Bangalore District Court
M/S.Diamond District vs M/S.Bhandari Builders on 1 April, 2022
KABC010115272013
IN THE COURT OF THE VI ADDL. CITY CIVIL & SESSIONS JUDGE
AT BENGALURU CITY
(CCCH.11)
Dated this the 1st day of April 2022
PRESENT: Sri.Rama Naik, B.Com., LL.B.,
VI Addl. City Civil & Sessions Judge,
Bengaluru City
A.S.NO.50/2013
APPELLANT/ M/S.DIAMOND DISTRICT
PLAINTIFF A Partnership firm with its Office at
'Sheriff Centre"
73/1, St.Mark's Road
Bengaluru -560 001
Reptd.by its Managing Partner-
Mr.Ziaulla Sheriff
[By Pleader M/S.KAMAL AND BHANU]
/Vs/
RESPONDENT/ M/S.BHANDARI BUILDERS
DEFENDANT PRIVATE LIMITED
No.1-01, Diamond District
Kodihalli, Airport Road
Bengaluru - 560 001
A.S.No.50/2013
2
Reptd.by its Managing Director-
Mr.Amrik Singh Bhandari
[By Pleader Sri.S. J]
JUDGMENT
Suit is filed by Plaintiff/Appellant under Section 34 of the Arbitration and Conciliation Act, 1996 [for brevity 'the A&C Act'] to set aside the award dated 25.04.2013 and Order dated 10.01.2004 passed by sole Arbitrator in the matter of arbitration.
2) Plaintiff's case, in brief, is that M/s. Century Galaxy Developers Limited carried out development project in the land measuring 14 acres and 08 guntas of Kodihally Village, Bangalore, Airport Road, Varthur Hobli, Bangalore South Taluk, which was called as 'Diamond District'.
A.S.No.50/2013 3
3) It is stated that Plaintiff, being a Partnership Firm, was appointed as an agent for carrying out the said project and floated Tender dated 12.11.1994 seeking bids from contractors to execute civil works to be carried out in the said project.
4) It is stated that bid submitted by Defendant was accepted and Letter of Intent dated 24.12.1994 was issued in favour of Defendant awarding the construction work of residential buildings in Block No.A8 to A10 for total value of Rs.8,54,16,594/-.
5) It is stated that, in view of certain issues raised by Defendant in its letter dated 02.02.1996, in the meeting held on 30.05.1996 between Plaintiff and Defendant, it was mutually decided to refer the disputes to one Mr.Dayanand Pai for settlement and accordingly, an Interim Settlement dated 09.07.1996 was arrived at before Mr.Dayanand Pai.
A.S.No.50/2013 4
6) It is stated that, as per Interim Settlement, the date for completion of the project would be extended to May 1997 and a sum of Rs.30,00,000/- would be paid to Defendant in three equal monthly installments, which was to be adjusted against the final settlement.
7) It is stated that Mr.Dayanand Pai passed second Interim Settlement on particular disputes and directed Defendant not to withhold the amount of Rs.30,00,000/- from the Running Account Bills [RA Bill].
8) It is further stated that, again, another Interim Settlement was arrived at before Mr.Dayanand Pai, in terms of which the time for completion and handing over of Block A9 and A10 was further extended to 31.12.1997 and Block A8 was agreed to be delivered on 01.04.1998.
A.S.No.50/2013 5
9) It is also stated that, once again, Mr.Dayanand Pai mediated the issue between the parties and time for completion of work was extended to 15.06.1998.
10) It is stated that RA Bills No.28 and 29 were submitted by Defendants in November 1998 and September 1999 respectively. RA Bill No.28 was paid and RA Bill No.29 was in the process of reconciliation.
11) It is stated that, pending settlement of RA Bill No.29, both Plaintiff and Defendant entered into a Final Settlement dated 28.01.2000. In terms of Final Settlement, Defendant issued a letter dated 28.01.2000 to Plaintiff acknowledging the receipt of Rs.1,05,04,930/- from Plaintiff including RA Bill No.28 except an amount of Rs.4,56,322/-.
A.S.No.50/2013 6
12) It is stated that, despite settlement of outstanding dues, Defendant raised RA Bill No.30 for a sum of Rs.10,24,665/- in April 2000 and by letters dated 29.05.2000 and 09.06.2000, Defendant falsely claimed Rs.37,00,000/- from Plaintiff with interest @ 2% per month and thereafter, Defendant again raised RA Bill No.31 for Rs.7,83,780/- in September 2000.
13) It is stated that RA Bills No.29 to 31 do not pertain to construction work and they relate to amount claimed towards payment of sales tax and aggregate of previous bills.
14) It is stated that, by notices dated 07.06.2001 and 22.11.2001, Defendant claimed a sum of Rs.40,97,353/- towards RA Bills No.28 to 31.
15) It is stated that in Civil Miscellaneous Petition No.16/2003 [CMP] filed by Defendant, sole A.S.No.50/2013 7 Arbitrator was appointed by the Hon'ble High Court of Karnataka vide Order dated 17.04.2003 to adjudicate the dispute raised by Defendant keeping open all contentions including the question relating to existence of arbitration agreement in regard to the dispute and arbitrability of the dispute.
16) It is stated that question of jurisdiction of the sole Arbitrator in deciding the dispute raised by Plaintiff in IA No.I came to be dismissed by the sole Arbitrator vide Interim Order dated 10.01.2004 and claim statement filed by Defendant came to be allowed by award dated 25.04.2013.
17) Plaintiff's challenge to the award is as under :
(a) Award suffers from complete lack of jurisdiction in adjudicating the dispute between the parties inasmuch as there was no arbitration agreement between the parties to submit the dispute to arbitration as contemplated in Section 7 of the A&C Act.
A.S.No.50/2013 8
(b) In absence of written contract, sole Arbitrator has travelled beyond his jurisdiction in accepting the claim of Defendant.
(c) Sole Arbitrator has not assigned any reason and has not appreciated various documents and oral evidence available on record. Without appreciating the total value of contract amount of Rs.8,54,16,594/-, sole Arbitrator awarded a sum of Rs.6,35,44,631/- with interest @ 18% per annum.
(d) Award passed is in contravention of the provisions of the Indian Contract Act, 1872.
(e) Sole Arbitrator could not have entered to adjudicate the dispute which had already been settled fully and finally between the parties.
(f) Award does not bear the signature of the sole Arbitrator as required under Section 31(1) of the Act and therefore, same is not an award within the meaning of the A&C Act.
A.S.No.50/2013 9
(g) Award is highly unjust and erroneous because of inordinate delay in its passing and therefore, the Arbitral Tribunal has lost its mandate to pass the award.
For the above reasons, Plaintiff prays for setting aside the award.
18) Defendant, in its written statement, states that suit fails to meet any of the requirements set- forth in Section 34 of the A&C Act. Award has been passed after due appreciation of the facts, documents and law placed on record by the parties and same requires no interference by the Court.
19) It is stated that arbitration agreement is valid between the parties and the award is not in conflict with the public policy of India. Hence, prays for dismissal of the suit.
20) Heard learned Counsel for Plaintiff as well as Defendant. Perused the written argument filed by Defendant and the records.
A.S.No.50/2013 10
21) Point that arises for consideration is :
"Does Plaintiff make out any of the grounds as enumerated in Section 34 of the A&C Act to set aside the award dated 25.04.2013?
