Calcutta High Court
Union Of India vs Plazer Machine Craft Pvt. Ltd on 7 December, 2016
Equivalent citations: AIR 2017 (NOC) 79 (CAL.)
Author: Soumen Sen
Bench: Soumen Sen
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
BEFORE:
THE HON'BLE JUSTICE SOUMEN SEN
A.P. 355 of 2006
UNION OF INDIA
VS.
PLAZER MACHINE CRAFT PVT. LTD.
For the Petitioner : Mr. Partha Sarathi Bose, Sr. Adv.,
Ms. Aparna Banerjee, Adv.
For the Respondent : Mr. Swarnandu Ghosh, Adv.,
Mrs. Suchishmita Ghosh, Adv.,
Mr. Prashant Kumar Tripathi, Adv.
Heard On : 01.12.2016
Judgment On : 7th December, 2016
Soumen Sen, J.:- This is an application for setting aside of an award
passed on 31st March, 2006 under Section 34 of the Arbitration and Conciliation
Act, 1996.
The grounds for challenge are two-fold:-
(i) The arbitrator appointed by this Court to adjudicate the dispute
lacks jurisdiction in view of Clause 2900 of the Indian Railway
Standard Conditions of Contract (hereinafter referred to as the "said
contract").
(ii) Granting of interest on the security deposit of Rs.1 lakh contrary to
Clause 2400 of the said contract.
The aforesaid two Clauses 2900 and 2400 of the Indian Railway Standard
Conditions of Contract are reproduced hereinbelow:-
"2900. Arbitration
(a) In the event of any question, dispute or difference arising under
these conditions or any special conditions of contract, or in
connection with this contract (except as to any matters the decision
of which is specially provided for by these or the special conditions)
the same shall be referred to the sole arbitration of a Gazetted
Railway Officer appointed to be the arbitrator by the General
Manager in the case of contracts entered into by the Zonal
Railways and Production Units; by any Member of the Railway
Board, in the case of contracts entered into by the Railway Board
and by the Head of the Organization in respect of contracts entered
into by the other Organizations under the Ministry of Railways.
The Gazetted Railway Officer to be appointed as arbitrator however
will not be one of those who had an opportunity to deal with the
matters to which the contract relates or who in the course of their
duties as railway servant have expressed views on all or any of the
matters under dispute or difference. The award of the arbitrator
shall be final and binding on the parties to this contract.
(b) In the event of the arbitrator dying, neglecting or refusing to act or
resigning or being unable to act for any reason, or his award being
set aside by the court for any reason, it shall be lawful for the
authority appointing the arbitrator to appoint another arbitrator in
place of the outgoing arbitrator in the manner aforesaid.
(c) It is further a term of this contract that no person other than the
person appointed by the authority as aforesaid should act as
arbitrator and that if for any reason that is not possible, the matter
is not to be referred to arbitration at all.
(d) The arbitrator may from time-to-time with the consent of all the
parties to the contract enlarge the time for making the award.
(e) Upon every and any such reference, the assessment of the cost
incidental to the reference and award respectively shall be in the
discretion of the arbitrator.
(f) Subject as aforesaid, the Arbitration Act, 1940 and the rules
thereunder any statutory modification thereof for the time being in
force shall be deemed to apply to the arbitration proceedings under
this clause.
(g) The venue of arbitration shall be the place from which the
acceptance note is issued or such other place as the arbitrator at
his discretion may determine.
(h) In this clause the authority, to appoint the arbitrator includes, if
there be no such authority, the officer who is for the time being
discharging the functions of that authority, whether in addition to
other functions or otherwise.
"2400. Withholding and lieu in respect of sums claimed.
2401. Whenever any claim or claims for payment of a sum of money
arises out of or under the contract against the Contractor, the
Purchaser shall be entitled to withhold and also have a lien to retain
such sum or sums in whole or in part from the security, if any,
deposited by the Contractor and for the purpose aforesaid, the
Purchaser shall be entitled to withhold the said cash security deposit
or the security, if any, furnished as the case may be and also have a
lien over the same pending finalization or adjudication of any such
claim. In the event of the security being insufficient to cover the
claimed amount or amounts or if no security has been taken from the
Contractor, the Purchaser shall be entitled to withhold and have lien to
retain to the extent of such claimed amount or amounts referred to
supra, from any sum or sums found payable or which at any time
thereafter may become payable to the Contractor under the same
contract or any other contract with the purchaser or the Government
pending finalization or adjudication of any such claim.
