M/S. Blue Star Limited vs Union Of India on 10 December, 2008

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Delhi High Court

M/S. Blue Star Limited vs Union Of India on 10 December, 2008

1. This objection petition under Sections 30 and 33 of the Arbitration Act, 1940 (hereinafter referred to as „Act‟) is directed against the arbitral award dated 3.7.2002 passed by the sole arbitrator, Shri K.K.Mutreja.

OMP No. 389/2002 Page 1 of 27

2. Petitioner/objector Company is a duly registered company and is engaged in the business of Central Air-conditioning. Central Public Works Department (hereinafter referred to as „CPWD‟) is a department of Central Government operating with regional set ups throughout the country for construction, maintenance and repairs of all works and building financed from Civil Works Budget and has its western region office at Bombay. Central Electrical Division is one of its units having registered office at ISP Quarters, Near Gymkhana, Nasik Road. India Security Press (ISP), client of the respondent CPWD, invited tenders for the work of installing central air conditioning plant of ISP, Nasik vide Notice Inviting Tenders (NIT) Ref. No.54/NCELD/88/761 dated 14.9.1988. Petitioner submitted its technical bid on 14.10.1988 vide technical bid No.SR/.R261/188 and its financial bid vide letter No.SR/261(F) dated 28.10.1988. CPWD upon considering the offer of the petitioner in detail sought some clarifications from the petitioner on 17.11.1988 vide its letter No.54 (238) OMP No. 389/2002 Page 2 of 27 CONT/BCEC/2310 dated 1.12.1988 which was duly replied by the petitioner on 9.12.1988 vide its letter No.SR/261(F). There was further correspondence between the parties on 26.11.1988, 9.12.1988, 31.3.1989 and finally respondent accepted the tender of the petitioner on 14.4.1989 being Letter of Award No.54/NCELD/89-90/978/990.

3. The conditions of the contract forming part of the NIT issued by the respondent contained a clause 10cc which provided for price escalation. The stipulated period of completion for the said work was 12 months and price escalation under clause 10cc was applicable to the work. As per the petitioner under clause 10cc the base date for calculating price escalation was the last date when the tender was received. The tender was stipulated to be received by December, 1988 and therefore, the base date was applicable not only to the work executed during the original completion period but also to the work done during the extended completion period, that is, till completion of the entire contract and release of the final payment by OMP No. 389/2002 Page 3 of 27 the respondent.

4. Execution of the work per se the contract could not be completed within the period of 12 months on account of delay in the completion of civil work and the work could be completed only on 24.9.1992.

5. The manner in which escalation was intended to be allowed, according to the petitioner, was as per clause 10cc of the agreement and the petitioner‟s claim in the sum of Rs.1,26,708/- and Rs.5,80,939/- respectively aggregating to Rs.7,07,647/- was made towards the escalation in the price applicable to the work carried out till the date of completion and the said claims and payments against the same were released by the respondent.

6. The process of raising bills in the respondent department was carried out on the basis of entries in the measuring book and accordingly, the aforementioned claims of escalation were paid by the respondent department as Running Bill Nos. 8 and 11 respectively and payments against the said bills were released without any interference or OMP No. 389/2002 Page 4 of 27 representation in this regard by the petitioner.

7. It was alleged by the petitioner that the respondent committed a volte face on its commitment with regard to the escalation during the original contractual period by deducting the earlier released sum of Rs.7,07,647/- at the time of settlement of the 17th running bill. The respondent weren‟t firm on its commitment with regard to grant of escalation in payment for the work carried out by the petitioner during the original contractual period and gave escalation in payment only for the work done during the extended period of the contract with the base date remaining the same as December, 1988.

8. Dispute arose regarding payments and the petitioner raised following claims:-

(i) Claim No.1 in a sum of Rs.7,07,647/- which was allowed under running bills no.8 and 11 towards escalation and payments were made and subsequently withdrawn.

