Himachal Pradesh High Court
Noble Engineering Works And Etc. vs H.P. State Electricity Board And Anr. on 2 December, 1993
Equivalent citations: AIR1994HP153
ORDER Devinder Gupta, J.
1. This order is meant to dispose of 18 petitions preferred by different petitioners against the common respondent, namely, the Himachal Pradesh State Electricity Bpard (hereinafter referred to as 'the Board'). The common prayer made in all the petitions is to revoke the authority of respondent No. 2 to act as an Arbitrator and to appoint a substitute. The other prayer made is to determine the scope and extent of the arbitration clause and decide whether the submission made by respondent No. 1 amounts to dispute, differences or question or to declare the arbitration clause as vague for uncertainly.
2. The petitioners are engaged in the manufacture, test, design and supply of various types/sizes of all aluminium conductors (ACC) and aluminium conductors steel reinforced (ACSR). It is the common case of the parties that tenders for the work of procurement of different types/sizes of conductors were floated by respondent No. 1. The petitioners' tenders having been found to be competitive were accepted and consequently agreements were signed by the petitioners and respondent No. 1. In pursuance to the agreements, purchase orders were placed with the petitioners by the Board. Due to the increase in the controlled prices of E. C. grade aluminium rods and levy of fresh excise duty, in terms of the provisions of the purchase order, the rates were revised twice, otherwise all terms and conditions of supply remained the same. It is also not in dispute that the contract agreement as also the supply order contain an arbitration clause.
3. It is the petitioners' case that without satisfying the pre-requisites the Chief Purchase Officer of the Board approached its Chairman, for the appointment of an Arbitrator even without endorsing a copy of the said communication to the petitioners and that the Chairman appointed respondent No. 2 as the sole Arbitrator. Copy of the order of appointment was not endorsed to the petitioners. The Secretary of the Board, in the capacity as party to the arbitration agreement, wrote a letter to the petitioners to concur in the appointment of respondent No. 2 as the sole Arbitrator. The petitioners acknowledged the receipt of communication and asked respondent No. 1 to intimate the grounds in support of the alleged disputes, on the basis of which arbitration clause had been invoked, but there had been no response thereafter,
4. The petitioners have alleged that respondent No. 2 had no legal authority to act as an Arbitrator in the absence of any disputes, differences of questions between the parties. In addition to challenging the jurisdiction of respondent No. 2, petitioner has also challenged the appointment of respondent No. 2 as bad in law. It is alleged that the Secretary of the Board has in clear terms prejudged the issue and conveyed the same to respondent No. 2 and since respondent No. 2 is an officer of the Board, he is likely to act on the dictates of the Board and its wishes. The next attack by the petitioners is to the arbitration clause that the same as contained in the supply order is vague for uncertainty since it enjoins upon the chairman either to act himself as the sole arbitrator or to nominate an uncertain number of 'nominees'. Any reference made under the said clause is sought to be declared as void. The petitioners have also alleged that respondent No. 2 is not acting in a fair and impartial manner and has openly exhibited bias in favour of the Board and thus has rendered himself liable for removal. Three instances have been cited by the petitioners in support of their plea of bias.
5. It is alleged that on 7th April, 1993, an application was made before respondent No. 2, challenging his jurisdiction and authority to act as an Arbitrator in the absence of disputes, differences or questions. Reply to this application was filed by respondent No. 1. On21st April, 1993, rejoinder was filed by the petitioners and on 28th April, 1993, petitioners' counsel invited the attention of respondent No. 2 to various documentary evidence on record, in order to show that there was neither any dispute, nor any differences or any questions in the legal sense, which could form the basis for adjudication. It is alleged that in support of his contention, the counsel cited number of decisions before the Arbitrator and respondent No. 1 in its reply could not point any document to establish the existence of disputes or differences between the parties. Even no judgment was cited to the effect that without pre-existence of any dispute or difference, arbitration matter could proceed. After the hearing concluded on 28th April, 1993, on the next date, petitioners' counsel prayed for taking on record notes of submissions in writing, which respondent No. 2 declined to take on record stating that it would make his already bulky files bulkier. The petitioners' counsel thereafter offered arguments by way of rebuttal to the reply of respondent No. 1, but respondent No. 2, contrary to the established principles of law, permitted respondent No. 1 to address arguments in rebuttal to the rebuttal. Earlier, it had been the practice of respondent No. 2 to record minutes for arbitration hearing with details and to circulate the same amongst the parties, but despite the fact that hearing on the application had started on 28th April, 1993 and continued up to the next day, minutes were not recorded by respondent No. 2 and respondent No. 2 proceeded to pass an order rejecting the application.
6. The other instance of bias as alleged is that on 7th April, 1993, another application was moved pointing out that respondent No. 2 ought riot to have allowed recording of evidence before calling upon the parties to admit or deny the documents relied upon by the parties. A prayer was also made in the said application to recall the witnesses for further cross-examination since evidence had proceeded without admission and denial of documents. The application was also rejected in a summary manner and no minutes of the arguments addressed for a considerable period were recorded. It is alleged that the ground of rejection is erroneous and contrary to the record.
7. The third instance is that the third application moved on 7th April, 1993 was also dismissed in a summary manner, in which a prayer was made by the petitioners seeking directions against respondent No. 1 for placing on record documents relating to recommendations and acceptance of the tender of the petitioners, so as to enable the petitioners to meet the case of respondent No. I that the initial fixation of rates in the supply order placed with the petitioners was wrong. Thus, by rejecting all the three appli-cations, in a summary manner, without keeping exhaustive notes of the elaborate arguments ad iressed on behalf of the petitioners, the Arbitrator has exhibited bias in favour of the Board and against the petitioners.