22) My answer to above point is in the affirmative for the following :
REASONS
23) Suit is filed by Plaintiff [Respondent in arbitration proceedings] to set aside the award dated 25.04.2013, whereby, sole Arbitrator directed Plaintiff to pay a sum of Rs.6,35,44,631/- to Defendant [Claimant in arbitration proceedings] with interest @ 18% per annum from the date of claim petition till date of payment.
24) Learned counsel for Defendant submits that arbitral award should not be interfered with unless the award is wholly arbitrary or capricious; in a challenge under Section 34 of the A&C Act, the A.S.No.50/2013 11 Court does not sit in an appeal over the arbitral award by re-examining and reappraising the materials placed before it; even if there is an error of construction of the agreement by the arbitrator, the same is not amenable to correction; and the reasonableness of an award is not a matter for the Court to consider unless the award is preposterous or absurd.
25) It is further submitted that the scope of the Court in assailing the award is very limited to the grounds mentioned in Section 34 of the A&C Act.
26) Learned counsel for Defendant has placed reliance on the following judgments in support of his submission.
(a) Associate Builders vs. Delhi Development Authority [(2015) 3 SCC 49]; and
(b) Food Corporation of India and Others vs. Niyaz Mohammad and Others [(2007) 4 RLW 3587] A.S.No.50/2013 12
27) In Associate Builders, the Hon'ble Supreme Court, in para-15 and 16, which is relied upon by Defendant, was pleased to hold thus :
"15. This section in conjunction with Section 5 makes it clear that an arbitration award that is governed by Part I of the Arbitration and Conciliation Act, 1996 can be set aside only on grounds mentioned under Sections 34(2) and (3), and not otherwise. Section 5 reads as follows :
"5. Extent of judicial intervention.- Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."
16. It is important to note that the 1996 Act was enacted to replace the 1940 Arbitration Act in order to provide for an arbitral procedure which is fair, efficient and capable of meeting the needs of arbitration; also to provide that the tribunal gives reasons for an arbitral award; to ensure that the tribunal remains within the limits of its jurisdiction; and to minimize the supervisory roles of courts in the arbitral process."
28) In para-33 of the judgment, the Hon'ble Supreme Court was pleased to enunciate that when a Court is applying the "public policy" test to an arbitration award, it does not act as a Court of A.S.No.50/2013 13 appeal and consequently errors of fact cannot be corrected.
29) In Food Corporation of India, the Hon'ble High Court of Rajasthan at Jaipur, in paras-17 and 18, which is relied upon by Defendant, was pleased to hold as under :
"17. The scope of judicial review of the arbitral award is a narrow one. In order to escape the agony of a protracted trial, in order to save time and expenses, arbitration was developed as an alternate dispute resolution forum. In the commercial world, where time is of essence and large amount of money is involved, the parties prefer to go for arbitration rather than for civil suit. The long gestation period of a civil suit, which meanders through a labyrinth of procedures and, at times, climbs the judicial pyramid has persuaded the parties to place an arbitration clause in the contract. The scope and ambit of judicial review over an award passed by an arbitrator are now well settled. The arbitrator is a Judge appointed by both the parties after reaching a consensus, or a Court appoints him under the provisions of the Act. Since the Arbitrator is a Judge appointed by the parties, the parties are bound by his decision even if the award is wrong either on law or on facts. Even an error of law on the face of the award cannot nullify the award. Thus, his decision is final unless the reasons given by him are totally perverse or the award is based on wrong proposition of law. But once it is A.S.No.50/2013 14 found that the view of the Arbitrator is a plausible one, the Court cannot reverse it by interfering with the award. Moreover, the interpretation of a contract is a matter solely within the domain of the arbitrator.
Therefore, the Court should be very weary of interpreting the contract. Similarly, the courts are precluded from reappraising the evidence produced before the arbitrator. The Court does not sit in an appeal over the verdict of an arbitrator by re- examining and reappraising the materials placed before him. In case two views are possible, the Court is not justified in interfering with the award by adopting its own interpretation. Even if it could be proved that the arbitrator has committed some mistake while arriving at his conclusion, such a proof would not invalidate the award.
Moreover, it is not "misconduct" on the part of the arbitrator to give a reasoned decision, where his error is one of the fact or of law. Furthermore, even if there is an error of construction of the agreement by the arbitrator, the same is not amenable to correction. Lastly the reasonableness of an award is not a matter for the Court of consider unless the award is preposterous or absurd. ........................
18. In the case of Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd. [(2003) 5 SCC 705 : AIR 2003 SC 2629), the Hon'ble Supreme Court has extensively dealt with the scope of Section 34(2)(v)(b)
(ii) of the Act. According to the Apex Court, an arbitral award can be set aside if the court finds that the arbitral award is in conflict with the "public policy of India".
A.S.No.50/2013 15 The term "public policy of India" has been interpreted by the Hon'ble Court to mean any award which is contrary to :
(a) fundamental policy of Indian law;
(b) the interest of India;
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the route of the matter and if the illegality is of trivial nature it cannot be held that the award is against the public policy. The award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court.
(e) if it is against the substantive law of India."
30) On the contrary, learned counsel for Plaintiff submits that the questions regarding the jurisdiction of the arbitrator including the existence of an arbitration clause can be raised in an application under Section 34 of the A&C Act. In support of his submission, he has placed reliance on the judgment of the Hon'ble Supreme Court in the case of Vidya Drolia vs Durga Trading Corporation, [(2021) 2 SCC 1]. In para-131, it is held as under :
A.S.No.50/2013 16 "131. Section 34 of the Act is applicable at the third stage post the award when an application is filed for setting aside the award. Under Section 34, an award can be set aside : (i) if the arbitration agreement is not valid as per law to which the party is subject; (ii) if the award deals with the disputes not contemplated by or not falling within the submission to arbitration, or contains a decision on the matter beyond the scope of submission to arbitration; and (iii) when the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force. Thus, the competence-competence principle, in its negative effect, leaves the door open for the parties to challenge the findings of the Arbitral Tribunal on the three issues.
The negative effect does not provide absolute authority, but only a priority to the Arbitral Tribunal to rule the jurisdiction on the three issues. The courts have a "second look" on the three aspects under Section 34 of the Arbitration Act."
31) Keeping in view the above principles of law laid down in the judgments (supra) relied upon by the parties, grounds urged by Plaintiff are to be assailed.
32) Regarding Arbitration Agreement - 32.1) It is the contention of Plaintiff that the parties never agreed to refer the disputes arising out of the A.S.No.50/2013 17 works contract for arbitration and therefore, the sole arbitrator had no jurisdiction to decide the disputes referred to him. To buttress its contention, it has placed reliance on the following judgments :
(a) State of UP vs. Tipper Chand, [(1980) 2 SCC 341];
(b) State of Orissa vs. Damodar Das, [(1996) 2 SCC 216]; and
(c) Bharat Bhushan Bansal vs UP Small Industries Corporation [(1999) 2 SCC 1666.
