the learned District Judge failed to appreciate that the learned arbitrator was appointed on 8 th June, 2004 i.e. much prior to the judgment of the Supreme Court in the case of SBP and Co. which was delivered on 26th October, 2005 and thus the said order dated 8th June, 2004 being administrative order, the issue of jurisdiction was rightly raised by the appellant before the learned arbitrator under section 16 and the learned arbitrator was bound to decide the same. The learned counsel submits that though the learned District Judge rendered a finding in favour ::: Downloaded on - 09/06/2013 19:45:11 ::: 11/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw of the appellant that arbitration clause recorded in the tender document was deleted by consent, followed para 44 of the judgment in the case of SBP & Co. and ignored the clarification made by the Supreme court in Para 47(x) of the said judgment which shows patent error in the judgment of the learned District Judge.
(g) The learned senior counsel therefore, submits that the conclusion of the learned District Judge on the issue of jurisdiction is contrary to his own finding and also contrary to the judgment of the Supreme Court in the case of SBP & Co. and merely on that ground itself, the entire order passed by the learned District Judge deserves to be set aside.
(h) The learned counsel also advanced arguments on the merits of the matter and submits that under clause 18 of the agreement read with clause 12 of the tender document which forms part of the agreement, the petitioner was empowered to forfeit security deposit made by the respondent. It is submitted that the respondents have committed breach and therefore, the appellants were justified in forfeiting the security deposit and thus the impugned award made by the learned arbitrator was overlooking and de hors clause 18 of the tender document read with clause 12 of the agreement and thus was in conflict with the public policy. The learned counsel submits that the counter claim submitted by the appellant without prejudice to their rights and contentions also came to be rejected without rendering any reasons.
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4. The learned counsel appearing on behalf of the respondent on the other hand submits as under :
(a) That the respondent had applied for appointment of arbitrator. The appellant did not remain present. The order passed by the designate Judge of this court therefore, rightly appointed the arbitrator based on clause 25 of the tender document which stood incorporated with the agreement. The learned counsel submits that the learned arbitrator was thus right in rejecting the said plea under section 16 of the Act. The learned counsel submits that the finding of the District Judge that clause 25 was deleted by consent is perverse. There was no document produced by the appellant in support of such plea before the learned District Judge regarding deletion of the arbitration clause by consent of the parties. The learned counsel submits that the learned arbitrator has rendered finding of fact and has interpreted the terms of the contract. It is submitted that the stray observations in the order of the learned District Judge that the arbitration clause was deleted by consent cannot be considered. It is submitted that the award is not merged with the order of the learned District Judge and therefore, no such stray observations can be considered by this court. The learned counsel submits that on the date of pendency of section 34 application filed by the appellant, the judgment of the Supreme Court in the case of SBP & Co. (supra) was already pronounced.
(b) The learned counsel submits that interpretation of the learned ::: Downloaded on - 09/06/2013 19:45:11 ::: 13/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw arbitrator on the terms of the contract is possible interpretation and the court can not substitute the interpretation of the learned arbitrator with different views of this court, if any. It is submitted that the scope of section 34 and 37 is limited and no interference is warranted. The learned counsel points out that the objection was raised by the appellant before the learned arbitrator after six months under section 16. It is submitted that in view of clause 21 recording that all the terms and conditions of the tender document stands incorporated with the said agreement, the arbitration clause recorded in clause 25 of the tender also stood incorporated in the agreement by virtue of section 7(5) of the Arbitration Act, 1996.
(c ) On merits, the learned counsel for the respondent submits that the learned arbitrator has rendered finding that no breach was committed by the respondent and thus the appellants were liable to refund forfeited amount of security deposit. It is submitted that such finding rendered by the learned arbitrator is not perverse and does not warrant any interference by this court.
(d) The learned counsel invited my attention to the order dated 10 th October, 2007 passed by the Supreme Court in Civil Appeal No. 643 of 2007 filed by the respondent holding that the Supreme Court did not decide any question of law raised by the parties, since the application was pending before the District Court,Solapur. The District Judge was requested to decide the application under section 34 of the Act within the period of two months.
The Supreme Court refused to interfere with the order passed by the High ::: Downloaded on - 09/06/2013 19:45:11 ::: 14/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw Court.