8. Respondent No. 1 in its reply has contested the petitioners' claim by raising number of preliminary objections and also contesting it on merits. It is alleged that the application is not maintainable, since it is based upon vague facts, which otherwise is lacking in full particulars. The petitioners have not come to the Court with clearn hands and are not entitled to the discretionary relief and moreover the petitioners are estopped by their acts, conduct and acquiescence. In having participated in the arbitration proceedings, without any protest and having acquiesced in the arrangement, the petitioners are guilty of laches and undue delay. The arbitration proceedings have continued for more than one year. Evidence on behalf of respondent No. 1 has already been examined and the petitioners out of the six listed witnesses have already examined four witnesses. At the belated stage, three applications were moved, when the petitioners changed their counsel and now, with a view to delay the arbitration proceedings, the instant petitions have been preferred. The grounds stated in the petitions are not sufficient to revoke the authority of the Arbitrator who had lawfully been appointed, in terms of the arbitration agreement and for the appointment of the Arbitrator the petitioners had duly sent their concurrence. On merits, the stand taken by respondent No. 1 is that legal and bona fide claim of the Board vis-a-vis MODVAT (Modified Value Added Tax) has been repudiated by the petitioners in number of letters and their bills, wherein the petitioners had passed on the claim of MODVAT under protest. The very fact of passing on the claim of MODVAT under protest amounts to repudiation and, as such, it cannot be said that there was no dispute or difference in terms of the agreement referable for arbitration. It is denied that the petitioners were not notified about the appointment of the Arbitrator. Respondents have also denied that the Arbitrator exhibited any bias. It is alleged that the Arbitrator has acted impartially and the apprehension of the petitioners are unfounded.
9. Though it was not necessary for respondent No. 2 to have filed any reply to the petitions, yet in pursuance to the notice issued on the petitions, has chosen to file his reply on 22nd July, 1993. In his reply, the Arbitrator has stated that the proceedings were set in motion after the petitioners had concurred in his appointment as an Arbitrator by the Chairman. The Chief Purchase Officer of the Board, namely, respondent No. 1 thereafter submitted his claim and counter-claims were submitted by the petitioners. After the parties had filed their respective written statements and rejoinder, issues were framed on 12th December, 1992, when both the parties were asked whether they had received all the documents. It was stated by the parties that they had exchanged copies of the documents, which had been placed on the record of the arbitration proceedings. After 12th December, 1992, recording of evidence was commenced. Respondent No. 1 examined three witnesses, who were thoroughly cross-examined on behalf of the petitioners by their counsel, On the next two dates, namely, 16th March, 1993 and 17th March, 1993, petitioners examined three witnesses and for remaining three witnesses, adjournment was sought, which was granted and proceedings were fixed for 17th April, 1993 to 19th April, 1993. On 7th April, 1993, the petitioners changed their counsel, who submitted three separate applications, which were duly considered and appropriate orders were passed thereupon. The cases were thereafter fixed for the remaining evidence of the petitioners for 11th May, 1993 to 13th May, 1993. The allegations of bias have been denied altogether.
10. To the replies filed by the respondents, petitioners filed affidavits-in-rejoinder.
Subsequent to the petitioner filing rejoinders, sur-rejoinders were filed on behalf of respondent No. 1 along with certain documents on 18th August, 1993, filing of which has seriously been objected to on behalf of the petitioners. Arguments were thereafter heard at length.
11. When the matter had been taken up on 30th July, 1993, a prayer was made by the learned counsel for the Board that since the entire arbitration proceedings were held up due to interim stay having been granted, that the matter be heard and disposed of at an early date and the Arbitrator be asked to keep the entire record of arbitration proceedings ready on the date of hearing.
12. From the case set up in the petitions, it may be noticed that three-fold prayer is made by the petitioners. The first being a challenge to the authority of the Arbitrator to act as such on the ground that there was no dispute or difference amongst the parties and as such reference could not have been made to the Arbitrator. The second prayer is within the ambit of Section 33 of the Arbitration Act to have adjudication on the validity of the arbitration agreement on the ground that arbitration clause in the supply order is vague for uncertainty and thus reference is void. The third prayer is to revoke the authority of the Arbitrator since he is not acting in a fair and impartial manner and had openly exhibited bias.
13. On the first ground, learned counsel for the petitioner contended that existence of a dispute is a condition precedent to the right to proceed to arbitration. It was contended that there being neither any dispute, nor any difference nor any question in existence, therefore, the Arbitrator had no authority or jurisdiction in the matter or in any case respondent No. 1 could not have resorted to the arbitration proceedings. In support of the submissions, the learned counsel has placed reliance on number of decisions and also various documents on record. To this submission of the learned counsel for the petitioners, it has been urged on behalf of the Board that since payments were received under protest, definitely disputes had arisen, which is clear from the documents including the contents of the Bills of the petitioners and now they cannot allege that reference is bad since there was no dispute. The petitioners had participated in the proceedings and contested the same. They at no point of time admitted their liability to pass on the benefit of MODVAT to the Board. This itself was a dispute. Documents on record of the Arbitrator were sufficient to draw an inference that before reference was made, disputes had arisen within the ambit of the arbitration clause.
14. Before dealing with the first ground of attack, it will be profitable to extract the arbitration clause as contained in para 10 of; the agreement :
"Clause-10 Arbitration : If at any time any question, dispute or difference whatsoever, shall arise, between the purchase of the Engineer and the company upon or in relation to or in connection with the contract, either party may forthwith give to the other, notice in writing of the existence of such question, dispute or difference and the same shall be referred to the arbitration of Chairman, HPSEB or his nominee and shall be subject to the provision of the Arbitration Act, 1940 or any statutory modification of re-enactment thereof and the rules framed thereunder and for the time being inforce. The award of the Arbitrator shall be final and binding on both the parties to the contract.