(ii) Claim no.2 in a sum of Rs.21,33,821.19/- OMP No. 389/2002 Page 5 of 27

towards interest on the above said sum of Rs.7,07,647/- at the rate of 20% per annum compounded quarterly in accordance with the practice followed by financial institutions and banks from March, 1991 till the date of filing the instance claim.

(iii) Claim No.3 pendente lite and future interest at the rate of 20% per annum on the aggregate sum of Rs.28,31,468.19/- for the period of the pendency of the arbitral proceedings, pronouncement of award and for the period thereafter till the payment of the awarded amount.

9. The dispute was referred for arbitration to arbitrator Dr. Y.P.C. Dangey by the Chief Engineer (E) West Zone, CPWD, Mumbai vide letter No.T- 26/(5)/CE/E/WZ/98/122 on 19.2.1988 and the notice of reference of disputes to the arbitrator was given to both the parties and the arbitration proceedings commenced on 16.8.1991. Latter, after the resignation of Y.P.C. Dangey, Shri K.K.Mutreja, OMP No. 389/2002 Page 6 of 27 Ministry of Urban Development, Mumbai was appointed as arbitrator by Chief Engineer, WZ(E) CPWD, Mumbai vide letter No.T-

31(5)CE(E)/WZ/387 dated 8.8.2001 who entered into reference on 18.10.2001. The case came up for effective hearing on 23.11.2001 at New Delhi. The petitioner raised a claim to the tune of Rs.7.1 lakh towards escalation in payment under clause 10cc of the agreement.

10. The arbitrator while rejecting the claim of the petitioner observed:-

"Harmonious construction of the condition quoted by the claimants, leaves no doubt in my mind and leads me to conclusion that if the work was completed within the period of the contract itself, the claimants would have been entitled to no increase, but if the contract was concluded in a period of 1 year and 1 day, the claimants would have been entitled to increase in cost by the agreed formula for work done in that extra 1 day only and not the entire period, and analogous to this, for any extent of extended period."

11. The award was signed at Mumbai on 3.7.2002. OMP No. 389/2002 Page 7 of 27

12. The respondents in their counter affidavit while refuting the objections to the Award challenged the jurisdiction of this court to entertain the objection petition as no cause of action either in full or in part arose in Delhi. It is alleged that the agreement was executed in Maharashtra and the award under challenge was made at Mumbai by the learned Arbitrator K.K. Mutreja, having its office at Mumbai and the award was delivered to the parties by the learned Arbitrator within the territorial jurisdiction of the courts at Maharashtra. Therefore, this court has no territorial jurisdiction to entertain the matter.

13. Respondent has also refuted the claim of the petitioner for escalation charges and has averred that the escalation charges were payable for the period after expiry of the stipulated period of the contract and inadvertently, the payment of escalation charges were also made for the period of the contract which was rightly recovered from the claimant and under these circumstances, the arbitrator has rightly rejected the claim of the OMP No. 389/2002 Page 8 of 27 petitioner while passing the impugned award.

14. Petitioner in reply to the counter affidavit of the respondents has put forth that the learned Arbitrator and his predecessor Y.P.C. Dangey had held the entire arbitration proceedings at Delhi and this court, therefore, has the jurisdiction to entertain the objection petition.

15. The foremost issue to be decided in the present petition is whether this court at Delhi has territorial jurisdiction to entertain this objection petition.

16. Learned counsel for the petitioner while referring to para 12 of the petition has argued that the learned Arbitrator had held entire arbitration proceedings in Delhi and the headquarter of respondent is situated at New Delhi thereby giving this court the jurisdiction to entertain the present objection petition.

17. Mr. R.V. Sinha, learned counsel for the respondent has argued that no cause of action in full or in part had arisen in Delhi as the agreement was executed OMP No. 389/2002 Page 9 of 27 in Maharashtra and the award dated 3.7.2002 was finally made at Mumbai by the arbitrator, Shri K.K.Mutreja who had his office at Mumbai and the award was delivered to the parties by the learned arbitrator within the territorial jurisdiction of the court at Maharashtra and therefore, this court has no territorial jurisdiction in the matter.