5. Perusal of the record indicates that the arbitration agreement was recorded in clause 25 of the tender document. Clause 21 of the agreement records that all the terms and conditions of the tender document stood incorporated in the agreement entered into between the parties. It was however, contention of the appellant all through out that the said clause 25 of the tender document was deleted by consent of both the parties. The learned arbitrator without recording any reasons, rejected the application filed by the appellant under section 16.
Though the learned District Judge rendered a finding that by consent of both the parties, clause 25 of the tender document was deleted, dismissed the arbitration application filed by the appellant on the ground that learned arbitrator was appointed by the Hon'ble Chief Justice under section 11(6) of the Act and that the issue could not have been agitated by the appellant before the learned arbitrator.
6. Perusal of the impugned order indicates that the learned Single Judge has erroneously not considered the crucial fact that when the learned arbitrator was appointed by the Chief Justice or his designate on 8 th June, 2004, as per law laid down by the Supreme Court in the case of Konkan Railway Corporation Ltd.
Vs. Rani Construction (P) Ltd. (2002) 2 SCC 388, the order passed by the Chief Justice or his designate was an administrative order. The said order therefore, was not conclusive. In my view, the respondent to the said application was thus entitled to raise all issues including issue of existence of arbitration agreement before the learned arbitrator by making an application under section 16 ::: Downloaded on - 09/06/2013 19:45:11 ::: 15/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw of the Arbitration & Conciliation Act, 1996. The judgment of the Supreme Court in the case of SBP & Co. (supra) delivered on 26 th October, 2005 for the first time, took a view that the order passed by the Chief Justice or his designate is a judicial order and not an administrative order. The view taken earlier by the Supreme Court in the case of Konkan Railways Vs. Rani (supra) came to be overruled by the said judgment. The Supreme Court in Para 47(x) had clarified that the appointment of the arbitrator or arbitral tribunal made prior to the said decision in the case of SBP & Co. were to be treated as valid and all objections were being left tobe decided under section16 of the Act. The Supreme Court also clarified that the position as adopted in the case of SBP & Co. would govern even pending applications under section 11 of the Act. It is thus clear that once the District Judge having rendered a finding that the arbitration agreement recorded in clause 25 of the tender document was deleted by consent of both the parties, in my view the learned District Judge ought to have set aside the entire award as the same was without jurisdiction.
6. It is not in dispute that the respondents have not challenged the finding recorded by the learned District Judge that clause 25 was deleted by consent of parties by filing any cross objection.
7. In my view the appointment of the learned arbitrator by the designate of the Hon'ble Chief Justice on 8.6.2004 was governed by the law laid down by the Supreme Court in the case of Konkan Railways and was an administrative order.
Application under section 16 of the Arbitration & Conciliation Act, 1996 filed by ::: Downloaded on - 09/06/2013 19:45:11 ::: 16/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw the Appellants was thus maintainable and ought to have been allowed by the learned arbitrator. The learned District Judge having rendered a finding that clause 25 was deleted, could not have dismissed the arbitration application filed by the appellant under section 34 of the Act.
8. As the finding of the learned District Judge that clause 25 of the tender document has been deleted has become final, in my view the impugned order passed by the learned District Judge deserves to be set aside and the award is being without jurisdiction also deserves to be set aside. This court therefore, need not go into the merits of the claim. I am of the view that there existed no arbitration clause in view of the finding rendered by the District Court having become final. I, therefore, pass the following order :
(a) The impugned judgment dated 14th January, 2008 passed by the learned Ad Hoc District Judge, II, Solapur in Civil Misc. Application No. 295 of 2005 on Exh. 25 filed by the appellant is set aside.
(b) Civil Misc. Application No. 295 of 2005 at Exh. 25 is allowed on the ground that there exist no arbitration clause between the parties.
(c) The impugned award dated 18th August, 2005 is set aside.
(d) It is made clear that the respondents would be free to adopt the proceedings as would be permissible in law, other than arbitration proceedings and if the same are filed, the same shall be decided on its own merits and in accordance with law ::: Downloaded on - 09/06/2013 19:45:11 ::: 17/17 ARBITRATION APPLICATION NO. 13 OF 2008.sxw and shall not be influenced by the views expressed by the learned arbitrator and the learned ad hoc District Judge.
(e) Appeal is allowed in the aforesaid terms.
(f) There shall be no order as to costs.
(R.D. DHANUKA,J.) ::: Downloaded on - 09/06/2013 19:45:11 :::