The objection that the arbitrator so appointed is a Government servant that he had to deal with the matters to which the contract relates and that in the course of his duties as Government servant, he had expressed his views on all or any of the matters in dispute or difference, shall not be considered as a valid objection/bar to his acting as such in the arbitration proceedings under this clause."
15. The aforementioned Clause 10 has been quoted from the agreement, which is accompanying sur-rejoinder filed by respondent No. 1 and at the time of hearing, learned counsel for the petitioners had not disputed the correctness or genuineness of the agreement, but had seriously disputed the manner in which copy of this agreement was produced on record along with the sur-rejoinder. Otherwise, according to the learned counsel for the petitioners, provision for arbitration is made in Clause 18 of the supply order, which is to the following effect :
"In case of any dispute, question or difference whatsoever between the supplier and purchaser upon or in relation to or in connection with contract, the same shall be referred to the sole 'arbitration of Chairman', Hima-chal Pradesh State Electy. Board, Shimla 'or his nominees' and shall be subject to the provisions of the Indian Arbitration Act, 1940 and Rules framed thereunder or any statutory modification thereof."
(Emphasis by inverted commas supplied).
16. At this stage, it may be recorded that reference to various documents will be made from the record of only one case, namely, OMP(M) No. 8 of 1993 (Noble Engineering Works v. H. P. State Electricity Board). It is conceded by the learned counsel for the parties that the pleadings as well as documents' in each case are same and similar, without any difference. The only difference, if any, is to the dates of the documents.
17. It has been contended on behalf of the petitioners that it was this arbitration Clause 18 in the supply order, which was quoted verbatim in the application (Annexure P-6), which was presented before the Arbitrator on 7th April, 1993, questioning his jurisdiction and in reply the correctness of the same was not disputed. Thus, it is contended that the Arbitrator was bound to consider only Clause 18 of the supply order. Without entering into the controversy as to the true interpretation of the arbitration clause or its application or the act of the Board in filing sur-rejoinder, firstly dealing with the question raised as to whether disputes or differences had arisen, which could have been referred for arbitration.
18. A bare reading of the arbitration clause, as contained in the agreement or even in the supply order, clarifies that there was a clear stipulation amongst the parties that at any time any question, dispute or differences whatsoever shall arise, in relation to or in connection with the contract, either party may give notice in writing to the existence of the question, dispute or differences, which shall be referable to the sole arbitration of the Chairman, H. P. State Electricity Board or his nominee. (In the supply order instead of word 'nominee', the word is 'nominees').
19. It is not in dispute that the purchase orders were made on 'variable rates basis', which will be evident from the document Annexure P-l, which is the purchase order, which says that :
"..... You are requested to make the supplies at the rates, terms and conditions, annexed thereto."
20. To the supply order is annexed document Annexure-B, which is the Price Variation Formula.
21. Annexure P-2 is another letter dated 23rd February, 1989 stating therein that since the rates allowed in the purchase orders are variable, in view of the rise in the controlled price of E.C. Grade aluminium rods, revised rates have been worked-out. It is stated in the said communication that the rates are to be verified from time to time, as and when inspection calls for each subsequent lots of material are given and the revised price of E.C. Grade aluminium rods shall be applicable on day which is ruling 30 days prior to the date of call of inspection. Annexure P-3 is another letter dated 5th June, 1989 working out the revised rates of E.C. Grade aluminium rods, in view of the levy of fresh excise duty w. e. f. 1-3-1989. As regards passing of MODVAT, it is pointed out in the said communication that :
".....benefit of MODVAT (modified value Added Tax) accruing, if any, due to increase of the above rates of aluminium rods or other inputs and also the increase in the rate of Excise duty on the raw material as well as on the finished product (with the basic rates as shown in original purchase order dated 23-1-89) shall be passed on to the Board."
22. Annexure P-4 is a communication dated 3rd February, 1992 addressed by the Secretary of Board to the petitioners pointing out that some debts or dues, which are payable, though certain payments against MODVAT stand recovered, yet some more recoveries are to be effected. It also states that the rates already acted upon are incorrect rates, which in law, equity and contract were not entitled to the supplier. As such, disputes and differences have arisen due to non-execution/performance of the contract. Concurrence of the petitioners was sought, in pursuance to Clause 18 of the contract, in referring the matter to the Arbitrator for adjudication. It was pointed out that the Chairman of the Board had appointed Shri S. R. Khitta as an Arbitrator. The relevant portion of the communication may be quoted verbatim as under :
"..... The ordered material has been supplied and received by consignees in full and good condition. There are some debts or dues which are payable, though certain payments against MODVAT stand recovered yet certain more recoveries on that count are required to be effected. Similarly, the rates already acted upon are the incorrect rates which in law, equity and contract were not entitled to the supplier.
AND whereas the disputes and differences having been arisen between us due to your non-execution/performance of the contract. I hereby notify you to concur in pursuance to clause No. 18 of the contract in referring the matter to the Arbitrator for adjudication of the disputes. Chairman HPSEB has appointed Er. S. R. Khitta as an arbitrator. Within fifteen days after service of this notice upon you, I shall be at liberty to either apply to the court of competent jurisdiction for appointment of our Arbitrator or to request Er. S. R. Khitta to enter upon the reference in the capacity of sole Arbitrator to adjudicate upon the reference.
Please take note and comply."