18. As defined in Section 2 of the Act, „Court‟ means a Civil Court having jurisdiction to decide the questions forming the subject matter of a suit, but does not, except for the purpose of arbitration proceedings under Section 21 include a Small Cause Court.

19. Section 30 of the Act lays down the grounds for setting aside the award. An award can be set aside by a court if it is of the view that arbitrator or umpire has misconducted himself or the proceedings, or the award has been made after the issue of an order by the court superseding the arbitration or after arbitration proceedings have become invalid under Section 35, or the award has OMP No. 389/2002 Page 10 of 27 been improperly procured or is otherwise invalid.

20. Section 31 of the Act speaks of jurisdiction of a court where an award may be filed to be made a rule of the court, or any award or objection to the award or any other application relating to the Arbitration Act or the award can be filed.

21. For the sake of brevity Section 31 of the Act is reproduced as below:-

"31. Jurisdiction.

(1) Subject to the provisions of this Act, an award may be filed in any Court having jurisdiction in the matter to which the reference relates.

(2) Notwithstanding anything contained in any other law for the time being in force and save as otherwise provided in this Act, all questions regarding the validity, effect or existence of an award or an arbitration agreement between the parties to the agreement - or persons claiming under them shall be decided by the Court in which the award under the agreement has been, or may be, filed, and by no other Court.

(3) All applications regarding the conduct of arbitration proceedings or otherwise arising out of such OMP No. 389/2002 Page 11 of 27 proceedings shall be made to the Court where the award has been, or may be, filed, and to no other Court.

(4) Notwithstanding anything contained elsewhere in this Act or in any other law for the time being in force, where in any reference any application under this Act has been made in a Court competent to entertain it, that Court alone shall have jurisdiction over the arbitration proceedings and all subsequent applications arising, out of that reference, and the arbitration proceedings shall be made in that Court and in no other Court."

22. In "Jatinder Nath v. Chopra Land Developers Pvt. Ltd. & Anr., AIR 2007 SC 1401", question regarding jurisdiction of the Court at Faridabad to entertain the petition under the Act cropped up for decision. Underlying provisions contained in Section 31,32,33 of the Arbitration Act were analysized and interpreted by the Apex Court as follows:-

"12.............Section 31(1) of the Act provides that an Award may be filed in any court having jurisdiction in the matter to which the reference relates. Under that section, the Award can be filed in the court within whose jurisdiction the OMP No. 389/2002 Page 12 of 27 property in dispute lies. Parties cannot give jurisdiction to a court under Section 14 by consent if that court does not has jurisdiction. If an award refers to an immovable property, the court having jurisdiction in respect of the same will entertain an application under Section 14. In order to decide as to which court has jurisdiction to entertain a petition under Section 14, reference has to be made to Section 2(c) read with Section 31(1) of the Act. Merely because the arbitrator chooses to hold the proceedings in a place where no suit could be instituted, and chooses to make an award at that place, it would not give the court of that place territorial jurisdiction to decide the matter under the Act. Section 30 refers to ground for setting aside an award. Section 30 is to be read with Section 33. The idea behind the entire scheme of the Arbitration Act appears to be that an application by a party challenging the validity of correctness of the award on whatever ground has to be made under Section 33. Section 33 is the only section under which a party is given the right to apply to the court to challenge either the agreement or the award. Under the Act, therefore, after the Award has been filed a party is permitted to make an application under Section 33 to bring all kinds of defects to the notice of the court and the court will give reliefs either under Section 15 or Section 16 or even under Section 30 of the Act. In an arbitration without the intervention of the court, an award can be filed in any court OMP No. 389/2002 Page 13 of 27 having jurisdiction in the matter to which the reference relates. The award can be filed only in the court which would have jurisdiction in respect of the subject matter of the dispute. In order to decide the jurisdiction of the court, it is necessary to decide whether the court would have jurisdiction to try a regular suit between the parties in which the relief is claimed. Section 33 does not prescribe the court before which an application under this section may be filed, but Section 31 makes such provision. Section 31(2) provides that all questions regarding the validity, effect or existence of an award or an Page 1191 arbitration agreement shall be decided by the court in which the award has been filed or may be filed. Section 2(c) lays down the forum. The application has to be moved in the court within, whose jurisdiction the opposite party resides or carries on business or within whose jurisdiction any part of the cause of action arises. Residence or carrying on business of a party, apart from the place of accrual of a cause of action is relevant for determining the territorial jurisdiction of the court in arbitration cases, if the question so arises in connection with the subject matter of the dispute."

