Karnataka High Court
M/S Basai Steels And Power Pvt Ltd., vs M/S Gobins India on 25 April, 2017
Bench: Vineet Kothari, H.B.Prabhakara Sastry
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
1
IN THE HIGH COURT OF KARNATAKA
DHARWAD BENCH
DATED THIS THE 25th DAY OF APRIL, 2017
PRESENT
R
THE HON'BLE DR. JUSTICE VINEET KOTHARI
AND
THE HON'BLE DR. JUSTICE H. B. PRABHAKARA SASTRY
M.F.A. No.101307/2015 (AA)
C/W.
M.F.A.CROB. No.100134/2015 (AA)
IN MFA NO.101307/2015
BETWEEN:
M/S BASAI STEELS PVT. LTD.,
OFFICE AT DOOR NO.59,
D/1, PARVATHI NAGAR
3RD MAIN ROAD, BALLARI
PROJECT OFFICE/FACTORY AT PLOT NO.412
OPP. KGP FARMS, 3RD WARD,
SIDIGINAMOLA VILLAGE, BALLARI,
R/BY ITS DIRECTOR,
SRI.PIYUSH, S/O GOPAL AGARWAL,
AGE: 32 YEARS, OCC: BUSINESS,
... APPELLANT
(BY SRI. PADMANABHA MAHALE, SR. COUNEL FOR
SRI.SRINAND A. PACHHAPURE, ADVOCATE)
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
2
AND:
1. M/S GOBINS INDIA ENGINEERING PVT. LTD.,
OFFICE AT NO.65, RAGHAV KALYAN COLONY
VIDYANAGAR, BALLARI, REGISTERED OFFICE AT
TMC/X/161/31, PJ TOWERS
GOVT. ENGINEERING COLLEGE (PO)
THRISSUR - 680 009, KERALA STATE
REPRESENTED BY ITS MANAGING DIRECTOR
BINU S. GOPINATH
MAJOR, OCC: BUSINESS
2. S. DHASIAIYA, THE SOLE ARBITRATOR
NO.228, 1ST FLOOR, N.S.C.,
BOSE ROAD, CHENNAI-600001
TAMILNADU STATE.
... RESPONDENTS
(BY SRI.ANANT HEGDE, ADVOCATE FOR R1;
R2 - SERVED)
---
THIS MFA IS FILED UNDER SECTION 37 OF
ARBITRATION AND CONCILIATION ACT, 1996, AGAINST THE
JUDGMENT AND AWARD DATED:05-01-2015 PASSED IN
ARBITRATION APPLICATION NO.6/2014 ON THE FILE OF THE
PRINCIPAL DISTRICT AND SESSIONS JUDGE, BALLARI,
DISMISSING THE PETITION FILED BY THE PLAINTIFF U/S. 34
OF THE ARBITRATION AND CONCILIATION ACT, 1996 AND
PARTLY CONFIRMING THE AWARD DATED 14.12.2013
PASSED BY THE SOLE ARBITRATOR/RESPONDENT NO.2 IN
A.C. A.C.P.(GOBINS) NO.1/2013.
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
3
MFA.CROB NO 100134 OF 2015
BETWEEN:
M/S GOBINS INDIA ENGINEERING PVT. LTD.,
OFFICE AT NO.65, RAGHAV KALYAN COLONY
VIDYANAGAR, BALLARI 583 104
KARNATAKA STATE, INDIA AND
THE REGISTERED OFFICE AT
TMC/X/161/31, PJ TOWERS
GOVT. ENGINEERING COLLEGE (PO)
THRISSUR - 680 009, KERALA, INDIA
REPRESENTED BY ITS MANAGING DIRECTOR
BINU S. GOPINATH
... CROSS-OBJECTOR
(BY SRI. ANANT HEGDE, ADVOCATE)
AND:
1. M/S BASAI STEELS POWER PVT LTD.,
REPT.BY ITS DIRECTOR
OFFICE AT DOOR NO. 59,
PARVATHI NAGAR, 3RD MAIN ROAD,
BALLARI 583 101
KARNATAKA, PROJECT OFFICE/FACTORY
AT PLOT NO.412, OPP: KGP FARMS
3RD WARD, SIDIGINAMOLA VILLAGE
BALLARI, KARNATAKA STATE.
2. S. DHASIAIYA, THE SOLE ARBITRATOR
NO.228, 1ST FLOOR, N.S.C.,
BOSE ROAD, CHENNAI-600001
TAMILNADU STATE.
... RESPONDENTS
(BY SRI. PADMANABHA MAHALE, SENIOR COUNSEL FOR
SRI.SRINAND A. PACHHAPURE, ADVOCATE FOR R1;
R2 - NOTICE DISPENSED WITH)
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
4
THIS MFA.CROB IN MFA. NO. 101307/2015 IS FILED
UNDER ORDER XLI RULE 22 OF CODE OF CIVIL PROCEDURE
R/W. SECTION 37 OF ARBITRATION AND CONCILIATION
ACT, 1996 AGAINST THE JUDGMENT AND DECREE
DATED:05.01.2015, PASSED IN ARBITRATION APPLICATION
NO.6/2014, ON THE FILE OF THE PRINCIPAL DISTRICT
JUDGE AT BALLARI, AGAINST REDUCING THE SUM AND THE
RATE OF INTEREST THAT WAS AWARDED BY THE ARBITRAL
TRIBUNAL.
THIS APPEAL AND CROSS-OBJECTION HAVING BEEN
HEARD AND RESERVED FOR JUDGMENT ON 17.04.2017 AND
COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS
DAY, DR. H. B. PRABHAKARA SASTRY, J., DELIVERED THE
FOLLOWING:
COMMON JUDGMENT
In MFA No.101307/2015
Sri. Padmanabha Mahale, learned Senior Counsel for
Mr. Srinand A. Pachhapure, Advocate for the appellant.
Mr. Anant Hegde, Advocate for respondent C/R1.
In MFA Crob.No.100134/2015
Mr. Anant Hegde, Advocate for the appellant.
Sri. Padmanabha Mahale, learned Senior Counsel for
Mr. Srinand A. Pachhapure, Advocate for R1.
1. MFA No.101307/2015(AA) has been filed by the
appellant therein under Section 37 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as 'the
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
5
Act', for brevity), seeking setting aside of the judgment
and award dated 05.01.2015 passed by the Court of
Principal District and Sessions Judge, Ballari, in
Arbitration Appeal No.6/2014, confirming the award
dated 14.12.2013 passed by the Sole
Arbitrator/respondent No.2 in A.C.A.C.P.(GOBINS)
No.1/2013.
2. MFA Crob.100134/2015 has been filed by the
respondent No.1 in MFA No.101307/2015 under Order
XLI Rule 22 of the Code of Civil Procedure R/w. Section
37 of the Act, seeking modification of the judgment and
award dated 05.01.2015 passed by the Principal District
Judge, Ballari, in Arbitration Appeal No.6/2014.
3. The appellant in MFA No.101307/2015 in its
memorandum of appeal has taken a contention that, it
was not effectively represented in the Arbitration
proceedings. The Arbitrator entered into reference
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
6
nearly four years after his appointment. The claim of
the respondent therein is barred by limitation. The
letter appointing the Arbitrator and the letter of consent
by the Arbitrator are created documents. The appellant
has further stated that the immediate Court below did
not notice the fact that the award passed by the
Arbitrator was an ex-parte award and the same was
against the principles of natural justice. The orders of
both the Courts below are also not sustainable as the
appellant Company has been registered as a Sick
Industrial Company with the BIFR, New Delhi. However,
the said fact was not brought before the Court below
due to oversight.
4. The appellant in MFA No.101307/2015, during
the pendency of this appeal, filed I.A.No.1/2017 under
Section 37 of the Act R/w. Order XLI Rule 2 of the Code
of Civil Procedure, seeking leave to urge additional
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
7
grounds in support of its appeal. In the additional
grounds, it is contended that the Arbitration clause
binding on both the parties clearly mentions that the
dispute shall be referred to Arbitration consisting of two
arbitrators, one is to be appointed by the Contractor and
other by the Purchaser. In the event of failure on the
part of either of the party to name the Arbitrator, the
parties should, invoking the Arbitration clause, have to
approach the High Court seeking appointment of the
Arbitrator as required under Section 11 of the Act. It is
only after the Chief Justice or any designated Judge of
the High Court appoints an Arbitrator, the proceedings
can be continued.