23. Petitioners in their reply (Annexure P-5) dated I4th February, 1992, to the aforementioned communication concurred in referring the alleged disputes to the Arbitrator. The same also deserves to be quoted as under :
"We have your letter No. HPSEB : CPO : II : 2375 : NEW : ACSR L-56:89-88-90 dated 3rd February, 1992 giving a notice to concur in referring the alleged disputes to the Sole Arbitration of the Chairman; H.P. State Electricity Board or his nominee for adjudication. On going through the contents of the letter under reply, it is noted that Board has got some disputes and differences for which it intends to refer the matter to the sole Arbitrator Er. S. R. Khitta, who has been appointed by the Chairman of the Board.
As desired, we have our concurrence in referring the alleged disputes to the Arbitrator and since the Board has the difference and disputes, we shall look forward for the copy of grounds of the case which in terms of the arbitration are required to be submitted to the Arbitrator but under copy to us.
Upon receipt of such copy of the grounds of the case, we shall take such appropriate action in terms of the rules framed under Indian Arbitration Act, 1940. The proposed place of sitting of the Arbitrator may also be intimated in your next letter as functioning of the Arbitrator at Shimla shall be acceptable to us."
24. Learned counsel for the petitioners made reference to letter dated 5th January, 1990 by pointing out that Board, while sending this letter was itself not aware of the exact amount of MODVAT and till that date, there was no demand made by respondent No. 1 to any liquidated amount from the petitioners and even in letter dated 21st March, 1990, there was also no demand of any liquidated amount from the petitioners. Since till the end of March, 1990, no demand was raised of any definite amount alleged to be due from the petitioners, so as to enable them to pay off the same and it was only an information, which was sought from the petitioners, therefore, the very fact of failure on the part of the petitioners not to pay the alleged amount cannot amount to any 'dispute' or 'difference' since there was neither any liquidated sum of money for which demand was made, nor repudiation of the claim. Reliance has been placed on the decision in Dawoodbhai Abdulkader v. Abdul-
kader Ismailji, AIR 1931 Bom 164, that existence of a difference or dispute is an essential condition for the Arbitrator's jurisdiction, wherein it was held that a dispute implies an assertion of a right by one party and repudiation thereof by another. Mere failure to pay is not necessarily a difference and the very fact that the party could not or would not pay does not in itself amount to a dispute unless the party chooses not to pay, raising a point of controversy regarding, for instance, the basis of payment or the time or manner of payment.
25. In Chiranjiv Lal v. The Tropital Insurance Company Ltd., (1951) 53 Pun LR 321 : (AIR 1952 Punj 63), it was held that the existence of a dispute is a condition precedent to the right to proceed to arbitration, and there is no jurisdiction to go to arbitration where there is no dispute between the parties. Reliance was also placed in Union of India v. Birla Cotton Spinning & Weaving Mills Ltd., AIR 1967 SC 688, on the same proposition that unless there is a; dispute, it is hot permissible to resort to arbitration proceedings. It has been held in the said judgment that (at p. 690 of AIR) :
"..... A dispute that the Union is not liable to pay the price under the terms of the contract is undoubtedly a dispute under the contract, and in any event in connection with the contract. But a plea that the Union though liable to pay the amount under the terms of the contract will not pay it because it desires to appropriate it towards another claim under another independent contract cannot reasonably be regarded as a dispute 'under or in connection' with that contract under which the liability sought to be enforced has arisen."
26. What would a dispute, in the facts and circumstances, in Jammu Forest Co. v. State of Jammu and Kashmir, AIR 1968 J&K 86, it was held that if one party asserts a right and the other repudiates the same, that is a dispute. Similarly, any question on which parties join issue, which the Court can legally, enquire into it, is a dispute. It is analogous to a cause of action before a Civil Court. Where there is a difference between the parties about the liability of each other, a dispute is clearly made out in terms of Section 2(a) of the Arbitration Act.
27. In Major (Retd.) Inder Singh Rakhi v. Delhi Development Authority, AIR 1988 SC 1007, also the Apex Court held that a dispute arises where there is a claim and a denial aha repudiation of the claim. The existence of dispute is essential for appointment of an Arbitrator under Sections or a reference under Section 20 of the Act. It was also held that there should be a dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the Inference of the existence of dispute. Dispute entails a positive element of assertion in denying and not merely inaction to accede to a claim or a request. The Court also held that the question Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case.
28. From the decision cited above, there is no manlier of doubt that existence of a dispute is a sine qua non for a valid reference, in the absence of which, reference would be without jurisdiction. As held in Major Inder Singh Rekhi's case (AIR 1988 SC 1007) (supra) that in order to find out whether a dispute has or has not arisen, the same has to. be found out from the facts and circumstances of each case.
29. Reference now be made to some of the documents, which have been brought on record in order to ascertain as to whether dispute or difference had or had not arisen before a reference was made to the Arbitrator.
30. On !5th November, 1989, a letter was addressed by the Chief Purchase Officer of the Board to the petitioners through which the petitioners were requested to deposit the benefit of MODVAT with the Accounts Officer of the Board and the same is to the following effect :
"Please refer your letter No. NEW/P/PO-68/89-98-102 dated 27-2-1989, even No. dated vide which you have submitted the copies of invoices in support of your having supplied All, Aluminium Gnat/At Conductor against subject cited put-chase order.
From the scrutiny of the invoices, it is observed that the MODVAT benefit has not been passed on to the Board as per condition of the purchase order that the MODVAT benefit accruing on account of revisions of prices will be passed on to the Board as also required vide this office letter No. HPSEB/CPO / II / 2409 / Noble / ACC / L-58-89-6097-133 dated 23-2-1989 and even No. 17469-504 dated 5-6-1989.
It is, therefore, requested that the MODVAT benefit as explained above may be deposited with the Accounts Officer (Banking), HPSEB, Vidyut Bhawan, Shimla-4 under intimation to this office."
