Orissa High Court
Udayanath Rout vs Paradip Port Trust on 4 March, 2016
Equivalent citations: AIR 2016 ORISSA 71, (2016) 1 ORISSA LR 885 (2016) 122 CUT LT 272, (2016) 122 CUT LT 272
Author: S.C. Parija
Bench: S.C. Parija
HIGH COURT OF ORISSA: C U T T A C K
ARBA NO. 29 OF 2012
In the matter of an application under Section 37 of the Arbitration
and Conciliation Act, 1996.
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Udayanath Rout .... .... Appellant
-Versus-
Paradip Port Trust .... .... Respondent
For Appellant : M/s V.Narasingh,
S.K.Senapati
And S.Das
For Respondent : M/s. S.D.Das, Sr.Advocate,
with M.M.Swain, S.Biswal,
H.K.Behera & H.P.Mohanty,
Advocates.
PRESENT :
THE HONOURABLE SHRI JUSTICE S.C. PARIJA
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Date of Judgment : 04.3.2016
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S.C.PARIJA, J.This appeal under Section 37 of the Arbitration and Conciliation Act, 1996, is directed against the order dated 21.3.2012, passed by the learned District Judge, Cuttack, in Arbitration Petition No.202 of 2008, setting aside the award passed by the sole Arbitrator, in exercise of power under Section 34 of the said Act.
2. The brief facts of the case is that the Paradip Port Trust ("PPT" for short)-respondent floated a tender for execution of the work "Pitching of side slope from the Oil Jetty by the North side of approach 2 channel", in which the appellant was a bidder. In the said bid, the appellant being the lowest tenderer, PPT-respondent awarded him the work by executing an agreement with him, containing the terms and conditions for execution of the work. The subsequent agreement executed between the parties on 26.6. 2001 provided that neither of the parties shall be competent to resort to arbitration under the Arbitration and Conciliation Act, 1996, for adjudication of the claim and no suit or claim shall be brought in any place outside the State of Orissa. The total value of the work was Rs.79,54,162/- and the work, which commenced on 07.5.2001 was required to be completed on 06.11.2001. The aforesaid period of completion of work was subsequently extended, but the appellant without completing the work left the said work. In view of the same, the PPT rescinded the contract and floated a fresh tender at an additional cost of Rs.38,38,310/-. Subsequently, PPT filed a money suit against the appellant before the learned Civil Judge (Senior Division), Jagatsinghpur, for recovery of the additional cost incurred in completion of the work amounting to Rs.37,64,239/-, after deducting the security amount with 10% interest, which was registered as Money Suit No.1 of 2004. While the said suit was pending between the parties, the appellant-contractor filed an application before this Court under Section 11(6) of the Act, 1996, for appointment of an Arbitrator, which was registered as Arbitration Petition No.19 of 2004. The said application of the appellant was disposed of by the Chief Justice of this Court vide order dated 14.7.2006, appointing Shri Bibudhendra Mishra, Senior Advocate, as the sole Arbitrator.
3. The appellant-contractor filed his claim statement before the learned Arbitrator, claiming an amount of Rs.51,17,729.68 paise towards loss and compensation, with interest at the rate of 18% per annum.
34. The same was resisted by the respondent-PPT by filing statement of defence, raising a counter claim of Rs.37,64,239.00 for the loss sustained due to non-execution of the contract work. It appears that the respondent-PPT filed an application under Order 14, Rule 2, of the Code of Civil Procedure before the learned Arbitrator, questioning the maintainability of the arbitration proceeding, in absence of an arbitration clause in the agreement.
5. On the pleadings of the parties, the learned Arbitrator framed the following issues:
i. Whether the claimant has any cause of action to initiate the proceeding against the defendants?
ii. Whether the claimant is entitled to the claimed amount as demanded in his claim statement?
iii. Whether the counter claim filed by the respondent is maintainable by law and facts in the present proceeding?
6. Considering the evidence available on record, both oral and documentary, learned Arbitrator proceeded to pass an award in favour of the claimant-appellant for Rs.23,74,417.40 paise on different heads.
7. Being aggrieved by the award passed by the learned Arbitrator, the PPT-respondent filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 ("the Act" for short), before the learned District Judge, Cuttack, for setting aside the said award, which was registered as Arbitration Petition No.202 of 2008.