It is further stated that the place of arbitration was
at Ballari. The award indicates that the Arbitration
Tribunal was constituted at Chennai, without the
concurrence of the appellant. With these, the appellant
has prayed for setting aside of the judgment and award
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
8
under appeal.
5. In response to the notice, the 1st respondent
Company is appearing through its counsel.
6. The 1st respondent - M/s. Gobins India
Engineering Pvt. Ltd., filed cross-objection under Order
XLI Rule 22 of the Code of Civil Procedure R/w. Section
37 of the Act, under MFA Cross-objection
No.100134/2015.
In its Cross-objection, the cross-objector/
respondent contended that, in the petition, claim was
made for `1,48,66,068/-, including interest. The said
claim was upheld by the Sole Arbitrator. The Court
below, though dismissed the Arbitration application,
erred in deducting `46,00,000/- on the assumption that
such amount was paid by the 1st respondent out of the
claim of `1,48,66,068/-. It ignored the fact that the
deduction for the said amount was already given by the
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
9
Cross-objector while making claim for the payment of
`1,48,66,068/-. It further contended that reduction of
interest from 24% p.a to 18% p.a from the Court below
was not warranted. With this, it has prayed for
modification of the judgment and award under appeal
and for awarding an enhanced amount from
`97,80,308/- to `1,48,66,068/- and also to award
interest at the rate of 24% p.a. from November, 2009,
till the date of actual payment.
7. The respondent No.1 herein filed its detailed
objection to I.A.1/2017 filed by the appellant herein
seeking leave to urge the additional grounds. In its
statement of objection to the said I.A., the 1st
respondent M/s. Gobins India Engineering Pvt. Ltd.,
contended that the award passed by the Arbitrator
under Section 31 of the Act can be questioned under
specified grounds mentioned under Section 34 of the
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
10
Act, by filing an application within 90 days from the
receipt of the award. The said time can be extended
only by 30 days and not beyond. As such, the additional
ground cannot be permitted to be urged at this stage
with a delay of more than 3 years from the date of the
award, which was passed on 14.12.2013. It is further
contended that such grounds were not raised before the
Arbitrator under Section 12(3) of the Act. The time
stipulated under Sections 13(2) and 16(2) of the Act
have lapsed. Therefore, the party to the proceeding
shall be deemed to have waived his right to object, in
view of Section 4 of the Act. It is further contended by
the said respondent Company, that the time barred
application seeking amendment of the pleading should
not be allowed and right accrued to the opposite party
should not be allowed to be taken away by virtue of the
amendment. The right accrued to this respondent under
Section 4 of the Act will be lost in case if amendment is
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
11
allowed. He also contended that the Arbitration and
Conciliation Act, 1996, being a special enactment, Order
41 Rule 2 of the Code of Civil Procedure, cannot be
pressed into service at this juncture.
He finally contended that Section 34 of the Act
provides that the award can be questioned only on
certain grounds mentioned in that Section. If the ground
available under Section 34 is not taken in Section 34
application, it cannot be allowed to be taken in appeal
under Section 37 of the Act.
8. After hearing both sides, on the date
30.02.2017, this Court framed the following questions as
important questions of law that arise for consideration of
the Court:
i) Whether the objections about
jurisdiction of the Sole Arbitrator even
though not raised before the learned
Arbitrator and learned District Judge in
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
12
the petition filed under Section 34 of the
Arbitration and Conciliation Act, 1996
('the Act', for short), can be so raised for
the first time before this Court or not?
ii) Whether a party is bound to apply to the
High Court under Section 11 of the Act,
for appointment of the Arbitrator, in
case there is no express or implied
consent from the other party to the
contract about appointment of Sole
Arbitrator by one party and whether the
requirement of approaching the High
Court for appointment of the Arbitrator
under Section 11 of the Act can be
waived by the party in view of Section 4
of the Act?
For framing the above questions, neither of the
parties in this appeal had any objection and that it was
only after hearing them on I.A.1/2017, in which for the
first time the appellant herein i.e., M/s. Basai Steels Pvt.
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
13
Ltd., had taken up the contention on non-compliance of
Section 11 of the Act, those questions were framed. As
such, the said I.A.No.1/2017, impliedly stands allowed.
9. For the sake of convenience, the parties herein
would be referred henceforth with the ranking they were
holding before the Arbitrator respectively i.e., M/s.
Gobins India Engineering Pvt. Ltd., the 1st respondent
herein was the petitioner and M/s. Basai Steels Pvt. Ltd.,
the appellant herein was the respondent before the
Arbitration Tribunal.
From a perusal of the materials placed before us,
the case of the parties can be summarized as below:
Both the companies in this appeal are companies
registered under the Companies Act. The petitioner
Company was an Engineering Company undertaking
several Engineering Works. The respondent Company
made an enquiry with the petitioner Company for
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
14
execution of certain mechanical jobs for the integrated
Steel Plant Project at Sidiginamola village, where the
project office was located. The petitioner submitted its
offer and on mutual negotiations, they entered into an
agreement, whereunder, the petitioner Company was to
execute certain Engineering works in the respondent
Company and raise bills, which the respondent had to
honour. According to the petitioner, though he
commenced work during February 2009, the respondent
did not take any interest, but neglected to provide
sufficient materials for fabrication and clearance for
erection in time, as a result, the work got delayed and
the petitioner incurred huge loss. Several
communications were exchanged between them. The
petitioner submitted final bill on 28.10.2009, but the
respondent failed to make payment, except paying a
sum of `5,00,000/- as against total outstanding of
`1,02,80,308/- leaving a balance of `97,80,308/-. The
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
15
respondent did not respond to the further
communication made by the petitioner. As such,
according to the petitioner, the respondent was liable to
pay to it a sum of `1,48,66,068/-, together with interest
up to January, 2012 at the rate of 24% p.a.
The agreement between them had an Arbitration
Clause. On 08.07.2010, the petitioner Company named
one Sri.S.Dhassaiya, as an Arbitrator to resolve the
dispute arising between the parties and the same was
communicated to the respondent company with a
request to appoint an Arbitrator from the side of the
respondent Company. However, the respondent
Company did not respond to the said letter. As such,
the petitioner Company proceeded further in submitting
its case to Sri. S. Dhassaiya, Advocate, High Court of
Madras, who was appointed by it as an Arbitrator. The
said Sri. S. Dhassaiya, under his letter dated
30.12.2010, addressed to both the companies herein
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
16
stated that he has accepted his appointment as an
arbitrator under the mandate and entered his reference
in terms of the provisions of the Arbitration and
Conciliation Act, 1996. According to the said arbitrator,
and as could be seen from the records of the Arbitration,
submitted before us on 07.04.2013, he had issued
notice to both sides fixing the date of first hearing as on
10.05.2013. However, on the said date, due to the
alleged sudden demise of Arbitrator's mother, the
proceedings could not be held and the same was
adjourned to 20.07.2013. It can be further inferred
from the proceedings of the Arbitrator that on
20.07.2013, in the hearing, the respondent appeared
along with his Advocate who was also the General
Manager of respondent Company along with his
advocate Mr. Hegde. It is shown in the Arbitration
proceedings that on the said date, the respondent took
time to file their statement of defence and the matter
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
17
was adjourned. However, thereafter, neither they filed
their statement of defence, nor further participated in
the proceedings, as such, keeping the respondent
Company ex-parte, the matter was proceeded.
Receiving the affidavit filed by the petitioner and
marking the documents through the petitioner from
exhibits A1 to A38 and hearing the arguments from the
petitioner's side, the 2nd respondent Arbitrator by his
award dated 14.12.2013 allowed the petition and
directed the respondent to pay a sum of `1,48,66,068/-
to the petitioner together with subsequent interest at
the rate of 24% p.a. for the outstanding amount of
`97,80,308/- from January 2012 till its realisation
together with a sum of `25,000/- towards cost of
Arbitration.