31. After this letter had been addressed, the petitioners had been sending their invoices and in the invoices it is not disputed by the learned counsel for the parties that after mentioning the amounts, a note was ap-pended on each Bill that the amount of MODVAT, passed on to the Board is under protest and will be charged later on, after finalising, the matter. On 30th January, 1990, a letter was addressed by the petitioners to the Board specifically stating therein "the amount of MOD VAT less in our about said invoice is Under Protest, which will be charged later on after finalising the matter."
32. On 5th January. 1990, the respondent-Board wrote another letter to the petitioners with reference to petitioners' earlier letter on the question of pacing on all the benefit of MODVAT, information was sought for from the petitioners. Extracts from the letter may be quoted as under :
"Please refer to your above cited letter vide which you have enclosed a Chartered Accountant certificate in which it has been indicated that no MODVAT benefit has been availed by you on the inputs and increase allowed in prices and also the increase allowed in the rates of excise duty against the supplies made against subject cited purchase order."
xxxxx XXXXX XXXXX "Since you have claimed excise duty first on E.C. Grade Aluminium and then on finished conductor on the revised pattern and on the increase in the rates of raw material, as such the modified value added tax benefits due. This MODVAT benefit on account of the increase in the pattern of Excise duty is to be passed on to the Board. It is, therefore, requested that you may inform the exact amount of this benefit, so that F & A Wing is accordingly to deduct this amount."
xxxxx xxxxx xxxxx "Therefore, you are requested to intimate the amount of MODVAT benefit which becomes due for passing on the credit of the same to HPSEB on account of the allowed revised rates as per details given above. It may also please be ensured that all the invoices for the purchase of E.C. Grade Aluminium to establish the above mentioned claimed/allowed rates, may also be submitted along with the credit details of MODVAT with complete calculations. There invoices should be duly authenticated."
33. On 21st March, 1990, another letter was sent by the Board to the petitioners, wherein the petitioner was asked to intimate the amount of MODVAT benefit. The relevant portion of the letter is in the following words :
"You are also requested to intimate the amount of Modvat benefit, which becomes due for passing on the HPSEB on account of revision of rates, it may also be ensured that all the Invoices for the purchase of E.C. grade aluminium are to be submitted along with credit details of Modvat calculation sheet. These invoices should be duly supported by Chartered Accountant certificate."
34. Referring to the aforementioned letters, it is contended that through this letter some information was sought by the Board from the petitioners as to the exact amount becoming due and payable towards the MODVAT benefit since the exact amount was not ascertainable by the Board but no claim was made by the Board with the petitioners demanding a definite amount towards MODVAT benefit. It is urged that in order to constitute a dispute there ought to have been a demand for payment of a definite sum of money or benefit and a clear repudiation thereof on part of the petitioners to pay the same. Till March, 1990 the Board was only seeking certain information from the petitioners, before making a definite demand, therefore, there was no question of any dispute or differences worth the name having arisen in the payment of MOD VAT benefit or passing on the same to the respondent since from none of the letters or communications, it can be spelled out that the petitioners had at any point of time denied their liability to pass on the MODVAT benefit to the Board.
35. This submission of the learned counsel for the petitioners cannot be accepted in view of the Clause in the agreement, which has been quoted above that at any time any question, dispute or difference arising in connection with the contract, the dispute shall be referable for arbitration. It is the respondent's case that MODVAT benefit is to be passed on by the petitioners to the respondent, which benefit had not been passed on to the Board by the petitioners. Only a part of the benefit had been passed on and that also under protest, without thereafter actully admitting its liability to pass on the entire MODVAT benefit. The petitioners in fact, as can be ascertained from the letters even denied their liability to pass on any MODVAT benefits to the Board. In letter dated 13th January, 1990 sent by the petitioners, in reply to the Board's letter dated 5th January. 1990, it has been stated that since there is no clause relating to the MODVAT deductions in the purchase order, the reason for passing on the benefit of MODVAT as demanded is not under standable. The letter dated 13th January, 1990 says :
"This has reference to your letter mentioned above for the subject purchase order asking us to inform and deposit the MODVAT amount which becomes due in respect of the supplies.
In this connection, we hereby submit that since there is no any clause relating to the MODVAT deduction in your aforesaid purchase order we, therefore, could not understand the reasons for the said deduction."
36. In the purchase order, Clause 3 of the terms and conditions is as regards Sales Tax, Excise Duty and other Levies. Since Central Sales Tax was not applicable, the prices mentioned in the order were inclusive of the then existing duties including excise duty up to 21%. It is the condition that any imposition of fresh levies/taxes shall be adjusted extra to the purchaser's account. In pursuance to this clause; when fresh excise duties with effect from 1st March, 1989 were levied and there was increase in the prices of E.C. Grade Aluminium Rods, it is the respondent's case that letter dated 5th June, 1989 was addressed to the petitioners pointing out that the benefit of the modified value added Tax (MODVAT), if any, due to increase in the rates of Excise Duty on the raw material as well as on the finished product shall be passed on to the Board.
37. The correspondence exchanged amongst the petitioners and the respondent-Board do suggest that the Board had asked the petitioners that benefit of the MODVAT had to be passed on to the Board, which claim at the first instance was specifically refuted by the petitioners in letter dated 13th January, 1990 stating that there was no clause in the purchase order for MODVAT deductions. The second part of the claim is the actual amount of MODVAT benefit, which according to the respondent-Board, it is not possible to calculate and ascertain without the petitioners supplying requisite documents and details. The petitioners in their letter dated 13th January, 1990, while refuting its claim to pass on the benefit of MODVAT qualified the same by saying that details of the MODVAT with complete calculations be set to them in order to enable them to understand the same. In letter dated 30th January, 1990, the petitioners informed the Board that the deduction of the amount of MODVAT in the invoice is under protest and the same will be charged later on, after finalising the matter. Somewhat similar endorsement is made in each bill.
