Madhya Pradesh High Court
Shri Brajesh Sharma vs Banco Construction on 20 August, 2014
1 AC No.23/2012
HIGH COURT OF MADHYA PRADESH
BENCH AT GWALIOR
SB: JUSTICE SUJOY PAUL
Arbitration Case No.23/2012
Shri Brajesh Sharma
vs.
Banco Construction
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Shri Sankalp Sharma, Advocate for the applicant.
Shri Arun Dudawat, Advocate for the respondent.
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ORDER
(20/08/2014) In this application filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for brevity, the 'Act'), the applicant has prayed for appointment of sole arbitrator to decide the dispute between the parties.
2. The facts narrated by the applicant are that respondent Banco Construction is engaged in the business of civil construction work and has been allotted different construction work in different parts of State of Madhya Pradesh. On 27.1.2009, the General Manager of M.P. Rural Road Development Authority (RRDA), Project Implementation Unit-1, Khandwa allotted a work for construction/upgradation of rural road under "Pradhan Mantri Gram Sadak Yojna" including maintenance for five years after construction.
3. The respondent used to perform its civil construction work by subcontracting the same to different specialized agencies/contractors. For this purpose, an agreement was entered into between the applicant and respondent on 14.9.2009 (Annexure P/1). As per the agreement, the applicant was required to undertake the aforesaid work on behalf of the respondent. The applicant was also allotted the work of the road (area from Kalmukhi to Matpur) for an approximately length of 6.70 Kms. for an approximate contract amount of Rs. 210.00 Lacs by the respondent.
4. Shri Sankalp Sharma, learned counsel for the applicant relied on 2 AC No.23/2012 Clause 12 and 15 of the agreement dated 14.9.2009 (Annexure P-1). He submits that a dispute arose and, therefore, the applicant preferred representation, notice etc. to the respondent for appointment of sole arbitrator. The party No.1 of agreement (respondent herein) was required to appoint the arbitrator as per clause 12 of Annexure P-1. As per clause 15, Shri Sankalp Sharma submits that the disputes are subject to exclusive jurisdiction of Courts at Gwalior and place of arbitration is also Gwalior. He submits that necessary formalities as per the agreement for appointment of arbitrator have been completed by the applicant and, therefore, an arbitrator be appointed. He further submits that the applicant is not the signatory of general conditions of contract (Annexure R/1) nor he is bound by this. Thus, any clause of that contract entered into between RRDA and Banco Construction cannot have any adverse impact for the purpose of relief of appointment of arbitrator. He further submits that the object and scheme of M.P.Madhyastham Adhikaran Adhiniyam, 1983 (Act No. 29 of 83) (hereinafter called as "Adhiniyam"), makes it clear that the Tribunal has no jurisdiction in the matter of present dispute.
5. Shri Arun Dudawat, learned counsel for the respondent, on the other hand, submits that the present application is not maintainable. As per clause 7.1 of general conditions of contract (Annexure R-1), the subcontracting is permissible only with the prior approval of the principal employer, i.e., MPRRDA. It is permissible only up to value of 25 per cent of the total work and not beyond it. In the present case, the agreement, Annexure P/1, is entered into without prior approval of the employer in writing. It is beyond 25 per cent of the contract price and, therefore, the said agreement, Annexure P-1, is a void document. It is further argued that the applicant in fact has not made any request for appointment of arbitrator and, therefore, there exists no dispute between the parties. The factum of issuance and receiving of notice dated 18.9.2012 (Annexure P/2) and another document of same date (filed with list of documents) by the applicant is disputed by the other side. In addition, by filing additional reply the respondents have stated that as per section 3(aa) of Indian Stamps Act, 1988, the document 3 AC No.23/2012 dated 14.9.2009 (Annexure P/1) is chargeable with duty as per Schedule I-A in Madhya Pradesh. No stamp duty is admittedly paid on aforesaid document and, therefore, same is inadmissible as per section 35 of the Stamps Act. It is further submitted that there is no valid reason for this court to entertain the present application. Lastly, it is submitted that the applicant has not impleaded the firm as per Order 30 Rule 2 CPC and has chosen to file application by name and, therefore, the application must fail. He relied on 1989 (2) SCC 1 (ITC Ltd. v. George Joseph Fernandes and another).