It is an agreed term of the contract that the sum of money or moneys
so withheld or retained under the lien referred to above, by the
Purchaser will be kept withheld or retained as such by the Purchaser
till the claim arising out of or under the contract is determined by the
Arbitrator (if the contract is governed by the arbitration clause) or by
the competent court as prescribed under Clause 2703 hereinafter
provided, as the case may be, and that the Contractor will have no
claim for interest or damages whatsoever on any account in respect of
such withholding or retention under the lien referred to supra and duly
notified as such to the otherwise."
Mr. Justice Nisith Kumar Batabyal, a former Judge of this Court was
appointed as an Arbitrator by an order dated 21st January, 2000 in an
application filed under Section 11 of the Arbitration and Conciliation Act, 1996.
The petitioner initially requested the appointing authority by a letter dated 2nd
February, 1998 to appoint an arbitrator in terms of Clause 2900 of the aforesaid
Contract. The appointing authority, however, by a communication dated 19th
May, 1998 refused to appoint the arbitrator on a plea that after the matter was
thoroughly examined by the competent authority in consultation with the
Eastern Railway's legal advisors as well as Joint-Secretary, Ministry of Law and
Justice and in view of legal opinion obtained the Railway Authorities are not
agreeable to refer to the dispute to arbitration. The contents of the letter dated
19th may, 1998 are reproduced below:-
EASTERN RAILWAY
Office of the
Controller of Stores,
Eastern Railway,
17, N.S. Road/ Fairlie Place
Calcutta - 700 001.
No.39/92/6002. Dated: 19-05-98.
M/x. Plazer Machine-Craft Pvt. Ltd.
19A, S.R. Das Road
Calcutta -700 026.
Dear Sirs,
Sub: Arbitration asked for against P.O. No.
39/92/6002/1/209638 dated 13-12-1995.
Ref: Your letter no.L97/Letter/555FFF/11815
dated 20-02-98.
---------------------------------
1.0 Please refer your letter under reference regarding referring the dispute to the Arbitration as per the General and Special conditions of contract. 2.0 The matter has been very thoroughly examined by the competent authority in consultation with Eastern Railway's legal adviser as well as Joint Secretary of Ministry of Law and Justice. As per legal opinion, we regret to inform you that the arbitration as requested by you is not tenable in law. 3.0 You are, therefore, requested to act in terms of relevant rejection advice of DCOS/E.Rly./Jamalpur. This also refers to this office M.A. No.39/92/6002/OT dated 09-02-1998.
Yours faithfully, (Jagdish Prasad) Dy. Cointroller of Stores/C& W for controller of Stores Copy to: DCOS/ER/Jamalpur - Suitable action may please be taken for disposal of rejected material as per extant rule.
(Jagdish Prasad) Dy. Controller of Stores/C&W In view of such refusal, an application for appointment of an arbitrator under Section 11 was filed before this Court. The said application was disposed of by appointing Justice Batabyal. The said order is reproduced below:- A.P. No.462 of 1998
In the High Court at Calcutta Ordinary Original Civil Jurisdiction Present :
The Hon'ble Justice PINAKI CHANDRA GHOSE 21.1.2000.
Blazer Machine Craft Pvt. Ltd.
Vs. Union Of India DICTATED ORDER THE COURT: It appears that there are certain disputes cropped up between the parties in terms of the agreement which had between the parties at the relevant time. The petitioner duly asked for arbitration in respect of the said dispute in terms of the arbitration clause. In spite of such request being made by the petitioner, no step has been taken by the respondents to refer the matter before the Arbitrator in terms of Section 11 of the present Act.
In my opinion a case has been made out by the petitioner since the disputes are covered under the agreement, and therefore the disputes be referred to the Arbitrator for adjudication.
Mr. Samaddar submitted that the respondents may have some claims against the petitioner, and in view of that they may be given leave to file their counter-claim, if any.
In these circumstances, this application is allowed, and the matter be placed before the Hon'ble Chief Justice for naming the Arbitrator.
The respondents are given liberty to file their counter-claim before the Arbitrator, as may be advised accordingly.
The application is thus disposed of.
All parties are to act on a Xerox signed copy of this Dictated Order on the usual undertaking.
(sd/- Pinaki Chandra Ghose) Thereafter, the arbitration commenced. Before the arbitrator the petitioner appeared and filed their counter-statement along with counter-claim. In the counter-statement in Paragraph 3, the petitioner has taken the point of jurisdiction. The said paragraph reads:-
"3. At the outset I state and submit that learned arbitrator has no jurisdiction to arbitrate the claims inasmuch as in terms of section 11(6) of the Arbitration and Conciliation Act, the Chief Justice or his designate is not to make an appointment but to enforce or compel the appointing authority to make an appointment. The respondent relies upon the decision of Madhya Pradesh High Court in the case of M/s. Shubhash Project Marketing Limited Vs. South Eastern Coalfield Limited. AIR 1998 MP 276 and affirm also in the case of Ashok Coal Depot Vs. Southeastern Coalfiled Limited reported in 2000(2) arb. LR 286. In the instant case the GM, Eastern Railway is the appointing authority to appoint an arbitrator in terms of clause 2900 of Indian Railway Standard Conditions of Contract. The expression 11(6) of the Arbitration & Conciliation Act, necessary measures mean the Chief Justice is to enforce and compel the authorities to make an appointment. The respondent craves leave to file Xerox copies of the two judgments at the time of hearing."