23. Territorial jurisdiction of a court in general is determined by the provisions of Section 20 of the Civil Procedure Code (hereinafter referred to as OMP No. 389/2002 Page 14 of 27 „Code‟) which reads as follows:-

"20. Other suits to be instituted where defendants reside or cause of action arises.

Subject to the limitations aforesaid, every suit shall be instituted in Court within the local limits of whose jurisdiction-

(a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or

(b) any of the defendants, where there are more than one, at the time of the commencement of the suit actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or

(c) the cause of action, wholly or in part, arises."

24. The principle underlying the provisions of Clause

(a) and (b) of Section 20 is that a suit has to be instituted at a place where the defendant is able to OMP No. 389/2002 Page 15 of 27 defend the suit without undue trouble or inconvenience.

25. Juxtaposed reading of Section 2(c); Section 31(2) of the Act and Section 20 of the Code manifests that the court having jurisdiction under the Act would be the court competent to entertain a suit in regard to the subject matter of reference, i.e. the dispute which is sought to be referred to arbitration. The objection petition therefore has to be moved in the court within whose jurisdiction the respondent resides or carries on business or within whose jurisdiction the cause of action arose. Residence or carrying on business by a party besides place of accrual of cause of action becomes relevant for determining the territorial jurisdiction of the Court in arbitration cases, if the question is so raised in connection with the subject matter in dispute.

26. Para 12 of the petition reads as follows:-

"That the respondent, being the Union of India and having its principal place of governance, general superintendence and management at Delhi and the OMP No. 389/2002 Page 16 of 27 Arbitration proceedings having taken place at Delhi this Hon‟ble Court would have the territorial jurisdiction to entertain the present petition."

27. The facts in this case elucidate that the offer inviting tender was made at Maharashtra. The tenders were accepted by CPWD at Maharashtra, the work of central air conditioning plant for ISP Nasik was also awarded at Maharashtra. The work of providing air conditioning plant was executed at Maharashtra. The branch of the respondent inviting tenders is Western Region Branch of CPWD having its registered office at Mumbai in the State of Maharashtra. The arbitral award was also signed and delivered to the parties at Mumbai. No part of cause of action pertaining to the dispute arose at Delhi and the subject matter of the dispute therefore lay at Maharashtra. Simply because the arbitrator chose to hold proceedings at a place namely Delhi where no suit could be instituted, it would not vest with the Court at Delhi with the jurisdiction to entertain the present objection petition. The arbitrator could hold its proceedings OMP No. 389/2002 Page 17 of 27 at any place of his choice. Proceedings conducted by the arbitrator in no manner can be considered as cause of action wholly or in part having arisen in Delhi so as to vest jurisdiction in this court.

28. The next question to be considered is whether the respondent, Union of India carried on its business or worked for gain through Superintendent Engineer (TLC) Central Public Works Department and Executive Engineer (E), Central Electrical Division, New Delhi to confer jurisdiction on the courts at Delhi.

29. The expression "voluntarily resides" appearing in Section 20 of the Code is significant and is of relevance to the facts and circumstances of this case. This expression undisputedly refers to natural persons and not to legal entities. Similarly, the expression "carries on business" or "personally works for gain" in no manner refers to the functions carried on by the Union of India in discharge of its executive powers conferred by Article 298 of the Constitution. A contract made in OMP No. 389/2002 Page 18 of 27 exercise of the executive power of Union of India has to be expressed to be made by the President by virtue of Article 299 of the Constitution. Clause (2) of the said article also makes it clear that the President shall not be personally liable in respect of any contract or assurances made or executed on his behalf. The President, therefore, cannot be said to be personally working for gain within the meaning of Section 20 of the Code.