6. No other point is pressed by learned counsel for the parties.
7. On the basis of aforesaid contentions, following issues emerge for decision:-
(i) Is there a valid arbitration agreement between the parties ?
(ii) Whether the applicant should be relegated to avail the remedy under the Adhiniyam of 1983 ?
(iii) Whether the present application must fail because it is not filed in the name of the firm ?
(iv) Whether in absence of payment of stamp duty on the agreement, Annexure P-1, present application is barred ?
(v) Whether the applicant has fulfilled the formalities as per Annexure P-1 for seeking direction for appointment of arbitrator ?
8. Before dealing with rival contentions, I deem it proper to quote clauses 12 and 15 of the agreement, Annexure P-1. It read as under:-
"12.That, in case any dispute arising out of or from this agreement or regarding interpretation, validity and or scope of any clause of this agreement or regarding the validity of this agreement shall be referred to the sole arbitrator under arbitration and conciliation act. Party No.1 shall appoint the arbitrator.
15. That, all disputes shall be subject to the exclusive jurisdiction of courts at Gwalior. Place of arbitration shall be exclusively at Gwalior."
Issue No.(i) :
9. It is mainly based on clause 7.1 of General Conditions of 4 AC No.23/2012 Contract. It reads as under:-
"7.1 The contractor may sub-contract part of the construction work with the approval of the employer in writing, upto 25 percent of the contract price but will not assign the contract. Subcontracting shall not alter the contractor's obligation."
10. Shri Sankalp Sharma, Advocate for the applicant, relied on the judgments of Supreme Court, reported in (2010) 5 SCC 306 (Indowind Energy Ltd. vs. Wescare (I) Ltd. and another) to submit that when factum of signing of arbitration agreement, Annexure P-1, is not in dispute between the parties, this Court is not obliged to examine anything further. Only thing which needs to be examined is whether there exists an arbitration agreement and whether party seeking appointment of arbitrator is a party to such agreement. Any wider examination in the present summary proceedings is not warranted. He also relied on (2011) 3 SCC 507 (Indian Oil Corporation Ltd. vs. SPS Engineering Ltd.) to submit that the only thing needs to be examined whether the party making the application has approached the appropriate High Court and whether the claim is dead (long barred) claim or a live claim ?
11. Before dealing with the rival contentions on this issue, it is apt to remember that the applicant and respondent are signatory to the agreement, Annexure P-1. Another agreement, Annexure R-1, is entered into between the respondent herein and MPRRDA. The present applicant is not party to the agreement, Annexure R-1. No doubt, when an objection is raised about existence of a "valid arbitration agreement", the court is required to deal with this aspect. It is necessary because it goes to the root of the matter and existence of an arbitration agreement is a jurisdictional fact, which will have to be addressed while making an order on a petition under section 11 of the Act. This view is taken by Supreme Court in (2011) 1 SCC 167 (Alva Aluminium Ltd. v. Gabriel India Ltd.). The issues which need to be taken care of by the Chief Justice/his designates are summarised by Supreme Court in catena of judgments including (2009) 1 SCC 267 (National Insurance Co. Ltd. vs. Boghara Polyfab (P) Ltd.). This is followed by the Apex Court in (2012) 5 AC No.23/2012 2 SCC 93 (Reva Electric Car Co. (P) Ltd. vs. Green Mobil). The Apex Court opined that the first category of issues which needs to be decided by Chief Justice or his designates are as under:-
"(a) Whether the party making the application has approached the appropriate High Court.
(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement."
The second category of issues which the Chief Justice/his designate may chose to decide (or leave them to the decision of the Arbitral Tribunal) are :
"(a) Whether the claim is a dead (long-barred) claim or a live claim.
(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection."
The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are :
"(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of departmental authority and excepted or excluded from arbitration).
(ii)) Merits or any claim involved in the arbitration."
A minute reading of para 28 of the judgment of Reva Electric Car (supra) shows that when the very existence of arbitration agreement is questioned by any party, the said aspect has to be addressed by the High Court. The similar view is taken in (2012) 2 SCC 144 (Bharat Rasiklal Ashra vs. Gautam Rasiklal Ashra and another). In para 17, the Apex Court opined that where sufficient circumstances exist to doubt the genuineness of the agreement or where it is contended that contract was forged/fabricated, the Chief Justice or his designate may examine the said aspect.