38. Thus, there is an assertion of claim by the Board and refusal as well as silence on the part of the petitioners. In none of the letters, the petitioners ever agreed that though the benefit of the MODVAT has to be passed on to the respondent, but the same could not be passed on due to proper calculations. The repudiation on the part of the petitioners has been not only to its liability to pass on the benefit of MODVAT but also that the deduction on account of MODVAT in the invoices is under protest and the same will be charged later on. This itself gives rise to a cause of action to the respondent--Board. When the Chairman of the Board was approached by the petitioners, it was clearly stated therein that differences or disputes had arisen on the question of exact amount of MODVAT benefit, to be passed on by the petitioners to the respondent on the various supplies made, which benefit of MODVAT, as per stand of respondent had accrued due to the increase in the rate of HIG Steel Wires and other inputs and also increase in the rate of the Excise duty on the raw material as well as the finished products. Thus, in the facts and circumstances, in view of the decision in Major (Retd.) Inder Singh Rekhi's case (AIR 1988 SC 1007) (supra), it cannot be said that disputes and differences had not arisen. The question whether or not dispute or differences have arisen has to be found out from the facts and circumstances of each case.
39. Another circumstance, which can be noticed is that when the petitioners were asked to concur in the appointment of respondent No. 2 as an Arbitrator a reply was sent by the petitioners concurring in the appointment, which concurrence was given without any nervation that in fact no dispute or difference had arisen. The contents of the said letter dated 14th February, 1992 have already been quoted above. The petitioners after having given concurrence put in appearance and participated in the proceedings.
Witnesses were also examined after the respondent submhed its claim and petitioners filed replies thereto.
40. The second ground of attack in this case is that the arbitration Clause contained in the supply order is vague for uncertainty and as such the appointment of respondent No. 2 as a sole Arbitrator is bad in law. It was contended by the learned counsel for the petitioners that the arbitration clause provides that disputes shall be referred to the sole arbitration of the Chairman of the H.P. State Electricity Board. Shimla or his 'nominees'. On the strength of this clause, either the Chairman himself could have entered upon reference as the sole Arbitrator or in the event of his not entering upon reference himself, the arbitration proceeding ought to have been conducted by his nominees. Term nominees certainly means that the number of Arbitrators has to be more than one and not merely one. Thus, according to the learned counsel, number of nominees could be any, the Clause being vague for uncertainty as regards the number of nominees, the appointment of respondent No. 2 is bad in law.
41. Learned counsel for the respondents has tried to meet the submissions by making reference to the documents, which were placed on record after the petitioners had filed rejoinder, one of which is the copy of agreement, being part and parcel of agreement entered into between the parties against the purchase order and contended that the arbitration clause is clear and explicit. The petitioners are taking undue advantage of some typographical mistake, which had crept in the supply order, wherein instead of word 'nominee', word 'nominees' had been typed out. Clause 10 in Part III of the agreement, which pertains to the arbitration, which has already been quoted in earlier part of this judgment has been pressed into service in order to point out that the arbitration clause is not vague for uncertainty. Parties agreed to refer all questions, disputes and differences for the sole arbitration of the Chairman or his nominee and not nominees.
42. The abitration clause has been quoted in verbatim above and in case reference is made to the agreement, execution of which is not in dispute at the behest of the petitioners, it cannot be agitated that the parties did not agree to have the disputes referred for the sole arbitration of the Chairman, HP SEB or his nominee. In the supply order instead of word 'nominee', word 'nominees' has been typed out, but that will not make any difference, in view of the Chairman nominating respondent No. 2 to act as the sole Arbitrator and before respondent No. 2 entered upon the reference, petitioners concurred in his appointment as an Arbitrator. The petitioners while concurring in the appointment did not raise this point that more than one nominee has to be appointed. Intimation sent to the petitioners on behalf of the respondent-Board is to the effect that the Chairmnan, HPSEB has appointed Mr. S. R. Khitta as an Arbitrator. The petitioners in their letter of concurrence stated that there is no objection in referring the alleged disputes to the sole arbitration of Mr. Khitta. Thus, in view of the terms of the agreement by which parties agreed to have the disputes or differences referred to the sole arbitration of the Chairman or his nominee, appointment of Shri Khitta as the sole nominee of the Chairman is not bad and even the clause in the arbitration agreement is not vague for uncertainty since the parties intended that on Chairman himself not entering upon the reference may appoint his nominee, which he has already done.
43. The third and the last point, which was vehemently pressed is on the revoking of the authority of respondent No. 2 on various grounds. The precise submission is that the Arbitrator is not acting in a fair and impartial manner and has exhibited a bias. Three circumstances are asserted in the petition and in addition thereto, two were urged at the time of hearing. It is contended that three different applications were moved before the Arbitrator. Arguments were heard on 23rd April, 1993. Hearing concluded at 3.00 p.m., when the hearing was resumed on 29th April, 1993, arguments notes were sought to be produced on record, which were not taken on the ground that the same will make the bulky record bulkier. After hearing the arguments for the respondent, the petitioners' counsel offered arguments in rebuttal, but contrary to the principle of law, the Arbitrator allowed the respondent to rebut those arguments also.
Neither the notes of oral submissions made, nor record of the minutes of all the proceedings with details and meticulousness were maintained, though earlier it has been the practice to maintain minute details. By reading the three orders passed by the Arbitrator in rejecting the applications, it has been contended that the Arbitrator is proceeding with a prejudiced mind being an officer, of the Board and has thus exhibited open bias.