10. The respondent herein challenged the said
award of the Arbitrator in the Court of the District and
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
18
Sessions Judge at Ballari under Section 34 R/w. Section
37 of the Act and Section 151 of the CPC, which was
numbered as Arbitration Appeal No.6/2014. The lower
Court records shows that the said Court, treating the
said petition before it as an Arbitration Application(Suit)
No.6/2014, by its judgment and decree dated
05.01.2015, dismissed the Arbitration Application(Suit)
No.6/2014. However, in the said judgment and decree,
it held that the respondent Company was liable to pay
the award amount of `97,80,308/- with interest at the
rate of 18% p.a. from January, 2012 till its realisation,
instead of 24% p.a. awarded by the Arbitrator. It is the
said judgment and decree of the Court below, the
respondent Company has challenged in MFA
No.101307/2015 and at the same time, petitioner
Company has also filed its Cross-objection
No.100134/2015, seeking for modification of the
judgment and award under appeal, by enhancing the
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
19
amount from `97,80,308/- to `1,48,66,068/- and also to
award interest at the rate of 24% p.a. from November
2009 till the date of actual payment.
11. In this matter, the first question among the
two important questions of law framed on the date
13.02.2017, is with respect to the stage of raising of
objection regarding the jurisdiction of the Sole
Arbitrator. For better analysis, the said question is
reproduced once again herebelow:
"i) Whether the objections about jurisdiction
of the Sole Arbitrator even though not raised
before the learned Arbitrator and learned
District Judge in the petition filed under
Section 34 of the Arbitration and Conciliation
Act, 1996 ('the Act', for short), can be so
raised for the first time before this Court or
not?"
In this regard, the learned Counsel for the
respondent M/s. Basai Steels Pvt. Ltd., drew the
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
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M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
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attention of this Court tos a paragraph in the judgment
of the Hon'ble Supreme Court, reported in AIR 1963 SC
90, in the case of Waverly Jute Mills Co. Ltd., and
Another Vs. Raymon & Co. (India) Pvt. Ltd, and
Another. The said paragraph is reproduced
hereinbelow:
"Now an agreement for arbitration is the
very foundation on which the jurisdiction of
the arbitrators to act rests, and where that is
not in existence, at the time when they enter
on their duties, the proceedings must be
held to be wholly without jurisdiction. And
this defect is not cured by the appearance of
the parties in those proceedings, even if that
is without protest, because it is well settled
that consent cannot confer jurisdiction. But
in such a case there is nothing to prevent
the parties from entering into a fresh
agreement to refer the dispute to arbitration
while it is pending adjudication before the
arbitrators, and in that event the
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
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M/s. Basai Steels Pvt. Ltd.
Vs.
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proceedings thereafter before them might be
upheld as referable to that agreement, and
the award will not be open to attack as
without jurisdiction. But it will make all the
difference in the result whether the parties
have entered into an arbitration agreement
as defined in Section 2(a) of the Arbitration
Act or have merely taken steps in the
conduct of proceedings assumed or believed
to be valid. In the former case the award will
be valid; in the latter, a nullity"
With great respect to the said decision, it is
submitted that in the facts and circumstances of the
present case, the same is not applicable for the reason
that in the case on hand, there is no dispute between
the parties regarding the existence of the Arbitration
Agreement.
12. The respondent M/s. Basai Steels Pvt. Ltd., in
its letter at Reference No.WO/BSPL/CIVIL/007/01/09-10
dated 02.04.2009, addressed to the petitioner
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M/s. Basai Steels Pvt. Ltd.
Vs.
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M/s.Gobins India Engineering Pvt. Ltd., while stating
about the Work Order and the Contract between them,
has also referred to and produced several documents
including "other terms and conditions" of their contract
at Annexure-V. Clause 29.0 of the said Annexure at
page 13, reads as below:
"29.0 Arbitration:
All disputes whatsoever arising between
parties, which cannot be settled through
mutual negotiations in good faith, shall be
settled by arbitration as per the provisions of
the Indian Arbitration and Conciliation Act,
1996, along with latest amendments."
This fact is not in dispute. As such, there is no
dispute regarding the existence of the Arbitration
Agreement between the parties and also the application
of the Act for the process of Arbitration.
13. Undisputedly, the respondent did not raise
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
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M/s. Basai Steels Pvt. Ltd.
Vs.
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any objection about the jurisdiction of the alleged sole
Arbitrator Sri. S. Dhassaiya, either before the said
Arbitrator under Section 16 of the Act, or before the
lower Court in its petition under Section 34 of the Act.
However, after hearing the argument from both sides
and going through I.A.1/2017, whereunder the
respondent M/s. Basai Steel Pvt. Ltd., has intended to
urge some additional grounds, it is clear that the said
applicant/respondent wanted to question the
appointment of the Arbitrator i.e., composition of the
Arbitral Tribunal, but not the power of the Arbitrator to
adjudicate the dispute that has been arisen between the
parties, it is because the very appointment of the
Arbitrator itself is not acceptable to the said respondent
Company, which has, in its argument canvassed that the
Arbitrator had no jurisdiction. It is also clear by the fact
that neither parties have disputed the existence of
dispute between them regarding the claim made by the
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M/s. Basai Steels Pvt. Ltd.
Vs.
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petitioner Company as against the respondent Company.
It is also not in dispute that an Arbitrator appointed as
per the Act shall have the power and jurisdiction to
decide the said dispute.
14. The above contention can further be
substantiated by further analysis of this point.
15. For the purpose of case on hand, the
meaning of the term 'jurisdiction' can be understood as
"the authority given by the Arbitration and Conciliation
Act, 1996, to an Arbitral Tribunal, to adjudicate disputes
and pass award in the matter, within the parameters of
Arbitration Agreement, including ruling on any
objections with respect to the existence or validity of the
Arbitration Agreement".
16. Section 16 of the Act reads as below:
"16. Competence of arbitral tribunal to rule
on its jurisdiction.
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1.The arbitral tribunal may rule on its own
jurisdiction, including ruling on any objections
with respect to the existence or validity of the
arbitration agreement, and for that purpose,-
a. an arbitration clause which forms part
of a contract shall be treated as an
agreement independent of the other
terms of the contract; and
b. a decision by the arbitral tribunal that
the contract is null and void shall not
entail ipso jure the invalidity of the
arbitration clause.
2. 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.
3. A plea that the arbitral tribunal is exceeding
the scope of its authority shall be raised as
soon as the matter alleged to be beyond
the scope of its authority is raised during
the arbitral proceedings.
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4. The arbitral tribunal may, in either of the
cases referred to in sub-section (2) or sub-
section (3), admit a later plea if it considers the
delay justified.
5. The arbitral tribunal shall decide on a plea
referred to in sub section (2) or subsection (3)
and, where the arbitral tribunal takes a decision
rejecting the plea, continue with the arbitral
proceedings and make an arbitral award.
6. A party aggrieved by such an arbitral award
may make an application for setting aside such
an arbitral award in accordance with section 34."
A reading of the above Section makes it clear that,
any challenge regarding the jurisdiction of the
Arbitration Tribunal has to be made before the said
Arbitration Tribunal by the party challenging the same.
According to the said Section 16(2) of the Act, a party is
not precluded from raising such a plea, merely because
he has appointed or participated in the appointment of
an Arbitrator, which clearly go to show that, a party who
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has appointed an Arbitrator must challenge the
jurisdiction of the Tribunal, which may be regarding lack
of power of the Arbitrator to deal with the dispute not
contemplated by or not falling within the terms of the
settlement to Arbitration, but not regarding the
appointment of the Arbitrator. It is for the said reason,
a separate provision is made under Section 34(2)(v) of
the Act, providing recourse to a Court against Arbitral
award challenging the composition of the Arbitral
Tribunal.
17. Therefore, it can be noticed that there is a
difference between questioning the jurisdiction of
Arbitral Tribunal under Section 16 of the Act and
challenging the award of the Arbitrator on the ground of
composition of the Arbitral Tribunal.
18. The learned counsel for the petitioner in his
argument relied upon two judgments, on the point of
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challenging the jurisdiction of the Arbitrator.