32.2) Defendant contends that the Arbitral Tribunal adjudicated the plea taken by Plaintiff vide Order dated 10.01.2004 and passed a well-reasoned and detailed order observing that Clauses-4 and 8 of the Articles of Agreement, which formed the tender, constituted a valid arbitration agreement as the said clauses denote the intention on the part of both parties to settle disputes by private tribunal. 32.3) It is further submitted that Plaintiff fully participated in the arbitration proceedings, filed its A.S.No.50/2013 18 statement of defence, led evidence, examined its witness, and filed written submissions. 32.4) It is also submitted that Plaintiff and Defendant referred the disputes arising between the parties to Mr.Dayanand Pai and adhered to the award passed by Mr.Dayanand Pai, as such, Plaintiff, having acknowledged the jurisdiction of an arbitrator for earlier disputes between the parties, cannot, now, turn around and dispute the jurisdiction of the present Arbitral Triubnal. 32.5) Defendant has placed reliance on the following judgments :
(a) McDermott International Inc vs. Burn Standard Co Ltd and Others [(2006) 11 SCC 181];
(b) Bihar State Mineral Development Corporation and Another vs. Encon Builders (I) (P) Ltd [(2003) 7 SCC 418; and
(c) Mallikarjun vs Gulbarga University [(2004) 1 SCC 372].
A.S.No.50/2013 19 32.6) In Tipper Chand (supra), relied on by Plaintiff, the Hon'ble Supreme Court, having regard to the facts of the case, was pleased to hold as under :
"4. ... Admittedly the clause does not contain any express arbitration agreement. Nor can such an agreement be spelled out from its terms by implication, there being no mention in it of any dispute, much less of a reference thereof. On the other hand, the purpose of the clause clearly appears to be to vest the Superintending Engineer with supervision of the execution of the work and administrative control over it from time to time."
32.7) Similarly, in Damodar Das (supra), the Hon'ble Supreme Court, having regard to the facts of the case, was pleased to hold as follows :
"10. .......... A careful reading of the clause in the contract would give us an indication that the Public Health Engineer is empowered to decide all the questions enumerated therein other than any disputes or differences that have arisen between the contractor and the Government. But for clause 25, there is no other contract to refer any dispute or difference to an arbitrator named or otherwise."
32.8) In para-11 of Damodar Das, after referring the judgment in the case of Tipper Chand, the A.S.No.50/2013 20 Hon'ble Supreme Court was pleased to observe as under :
"11. ......... It would, thereby, be clear that this Court laid down as a rule that the arbitration agreement must expressly or by implication be spelt out that there is an agreement to refer any dispute or difference for an arbitration and the clause in the contract must contain such an agreement. We are in respectful agreement with the above ratio. It is obvious that for resolution of any dispute or difference arising between two parties to a contract, the agreement must provide expressly or by necessary implication, a reference to an arbitrator named therein or otherwise of any dispute or difference and in its absence it is difficult to spell out existence of such an agreement for reference to an arbitration to resolve the dispute or difference contracted between the parties. ............."
32.9) In Bharat Bhusan (supra) also, after referring the judgments in the cases of State of Orissa vs. Damodar and State of U.P. vs. Tipper Chand, the Hon'ble Supreme Court, having regard to the clause of the contract referred to therein, was pleased to hold as under :
"7. ....... This Court held that the clause did not contain an arbitration agreement either expressly or by implication. The intention was to vest the Superintending Engineer A.S.No.50/2013 21 with supervision and administrative control over the work."
32.10) In McDermott International Inc (supra), which is relied upon by Defendant, the Hon'ble Supreme Court was pleased to hold thus :
"51. After the 1996 Act came into force, under Section 16 of the Act the party questioning the jurisdiction of the arbitrator has an obligation to raise the said question before the arbitrator. Such a question of jurisdiction could be raised if it is beyond the scope of his authority. It was required to be raised during arbitration proceedings or soon after initiation thereof. The jurisdictional question is required to be determined as a preliminary ground. A decision taken thereupon by the arbitrator would be the subject-matter of challenge under Section 34 of the Act. In the event the arbitrator opined that he had no jurisdiction in relation thereto an appeal there-against was provided for under Section 37 of the Act."
32.11) In Bihar State Mineral Development Corporation (supra), the Hon'ble supreme Court was pleased to observe that although an arbitration agreement must contain the broad consensus between the parties that the disputes and differences should be referred to a domestic A.S.No.50/2013 22 tribunal, such a domestic tribunal must be an impartial one.
32.12) Similarly, in Mallikarjun vs Gulbarga University (supra), the Hon'ble Supreme Court was pleased to observe that, for the purpose of constituting the valid arbitration agreement, it is not necessary that the conditions as regards adduction of evidence by the parties or giving an opportunity of hearing to them must specifically be mentioned therein and such conditions are implicit in the decision- making process in the arbitration proceedings.
32.13) It is to be noticed that, by Order dated 17.04.2003 passed in CMP No.16/2003, the Hon'ble High Court of Karnataka was pleased to appoint the Hon'ble Justice Mr.G.Patri Basavanagoud as sole Arbitrator to arbitrate the dispute raised by Defendant. Vide Order dated 20.10.2005, the Order dated 17.04.2003 was modified and the Hon'ble A.S.No.50/2013 23 Justice, Mr.G.P.Shivaprakash was appointed as sole Arbitrator to adjudicate the dispute raised by Defendant as arbitrator appointed vide Order dated 17.04.2003 was appointed as Upa-Lokayuktha. 32.14) In para-5 of the Order dated 17.04.2003 passed in CMP No.16/2003, it has been specifically observed as follows :
"5. In view of the above, an Arbitrator will have to be appointed leaving all contentions open including the contention that there is no arbitration agreement and there are no arbitrable disputes. Both the parties submit that they have no objection for Justice G.Patri Basavanagoud, a retired Judge of this Court being appointed as a sole Arbitrator."
32.15) After entering the dispute by the sole Arbitrator, Plaintiff filed application at IA No.I before the sole Arbitrator, contending that there is no arbitration agreement at all between the parties and that the Arbitral Tribunal has, therefore, no jurisdiction. Said plea came to be dismissed vide Order dated 10.01.2004 holding that there exists an A.S.No.50/2013 24 arbitration agreement; arbitration agreement is valid; and the arbitral Tribunal has jurisdiction. Plaintiff has assailed the Order dated 10.01.2004 in the present suit along with the award dated 25.04.2013.
32.16) Section 16(2) of the A&C Act makes it clear that a plea that the Arbitral Tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence, however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. 32.17) Section 16(6) of the A&C Act states that a party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34 of the Act.
A.S.No.50/2013 25 32.18) The Hon'ble Supreme Court in McDermott (supra) has reiterated the said principle of law that questioning the jurisdiction is required to be raised during arbitration proceedings or soon after initiation thereof and a decision taken thereon by the arbitrator would be the subject matter of challenge under Section 34 of the Act. 32.19) Thus, it would be clear that, while appointing the sole Arbitrator by the Hon'ble High Court of Karnataka, the questions relating to arbitration agreement and arbitrability of disputes were left to be decided by sole Arbitrator. Accordingly, Plaintiff filed application during the arbitration proceedings, contending that the Arbitral Tribunal has no jurisdiction as there is no arbitration agreement between the parties. However, the sole Arbitrator turned down the contention of Plaintiff and proceeded with arbitration proceedings.
A.S.No.50/2013 26 32.20) In para-45 of the award, the sole Arbitrator observes as under :
"45. On 27-11-2010, the learned counsel for the respondent fairly conceded that, he would not dispute the jurisdiction of the Arbitrator to arbitrate the disputes. Further both the learned counsel agreed to furnish their respective written arguments. Accordingly, the counsel for the claimant submitted his written arguments dated 26.03.2011 and the counsel for the respondent submitted his written submissions dated 25-03-2011."