44. It has also been urged during the course of hearing that since respondent No. 2 has filed reply to these petitions, further bias is exhibited by him and certain documents, which have now been produced by him on record along with the reply filed by him are no( from his own record, but from the record of the Board. It is not expected from the Arbitrator to make use of the Board's record unless it is made a part of his own record and since he is an officer of the Board he appears to be having a free access to the Board's record or it is the Board, which has made available to him this record in order to prepare reply to the instant petitions, which is nothing but proceeding with a pre-deter-mined mine in favour of the Board and against the petitioners.
45. Number of decisions, which have been referred to by the learned counsel for the parties need not be referred to except referring to a few decisions of the Supreme Court setting the law on the subject. It is well settled proposition of law that the Arbitrators selected by the parties ought not to consider themselves as the agents or advocates of the party, who appoints them. When once nominated, they ought to perform the duty of deciding impartially between the parties and they will be looked upon as acting corruptly if they act as agents or take instructions from either side. Equally true is the principle that an Arbitrator appointed by one of the parties must not confer with the party who appointed him or attend conferences with solicitors of counsel.
46. In International Airport Authority of India v. K. D. Bali, AIR'1988 SC 1099, the apex Court dealt with the ground of bias or apprehended bias as a basis for revoking the authority of the Arbitrator. That was a case in which a party to the arbitration proceedings was apprehensive that the Sole Arbitrator was biased against him because the Arbitrator being the appointee of the party was not acceding to its request, which the party considered it to be reasonable. It was held that this cannot be and should never be a ground for removal of the appointed authority or Arbitrator. The Supreme Court declared the law by saying that :
".....It is well settled there must be purity in the administration of justice as well as in administration of quasi justice as are involved in the adjudicatory process before the arbitrators. It is well said that once the arbitrator enters in an arbitration, the arbitrator must not be guilty of any act which can possibly be construed as indicative of partiality or unfairness It is not a question of the effect which misconduct on his part had in fact upon the result of the proceeding, but of what effect it might possibly have produced. It is enough to show that, even if there was misconduct on his part, the award was unaffected by it, and was in reality just; arbitrator must not do anything which is not in itself fair and impartial....."
47. It was further held that there must be a real likelihood of bias and not mere suspicion of bias before the proceedings can be quashed on the ground that the person conducting the proceedings is disqualified. It is the reasonable apprehension of average, honest man that must be taken note of. The following observations made by Lord O'Brien, in King (De Vesci) v. Justices of Queen's Country, (1908) 2 IR 285 were quoted with approval :
"By bias I understand a real likelihood of an operative prejudice, whether conscious or unconscious. There must in my opinion be reasonaable evidence to satisfy us that there was a real likelihood of bias. I do not think that their vague suspicions of whimsical capricious and unreasonable people should be made a standard to regulate our action here. It might be a different matter if suspicion rested on reasonable grounds was reasonably generated and but certainly mere flimsy ground elusiyely generated and morbid suspicions should not be permitted to form a ground of decision."
48. It is submitted by the learned counsel for the petitioners that meticulous notes were not made by the Arbitrator though earlier he had been doing so and even orders passed by him are very short and sketchy, not giving reasons thereof. This submission made by the learned counsel for the petitioners as a ground for revoking the authority of the Arbitrator deserves outright rejection in view of the decision in Airport Authority's case (AIR 1988 SC 1099) (supra), wherein it was held that it was not necessary for the Arbitrator who record a long and reasoned order on the preliminary objections and indeed the law does not demand writing of a long order. The Court also observed that arbitration proceedings would never come to an end, in case an Arbitrator expected to write long orders on minor points. It is not disputed by the learned counsel for the respondent that in the instant case the Arbitrator as per terms of the agreement, is required to give reasons for his award to be declared by him. Thus, it would be open to either of the parties including the petitioners to challenge the award to be declared by the Arbitrator even on the grounds, which were pressed into service by the petitioners in the three applications. The Arbitrator is not bound by the rules of evidence. So long procedure adopted by him is not prohibited and is not contrary to the principles of natural justice, no challenge can be made for that. It is not the case of the petitioners that due and adequate opportunity was not allowed to address arguments or that the petitioners were not heard by the Arbitrator properly. The contention that the notes of arguments on legal and preliminary points were not taken by the Arbitrator on record cannot be a ground for revoking his authority. Law nowhere requires an Arbitrator to keep meticulous notes of arguments or whatever is urged and agitated before him. Even the ground that the Arbitrator did not himself dictate the complete notes of arguments on the question of his jurisdiction cannot be a ground for revoking his authority since it would have been open to the petitioners to have filed a petition in this Court under Section 33 of the Act, if the petitioners felt that the Arbitrator had no authority and jurisdiction to enter upon the reference, which they have now done, But that alone cannot be a ground for revoking the authority of the Arbitrator that after having addressed arguments for 4-5 hours, he wanted to place on record written submissions, which were, not taken on record.
49. Even on merits of the three applications, suffice it to say that the Arbitrator was right in having rejected the same. In one of the applications, a prayer was made that evidence ought not to have been recorded before admission and denial of the documents. This application was moved after the respondent-Board had already closed its evidence and f he petitioners were in the middest of examining its evidence. When considerable evidence had already been examined, there was no question of not proceeding to record the remaining evidence on the ground that prior to recording the same, it was necessary to have the admission and denial of documents completed. Even if, it be assumed that documents were not admitted or denied, before recording of evidence the same cannot debar the Arbitrator in proceeding to record oral evidence. The question of jurisdiction has already been dealt with, which was the subject matter of the second application. In so far as the third application is concerned, rejection of the same in case it causes any prejudice to the petitioners that can always be made a ground by the petitioners to challenge the award after the same is declared by the Arbitrator as a ground of attack under Section 30 of the Act that due and proper opportunity was not allowed either to cross-examine the witness or to permit them to lead evidence.