In Krishna Bhagya Jala Nigam and Others Vs.
G Harischandra Reddy and Another reported in
2005(2) KCCR 1489 (DB), regarding Section 16 of the
Act and the appellant before it not challenging the
jurisdiction of the Arbitrator at the appropriate time, the
Court was pleased to observe in para 20 and 21 of is
judgment as below:
"20. In the instant case, the appellant did not
raise the plea of lack of jurisdiction of the
Tribunal, in its defence. The objections were
only with regard to the merits of the claims
putforth by the claimant. Even if such a plea was
not taken in defence, it was open for the
appellant to challenge the Award on the said
ground under Section 34 of the Act. It is not
disputed that the plea of lack of jurisdiction was
not taken by the appellant either in CMP No.26
of 1999 before this Court or before the
Arbitrator nor before the Court below.
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21. In identical fact situation, a Co-ordinate
Division Bench of this Court in MFA No.3683 of
2000 in KSRTC Vs. M.Keshava Raju, dated
27.08.2013 wherein one of us SRNJ speaking to
the Bench observed thus:
"27. In the light of the above authoritative
pronouncement of the Apex Court, at this
distance of time, it will be totally unjust,
improper, and totally prejudicial to the
interest of the award-holder to permit
such plea being raised. Although sub-
section (2) of Section 16 contemplates
that, the plea with regard to jurisdiction
may be raised by a party even after
submission of statement of defence, in
order to entertain such plea, the
respondent shall show sufficient and
satisfactory cause, to raise such plea at a
belated stage. In the instant case, there is
total lack of explanation offered by the
appellant for not raising the jurisdictional
plea either before the Arbitrator or before
the Civil Court"."
In that case, with the said observation, along with
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some more observations on the other aspects of the
matter, the Court was pleased to dismiss the appeal.
19. The another case relied upon by the learned
counsel for the petitioner is Union of India Vs. M/s.
Pam Development Pvt. Ltd., reported in AIR 2014
SC (Supp) 770. In the said case, after observing that,
though the arbitrator was not named in Arbitration
Agreement, but was appointed by the Court, the said
order has remained unchallenged and has become final.
No objection as to lack of jurisdiction was raised even
before the Arbitrator. On the other hand, party
participated in the proceeding and filed defence
statement. Since he failed to challenge jurisdiction of
the Arbitrator under Section 16 of the Act, the Court
held that the party to be treated as deemed to have
waived his right to file objection. As such, the objection
raised thereafter held not tenable.
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20. Though these two decisions prima facie go to
show that the objections about the jurisdiction of the
Sole Arbitrator, if not raised before the learned
Arbitrator and before the Arbitration Court, thereafter,
under Section 34 of the Act, the same cannot be raised
for the first time, before this Court. Still, as already
observed above, the question in the instant case is not
regarding the jurisdiction of the Arbitrator to adjudicate
the nature of the dispute arisen between the parties and
the subject matter of the dispute, but the question being
the composition of the Arbitral Tribunal, which is alleged
to be unilateral by the petitioner, the important question
of law No.1 framed by us as above does not require to
be considered. However, the question regarding the
composition of the Arbitral Tribunal in the absence of
any express concurrence in writing, by the other party
to the dispute, since can be considered to the required
extent in question No.2 framed by us, we deem that, in
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the light of facts and circumstances of this case,
question number 1 merges in the analysis of question
No.2.
21. At the cost of repetition, second important
question framed by us after hearing both sides, is
reproduced once again hereinbelow:
"ii. Whether a party is bound to apply to
the High Court under Section 11 of the
Act, for appointment of the Arbitrator, in
case there is no express or implied
consent from the other party to the
contract about appointment of Sole
Arbitrator by one party and whether the
requirement of approaching the High
Court for appointment of the Arbitrator
under Section 11 of the Act can be
waived by the party in view of Section 4
of the Act?
22. Even though the appellant in the present
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appeal has raised several grounds, contending that,
belated entry of the arbitrator into reference is barred
by limitation and that Arbitrator's alleged letter dated
30.12.2010 giving consent for his appointment are
fabricated documents and that that M/s. Basai Steels
Pvt. Ltd., Company has been registered as a Sick
Industrial Company with the BIFR, New Delhi, but none
of those grounds were pressed in the argument of the
learned senior counsel for the appellant herein. On the
other hand, the only point which with more force and
vigor canvassed by the learned Senior Counsel
representing the appellant herein, was regarding the
composition of the Arbitral Tribunal.
23. It is the summary of the argument of the
learned Senior Counsel for the appellant herein that,
once the respondent M/s. Basai Steels Pvt. Ltd.,
Company (appellant herein) did not appoint the
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Arbitrator from its side, then the only recourse left open
to the other party to the arbitration was to approach the
Hon'ble Chief Justice of the High Court, through an
application seeking appointment of the Arbitrator. Since
he did not make any such application, on the other hand
unilaterally appointed the Arbitrator, the said
composition of the Arbitral Tribunal is void ab initio, and
as such, all further proceedings conducted by him and
the award passed by him is nullity. In his support, the
learned Senior Counsel relied upon few decisions of the
Higher Courts, which will be discussed at appropriate
stage.
24. On the other hand, learned counsel for the
petitioner Company (1st respondent herein), in his
argument submitted that the respondent Basai
Company, even after receipt of notice asking them to
appoint an Arbitrator, failed to name any Arbitrator from
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their side, as such, the petitioner was compelled to
appoint the respondent No.2 as the Sole Arbitrator. He
further submitted that the respondent Basai Company in
response to the notice issued by the 2nd respondent
Arbitral Tribunal, entered its appearance before the
Tribunal along with its counsel and participated in the
proceedings. Therefore, after participating in the
arbitration proceedings, since the award passed by the
Arbitral Tribunal has gone against it, now cannot
contend that the composition of Arbitral Tribunal itself is
bad in the eye of law, and as such, the award is a
nullity. He further argued that the act of the respondent
Basai Company in participating in the proceeding, has
resulted in waiver of its right. As such, the award of the
Tribunal is binding upon it. In his support, the learned
counsel also relied upon some of the decisions of the
Higher Courts, which will be referred at the appropriate
stage hereafterwards.
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25. As already observed above, the parties have
agreed to refer the matter to Arbitration according to
the Arbitration and Conciliation Act, 1996. The said
Arbitration clause, which is reproduced hereinabove,
does not mention the total number of arbitrators to be
appointed in case the dispute arises between the
parties. As such, according to Section 10(2) of the Act,
Arbitral Tribunal should consist of a Sole Arbitrator.
Though the letter of the petitioner Company dated
08.07.2010 which is mentioned above and written by
the petitioner Company to the respondent, appoints
respondent No.2, Sri. S. Dhassaiya, advocate, as its
Arbitrator and has called upon the respondent
M/s. Basai Company to appoint their Arbitrator, learned
counsels appearing for both the parties before us fairly
submitted in their argument that the appointment
should have been of a Sole Arbitrator. Admittedly, the
respondent M/s.Basai company, even after receipt of the
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said letter dated 08.07.2010, neither expressly
concurred with the appointment of respondent No.2 as
Sole Arbitrator, nor it named an arbitrator of its choice.
Highlighting this aspect, learned Senior Counsel for
appellant herein (respondent Basai Company) drew the
attention of this Court to Section 11 of the Act and more
particularly, to Sections 11(5). Sections 11(1) to 11(6)
of the Act are reproduced hereinbelow:
"11. Appointment of arbitrators. -
(1) A person of any nationality may be an
arbitrator, unless otherwise agreed by
the parties.
(2) Subject to sub-section (6), the parties are
free to agree on a procedure for
appointing the arbitrator or arbitrators.
(3) Failing any agreement referred to in
sub-section (2), in an arbitration with
three arbitrators, each party shall
appoint one arbitrator, and the two
appointed arbitrators shall appoint the
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third arbitrator who shall act as the
presiding arbitrator.