32.21) Above observation of the sole Arbitrator has been highlighted by Defendant in its written submission, stating that the counsel for Plaintiff also submitted on 27.11.2010 that he would not dispute the jurisdiction of the sole Arbitrator to arbitrate the dispute.
32.22) Counsel for Plaintiff submits that the sole Arbitrator misconceived and misread the submission of the counsel for Plaintiff. It is submitted that said submission was made in furtherance to the Order of the Hon'ble High Court A.S.No.50/2013 27 of Karnataka passed in CMP. It is further submitted that, in statement of objections and in the affidavit evidence, Plaintiff had specifically and categorically contended that the sole Arbitrator did not have jurisdiction as there was no arbitration agreement and written contract. It is also submitted that the said submission of the counsel for Plaintiff was to the limited extent of accepting the authority of the sole Arbitrator to adjudicate if there was a written contract and if so, dispute between the parties was arbitrable. It is submitted that the said submission does not confer the jurisdiction on the Arbitral Tribunal particularly after Plaintiff having raised the plea of jurisdiction and same having been rejected by Order dated 10.01.2004.
32.23) It may be noticed that para-44 of the award makes it clear that reply arguments were concluded on 27.11.2010. Para-45 of the award mentions that on 27.11.2010, learned counsel for A.S.No.50/2013 28 Respondent conceded that he would not dispute the jurisdiction of the sole Arbitrator to arbitrate the disputes. Notably, arguing the matter on merits after rejecting the preliminary objection cannot be construed that the plea taken by Plaintiff has been waived by it. If it is so interpreted, it has to be said that, after rejection of preliminary objection, Plaintiff's right to challenge the order rejecting the plea taken by Plaintiff would have been forfeited. But it is not so. Statutory right to challenge the order rejecting the plea of jurisdiction of the Arbitral Tribunal is fostered by Section 16(6) of the A&C Act. 32.24) As observed above, in CMP, the questions relating to arbitration agreement and arbitrability of the dispute were left to be decided by the sole Arbitrator. In arbitration proceedings, at the earliest possible opportunity, Plaintiff raised the plea that the Arbitral Tribunal has no jurisdiction as there is no arbitration agreement between the parties by A.S.No.50/2013 29 filing application at IA No.I, which came to be rejected on 10.01.2004 and same has been assailed in the present suit.
32.25) Section 16(5) of the A&C Act makes it clear that where the Arbitral Tribunal takes a decision rejecting the plea, shall continue with the arbitral proceedings and make an arbiral award and Section 16(6) authorizes the aggrieved party to file an application for setting aside the arbitral award in accordance with Section 34.
32.26) When Section 16(5) of the A&C Act mandates the Arbitral Tribunal to proceed with the arbitral proceedings after rejection of plea of jurisdiction taken by Plaintiff, it would be incumbent on the part of Plaintiff to argue the matter on merits after accepting the authority of the sole Arbitrator despite Plaintiff's right to challenge the order rejecting the plea of jurisdiction under A.S.No.50/2013 30 Section 16(6) of the A&C Act. In that view, there would be no reason to take the shelter by Defendant under the garb of observation made in para-45 of the award that counsel for Respondent fairly conceded that he would not dispute the jurisdiction of the arbitrator to arbitrate the dispute. Unless arbitration agreement between the parties, the observation made in the award that counsel for Respondent conceded the jurisdiction of the arbitrator would not be alternative to arbitration agreement as contemplated in Section 7 of the A&C Act.
32.27) In the instant case, the question that looms the matter is, whether there has been any arbitration agreement in writing between the parties to arbitrate the disputes raised by Defendant.
32.28) To assail the said question, it is necessary to have regard to Clauses-4 and 8 of the Articles of A.S.No.50/2013 31 Agreement. Clauses-4 and 8, which have been extracted by the sole Arbitrator in his Order dated 10.01.2004 on IA No.I, are reproduced as under :
"4. THE DRAWINGS, AGREEMENT AND CONTRACT DOCUMENTS above mentioned shall form the basis of this Contract and the decision of the said Employer, in reference to all matters of dispute as to the material, workmanship or account and as to the intended interpretation of the clauses of this Agreement or any other document attached hereto shall be final and binding on both the parties and may be made Rule of Court."
"8. ALL DISPUTES arising out of or in any way connected with this Agreement shall be referred to the Employer and the Employer's decision shall be final and binding."
32.29) Findings of the sole Arbitrator find in para-9, 10 and 11 of the Order dated 10.01.2004. Para-9, 10 and 11 read thus :
"9. The question that next arises therefore is as to whether the said clauses 4 and 8 constitute an arbitration agreement between the parties.
10. The above extracted clause 8 contemplates dispute arising between the parties connected with the agreement concerned, reference of the same to the employer, the employer deciding on the same and the said decision being final and binding. Sri.G.Subba Rao, learned Senior Counsel appearing for the respondent A.S.No.50/2013 32 points out that unlike in clause 4, it is not provided in clause 8 that the same would be binding on both the parties, nor has it provided that it may be made the "rule of court". Sri Subba Rao further submits that in exercise of the power conferred under clause 4, the employer could have interpreted clause 8 as not amounting to an arbitration clause since the intended interpretation of the clauses of the agreement is also spoken to in clause 4. As Sri H.N.Narayan, learned Senior counsel appearing for the claimant points out, clauses 4 and 8 need to be read together, and, so read, it is clear that all matters of dispute as to the material, workmanship, or account and/or as to the intended interpretation of the clauses of the agreement or any other document attached thereto as also the disputes arising out of or in any connected with the agreement could be referred to the employer whose decision would be final and binding. Sri Narayan points out that clause 8 does not say that it would be binding only on the claimant. In the absence of it, and read together with clause 4, it is apparent that the decision would be binding on both the parties. Thus, the essential elements of arbitration agreement, as set out by the Supreme Court in BIHAR STATE MINERAL DEVELOPMENT v. ENCON BUILDERS (I)(P) LTD CORPORATION AND ANOTHER, (2003) 7 SCC 418, are available in respect of clauses 4 and 8. In the said decision, in paragraph 13, the Supreme Court laid down the following as being essential elements of arbitration agreement.
1. There must be a present or a future difference in connection with some contemplated affair.
2. There must be the intention of the parties to settle such difference by a private tribunal.
A.S.No.50/2013 33
3. The parties must agree in writing to be bound by the decision of such tribunal.
4. The parties must be ad idem.
11. Clauses 4 and 8, read together, speak of differences arising between the parties in connection with the contract concerned. The said clauses denote an intention on the part of both the parties to settle such differences by a private tribunal i.e. tribunal not being a court or tribunal established by law, the said private Tribunal in this case being one of the parties to the contract, viz., 'employer'. Parties have agreed in writing by way of clauses 4 and 8, to be bound by the decision of the said arbitrator. One of the said clauses makes it clear that the decision of the arbitrator would be binding on both the parties. The parties are ad idem, in the sense that both have understood the clauses in the same sense and at the same time, so much so, the respondent repeatedly refers in the letters referred to earlier, as to a concluded contract having come into existence by way of tender documents and letter of intent, and clauses 4 and 8 thus being very much part of a concluded contract, the said clauses fully demonstrating the intention on the part of both the parties to have their disputes settled through arbitration.