50. The other question that respondent No. 2 is an officer of the Board and used certain documents from the file of the respondent-Board, therefore, it must be inferred that he had conferred with the official of the Board in preparing the reply also deserves rejection. Firstly, the petitioners concurred in the appointment of respondent No. 2 as an Arbitrator and secondly the petitioners thereafter appeared before respondent No. 2 and participated in the arbitration proceedings by submitting their reply to the claim of the respondent. No objection was raised even thereafter when evidence of respondent was recorded and even part of the petitioners' evidence was recorded. Similar question was dealt with by the apex Court in Nandyal Co-op. Spining Mills Ltd. v. K.V. Mohan Rao, (1993) 2 SCC 654 : (1993 AIR SCW 2260), wherein the view held in Manak Lal v. Dr. Prem Chand, AIR 1957 SC 425 was approved that when the arbitration tribunal was chosen by the contracting parties, undoubtedly they had chosen to avail of the adjudication by the tribunal and to abide by the decision. Having so chosen and taken a decision, it would no longer be open to turn around and contend that the tribunal was biased against the party.
51. Otherwise also, it will not be open for the petitioners at this stage to challenge the authority and jurisdiction of respondent No. 2, after having appeared before respondent No. 2, without raising any objection, at the earliest stage or after having concurred in the appointment of respondent No. 2 as an Arbitrator. It is so in view of the ratio of the judgment in Punjab State Electricity Board v. Ludhiana Steels Private Ltd., (1993) 1 SCC 205 : (AIR 1993 SC 1355) wherein the apex Court held that the petitioners before them were precluded to challenge the authority of the Arbitrator and that at no stage the authority of the Arbitrator was raised after the parties appeared before him.
52. It was contended that the Arbitrator has appeared in Court and heard the arguments, though he was not required to appear in the Court. This conduct of the Arbitrator of appearing in the Court, filing reply and as also fact of his having heard the arguments, has been alleged to be the further ground of bias. I am afraid that the petitioners cannot be permitted to raise this point since the petitioners had chosen to implead respondent No. 2 as a party-respondent in these petitions and also got issued notice of the proceedings to him. Though it was not necessary respondent No. 2 to have filed any reply, but the notice, which was issued by the Registry required the Arbitrator to appear in person or through a counsel. On a specific request made on 30th July, 1993 by the counsel for the parties, respondent No. 2 was directed to keep the record of the arbitration proceedings ready on the next date of hearing, for perusal of the Court. Having obtained such an order from the Court, in case respondent No. 2 appeared in Court on 19th August, 1993, on which date it was recorded that henceforth he need not appear, the petitioner cannot be permitted to say that respondent No. 2 is biased against them.
53. In Jiwan Kumar Lohia v. Durga Dutt Lohia, (1992) 1 SCC 56 : (AIR 1992 SC 188) serious ground of bias made for revoking the authority of the Arbitrator was considered. Relying upon the decision in Manak Lal's case (AIR 1957 SC 425) (supra) and the two other decisions in Ranjit Thakur v. Union of India, (1987) 4 SCC 611 : (AIR 1987 SC 2386) and Amar Chand Lalit Kumar v. Shree Ambica Jute Mills Ltd., AIR 1966 SC 1936, it was held that the test of likelihood of bias is whether a reasonable person, in possession of relevant information would have thought that bias was likely and whether the person concerned was likely to be disposed to decide the matter only in a particular way. The discretion to give leave to revoke an Arbitrator's authority has to be exercised cautiously and sparingly and while doing so, the Court must bear in mind that the arbitration is a particular method for the settlement of disputes and parties should not be relieved from a tribunal they have chosen because they fear that the Arbitrator's decision may go against them.
54. The submission made that respondent No. 2 while filing his reply appended copies of certain documents from the Board's record and not from his own record also cannot be said to be an act of bias. The copies of documents appended by respondent No. 2 with his reply are of such a nature, which were already endorsed to him in the capacity as an Arbitrator either by the Chairman or by the Secretary of the Board, after respondent No. 2 had been nominated as an Arbitrator. Using such copies cannot by any stretch of imagination lead to an inference that respondent No. 2 has had a conference with the counsel of the Board or that he had the conference with the Chief Purchase Officer of the Board at whose behest, reference has been referred for adjudication of the Arbitrator.
55. The objection, which had been raised by the learned counsel for the petitioners that sur-rejoinder filed for and on behalf of respondent No. 1 be not taken note of since the same had been placed on record without any permission and for the same reason, documents appended therewith cannot be taken into consideration, is not of much significance at this stage. It may be noticed that during the course of hearing, learned counsel for the petitioners had not refuted the correctness or genuineness of the documents appended with the sur-rejoinder. Moreover, for deciding the application under Section 33 of the Arbitration Act, it would have been competent for the Court to peruse the record of the arbitration proceedings. None of the documents appended with the sur-rejoinder is outside the record of the arbitration proceedings. This objection also accordingly stands rejected.
56. In view of the above, I do not find that any ground has been made out to revoke the authority of respondent No. 2 to act as an Arbitrator. The apprehensions of the petitioners are unfounded and imaginary. In view of this, there is no question of allowing the other prayer made for substituting respondent No. 2 by appointing another Arbitrator. Disputes, which had arisen have rightly been referred for adjudication of respondent No. 2. Accordingly, the applications deserve rejection, which are hereby dismissed with cost's quantified at Rs. 1,000/- in each case.
57. Since the proceedings under the Arbitration Act arc held up because of the stay, which was granted on 4th June, 1993, in the interest of justice and in exercise of the powers under Section 28 of the Act, the time for making the award by the Arbitrator is enlarged by four months from the date of receipt by the Arbitrator of a copy of this judgment. Parties are directed to appear before the Arbitrator at Shimla on 20th December, 1993.