8. It appears that the main plea of the PPT-respondent before the learned District Judge was that there was no arbitration 4 clause in the agreement entered into between the parties and therefore, the appointment of the Arbitrator by the Chief Justice of this Court is invalid and void. It was the case of the PPT-respondent before the learned District Judge that the order appointing the Arbitrator having been obtained by practicing fraud and deception, the order of appointment is void. On the basis of such plea raised by the PPT-respondent, learned District Judge has proceeded to set aside the award on the ground that the order of appointment of the Arbitrator having been obtained by practising fraud and deception, the award is non-est in the eye of law. The operative portion of the impugned order reads as under:-
"16. In view of the aforesaid law laid down, I have no hesitation to say that in this case, since the claimant-contractor approached under section 11 of the A & C Act to the Hon'ble Chief Justice, which from the very beginning was tainted with fraud and deception, if I may be permitted to say so with due respect to their Lordships in the Hon'ble Apex Court in the case of SBP & Co.(supra) so also the Hon'ble Chief Justice of our Hon'ble High Court in the order passed under Section 11(6) of the A & C Act, the award, which owes its existence to the very order under Section 11(6) of the A & C Act, as such, cannot enure to the benefit of the claimant- contractor. Therefore, the same deserves to be set aside being nonest in the eye of law."
9. Learned counsel for the appellant submits that as the order passed by the Chief Justice under Section 11(6) of the Act is a judicial order against which only an appeal lies to the Supreme Court under Article 136 of the Constitution, learned District Judge had no authority or jurisdiction to hold that the appointment of the Arbitrator by the Chief Justice was invalid or void and to set aside the award on that score, in exercise of power under Section 34 of the Act. In this 5 regard, reliance has been placed on the Constitution Bench decision of the apex Court in M/s.S.B.P. & Co. v. M/s. Patel Engineering Ltd. and Anr., (2005) 8 SCC 618, where the Hon'ble Court held that once the Chief Justice or his designate had appointed the Arbitrator in exercise of powers under Section 11(6) of the Act, the Arbitrator has no competence to rule upon its own jurisdiction and about the existence of the arbitration clause.
It is accordingly submitted that as the order of the Chief Justice of this Court is final and binding, subject to appeal provided under Article 136 of the Constitution, learned District Judge misdirected itself in coming to hold that the order appointing the Arbitrator had been obtained by practising fraud and deception and therefore, the same is invalid and void. It is further submitted that even otherwise, the appointment of the Arbitrator made under Section 11(6) of the Act does not come within the ambit of Section 34 of the Act and therefore, there was no scope for the learned District Judge to set aside the award by sitting in judgment over the order of the Chief Justice, passed under Section 11(6) of the Act.
10. Learned counsel for the PPT-respondent while supporting the impugned order submits that the same having been passed on appreciation of the materials available on record, no interference is warranted. It is submitted that as the agreement entered into between the parties did not contain an arbitration clause, no order appointing an Arbitrator under Section 11(6) of the Act could have been passed and therefore, the learned District Judge was fully justified in holding that the order of appointment of the Arbitrator had been obtained by fraud and deception. It is further submitted that in a case where the appointment of the Arbitrator is per se invalid and contrary to law, the award passed by such an Arbitrator can be questioned under Section 6 34 of the Act, being against justice and morality and is therefore patently illegal. In this regard, reliance has been placed on the decision of the apex Court in Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49.
11. In the application filed by the claimant-appellant under Section 11(6) of the Act, on the consent of the parties, the Chief Justice of this Court vide order dated 14.7.2006, appointed Shri Bibudhendra Mishra, Senior Advocate, as the Arbitrator to adjudicate the dispute between the parties. The said order reads as under :-
"Heard learned counsel for the petitioner as well as learned counsel for opposite parties.
Learned counsel for both sides fairly submit that Shri Bibudhendra Mishra, Senior Advocate of this Court may be appointed as an Arbitrator and the dispute between the parties in terms of the arbitration clause may be referred to the said Arbitrator for adjudication.
Accordingly, Shri Bibudhendra Mishra, Senior Advocate of this Court is appointed as Arbitrator and the dispute between the parties in terms of the arbitration agreement is referred to him for adjudication. He is directed to conclude the proceeding within a period of six months from the date of communication of this order. The parties shall produce certified copy of this order and the relevant papers before the learned Arbitrator within seven days from today. The Arbitrator shall be entitled to a fee of Rs.6000/- per sitting and another sum of Rs.500/- per sitting towards clerkages. The parties shall bear the fees as aforesaid equally.