Constitution of one of the parties as arbitrator is thus apparent from clauses 4 and 8, the said clauses clearly spelling out an arbitration agreement containing all essential elements as pointed out by the Supreme Court in (2003) 7 SCC 418 (supra). At the outset, articles of agreement refer to the respondent Diamond District as the employer and one who submits a tender, in this case the claimant, as the contractor. Clauses 4 and 8 therefore provide for reference of any dispute arising between the claimant and A.S.No.50/2013 34 the respondent to an arbitrator named therein, namely one of the parties, the respondent herein, and the said clauses further provide for a decision of the respondent as such arbitrator in respect of the said dispute as being final and binding on both the claimant and the respondent.
Within the meaning of paragraph 13 of the decision of the Supreme Court in (2003) 7 SCC 418 (supra), clauses 4 and 8 very much amount to an arbitration agreement between the claimant and the respondent."
32.30) In the light of the findings of the sole Arbitrator, it is necessary to have glance at Section 7 of the A&C Act. Section 7 of the A&C Act reads as follows :
"7. Arbitration Agreement .- (1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in -
(a) a document signed by the parties;
A.S.No.50/2013 35
(b) an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means] which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract."
32.31) From Section 7 of the A&C Act, it would be clear that the arbitration agreement shall be in writing. It may be in the form of arbitration clause in a contract or in the from of a separate agreement. If it is contained in a document signed by the parties; an exchange of letters, telex, telegrams or other means of telecommunication, which provide a record of the agreement; or an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other, the same A.S.No.50/2013 36 would be considered as an arbitration agreement in writing.
32.32) Learned Arbitrator has relied upon the judgment of the Hon'ble Supreme Court in the case of Bihar State Mineral Development Corporation (supra), which has been relied upon by Defendant in the present suit, to say that there exists an arbitration agreement in writing between Plaintiff and Defendant. In the judgment (supra), in para-13, the essential elements of an arbitration agreement have been culled out as under :
"13. The essential elements of an arbitration agreement are as follows :
(1) There must be a present or a future difference in connection with some contemplated affair.
(2) There must be the intention of the parties to settle such difference by a private tribunal.
(3) The parties must agree in writing to be bound by the decision of such tribunal.
(4) The parties must be ad idem."
A.S.No.50/2013 37 32.33) In Bihar State Mineral Development Corporation (supra), the purported arbitration agreement contained in the agreement, which relied upon by Encon Builders, is referred to as under :
"60. In case of any dispute arising out of the agreement, the matter shall be referred to the Managing Director, Bihar State Mineral Development Corporation Limited, Ranchi, whose decision shall be final and binding."
32.34) In the judgment supra, the learned Subordinate Judge held that Clause-60 of the agreement cannot be construed to be an arbitration agreement [para-7], and the same came to be appealed before the Hon'ble High Court by Bihar State Mineral Development Corporation. The Hon'ble High Court was pleased to dismiss the appeal, against which, Bihar State Mineral Development Corporation preferred an appeal before the Hon'ble Supreme Court [para-8]. The Hon'ble Supreme Court has been pleased to A.S.No.50/2013 38 dismiss the appeal holding that there is no merit in the appeal.
32.35) It may be noticed that Clause-8 of the Articles of Agreement relied upon by Defendant in the present suit is akin to Clause-60 mentioned in Bihar State Mineral Development Corporation. 32.36) In Tipper Chand and Damodar Das (supra) relied upon by Plaintiff, the purported arbitration clauses referred to therein are as under :
In Tipper Chand - Clause-22 reads thus :
"Except where otherwise specified in the contract the decision of the Superintending Engineer for the time being shall be final, conclusive and binding on all parties to the contract upon all questions relating to the meaning of the specifications, design, drawing and instructions herein before mentioned. The decision of such Engineer as to the quality of workmanship, or materials used on the work, or as to any other question, claim, right, matter or things whatsoever, in any way arising out of or relating to the contract, designs, drawing specifications, estimates, instructions, orders; or these conditions, or otherwise concerning the works, or the execution or failure to execute the same, A.S.No.50/2013 39 whether arising during the progress of the work, or after the completion or abandonment of the contract by the contractor, shall also be final, conclusive and binding on the contractor."
In Damodar Das - Clause-25 reads thus :
"Decision of Public Health Engineer to be final.- Except where otherwise specified in this contract, the decision of the Public Health Engineer for the time being shall be final, conclusive and binding on all parties to the contract upon all questions relating to the meaning of the specifications; drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work, or as to any other question, claim, right, matter or thing, whatsoever in any way arising out of, or relating to, the contract, drawings, specifications, estimates, instructions, orders or these conditions, or otherwise concerning the works or the execution or failure to execute the same, whether arising during the progress of the work or after the completion or the sooner determination thereof of the contract."
32.37) It may be noticed that clauses referred to in the case of Tipper Chand and Damodar Das are similar to Clause-4 of the Articles of Agreement relied upon by Defendant in the present suit.
A.S.No.50/2013 40 32.38) It is to be noticed that in the cases of Bihar State Mineral Development Corporation; Tipper Chand; and Damodar Das, it was held that the clauses referred to therein do not constitute arbitration clause. 32.39) As Clauses-4 and 8 of the Articles of Agreement are akin to the clauses mentioned in the judgments (supra), the same analogy would apply thereto. Clauses-4 and 8 make it clear that they do not contain an arbitration agreement and they do not envisage any difference or dispute that may arise or had arisen between the parties in execution of the works for reference to an arbitrator. Thus, in absence of arbitration agreement in writing between Plaintiff and Defendant, there is no reason to attribute the essential elements of an arbitration agreement carved out in para-13 of the judgment in the case of Bihar State Mineral Development Corporation to the Clauses-4 and 8 of the Articles of A.S.No.50/2013 41 Agreement. In that view, a bare reading of Clauses-4 and 8 of the Articles of Agreement, it can be fairly said that there is no arbitration agreement between Plaintiff and Defendant to arbitrate the dispute raised by Defendant before the sole Arbitrator.
33. Contentions as to accord and satisfaction, ignorance of evidence, award is muddled, and inordinate delay in passing the award - 33.1) Plaintiff's contention is that, in view of raising certain issues by Defendant in its letter dated 02.02.1996 in the meeting held on 30.05.1996 between Plaintiff and Defendant, it was mutually decided to refer the disputes to one Mr.Dayanand Pai for settlement and accordingly, an Interim Settlement dated 09.07.1997 was arrived at before Mr.Dayanand Pai. As per Interim Settlement, the date for completion of the project would be extended to May 1997 and a sum of Rs.30,00,000/-
A.S.No.50/2013 42 would be paid to Defendant in three equal monthly installments, which was to be adjusted against the final settlement.
33.2) It is contended that Mr.Dayanand Pai passed second Interim Settlement on particular disputes and directed India Builders Corporation not to withhold the amount of Rs.30,00,000/- from the Running Account Bills [RA Bill]. Another Interim Settlement was arrived at before Mr.Dayanand Pai, in terms of which, the time for completion and handing over of Block A9 and A10 was further extended to 31.12.1997 and Block A8 was agreed to be delivered on 01.04.1998. Once again, Mr.Dayanand Pai mediated the issue between the parties and time for completion of work was extended to 15.06.1998.