(4) If the appointment procedure in sub-
section (3) applies and -
(a) A party fails to appoint an
arbitrator within thirty days from the
receipt of a request to do so from the
other party; or
(b) The two appointed arbitrators fail
to agree on the third arbitrator within
thirty days from the date of their
appointment,
the appointment shall be made, upon
request of a party, by the Supreme
Court or, as the case may be, the High
Court or any person or institution
designated by such Court.
(5) Failing any agreement referred to in
sub-section (2), in an arbitration with
a sole arbitrator, if the parties fail
to agree on the arbitrator within
thirty days from receipt of a
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request by one party from the
other party to so agree the
appointment shall be made, upon
request of a party, by Supreme Court, or
as the case may be the High Court any
person or institution designated by such
Court..
(6) Where, under an appointment procedure
agreed upon by the parties, -
(a) A party fails to act as required under
that procedure; or
(b) The parties, or the two appointed
arbitrators, fail to reach an agreement
expected of them under that procedure; or
(c) A person, including an institution,
fails to perform any function entrusted
to him or it under that procedure,
A party may request the Supreme
Court, or as the case may be the High
Court any person or institution
designated by such Court, to take the
necessary measure, unless the
agreement on the appointment
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procedure provides other means for
securing the appointment."
6(A) The Supreme Court, as the case may
be, the High Court, while considering any
application under sub-section(4) or sub-
section (5) or sub-section(6), shall,
notwithstanding any judgment, decree or
order of any Court, confine to the
examination of the existence of an
arbitration agreement.
6(B) The designation of any person or
institution by the Supreme Court or, as
the case may be, the High Court, for the
purpose of this section shall not be
regarded as a delegation of judicial power
by the Supreme Court or the High Court.
The Arbitration Clause agreed to between the
parties as already reproduced above, reads thus:
"29.0 Arbitration:
All disputes whatsoever arising between
parties, which cannot be settled through
mutual negotiations in good faith, shall be
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settled by arbitration as per the provisions of
the Indian Arbitration and Conciliation Act,
1996, along with latest amendments."
From the said Arbitration clause, it is clear that the
parties have not agreed for any particular procedure for
appointing the Arbitrator keeping the application of the
Act away for the purpose. As such, the appointment of
the Sole Arbitrator must be with the concurrence from
both sides.
26. If the parties fail to agree on the arbitrator
within 30 days, from the receipt of request by one party
to the other party to so agree, the appointment shall be
made upon a request of a party by the Supreme Court
or the High Court, as the case may be. This is very clear
in Section 11(5) of the Act. In the instant case, even
after receipt of the notice dated 08.07.2010, the
respondent Company did not choose to appoint the
Arbitrator. According to the learned Senior Counsel for
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the appellant herein, after 30th day of the said letter, the
petitioner Company should have made an application to
the Chief Justice of the High Court of Karnataka under
Section 11(5) of the Act, seeking for appointment of an
Arbitrator. Since he failed to do it, the entire proceeding
conducted by the Arbitral Tribunal and the award passed
by it are null and void. In his support, the learned
Senior Counsel relied upon three judgments of the
Higher Courts, firstly M/s. Zenith Fire Services
(India) Pvt. Ltd., Vs. Charmi Sales, Arbitration
Petition No.379/2012 dated 07.01.2013
(unreported). In this judgment, learned Single Judge
of the High Court of Judicature at Bombay, has observed
that mere appointment of an Arbitrator by one party,
when it was not a mutual appointment, that itself is not
sufficient to treat it as a valid appointment of an
Arbitrator. It further held, the mutual consent is must,
even otherwise to appoint a Sole Arbitrator.
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27. The second case relied upon by the learned
Senior Counsel for the appellant herein is National
Small Industries Cropn. Ltd. Vs. National Metal
Craft & Others, reported in ILR 1989, DEL 1100. In
the said case, after considering the fact before it, the
learned Single Judge of Delhi High Court was pleased to
conclude that the respondent therein by themselves
cannot appoint a Sole Arbitrator, nor does the appointee
become Sole Arbitrator because the petitioners did not
concur in his appointment. With this, the appointment
of such arbitrator was set aside by the Court.
28. The third case relied upon by the learned
Senior Counsel for the appellant herein is Dharma
Prathishthanam Vs. Madhok Constructions (P)Ltd.,
reported in (2005) 9 SCC 686. In the said case, with
respect to Sections 8, 9, 20, 14, 14(2), 14(4), 14(5), 17
and 30 of the Act, the Hon'ble Apex Court was pleased
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to observe that reference to a Sole Arbitrator as
contemplated under part I of the First Schedule has to
be a consensus reference and not an unilateral reference
by one party alone, to which the other party does not
consent. One party cannot usurp jurisdiction of the
Court and proceed to act unilaterally. Since one party
cannot force its choice of arbitrator and/or making of
reference on the other, the only solution is to seek
appointment from the Court. With this observation, the
Hon'ble Apex Court was pleased to hold the appointment
of Arbitrator and ex-parte proceedings and the award
passed by the Tribunal as void ab initio, as such a
nullity.
29. The above three decisions prima facie give an
impression that a party to a dispute cannot appoint a
Sole Arbitrator by himself, but he has to make an
application to the Chief Justice seeking appointment of
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an Arbitrator.
30. At this juncture, it was also the argument of
the learned Senior Counsel for the appellant that it was
for the petitioner Company, which appointed the
respondent No.2 as the Arbitrator, to make such an
application to the Chief Justice seeking appointment of
Arbitrator. Therefore, before proceeding further on the
issue whether non-making of such an application under
Section 11(5) of the Act to the Chief Justice, would
annul the appointment of Sole Arbitrator respondent
No.2 and secondly, the award passed by the said
Tribunal, it is desirable to meet the contention of the
learned Senior Counsel for the appellant that it was only
the petitioner Company which should have made such
an application to the Chief Justice.
31. The learned Senior Counsel for the appellant
herein, while submitting the case of Dharma
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Prathishthanam (supra), drew the attention of this Court
to Section 8(2) of the Arbitration Act, 1940. For easy
reference, relevant part of the said Section 8 of the
Arbitration Act, 1940 is reproduced hereinbelow:
"8. Power of Court to appoint arbitrator
or umpire- (1) In any of the following cases, -
(a) where an arbitration agreement provides
that the reference shall be to one or more
arbitrators to be appointed by consent of the
parties, and all the parties do not, after
differences have arisen, concur in the
appointment or appointments; or
(b) if any appointed arbitrator or umpire
neglects or refuses to act, or is incapable of
acting, or dies, and the arbitration agreement
does not show that it was intended that the
vacancy should not be supplied, and the parties
or the arbitrators, as the case may be, do not
supply the vacancy; or
(c) where the parties or the arbitrators are
required to appoint an umpire and do not
appoint him;
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any party may serve the other parties or the
arbitrators, as the case may be, with a written
notice to concur in the appointment or
appointments or in supplying the vacancy.
(2) If the appointment is not made within fifteen
clear days after service of the said notice, the
court may, on the application of the party who
gave the notice and after giving the other
parties an opportunity of being heard, appoint
an arbitrator or arbitrators or umpire, as the
case may be, who shall have like power to act in
the reference and to make an award as if he or
they had been appointed by consent of all
parties".
32. The learned Senior Counsel emphasized the
word, 'the party' in Section 8(2) of the saids Act and
submitted that, as such, it was the petitioner Company
M/s. Gobins India Engineering Pvt. Ltd., should have
made such an application. We notice the fact that the
Arbitration Agreement between the parties in the
present case refers not to the repealed Arbitration Act,
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1940, but the Arbitration and Conciliation Act, 1996.
Corresponding Section to the Section 8 of the Act of
1940 in the Act of 1996 is Section 11. As already
reproduced above, Section 11(5) of the Act mentions
that, where the party fails to agree on the appointment
of a Sole Arbitrator, the appointment shall be made
upon a request of a party, by the Supreme Court or as
the case may be, the High Court (emphasis supplied by
us). As such, it is clear that it is not necessarily the
party who has suggested the name of an arbitrator
alone, to go to the Chief Justice under Section 11(5)
seeking appointment of the Arbitrator, on the contrary,
It is a party, which means either of the party to the
dispute can make an application to the Chief Justice.