The petition is thus disposed of.
Urgent certified copy of the order be granted on proper application."7
12. In M/s.S.B.P. & Co. (supra), a seven-Judge Constitution Bench of the Supreme Court while considering the scope of Section 11 of the Act, held as follows:
"xxxx xxxx The question, in the context of sub-section (7) of Section 11 is, what is the scope of the right conferred on the arbitral tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by Section 16(1), once the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the finality conferred by sub-section (7) of Section 11 of the Act, to such a decision of the Chief Justice, the arbitral tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to us to be incongruous to say that after the Chief Justice had appointed an arbitral tribunal, the arbitral tribunal can turn round and say that the Chief Justice had no jurisdiction or authority to appoint the tribunal, the very creature brought into existence by the exercise of power by its creator, the Chief Justice. xxxx xxxx."
13. Hon'ble Court also examined the competence of the Arbitral Tribunal to rule upon its own jurisdiction and about the existence of the arbitration clause, when the Chief Justice or his designate had appointed the Arbitral Tribunal under Section 11 of the Act, after deciding upon such jurisdictional issue. Hon'ble Court held:
"12. ... We are inclined to the view that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the Arbitral Tribunal.........8
xxx xxx xxx
20. Section 16 is said to be the recognition of the principle of Kompetenz-Kompetenz. The fact that the Arbitral Tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issues arise before it, the Tribunal can, and possibly, ought to decide them. This can happen when the parties have gone to the Arbitral Tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these sections, before a reference is made. Section 16 cannot be held to empower the Arbitral Tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made. The competence to decide does not enable the Arbitral Tribunal to get over the finality conferred on an order passed prior to its entering upon the reference by the very statute that creates it. That is the position arising out of Section 11(7) of the Act read with Section 16 thereof. The finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act, are incapable of being reopened before the Arbitral Tribunal."
14. Accordingly, the Hon'ble Court proceeded to hold as under:-
"Once we arrive at the conclusion that the proceeding before the Chief Justice while entertaining an application under Section 11(6) of the Act is adjudicatory, then obviously, the outcome of that adjudication is a judicial order. Once it is a judicial order, the same, as far as the High Court is concerned would be final and the only avenue open to a party feeling aggrieved by the order of the Chief Justice would be to approach to the Supreme Court under Article 136 of the Constitution of India. If it were an order by the Chief Justice of India, the party will not have any further remedy in respect of the matters covered by the order of the Chief Justice of India or the Judge of the Supreme Court designated 9 by him and he will have to participate in the arbitration before the Tribunal only on the merits of the claim. Obviously, the dispensation in our country, does not contemplate any further appeal from the decision of the Supreme Court and there appears to be nothing objectionable in taking the view that the order of the Chief Justice of India would be final on the matters which are within his purview, while called upon to exercise his jurisdiction under Section 11 of the Act. It is also necessary to notice in this context that this conclusion of ours would really be in aid of quick disposal of arbitration claims and would avoid considerable delay in the process, an object that is sought to be achieved by the Act."
15. In National Insurance Company Limited v. Boghara Polyfab Private Limited, (2009) 1 SCC 267, the apex Court has reiterated the ratio laid down in M/s SBP & Co., that if the Chief Justice or his designate decides on the appointment of the Arbitrator in exercise of powers under Section 11(6) of the Act, the Arbitrator will have no competence to rule upon its own jurisdiction and about the existence of the arbitration clause.
16. The aforesaid conclusion arrived at by the apex Court in M/s.S.B.P. & Co. (supra) has again been reiterated in APS Kushwaha (SSI Unit) v. Municipal Corporation, Gwalior and others, (2011)13 S.C.C. 258, wherein the Hon'ble Court has held that once the Chief Justice or his designate appoints an Arbitrator in an application under Section 11 of the Act, after satisfying himself that the conditions for the exercise of power to appoint an Arbitrator are present, the Arbitral Tribunal cannot go behind such decision and rule on its own jurisdiction or on the existence of an arbitration clause.
1017. Similar is the view expressed by the apex Court in Arasmeta Captive Power Company Private Limited and another v. Lafarge India Private Limited, (2013)15 SCC 414, that once an issue has been examined and decided by the Chief Justice or his designate under Section 11(6) of the Act, the Arbitrator cannot re- examine the same issue.