30. Section 20 of the Code contemplates people dwelling within the territorial limits of the court and the persons indulging in commercial activities within that area even if they do not dwell therein. Thus, this Section in plain and unmistakable language conveys that idea. Therefore, it would be improper to bring the government within the import of the expression "the defendant carries on business, or personally works for gain". Therefore, the courts at Delhi do not have the jurisdiction in regard to disputes relating to all contracts executed by Union of India simply on the reasoning that Union of India has its office at New Delhi. OMP No. 389/2002 Page 19 of 27

31. In "Binani Brothers (P) Ltd. v. Union of India, ILR (1975) 2 Delhi 196", in similar circumstances Division Bench of this Court held:

"....... The next question is whether the Union of India carried on business or worked for gain through the Director of Supplies and Disposals, New Delhi to confer jurisdiction on the courts at Delhi. The answer has to be in negative. The expression "voluntarily resides"

in Section 20 is significant. It necessarily refers to natural persons and not to legal entities. Likewise, the expression "carried on business"

or "personally works for gain" do not refer to functions carried on by the Union of India is discharge of its executive powers conferred by Article 298 of the Constitution.

While Article 299 of the Constitution provides that all contracts made in the exercise of the executive power of the Union shall be expressed to be made by the President clause (2) of this article states that the President shall not be personally liable in respect of any contract or assurance made or executed on his behalf. The President, therefore, cannot be said to be personally working for gain within the meaning of Section 20 of the Code of Civil Procedure. Justice Prithvi Raj in Insortex Pvt. Ltd. v.

Union of India, Suit No.394 of 1967, decided on May 4, 1971, relying on R.J. Wyllie and Co. v.Secretary of State, AIR 1930 Lah 818; 126 IC 514, Dominion of India v. M/s. R.C. K.C. Nath and Co., Khulna and Azizuddin OMP No. 389/2002 Page 20 of 27 and Co. v. Union of India, AIR 1955 Mad 345, had taken the same view."

This judgment was also referred to in „M/s. Bakhtawar Singh Bal Kishan v. Union of India & Ors., (1988) 2 SCC 293. Reference is also made to "M/s. Prahlad Rai Dalmia v. Union of India, AIR 1986 Delhi 76".

32. CPWD is the principal agency of the Central Government for construction and maintenance of Central Government buildings and other capital assets. CPWD provided integrated construction management services from project concept to commissioning and of maintenance management in the post construction stage. This department functions with regional setup throughout India and has a regional setup in Mumbai for West India. Western Zone was formed in May, 1963 for more efficient management of the increasing work load. Thereafter, Western Zone-II, Central Zone and various other Zones followed suite.

33. CPWD Western Zone had awarded this contract to OMP No. 389/2002 Page 21 of 27 the petitioner for Central Air Conditioning Plant for India Security Press (ISP), Nasik Road. ISP Nasik Road is printing all kinds of security documents of Government of India, State Government, Banks and Foreign Countries. It prints, manufactures postal, non-postal stamps, postal stationery items and other security items such as passport, MICR and Non-MICR cheques, Promissory Notes, savings instruments and other misc. security items for Financial Corporation, etc. ISP is under the direct administrative control of the General Manager, India Security Press, who is the Head of the Department and also the Ex-Officio Controller of Stamps of India, having its head office at Nasik.

34. ISP is an industrial establishment of Government of India under the Ministry of Finance. Therefore, to say that Union of India carries on business at Delhi and courts at Delhi have the jurisdiction to entertain this objection petition is a fallacy. Union of India carries on its business all over India and it cannot be held by the court that a suit against Union of India can be instituted in any court of OMP No. 389/2002 Page 22 of 27 India merely because Union of India is located throughout India and therefore the Union of India carried on business throughout India. As already discussed above, Union of India being a legal entity cannot be said to be voluntarily residing and personally working for gain at Delhi because the expression appearing in Section 20 of the Code refers to natural persons only.