33.3) It is contended that RA Bills No.28 and 29 were submitted by Defendants in November A.S.No.50/2013 43 1998 and September 1999 respectively. RA Bill No.28 was paid and RA Bill No.29 was in the process of reconciliation. Pending settlement of RA Bill No.29, both Plaintiff and Defendant entered into a Final Settlement dated 28.01.2000. In terms of Final Settlement, Defendant issued a letter dated 28.01.2000 to Plaintiff acknowledging the receipt of Rs.1,05,04,930/- from Plaintiff including RA Bill No.28 except an amount of Rs.4,56,322/-. 33.4) It is contended that Defendant has deliberately miscalculated its claims even in totaling the amounts claimed under various sub- heads and in doing so, Defendant has added additional amounts which are not reflected under any of the heads of its claims and same are not supported by facts.
33.5) It is contended that award has been passed on completely erroneous grounds and on A.S.No.50/2013 44 incorrect appreciation of facts and law. It is further contended that sole Arbitrator has failed to scrutinize, compute and assess the validity and propriety of the claims and has accepted the same. It is also contended that the long delay in passing the award resulted in erroneous award. 33.6) On the contrary, Defendant No.1 contends that claims in question were not adjudicated previously. RA Bills were running bills, wherein payment was made 'as and when basis' and were subject to adjustment in the final bill. 33.7) It is further contended that it is true that until RA Bill No.28, the only outstanding due was a sum of Rs.4,56,322/- and Plaintiff failed to make such payment.
33.8) It is also contended that issues on which interim settlement dated 28.01.2000 were A.S.No.50/2013 45 arrived at are not in issue before the sole Arbitrator and in fact, the settlement covered issues arisen until 28th RA Bill. Present arbitration proceedings under which the impugned award has been passed is in respect of dues arising out of RA Bills raised after 28th RA Bill and therefore, the sole Arbitrator was correct in holding that the claims of Defendant was not fully and finally settled. 33.9) Arbitral records make it clear that copies of Interim Settlements dated 09.07.1996, 02.09.1997, 03.09.1997, 03.09.1997 and 25.04.1998 have been marked as Exs.R.14, R.7, R.6, R.5 and R.4 respectively. Copy of Final Settlement dated 28.01.2000 has been marked as Ex.R.3. Further, letters dated 24.01.2000 and 28.01.2000 issued by Defendant to Plaintiff have been marked as Ex.R.1 and R.2. Also letter dated 07.06.2001 and legal notice dated 22.11.2001 A.S.No.50/2013 46 issued by Defendant to Plaintiff have been marked as Exs.R.29 and R.30.
33.10) To the Interim Settlements and Final Settlement, both Plaintiff and Defendant are signatories. As per Clause-1 of Final Settlement dated 28.01.2000 arrived at before Mr.Dayanand Pai [Re-conciliator], Defendant was liable to issue letter in favour of Plaintiff for adjustment of sum of Rs.1,09,61,252/- from 28th RA Bill amount towards the amount due from Defendant to Plaintiff in respect of 40 flats purchased by Defendant. In Ex.R.2, the letter dated 28.01.2000, Defendant made a request with Plaintiff to adjust a sum of Rs.1,05,04,930/- as per Clause-1 of Final Settlement. Ex.R.1, letter dated 24.01.2000, issued by Defendant further goes to show that Plaintiff was to pay a sum of Rs.4,56,322/- towards balance amount of 28th RA Bill.
A.S.No.50/2013 47 33.11) In letter dated 07.06.2001 [Ex.R.29], Defendant claims following RA Bills :
"
RA Bill No. Date Amount
th
28 Nov., 1998 4,56,322.00
29th March 2000 18,22,573.00
th
30 March 2000 10,34,666.00
31st 18.09.2000 7,83,792.00
40,97,353.00
"
33.12) In legal notice dated 22.11.2001
[Ex.R.30], Defendant claims the following RA Bills :
"
Sr. Bill Month of Amount due from No. No. submission of the the bill (Rs) bill 1 28 November 1998 456322 2 29 March 2000 1822573 3 30 March 2000 1034666 4 31 September 2000 783792 Total : 4097353 "
33.13) Before the sole Arbitrator, Plaintiff has specifically contended in its statement of objection based on Exs.R.1 to R.7, R.14, R.29 and R.30 that A.S.No.50/2013 48 both Plaintiff and Defendant finally settled the dispute before Mr.Dayanand Pai.
33.14) Sole Arbitrator framed specific issue at Issue No.8 to the effect that "whether there is accord and satisfaction and whether nothing is due to the claimant?"
33.15) Above Issue No.8 was taken as preliminary Issue along with Issue No.9, which is framed with respect to limitation. On 15.06.2007 Order was passed on preliminary Issues No.8 and 9. In the Order dated 15.06.2007, the sole Arbitrator held as follows :
"6. As stated above, the present dispute is mainly in respect of R.A.bills 29, 30 and 31 which according to the respondent have not been submitted by the claimant, though in Ex.R 3 dated 28.1.2000 there is clear reference to R.A.bill 29.
10. In the written arguments dated 2.10.2006 of the claimant it is emphasized that the previous settlements arrived at between the parties are not in respect of the subsequent R.A. bills 29, 30 and 31. The counsel pointed out that R.A. Bill 29 is referred to in the settlement agreement A.S.No.50/2013 49 dated 28.1.2000 and further R.A. Bill 29 has been submitted along with the claim statement. The dispute whether R.A.bills 29, 30 and 31 have been submitted to the respondent or not cannot be resolved at this stage unless findings are given on other issues.
12. For the aforesaid reasons, I hold that no finding can be given at this preliminary stage as regards issue No.8 on the question of accord and satisfaction. This issue has to be tried along with the other issues."
33.16) Thus, Order on preliminary issues make it clear that sole Arbitrator decided to adjudicate Issue No.8 along with other issues. 33.17) In paras-91 to 94 of the award, sole Arbitrator answered Issue No.8. It is relevant to read paras-91 to 94, which read thus :
" 91. The respondent has relied upon Ex- R1 to Ex-R4 to contend that, there is accord and satisfaction of the entire contract between the parties and nothing is due from the respondents to the claimant.
92. On the other hand, the claimant has contended that, the architect has to issue 'Virtual Completion Certificate', which is not issued. R.A bills are not final bill. Settlement under Ex-R1 is regarding 28th A.S.No.50/2013 50 R.A bill and Ex-R3 refers to the settlement of 29th R.A bill and not any final bill. Mr.Dayanand Pai's award of Rs.30 lakh was regarding the non-payment of running bill. Admission by R.W.1 that, settlement was only up to 28th R.A.bill, which was adjusted against the sale consideration of 40 flats to the claimant and its nominees.
93. The claimant relied upon the following decisions in this regard :
i. 153(2008) DLT.174 ii. AIR 2002 Cal. 51 (DB) iii. AIR 1992 Mad. 139
94. On the overall perusal and assessment of the material on record, I hold that, there was no accord and satisfaction as contended by the respondent and the respondent is due to the claimant, the amounts under different counts. Therefore, Issue No.8 is answered accordingly."
33.18) Sole Arbitrator has come to the conclusion that the settlement arrived at before Mr.Dayanand Pai is with respect to non-payment of Rs.30,00,000/- towards RA Bills and the said settlement was only up to 28 th RA Bill, which was adjusted against the sale consideration of 40 flats and therefore, there was no accord and satisfaction.