18. In the present case, it is seen from the impugned order that the learned District Judge has taken note of the aforesaid ratio laid down by the Constitution Bench of the apex Court in M/s. S.B.P. & Co. (supra) and has come to hold as under:
"In view of the aforesaid law laid down by the Lordships in the case of M/s. S.B.P. & Co.(supra), I am unable to accept the contention of the counsel for the P.P.T. that since in this case there is no adjudication with regard to the existence of the arbitration agreement, the Arbitral Tribunal was not bereft of jurisdiction to decide on the same and admittedly, there being no arbitration agreement, this Court can set aside the award on the said ground. Hence this contention fails."
19. It is rather strange that the learned District Judge after having come to hold that the Arbitrator had no jurisdiction to adjudicate with regard to existence of the arbitration clause and therefore the award cannot be set aside on that ground, he has entered into a lengthy discussion as to whether the order passed by the Chief Justice under Section 11(6) of the Act appointing the Arbitrator was tainted with fraud. Referring to some decisions of the apex Court regarding the effect of fraud and misrepresentation in Court proceedings, learned District Judge has proceeded to hold that the order appointing the Arbitrator having been obtained by fraud and deception, the same is non-est in the eye of law and has 11 accordingly set aside the award, without going into the merits of the application filed under Section 34 of the Act.
20. This approach of the learned District Judge is not only erroneous and misconceived but wholly improper and unwarranted. In an application filed under Section 34 of the Act, the validity or otherwise of an appointment of the Arbitrator made under Section 11(6) of the Act could not have been gone into. Learned District Judge was only required to see whether the award passed by the Arbitrator is hit by the vice of Section 34(2) of the Act. In a case of this nature, where the appointment has been made by the Chief Justice on the consent of the parties, even the Arbitrator could not have adjudicated on its own jurisdiction under Section16 of the Act and therefore, the learned District Judge has completely misdirected itself in going into the question of appointment of the Arbitrator and setting aside the award on that score.
21. It is pertinent to note that in the instant case, the order appointing the Arbitrator was passed by the Chief Justice in exercise of power under Section 11(6) of the Act, on the consent of the parties. The respondent-PPT not only accepted the said order by participating in the proceeding before the Arbitrator but also filed its counter claim and contested the matter on merit. Having faced with an award, it has sought to challenge the same in an application filed under Section 34 of the Act, questioning the very appointment of the Arbitrator and its jurisdiction to adjudicate the dispute. Therefore, the respondent-PPT with open eyes and with full knowledge of all circumstances having participated in the arbitration proceeding and even filed its counter claim, choosing to take the chance of an award in its favour, it cannot subsequently resile from that stand to render the entire arbitral proceeding futile. This in essence is the principle 12 underlying the term "waiver", which is a deliberate and intentional act with knowledge and an intentional relinquishment of a right or conduct leading to an inference of such relinquishment of right.
22. The concept of "waiver" has been explained in HALSBURY'S LAWS of England in the following words:
"Waiver is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted and is either express or implied from conduct. It may sometimes resemble a form of election, and sometimes be based on ordinary principles of estoppel, although, unlike estoppel, waiver must always be an intentional act with knowledge. A person who is entitled to rely on a stipulation, existing for his benefit alone, in a contract or of a statutory provision, may waive it, and allow the contract or transaction to proceed as though the stipulation or provision did not exist."
23. This Court is constrained to observe that the learned District Judge, in his exuberance has entered into an arena, which was not his domain. The appointment of the Arbitrator having been made by the Chief Justice of this Court on the consent of the parties, in exercise of power under Section 11(6) of the Act, even the Arbitrator could not have re-examined the said issue. Therefore, learned District Judge had no business to go into the same while adjudicating an application filed under Section 34 of the Act and set aside the award on the ground that the very appointment of the Arbitrator was invalid and void. It is a clear case of the learned District Judge having exceeded his brief in gross disregard of the 13 well established norms of judicial discipline, by sitting in judgment over the appointment of the Arbitrator made by the Chief Justice.
24. For the reasons as aforestated, the impugned order cannot be sustained and the same is accordingly set aside.
25. As the learned District Judge has not considered the application filed under Section 34 of the Act on merit, he is directed to consider the same afresh, giving opportunity of hearing to the parties and decide the same in accordance with law expeditiously.
ARBA is accordingly allowed. No costs.
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S.C. PARIJA, J.
Orissa High Court, Cuttack, Dated the 4th March, 2016/BBP