12. In the present case, the genuineness and existence of the agreement dated 14.9.2009, Annexure P-1, is not in question. In other words, it is not the case of the respondent that the agreement dated 14.9.2009 is fake or fabricated document. The bone of contention of the respondent is based on clause 7.1 of General Conditions of Contract 6 AC No.23/2012 (entered into between RRDA and Banco Construction).
13. The contention of Shri Arun Dudawat is that since the agreement, Annexure P-1, is entered into between the applicant and respondent herein without approval of the employer and the contract price is beyond 25%, such agreement is a void document. Heavy reliance was placed in this regard on the judgment of Supreme Court in ITC Ltd. (supra).
14. In ITC Ltd. (supra), the Apex Court was dealing with Section 34 of the Erstwhile Arbitration Act, 1940. Shri Dudawat relied on this judgment to contend that the contract is void ab initio on the ground of mistake. He mainly relied on para 18 of this judgment.
15. A minute reading of this judgment shows that while examining the scope of section 34 of 1940 Act, the Apex Court opined that in appropriate cases having regard to the nature of dispute raised in the pleadings of the suit, the compass and scope of arbitration clause in the Contract Act, the surrounding facts and circumstances of the case and by taking into account the object and spirit of Arbitration Act, the court may be justified in deciding the validity, existence or legality of the challenged contract containing the arbitration agreement. In the same judgment, the Apex Court opined that as per section 20 of Indian Contract Act, 1872, where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Since the present applicant is not signatory to the earlier agreement entered into between the respondent herein and RRDA, the present applicant is an innocent party. He cannot be said to be under a mistake for entering into the agreement without prior approval of the employer or for a price which is beyond 25% as per clause 7.1. The aspect whether a contract would be void at law in such circumstances, is dealt with by Lord Denning in Solle v. Butcher, (1949) 2 All ER 1107, 1119. He opined as under:-
"Once a contract has been made, that is to say, once the parties, wherever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the subject matter, then the contract is good unless and until it is set aside for failure of some condition on wich the existence of the contract depends, or for fraud, or on some equitable ground. Neither party 7 AC No.23/2012 can rely upon his own mistake to say that it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake."
(Emphasis Supplied) In the same judgment, the Apex Court opined that "mistake will not affect assent unless it is the mistake of both the parties". On the basis of "Solle" (supra), which is followed in ITC Ltd. (supra), it is clear that the respondent cannot rely upon his own mistake to say that the agreement, Annexure P-1, was a nullity from inception because prior approval of the employer is not taken. In no uncertain terms it was made clear by Lord Denning that even if the mistake is very fundamental in nature, the party who has knowingly committed such mistake cannot take its benefit. In other words, the respondent cannot rely upon his own mistake and submit that the agreement, Annexure P-1, is a nullity/void ab initio and, therefore, cannot be acted upon.
16. In nutshell, since the existence and genuineness of Annexure P-1 is not in question and present applicant was not a party to separate agreement, Annexure R-1, I am unable to hold that there was no valid arbitration agreement between the parties.
Apart from this, in Indowind Energy Ltd. (supra), the agreement was entered into between Wescare and Subuthi. Indowind Energy Ltd. resisted the petition filed under Section 11(6) of the Act by Wescare Ltd. on the ground that it was not a party to the relevant agreement entered into between Wescare and Subuthi. The Apex Court after considering various judgments on the point allowed the appeal of Indowind and set aside the order of High Court appointing an arbitrator in regard to the claims of the Wescare against Indowind and dismissed the application under section 11(6) of the Act filed by Wescare insofar as Indowind is concerned. The appointment of arbitrator insofar as Subuthi is concerned, was not disturbed. In the present case, clauses 12 and 15 of the agreement, Annexure P-1, makes it clear that the sole arbitrator needs to be appointed under the Act. The applicant and respondent are signatory to this agreement and, therefore, in my view, it is a valid arbitration agreement, pursuant to which a direction to appoint 8 AC No.23/2012 sole arbitrator can be given.