Mr. Partha Sarathi Bose, the learned Senior Counsel appearing with Ms. Aparna Banerjee submits that in view of the law prevailing at the relevant point of time notwithstanding the fact that the petitioner did not raise any objection before the learned Single Judge with regard to the jurisdiction of the learned Arbitrator to decide the dispute between the parties, the petitioner is not precluded from raising such plea before the arbitrator during the proceeding. It is submitted that the learned single Judge did not have the occasion to consider Clause 2900(c) which stipulates that no person other than the persons appointed by the authority should act as arbitrator and that if for any reason that is not possible, the matter is not to be referred to arbitration at all. It is submitted that in view of the communication made by the respondent in its letter dated 19th May, 1998, no arbitration proceeding could have commenced or continued. The only remedy available to the respondent was to file a suit. It is submitted that even in a proceeding under Section 11 of the Arbitration and Conciliation Act, 1996, the Court appointing an arbitrator cannot disregard the terms of the contract and having regard to the fact that the Clause 2900 clearly stipulates that in the event of any dispute or difference, the same shall be referred to the sole arbitration of a Gazetted Railway Officer to be appointed by the General Manger, the matter should be referred to the said appointing authority to make an appointment notwithstanding the expiry of the judicially recognized period of 30 days. In this regard, the learned Senior Counsel has referred to the following decisions:-
i) Union of India Vs. National Projects Construction Corporation Ltd. reported at 2014 (3) Arb. LR 233;
ii) SBP & Co. Vs. Patel Engineering Ltd. & Anr. reported at (2005) 8 SCC 610;
iii) Niraj Kumar Bohra Vs. Union of India. Reported at AIR 2009 Calcutta 59
iv) Union of India Vs. Builders Corporation Pvt. Ltd. Reported at 2009(4) CHN 252;
v) Supriya Kumar Saha Vs. Union of India, A.P.O No.329 of 2013, A.P. No.296 of 2007, judgment dated 24th December, 2013;
vi) Sayeed Ahmed & Company Vs. State of Uttar Pradesh & Ors.
reported at (2009) 12 SCC 26.
It is submitted that the learned arbitrator has decided the jurisdiction in his favour by relying upon the order passed by the learned Single Judge dated January 21, 2000 and the judgment of the Hon'ble Supreme Court in SBP & Co. Vs. Patel Engineering Ltd. & Anr. reported at (2005) 8 SCC 610 which was a clear error of law apparent on the face of record. It is submitted that the said judgment in SBP (supra) only prospective and could not affect a pending reference where by reason of the judgement of the Hon'ble Supreme Court in Konkan Railway Corporation Ltd. Vs. Mehul Construction Co. reported at 2000 (7) SCC 201 and Konkan Railway Corporation Ltd. Vs. Rani Construction (P) Ltd. reported at 2002 (2) SCC 338 the arbitrator would be competent to decide the jurisdictional issue notwithstanding a reference is made to him as the order appointing an arbitrator is an administrative order and not a judicial order. SBP (supra) has clarified that all appointments made following the decisions of the Supreme Court in Konkan Railway Corp. Ltd. (supra) are to be treated as valid but all objections being left to be decided under Section 16 of the Act.
It is submitted that in view of Clause 2400, the awarding of interest on the security amount is without jurisdiction inasmuch as the arbitrator could not have disregarded the expressed bar in contract against the claim for interest on such security amount. In this regard, the learned Counsel has referred to the following decisions:-
i) M/s. Sree Kamatchi Amman Constructions Vs. Divisional Railway Manager (Works), Palghat & Ors. reported at AIR 2010 SC 3337;
ii) Union of India Vs. Krafters Engineering & Leasing Pvt. Ltd.
Reported at (2011) 7 SCC 279;
iii) Union of India Vs. M/s. Concrete Products and Const. Co. Etc. reported at AIR 2014 SC 1914.
Per contra, Mr. Swarnandu Ghosh, learned Advocate representing the respondent submits that the respondent has waived their right to question the jurisdiction of the arbitrator in view of the order dated 21st January, 2000 appointing the arbitrator inasmuch as before the arbitration proceeding, the petitioner has made a counter-claim which clearly shows that the petitioner wanted its claim to be adjudicated by the arbitrator. The petitioner cannot approbate and reprobate. The intention of the petitioner to have its claim adjudicated is manifest from the notes of argument filed before the arbitrator where the respondent has specifically prayed for allowing its counter-claim in full.