Therefore, the second argument of the learned counsel
for the appellant that it was incumbent upon the
petitioner Gobins Company and it alone should have
approached the Chief Justice, is not acceptable.
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33. After clarifying the above aspect as to who
has to approach the Court in case of necessity, now to
proceed further on the main question regarding the
mandatory application for approaching the Court under
Section 11(5) of the Act is concerned, some more
rulings of the High Courts relied on by the learned
counsel for the respondent herein (petitioner Company)
and of those, which has come to our notice also requires
to be considered.
34. P.C. Markanda, in his book law relating to
Arbitration and Conciliation 6th edition, reprint 2007,
Wadhwa and Company Nagpur publication, at page 299,
after relying upon the judgment in Precision Engineering
Vs. Delhi Jal Board, reported in 2003 (1) Arb LR
606(Del), was pleased to observe as below:
" If an arbitrator has already been appointed by
the opposite party and the petitioner files an
application under this section, without disclosing
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the factum of an arbitrator already being in
position, and the court makes the appointment,
the court can recall its order and cancel its
earlier order. In addition, if the petitioner
chooses to appear before the arbitrator,
appointed by the opposite party, without any
reservation or protest, he shall be deemed to
have waived his right under section 4 of the Act
to object to the appointment of the earlier
arbitrator."
35. In Narayan Prasad Lohia Vs. Nikunj
Kumar Lohia and Others, reported in AIR 2002 SC
1139, our Hon'ble Apex Court, while discussing the
scope of Sections 4, 10, 16 and 34 of the Act, was
pleased to hold that the objection as to composition of
Arbitral Tribunal not taken before Arbitral Tribunal itself,
or within time prescribed under Section 16(2), there will
be a deemed waiver of objection under Section 4, the
award so passed by Arbitral Tribunal cannot be set aside
under Section 34(2)(a)(v) because composition of
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Tribunal was in accordance with the agreement between
the parties.
36. The second judgment relied upon by the
learned counsel for the appellant herein is of M/s. Gas
Authority of India Ltd., and Another Vs. M/s. Keti
Construction(I) Pvt. Ltd., reported in AIR 2007 SC
378, wherein with respect to Sections 11 and 34 of the
Act, the Hon'ble Apex Court was pleased to observe in
paragraph Nos.18, 19, and 20 as below:
" 18. The whole object and scheme of the Act is to
secure an expeditious resolution of disputes.
Therefore, where a party raises a plea that the
arbitral tribunal has not been properly constituted
or has no jurisdiction, it must do so at the
threshold before the arbitral tribunal so that
remedial measures may be immediately taken
and time and expense involved in hearing of the
matter before the arbitral tribunal which may
ultimately be found to be either not properly
constituted or lacking in jurisdiction, in
proceedings for setting aside the award, may be
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avoided. The commentary on Model Law clearly
illustrates the aforesaid legal position.
19. Where a party has received notice and he
does not raise a plea of lack of jurisdiction before
the arbitral tribunal, he must make out a strong
case why he did not do so if he chooses to move a
petition for setting aside the award under Section
34(2)(v) of the Act on the ground that the
composition of the arbitral tribunal was not in
accordance with the agreement of the parties. If
plea of jurisdiction is not taken before the
arbitrator as provided in Section 16 of the Act,
such a plea cannot be permitted to be raised in
proceedings under Section 34 of the Act for
setting aside the award, unless good reasons are
shown.
20. Though respondent no.1 had ample
opportunity to appear before Justice N.N.
Goswami (Retd.) and raise a plea of jurisdiction to
the effect that he had been wrongly appointed as
arbitrator by appellant no.1, yet, it chose not to
do so. This feature of the case weighs heavily
against respondent no.1. The learned Single
Judge has taken this fact as an additional ground
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for rejecting the petition filed by respondent no.1
under Section 34 of the Act and we are in
agreement with the said view."
With the above observation, the Hon'ble Supreme
Court was pleased to allow the appeal with cost
throughout and the judgment and order of the Division
Bench of the High Court was set aside. Further, the
order dated 20.10.2003 of the learned Single Judge,
dismissing the petition under Section 34 of the Act was
confirmed.
37. The third case relied upon by the appellant
herein is Bharat Sanchar Nigam Ltd., Vs. Motorala
India Pvt. Ltd., reported in AIR 2009 SC 357,
wherein our Hon'ble Apex Court was pleased to observe
that the party, who knows that a requirement under
Arbitration Agreement has not been complied with and
still proceeds with the Arbitration without raising an
objection as soon as possible, waives his right to object.
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38. Another case relied upon by the learned
counsel for the appellant herein is, Bharat Petroleum
Corporation Limited Vs. Great Eastern Shipping
Company Ltd., reported in AIR 2008 SC 357(1). In
the said case, regarding the question of existence of an
Arbitration Agreement between the parties under
Section 7 of the Act, the Hon'ble Supreme Court
imparted principles of agreement in sub silentio initiated
under Section 8 of the Indian Contract Act, 1872 and
was pleased to observe that offerree's silence in certain
circumstances coupled with his conduct takes form of
positive act, which may constitute acceptance and
agreement in sub silentio. Therefore, terms of contract
between the parties can be proved not only by their
words, but also by their conduct.
39. In the light of the above decisions, it can be
inferred that the respondent Company M/s. Basai Steels
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Pvt. Ltd., after receiving intimation regarding
appointment of the Arbitrator, by respondent No.2,
appeared before the said Arbitrator. Though learned
Senior Counsel for the said respondent Company
(appellant herein) in his argument submitted that the
General Manager of the said Company, who himself is an
advocate, appeared before the Arbitrator, but he did not
participate in the proceeding, but only was watching the
proceedings, the same cannot be accepted.
40. The lower Court records placed before us,
which also includes in its, the Arbitration record, shows
the proceedings recorded by the Arbitrator. Those
documents have also been filed by the respondent
herein along with its typed copies. One such document
is a letter dated 30.05.2013 written by one Sri.
Manjunath Hegde, advocate from Ballari to the second
respondent - Arbitrator. The said letter reads as below:
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MANJUNATH HEGDE BELLARYBAR ASSOCIATION
District Court Compound
Bellary, Karnataka
______________________________________
Date: 30.05.2013
To,
Sri S.Dhassaiya
Advocate,
High Court, Madras
Office: No.228, 1st Floor,
N.S.C.Bose Road,
CHENNAI - 600 001
Sir
In pursuance of your letter Dated
07/04/2013 issued in arbitral proceeding vide
No.GIE BSPL/101/2010-11,Dtd: 08.07.2010
against to my client M/s Basai Steels (P) Ltd.,
Door No.59, D/1,Parvathinagar, 3rd Main Road,
Bellary.
In accordance with your letter myself and
my client were appeared before "pola Paradise
Hotel, Bellary" on: 10.05.2013 at 10.15 Hrs.
On the same day your goodselves was
absent and myself and my client were waiting
about your arrival since the day.
Thanking you,
Yours faithfully,
Sd/-
Advocate Bellary
The above letter shows that in response to the
notice of hearing sent by the Arbitrator (2nd
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respondent), the appellant herein responded and
appeared before it. The further proceeding records of
the Arbitrator shows that, on the date 20.07.2013, the
appellant herein M/s. Basai Company appeared before
the Arbitrator. The said document of the Arbitration
Proceeding is reproduced hereinbelow:
S. DHASSAIYA Office:
Arbitrator. 228, 1st Floor,
NSC Bose Road
Chennai - 600 001
PROCEEDINGS BEFORE THE SOLE ARBITRATOR
S. DHASSAIYA
HELD ON 20.07.2013 BETWEEN 10.30 AND
11.30 AM AT BELLARY
POLA PARADISE HOTEL
A.C.P. (GOBINS) NO.1 OF 2013
In the matter of Arbitration
and Conciliation act 1996
And
In the matter of Disputes
and differences between
M/s Gobins India Engineering Pvt. Limited
and M/s Basai Steels Pvt. Ltd.
M/s. Gobins India Engineering Pvt. Ltd.,
Gobins, 92, MIG II Colony,
Netaji Nagar, Near Vasavi School,
Bellary - 583 104 ... Claimant
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Vs.