A.S.No.50/2013 51 33.19) In para-15.1 and 15.2 of claim statement, following sums are claimed by Defendant towards escalation in prices and interest thereon-
"
(a) up to contract time Rs.61,86,821/-
(b) beyond 27 months Rs.81,52,701/-
Total escalation Rs.1,43,39,522/- Interest
(a) up to contract time Rs.77,06,921/-
(b) beyond contract time Rs.75,54,517/-
Total Interest Rs.1,52,61,438/- Total escalation and Rs.2,96,00,960/- Interest "
33.20) In para-61 of the award, sole Arbitrator, after holding that contract between the parties was not a fixed price contract, awarded a sum of Rs.2,28,57,426/- [Rs.69,97,084/- up to contract time + Rs.81,52,701/- beyond 27 months + Rs.77,06,921/- interest up to contract time] towards reimbursement of the increase in prices [escalation in prices] over the standard basic rates.
A.S.No.50/2013 52 33.21) In para-15(a), Defendant claims a sum of Rs.40,92,187/- towards the variation in scope of the work.
33.22) Sole Arbitrator awarded half of Rs.40,92,187/-. Findings of sole Arbitrator in paragraph-65 of the award read as under :
"65. The claimant has claimed a sum of Rs.40,92,187/- under this head as per para 9 of the claim statement on the ground that, the variation in the work exceeded 20%. Since, on behalf of the respondent normal variation of 10% is admitted, the claimant is entitled to half of the above amount under this head, i.e. Rs.20,46,098.50."
33.23) In para-15(b) and (c), Defendant claims a sum of Rs.58,32,000/- towards 'under utilization of staff, machinery and overhead for the first 12 months and Rs.1.56,03,456/- towards under- utilization of staff, machinery and overhead for 33 months'. In all, Defendant claims a sum of Rs.2,14,35,456/- towards under-utilization of staff, machinery and overhead.
A.S.No.50/2013 53 33.24) Sole Arbitrator has awarded a sum of Rs.2,00,00,000/- towards under-utilization of staff, machinery and overhead. Para-74 of the award reads as under :
"74. The respondent has not effectively contradicted the above factors. As such, I am inclined to award a sum of Rs.2 crores under this head and hold issue No.4 in favour of the claimant."
33.25) In para-15.3 to 15.7, following claims are made by Defendant :
"(a) Interest of Rs.35,59,847/- on sum of Rs.1,09,91,252/-;
(b) Interest of Rs.10,26,047/- on delayed payment of RA Bills up to 19th RA Bill;
(c) Interest of Rs.46,50,024/- on delayed payment of RA Bills 20 to 22;
(d) Amount of 36,41,027/- due under RA Bills No.29 to 31 and interest thereon of Rs.22,15,902/-, in all, a sum of Rs.68,65,926/-;
(e) Amount of Rs.40,97,349/- towards RA Bills No.29 to 31 and balance payment of RA Bill No.28."
33.26) In all, Defendant claims a sum of Rs.2,01,99,193/- in para-15.3 to 15.7 of claim A.S.No.50/2013 54 statement. In the said amount, Defendant claims interest on Rs.1,23,51,820/- in respect of which final settlement was arrived at between the parties; RA Bills No.29 to 31 twice; and Rs. 4,56,322/- towards balance amount of RA Bill No.28.
33.27) Sole Arbitrator has framed two Issues at Issues No.6 and 7 with respect to the claims made in para-15.3 to 15.7 of the claim statement to the effect that "(a) whether the respondent withheld any amount due to the claimant and if so, how much?, and (b) whether, there is delay in making payment and claimant is entitled to interest?"
33.28) In para-85, 86 and 89 of the award, the sole Arbitrator has held as follows :
" 85. The claimant has made a claim of Rs.3,03,67,729.25 in the final bill and as such made a total claim of the dues in a sum of Rs.3,44,65,078.25 which includes the interest for delayed payments of the R.A bills.
86. The respondent has not effectively countered the factual aspects.
A.S.No.50/2013 55
89. In view of the above, the claimant is entitled to a sum of Rs.3,44,65,078.25 in respect of the claims under Issue No.6 and Issue No.7.
33.29) Claims of Defendant in para-15 of his claim statement are :
"
(a) Variation in scope Rs.40,92,187/-
of works
(b) Under-utilization of Rs.58,32,000/-
staff,equipment and overhead for first 12 months.
(c) Under-utilization of Rs.1,56,03,456/-
staff, equipment and overhead for the period of 33 months.
(d) Escalation in cost Rs.1,43,39,522/-
of construction
material & labour
etc.
(e) Interest on Rs.1,52,61,438/-
escalation in price
(f) Interest on Rs.35,59,847/-
Rs.1,09,61,252/-
(g) Interest on delayed Rs.10,26,047/-
payment of RA Bills
up to 19th RA Bill
(h) Interest on delayed Rs.46,50,024/-
payment of RA Bills
No.20 to 22
(i) Sum due under RA Rs.36,41,027/-
Bills No.29 to 31
(j) Interest on RA Bills Rs.22,15,902/-
No.29 to 31
A.S.No.50/2013
56
(k) Sum due under RA Rs.40,97,349/-
Bills No.29 to 31
and balance due
under RA Bill No.38
"
33.30) From the above claims, the sole
Arbitrator has awarded the following claims :
"
(a) Variation in scope Rs.20,46,098/-
of works [para-65 of the award]
(b) & Under-utilization of Rs.2,00,00,000/-
(c) staff, equipment
and overhead for
first 12 months and
for first 33 months
[para-74 of the
award]
(d) & (e) Escalation in price Rs.2,28,57,426/-
and interest
thereon
[para-61 of the
award]
(f) to (k) Delayed payment Rs.3,44,65,078/-
and interest
[para-85 and 89
of the award]
A.S.No.50/2013
57
33.31) In all, the sole Arbitrator has awarded a
sum of Rs.7,93,22,504/- as against the claim of Rs.6,60,91,881/-
33.32) Apart from that, the sole Arbitrator has awarded interest @ 18% per annum on the award amount from the date of claim petition till realization.
33.33) In para-98 of the award, the sole Arbitrator has held as under :
"98. In view of the findings on Issue No.2B, issue No.3B, Issue No.4 and Issue Nos.6 and 7, the respondent is due in a sum of Rs.7,93,22,504.25 which includes certain interest portion. Therefore, the said sum is in excess of Rs.6,60,91,881/- claimed by the claimant in the claim statement."
33.34) By holding so, the sole Arbitrator restricts his award to the tune of Rs.6,35,44,631/- after deducting a sum of Rs.25,47,250/- which has been disallowed by him in respect of Issue No.4.
A.S.No.50/2013 58 33.35) Now, award may be summarized as under :
(a) Though Defendant claims a sum of Rs.2,14,35,456/- towards under-
utilization of staff, equipment and overhead, the sole Arbitrator has come to the conclusion that Defendant claims a sum of Rs.2,25,47,250/- and awarded a lump-sum amount of Rs.2,00,00,000/-.
(b) Sole Arbitrator has mentioned that escalation in price up to contract time is Rs.69,97,084/- as against the claim of Rs.61,86,821/-.
(c) Award disallows the interest of Rs.75,54,517/- claimed in respect of escalation in price beyond 27 months.
Despite that the same has been indirectly included in final award of Rs.6,35,44,631/-.
(d) Sole Arbitrator has held that Defendant is entitled to half of amount claimed in respect of variation in the works and awarded a sum of Rs.20,46,098/- as against the claim of Rs.40,92,187/-. However, while passing A.S.No.50/2013 59 the final award for Rs.6,35,44,631/-, entire amount of Rs.40,92,187/- claimed for variation in the works, has been included in the final award of Rs.6,35,44,631/-.