35. True that ISP is a commercial undertaking of Govt.

of India, however, the present contract was entered into by the petitioner and CPWD through Executive Engineer (E), Central Electrical Division, ISP Quarters, Nasik Road to be executed at Nasik. The financial bid was submitted by the petitioner to the respondent at Nasik. Contract was entered into between the parties at Mumbai, the work was awarded to the Petitioner at Mumbai, work contract was executed by the petitioner at Nasik, the award was pronounced and signed at Mumbai. Therefore, for all purposes the respondents resided and worked for or carried on business activities at Mumbai.

OMP No. 389/2002 Page 23 of 27

36. Learned counsel for the petitioner has referred to "Sharma Enterprises vs. C.M.C. Ltd., 2003 III AD (Delhi) 472", to emphasis that this court has held under the circumstances that court at Delhi has jurisdiction to entertain the petition under the Arbitration Act. The said petition was filed by Sharma Enterprises for appointment of an arbitrator who was stationed at Delhi and the respondent C.M.C. Ltd. had objected to the territorial jurisdiction of this court on the contentions that not only the agreement between the parties was entered and executed at Secundarabad but also the work was executed at Hyderabad and the parties had agreed to invoke the jurisdiction of the courts at Secundrabad in respect of the disputes arising of in any way connected with the agreement. While rejecting the objection of the respondent, this court held that since corporate office of the petitioner was situated in Delhi though the registered office at Hyderabad and part payment was made at Delhi though most of the payments were made at Hyderabad and in OMP No. 389/2002 Page 24 of 27 the face of the said facts and also in view of clause 34 contained in the arbitration agreement according to which all disputes and differences were to be referred and settled by the Project Manager, Consultant who was stationed at Delhi. Courts at Delhi had the jurisdiction to entertain petition under the Arbitration Act.

37. However, the facts and circumstances of this case are different from the facts and circumstances which was under consideration by this court in Sharma Enterprises (supra) case. In the said case, the respondent CMC Ltd. was a statutory corporation within the meaning of Section 20 of the Code and therefore, the jurisdiction could be conferred on the court within whose jurisdiction the principal place of business was located, whereas Union of India is neither a corporation nor has any legal entity.

38. "Sthapati Engineers & Builders vs. Central Building Research Institute & Anr., 66 (1997) Delhi Law Times 232", is another judgment of OMP No. 389/2002 Page 25 of 27 this court cited by the learned counsel for the Petitioner to support his submissions that this court has the jurisdiction to entertain this objection petition. In the said case, respondent was a unit of Council of Scientific Industrial Research Society having its registered office at Delhi. Besides, Binani Brothers‟ case (supra), M/s. Bakhtawar Singh Bal Kishan‟s case (supra) were not brought to the notice of the court nor were considered while deciding the said suit.

39. Similarly, "Food Corporation of India v. M/s.

Evdomen Corporation, AIR 1999 Supreme Court 2352", is not applicable to the facts and circumstances of the case. The jurisdiction of the Bombay High Court to entertain a suit under its ordinary civil jurisdiction was determined by Clause 12 of Letters Patent of Bombay High Court and it was held that Section 20 CPC would not be applicable to High Court in its original civil jurisdiction in view of Section 120 and Clause 12 of Letter Patent of the Bombay High Court. OMP No. 389/2002 Page 26 of 27

40. In the light of my discussion as above, it is concluded that this court has no territorial jurisdiction to entertain the present objection petition. Hence, the objection petition be returned back to the petitioner for refiling the same in the Court having jurisdiction within 90 days from the date of the order. In case the objection petition is instituted in the competent court of jurisdiction as ordered, it would be treated having been instituted within time. Registry shall ensure that the arbitral award, proceedings conducted therein and other relevant documents filed by the parties are returned back to them within one week so as to enable them to file the same along with the objection petition in the competent court of jurisdiction.

41. Petition stands disposed of accordingly.

ARUNA SURESH (JUDGE) December 10, 2008 vk OMP No. 389/2002 Page 27 of 27

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