M/s. Basai Steels Pvt. Ltd.,
Door No. 59, D/1
Parvathi Nagar,
3rd Main Road
Bellary - 583 101 ... Respondent
The Claimant appeared at 10.30 AM along
with his authorized person Mr. M.Apparao,
advocate, he submitted the claim petition.
The authorized person for the respondent
M/s Basai Steels Pvt. Limited one Mr. Hegde
Advocate rang up me at 10.04 hrs and sought
for half an hour time. I permitted, but till 11.10
AM he did not appeared.
I called the respondent, No representation,
neither the party nor the authorized person
appeared, hence respondent called absent and
set exparte.
Hence the claimant side, and the matter is
adjourned and posted for exparte evidence.
But at the time the G.M. of the respondent
company along with his authorized person
Mr. M.Hegde appeared, and a copy of the
petition was given to the authorized person Mr.
M.Hegde, advocate. He took time for filling
counter/reply.
Hence today's proceedings over. The next
hearing date will be communicate separately.
Possible on 20.08.2013.
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sd/-(M.Apparao) sd/-(20.07.2013)
Authorized person for Claimant S.DHASSAIYA
Sd/-Binu.S.Gopinath (Sole Arbitrator)
Sd/-(M.Hegde)
Authorized Person for Respondent
Sd/- (Srinivas Rao, G.M.)
41. From the above record, it is clear that for the
second time before the Arbitrator, the present appellant
Company through its General Manager appeared
accompanied by its advocate. It was not only a mere
appearance, but also it received a copy of the Arbitration
Petition and prayed for time to file its counter/reply.
This fact makes it very clear that, even after the
appellant herein noticing that the appointment of Sole
Arbitrator by the present 1st respondent (petitioner
Company) unilaterally, still it appeared before the
Arbitrator. The said Company did not mere watched the
proceedings, but it collected the Arbitration Petition copy
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and prayed for time to file its objection and was
succeeded in getting time in filing its statement of
objection. The said act of the present appellant
(respondent Company before the Arbitrator) cannot be
called a mere watching the proceedings, on the other
hand, it is a participation by the said Company in the
Arbitral proceedings. Therefore, the said respondent
M/s. Basai Steels Pvt. Ltd., having knowledge of the fact
that the petitioner Company has not followed the
requirement under Section 11 of the Act, in seeking
appointment of the Sole Arbitrator by the Chief Justice
still derogated the same by participating in the
proceeding before the Arbitrator, which according to it,
was unilaterally appointed by the petitioner Company.
As such, by its conduct and participation in the
proceeding and also not challenging the composition of
the Arbitral Tribunal, either by filing its defence before
the Arbitrator with such an objection or by raising such a
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contention before the lower Court in its Arbitration
Application (Suit) No.6/2014, thus has waived its right
to object and as such, now it cannot say that the entire
Arbitral proceedings and the award passed by the
Arbitral Tribunal is void ab initio, as such it is a nullity.
42. Therefore, in this background and in the light
of the unique facts and circumstances of the case, we
answer the second important question framed in this
matter in the affirmative holding that the requirement of
approaching the High Court for appointment of the
Arbitrator under Section 11 of the Act can be waived by
the party in view of Section 4 of the Act, since not
approaching the High Court has not proved to be fatal to
the case and in the light of peculiar facts and
circumstances of the case.
43. In the light of our answer to the important
questions of law framed by us, the only contention and
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the main contention of the present appellant herein that
the composition of the Arbitral Tribunal by the so called
unilateral appointment of the Arbitrator by the present
1st respondent Company, the entire proceeding would
become a nullity, is not acceptable.
44. Therefore, on the sole ground canvassed by
the appellant, MFA No.101307/2015 filed by M/s. Basai
Steels Pvt. Ltd., does not deserve to be allowed.
45. The respondent No.1 M/s.Gobins India
Engineering Pvt. Ltd., has filed its cross-objection in MFA
Crob.No.100134/2015. In the Cross-objection, the only
contention of the Cross-objector (petitioner Company) is
that, the Court below has mistook that a sum of
`46,00,000/- paid was not deducted by the Arbitrator
while passing the award. As such, it erroneously came
to a conclusion that the respondent M/s. Basai Company
was liable to pay the award amount of `97,80,308/-. It
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is its another contention that reduction in the rate of
interest from 24% p.a. to 18% p.a. was also not called
for.
46. The present appellant, who is the respondent
in the cross-objection, has not chosen to file its
statement of objection or reply to the cross-objection.
As such, the contention of the Cross-objector has
remained uncontroverted from the respondent
Company. Moreover, even in his argument also, learned
Senior Counsel for the present appellant did not address
his argument on the Cross-objection, whereas, the
learned counsel for the Cross-objector (1st respondent in
the appeal) in his argument, relied upon two decisions of
the Higher Courts and submitted that the cross-
objection deserves to be allowed.
47. A perusal of the award go to show that the
principal amount claimed was `97,88,307/- and
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accepting the calculation of the interest at the rate of
24% upon it, which was the rate of interest agreed
between the parties and which amount came to of
`50,85,760/- , the Arbitral Tribunal proceed to pass the
award for a total sum of `1,48,66,068/- (`97,80,308 +
50,85,760).
48. It appears, the Court below wrongly took the
awarded amount as of `1,43,80,308/- and further took
that the sum of `46,00,000/- was paid after the award
and has arrived at a figure of `97,80,308/- and ordered
for its payment. A perusal of the Arbitration award and
documents produced therein go to show that the said
amount of `46,00,000/- was already given as deduction
prior to passing of the Arbitral Award, as such, giving
deduction once again for the said amount was not called
for.
49. In M/s. Hyder Consulting (UK) Ltd. Vs.
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Governor, State of Orissa through Chief Engineer,
reported in AIR 2015 SC 856, the Hon'ble Apex Court
while dealing with Section 31(7) of the Arbitration and
Conciliation Act, 1996, was pleased to observe in the
concurrent judgment of Hon'ble Justice A. M. Sapre, as
below:
"Once the interest is 'included in the sum' for
which the award is made, the original sum and
the interest component cannot be segregated
and be seen independent of each other. The
interest component then loses its character of
an 'interest' and takes the colour of 'sum' for
which the award is made. Therefore, the
amount awarded under Section 31(7)(a) of the
Act, whether with interest or without interest,
constitutes a 'sum' for which the award is
made."
In the very same judgment at para 59, the Hon'ble
Apex Court was further pleased to observe as below:
"59. ...............................once the interest amount
is within the physical and actual possession of
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the party so entitled to it, only then could the
interest amount be said to have merged with the
principal amount. Therefore, in the present
scenario, the appellants would not be entitled to
claim post-award interest on the aggregate of
the principal amount and interest pendente lite,
since the said aggregate sum was not in the
actual physical possession of the appellants
herein. Further, I take note that sub-section (7)
of section 31 of the Act, 1996, neither makes
reference to compounding of interest, nor to
awarding interest on interest."
50. From the above, it is clear that the sum
would mean a sum arrived at after merging of interest
with principal, which means the sum would be inclusive
of interest pendente lite.
51. In Bhagawati Oxygen Ltd., Vs. Hindustan
Copper Ltd., reported in AIR 2005 SC 2071, the
Hon'ble Apex Court was pleased to hold that Section 34
of the Civil Procedure Code has no application to
Arbitration proceeding. However, it was within power of
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arbitrator to award interest for all the three stages, i.e.,
during pre-reference, pendente lite and post award
period. In the instant case, the Arbitral Tribunal had
awarded the interest at the rate of 24% p.a. However,
the Court below reduced the said rate of interest to 18%
p.a. Except stating that the said rate of 24% p.a. is on
the higher side, the Court below has not attributed any
reasons for it reducing the rate of interest. Admittedly,
the transaction between the parties is a commercial
transaction. The Arbitral Tribunal in its award has made
a specific observation that the respondent has
categorically agreed that, if the bills were not settled
within the stipulated period, the petitioner/claimant was
entitled to collect interest at the rate of 24% p.a., since
the transaction is commercial in nature.