Thus, issue No. (i) is decided in favour of the applicant. Issue No.(ii) :
17. Clause 12 of the agreement, Annexure P-1, makes it clear that the parties have decided to refer their dispute to the sole arbitrator under the Act. Apart from this, the preamble of Adhiniyam 1983 makes it clear that it was enacted to arbitrate the disputes to which the State Government or a Public Undertaking is a party. It reads as under:-
"An Act to provide for the establishment of a tribunal to arbitrate in disputes to which the State Government of a Public Undertaking, wholly or substantially owned or controlled by the State Government, is a party, and for matters incidental thereto or connected therewith."
18. Section 2 (i) of the Adhiniyam 1983, which defines "works- contract", reads as under:-
" 2(i) "works-contract" means an agreement in writing for the execution of any work relating to construction, repair or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory, work-shop, powerhouse, transformers or such other works of the State Government or Public Undertaking as the State Government may by notification, specify in this behalf at any of its stages, entered into by the State Government or by an official of the State Government or Public Undertaking or its official for and on behalf of such Public Undertaking and includes an agreement for the supply of goods or material and all other matters relating to the execution of any of the said works."
(Emphasis Supplied)
19. A conjoint reading of the preamble of the Act with definition of "works-contract" makes it crystal clear that the Adhiniyam could be made applicable only when either party is State Government or Public Undertaking or its official. In the present case, admittedly, neither the applicant nor respondent herein is State Government or its Undertaking. This is trite in law that preamble of a Statute is although not an enacting part, the preamble is expected to express the scope, object and purpose of the Act more comprehensively than the long title. It may recite the ground and cause of making the Statute, the evil sought to be remedied. (See, AIR 1989 SC 509 The Secretary, 9 AC No.23/2012 Regional Transport Authority, Bangalore Vs. D.P.Sharma).
On the basis of aforesaid, the applicant cannot be relegated to avail the remedy under the Adhiniyam.
Issue No.(iii) :
20. This issue is based on the contention raised that as per Order 30 Rule 2, CPC, the firm has not filed the present application. I do not see any merit in this contention. The Act intends to provide a speedy method of resolution of dispute between the parties. This method must be free from hyper-technicalities and unnecessary procedural rigmarole. A summary and simplified procedure is sought to be introduced by way of Act of 1996. Section 19 of the Act also shows the intention of the law makers that strict principles of CPC would not be applicable. For this reason, I am unable to persuade myself with the contention of Shri Dudawat that the application must fail because it is not filed on behalf of the firm.
Issue No.(iv) :
21. This objection raised by the respondent is also devoid of merits. Even if the agreement, Annexure P-1, is not properly stamped, clauses 12 and 15 will not vanish in thin air. Section 35 does not preclude this Court to take into account the agreement for the purpose of exercising power under section 11(6) of the Act. This objection being meritless, is rejected.
Issue No.(v) :
22. The applicant has stated that the notice, Annexure P-2, dated 18.9.2012 and another communication of same date demanding appointment of sole arbitrator were sent in single envelope. It is denied on the ground that the notice dated 18.9.2012 requesting appointment of arbitrator is not served upon the respondent. However, the specific averment of the applicant made in rejoinder that both the documents dated 18.9.2012 were sent together in single envelope, is not specifically denied. In the present summary proceedings this Court is not obliged to examine this aspect by applying strict principles of Evidence Act. On the basis of the averments of the parties, I am 10 AC No.23/2012 satisfied that both the documents dated 18.9.2012 are served on the respondent.
23. As analyzed above, it is clear that the ingredients for issuing a direction for appointment of arbitrator are satisfied in the present case.
Thus, I deem it proper to appoint a Sole Arbitrator. Accordingly, Hon'ble Shri Justice R.B.Dixit, former High Court Judge [R/o C-10, Kailash Nagar, New Collectorate Road, Gwalior (MP), Mobile No.09425526855], is hereby appointed as a Sole Arbitrator in the present matter. Parties are directed to approach Hon. Shri Justice R.B.Dixit in this regard. Registry is directed to send a copy of this order to Hon.Shri Justice R.B.Dixit. Needless to mention that the learned arbitrator will be free to decide his fees.
24. Application is allowed. No costs.
(Sujoy Paul) Judge (Yog)