(e) Defendant nevertheless claims a sum of Rs.3,44,65,078.25/- in his claim statement towards interest and balance amount as stated in para 15.3 to 15.7 of the claim statement. In fact, Defendant claims a sum of Rs.2,01,99,193/-. As against the claim of Rs.2,01,99,193/-, a sum of Rs.3,44,65,078.25 has been awarded.
(f) RA Bills No.29 to 31 claimed by Defendant twice has been awarded as it is.
(g) Interest on sum of Rs.1,09,91,252/- in respect of which Final Settlement has been arrived at before Mr.Dayanand Pai and same was adjusted towards the payment due by Defendant to Plaintiff in respect of 40 flats purchased by Defendant, has been awarded despite the Final Settlement.
A.S.No.50/2013 60
(e) Interest @ 18% on interest of Rs.77,06,921/- which is claimed on escalation in price up to the contract time, has been awarded.
(f) Interest @ 18% on interest of Rs.35,59,847/-, Rs.10,26,047/-, Rs.46,50,024/- and Rs.22,15,902/-, which are claimed in respect of final settlement of Rs.1,09,61,252/-, interest up to 19th RA Bill, interest on delayed payment of RA Bills No.20 to 22, and interest on RA Bills No.29 to 31, has been awarded.
(g) Interest @ 18% on interest of Rs.75,54,517/-, being disallowed sum of interest on escalation in price beyond the contract period and same has been indirectly included in the final award of Rs.6,35,44,631/-.
(h) Interest @ 18% on half sum of Rs.20,46,098.50/-, being the disallowed amount in respect of variation in works and same has been indirectly included in the final award of Rs.6,35,44,631/-.
A.S.No.50/2013
61
(i) There are no reasons and
justification in the award to the effect that how the sole Arbitrator has arrived to the conclusion that Defendant is entitled to claims made in its claim statement. Award goes to show that the sole Arbitrator passed the award with narration of facts with reference to the annexures without providing any reason.
(j) Award deals with the claims which have been finally settled between the parties before Mr.Dayanand Pai. 33.36) In the above background, the learned counsel for Plaintiff contends that long delay in passing the award resulted in erroneous award. To buttress his contention, he has placed reliance on the the following judgments :
(a) R.C.Sharma vs. Union of India (UOI) and Ors., [Civil Appeal No.1155/1976, decided on 06.05.1976];
(b) Bhagwandas Fatechand Daswani and Others vs. HPA International and Others, [(2000) 2 SCC 13];
A.S.No.50/2013 62
(c) Kanhaiyalal and Others vs. Anupkumar and Others, [(2003) 1 SCC 430]; and
(d) Dyna Technologies Private Limited vs. Crompton Greaves Limited, [(2019) 20 SCC 1] 33.37) In R.C.Sharma, the Hon'ble Supreme Court was pleased to hold thus :
"12. .... Nevertheless, we think that an unreasonable delay between hearing of arguments and delivery of a judgment, unless explained by exceptional or extraordinary circumstances, is highly undesirable even when written arguments are submitted. It is not unlikely that some more points which the litigant consider important, may have escaped notice. But, what is more important is that litigants must have complete confidence in the results or hearing of arguments and delivery of judgments. Justice, as we have often observed, must not only be done but must manifestly appear to be done. "
33.38) In Bhagwandas Fatechand Daswani, the Hon'ble Supreme Court was pleased to hold that the long delay in delivery of judgment gives rise to unnecessary speculations in the minds of parties to a case. In Kanhaiyalal case also, the A.S.No.50/2013 63 Hon'ble Supreme Court was pleased to observe the delay in passing judgment.
33.39) In Harji Engg. Works Pvt. Ltd., vs. Bharat Heavy Electricals Limited and Anr., [2009 (107) DRJ 213], which has been relied upon by Plaintiff, the Hon'ble Delhi High Court was pleased to hold as under :
"20. It is natural and normal for any arbitrator to forget contentions and pleas raised by the parties during the course of arguments, if there is a huge gap between the last date of hearing and the date on which the award is made. An Arbitrator should make and publish an award within a reasonable time. What is reasonable time is flexible and depends upon facts and circumstances of each case. In case there is delay, it should be explained. Abnormal delay without satisfactory explanation is undue delay and causes prejudice. Each case has an element of public policy in it. Arbitration proceedings to be effective, just & fair, must be concluded expeditiously. ......"
33.40) The Hon'ble Supreme Court in Dyna Technologies Private Limited, was pleased to hold thus :
A.S.No.50/2013 64
"34. The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regard to the speedy resolution of dispute.
35. When we consider the requirement of a reasoned order, three characteristics of a reasoned order can be fathomed. They are : proper, intelligible and adequate. If the reasonings in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be A.S.No.50/2013 65 set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards."
33.41) In Dyna Technologies Private Limited (supra), having regard to the facts of the case, the Hon'ble Supreme Court, in para-39, was pleased to hold as under :
"39. Coming back to the award, we need to see whether the award of the Arbitral Tribunal can be sustained in the instant case. Although the Arbitral Tribunal has dealt with the claims separately under different sub-headings, the award is confusing and has jumbled the contentions, facts and reasoning, without appropriate distinction. The Tribunal rendered the award with narration of facts with references to the annexures wherever it relied upon it. The Tribunal abruptly concluded at the end of the factual narration, without providing any reasons, in the following manner :...."
33.42) In the instant case, para-43 of the award makes it clear that arguments of the parties were concluded on 25.03.2011, however, award came to be passed on 25.04.2013 after lapse of 2 years and one month. Certainly, such long delay A.S.No.50/2013 66 resulted in passing of impugned award, which explicitly makes it clear that it is muddled. 33.43) In Associate Builder (supra), in para- 31, the Hon'ble Supreme Court was pleased to hold as under :
" 31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where :
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse. "
33.44) Similarly, in para-36, it has been held as under :
"36. The third ground of public policy is, if an award is against justice or morality. These are two different concepts in law. An award can be said to be against justice only when it shocks the conscience of the court. An illustration of this can be given.
A.S.No.50/2013 67 A claimant is content with restricting his claim, let us say to Rs.30 lakhs in a statement of claim before the arbitrator and at no point does he seek to claim anything more. The arbitral award ultimately awards him Rs.45 lakhs without any acceptable reason or justification. Obviously, this would shock the conscience of the court and the arbitral award would be liable to be set aside on the ground that it is contrary to "justice".
33.45) In that view, at any stretch of imagination, it cannot be said that award would stand alone. Accordingly, I answer the above point in the affirmative and proceed to pass the following :
ORDER (1) Suit filed by Plaintiff under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 25.04.2013 passed by sole Arbitrator in the matter of arbitration, is hereby allowed.
(2) Award dated 25.04.2013 passed by the sole Arbitrator in the matter of arbitration, is hereby set aside.
A.S.No.50/2013 68 (3) Accordingly, Order on I.A.No.1 dated 10.01.2004 passed by the sole Arbitrator in the matter of arbitration, is hereby set aside. (4) No order as to costs.
(Dictated to the Judgment Writer directly on computer, typed matter corrected and then pronounced by me in open court, on this the 1st day of April 2022) (RAMA NAIK) VI Addl.City Civil & Sessions Judge Bengaluru City