52. Admittedly, the respondent before the
Arbitral Tribunal, though entered appearance, neither
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filed its defence, nor produced any document showing
the agreed rate of interest. As such, the finding of the
Arbitral Tribunal regarding the rate of interest is
remained uncontroverted. Moreover, even in this appeal
before us also, the learned Senior Counsel for the
appellant did not canvas his arguments on the point of
rate of interest awarded by the Tribunal. As such, the
awarded amount shown at of `97,80,308/-, in the
judgment of the Court below requires to be modified and
to be fixed at of `1,48,66,068/-. Similarly, the rate of
interest reduced by the Court below in the impugned
order from 24% p.a to 18% p.a. also requires to be
modified and the rate of interest is to be reinstated at
24% as awarded by the Arbitral Tribunal. As such, MFA
Crob.No.100134/2015 is required to be allowed.
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Per Dr.Vineet Kothari, J. (Concurring):
53. While concurring with the views expressed by
my brother Justice Sastry, I may add a small concurring
note.
54. The Arbitration and Conciliation Act, 1996,
based on UNCITRAL Model Law is a marked departure
from the earlier Arbitration Act, 1940 and the very
purpose of this new enactment as amended in last
recently by Amendment Act of 2015 (Act No.3 of 2016)
is to expedite the dispute resolution through this
important change of Alternative Disputes Resolution
System and it was brought about to curtail the
intervention of the Courts to the minimum, while giving
priority and precedence to the agreement between the
parties to the contract to resolve their inter-se disputes
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through the mechanism of arbitration on all procedural
matters for finalising such arbitration process.
55. The said marked distinction between the new
Arbitration Act, 1996 from the erstwhile Act of 1940 is
reflected in almost all the provisions of the new Act and
the provisions of the new Act which concerns the
controversy before us in the present case is in Section
11 of the new Act.
56. While in parallel Section 8 of the old 1940
Act, "the party who gives notice for appointment of an
arbitrator" was required to approach the Court for
appointment of Arbitrator, if the other party did not
agree, in a significant departure, in Section 11 of the
new Act of 1996, the words "The Party" was
substituted by the words "A party". This change for
obvious and avowed purpose was to let the party who
does not agree with the appointment of the Sole
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Arbitrator and parties cannot agree on the name
suggested by the other party is required to approach the
High Court or the Supreme Court, as the case may be,
for the appointment of an Arbitrator.
57. The mandate under Section 11(5) of the Act
is on the Court to appoint Arbitrator upon a request of
either of the parties but, compulsion is not on the
particular party to the contract to seek such
appointment of Arbitrator. The words used in Section
11(4) of the Act, "upon request of a party", by the
Supreme Court, or as the case may be, the High Court,
such appointment shall be made, clearly shows that a
party to the contract who is unable to agree to the
appointment of an Arbitrator can approach the Court for
appointment of an Arbitrator. The limited role of the
Court is to appoint Arbitrator upon such request made,
while leaving it absolutely free for the parties
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themselves at an earlier stage to finalise such
appointment. Under the old Act, it was clear who is to
approach the Court for appointment (the party who gave
the notice for appointment), whereas under the new Act,
it is left free for any of them to seek such appointment
in case they cannot agree on the given name(s) before-
hand.
58. It would be incongruous and unreasonable to
bind down the party who suggests a name or appoints
Sole Arbitrator from his side to still seek an appointment
through Court Process under Section 11(5) of the Act,
even though the other party remains silent or does not
object to such appointment. The language of Section
11(5) of the Act does not mandate him to do so. On the
contrary, the party who may not agree to such name or
intends to object to it should do so and seek
appointment of Arbitrator through Court process by filing
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application under Section 11(5) of the Act. That appears
to be a more purposeful interpretation of the new
provision of Section 11 under 1996 Act. The party
appointing a Sole Arbitrator as is permitted under
Section 10 of the Act, unless otherwise indicated in the
Agreement between the parties is not expected to wait
endlessly for the other party to either object to such
appointment or approach the Court under Section 11 of
the Act for appointment of Arbitrator. If within a
reasonable period, the other party neither raises any
objection to the appointment or suggested name of an
Arbitrator, such other party should be deemed to have
waived or given up his objections with regard to the
same, like in the present case. His submitting to the
jurisdiction of the Arbitrator appointed by another party
and participation in such arbitral proceedings can further
establish his acquiescence in the matter or waiver of
such objections, as it has happened in the present case.
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Such an objector, having not objected and having
participated in the arbitration proceedings although to
limited extent and then allowing an exparte Award
against him by not further participating, cannot be
permitted to raise the bogie of illegal appointment of
Arbitrator or later on, calling it to be a void ab-initio
Award. Such a plea is contrary to the Scheme of the
new Act in the process of appointment and composition
of the Arbitral Tribunal under Section 16 of the Act of
1996, which stipulates that such objection should be
raised at the initial stage itself.
59. Section 10 of the new Act also clearly
provides that the Arbitral Tribunal shall consist of a Sole
Arbitrator, unless the parties agree to any other number
of arbitrators which shall not be an even number,
obviously to avoid a tied up award.
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60. In the present case, the arbitration clause
No.29 of the contract clearly provided for application of
new Act of 1996 and therefore, the reliance placed upon
by the learned counsel for the petitioner on the
judgment of the Hon'ble Supreme Court in the case of
Dharma Prathishthanam Vs. M/s.Madhok
Construction Private Limited, 2005 (9) SCC 686
dealing with the provisions of Old 1940 Act, was rather
misplaced. The said decision is not applicable under the
new Act of 1996 in view of the significant change of
Scheme of appointment of Arbitrator through the Court
process under the new Act of 1996.
61. The contesting appellants before us Basai
Steels & Power Private Limited, the Awarder of the
contract in favour of the contractor, Gobins Engineering
Private Limited, not only did not raise any objection
about the appointment of Sole Arbitrator by the
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respondent, but acquiesced to his appointment by
participating in the arbitration proceedings twice over
and while asking for time to file the written
statement/objections but, thereafter chose, for the
reasons best known to it, to abstain and remain exparte
in such arbitration proceedings. This conduct of the
appellant clearly amounted to waiver of its rights in
terms of Section 4 of the new Act of 1996.
62. After the Award being passed by the Sole
Arbitrator against it and dismissal of its application in
Section 34 of the Act for setting aside of the Award,
which lies in a narrow compass and on limited grounds
specified in Section 34 itself, for the first time, the said
party chose to raise this objection of jurisdiction of
Arbitrator before us in the present appeals, which has no
merit at all.
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
77
63. The said appellant not only should be deemed
to have waived and given up its objection, but it is just a
futile effort on its part to oppose the Arbitral Award
upheld at the hands of the Court below while rejecting
its application under Section 34 of the Act, by raising a
wholly unsustainable bogie of lack of jurisdiction of
Arbitrator at this stage and labeling the Arbitral Award
as void ab initio.
64. A comprehensive review of the relevant case
laws undertaken by my brother Judge, have rightly been
deployed to repel such a contention on the part of the
appellant and questions of law framed in the said matter
have been rightly answered against the appellant and in
favour of the respondent contractor. The Award as
modified deserves to be executed immediately.
65. In view of the above reasoning, we proceed
to pass the following order:
Date of Judgment 25.04.2017 MFA No.101307/2015(AA)
C/w. MFA Crob.100134/2015
M/s. Basai Steels Pvt. Ltd.
Vs.
M/s. Gobins India Engineering Pvt.Ltd. & Another
78
ORDER
MFA No.101307/2015 is dismissed. MFA Crob.No.100134/2015 is allowed. The judgment and decree passed by the Court of Principal District Judge, at Ballari in Arbitration Application (Suit) No.6/2014 dated 05.01.2015, is modified to the effect that the 1st respondent M/s. Basai Steels Pvt. Ltd., is held liable to pay the award amount of `1,48,66,068/- together with interest at the rate of 24% p.a. from January 2012 till its realisation, to the Cross-objector M/s. Gobins India Engineering Pvt. Ltd., There is no order as to costs.
Sd/-
JUDGE Sd/-
JUDGE gab/- (HBPSJ) RK/- (VKJ)