The learned Senior Counsel has relied upon a decision of the Hon'ble Supreme Court in Bharat Aluminium Company Vs. Kaiser Aluminium Technical Services Inc. reported at (2016) 4 SCC 126 for the proposition that in the matter of construction and/or interpretation of deeds and documents, the intention of the parties are required to be taken into consideration.
The learned Senior Counsel, however, does not dispute that in terms of the agreement, the arbitrator could not have awarded any interest on the security amount.
In fact, the arbitrator did not specifically allow any interest on the security amount and only arbitration the arbitrator made was that the claim entitled to interest on the security amount, if any.
The petitioner has placed reliance upon a large number of decisions of the Hon'ble Supreme Court with regard to the jurisdiction of the arbitrator to decide the jurisdiction issued under Section 16 of the Arbitration and Conciliation Act, 1996 notwithstanding a reference being made by the Court on the basis of the law prevailing prior to SBP (supra).
The jurisdiction of the Court to appoint an arbitrator in a similar situation was considered by a Three-Judge Bench of the Hon'ble Supreme Court in Northern Railway Administration, Ministry of Railway, New Delhi Vs. Patel Engineering Company Ltd. reported at (2008) 10 SCC 240. The said judgment was rendered on the basis of a reference made to the Larger Bench noticing two different views in two decisions of the Hon'ble Supreme Court in ACE Pipeline Contracts (P) Ltd. Vs. Bharat Petroleum Corpn. Ltd. reported at (2007) 5 SCC 304 and Union of India Vs. Bharat Battery Mfg. Co. (P) Ltd. reported at (2007) 7 SCC 684. The Hon'ble Supreme Court on consideration interpreted Section 11 and its various sub-sections in Paragraphs 10 to 13 which read:-
"10. The crucial sub-sections are sub-sections (2), (3), (4), (5) and (6). Sub-
sections (3) to (5) refer to cases where there is no agreed procedure. Sub-section (2) provides that subject to sub-section (6) the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Sub-section (6) sets out the contingencies when party may request the Chief Justice or any person or institution designated by him to take necessary measures unless the agreement on the appointment procedure provides other means for securing the appointment. The contingencies contemplated in sub-section (6) statutorily are (i) a party fails to act as required under agreed procedure or (ii) the parties or the two appointed arbitrators fail to reach an agreement expected of them under that procedure or (iii) a person including an institution fails to perform any function entrusted to him or it under the procedure. In other words, the third contingency does not relate to the parties to the agreement or the appointed arbitrators.
11. The crucial expression in sub-section (6) is "a party may request the Chief Justice or any person or institution designated by him to take the necessary measures" (underlined for emphasis). This expression has to read alongwith requirement in sub-section (8) that the Chief Justice or the person or an institution designated by him in appointing an arbitrator shall have "due regard" to the two cumulative conditions relating to qualifications and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.
12. A bare reading of the scheme of Section 11 shows that the emphasis is on the terms of the agreement being adhered to and/or given effect as closely as possible. In other words, the Court may ask to do what has not been done. The court must first ensure that the remedies provided for are exhausted. It is true as contended by Mr. Desai, that it is not mandatory for the Chief Justice or any person or institution designated by him to appoint the named arbitrator or arbitrators. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations.
13. The expression "due regard" means that proper attention to several circumstances have been focussed. The expression `necessary' as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. Necessary measures can be stated to be the reasonable steps required to be taken."
The aforesaid decision was considered in a subsequent decision of the Hon'ble Supreme Court in Deep Trading Company Vs. Indian Oil Corporation & Ors. reported at (2013) 4 SCC 35. In the said decision it was held:-
"Section 11(6) of the Arbitration and Conciliation Act, 1996 makes provision for making an application to the Chief Justice concerned for appointment of an arbitrator in three circumstances: (a) a party fails to act as required under the agreed 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. If one of the three circumstances is satisfied, the Chief Justice may exercise the jurisdiction vested in him under Section 11(6) and appoint the arbitrator. In the present case, the dealer moved the Chief Justice under Section 11(6)(a) for the appointment of an arbitrator as the respondent Corporation failed to act as required under Clause 29 (the arbitration clause)."
In Deep Trading (supra) three basic facts were not in dispute, namely, (i) on 9-8-2004, the dealer called upon the Corporation by a written notice to appoint an arbitrator in accordance with the terms of Clause 29 of the agreement; (ii) the dealer made an application under Section 11(6) for appointment of the arbitrator on 6-12-2004; and (iii) the Corporation appointed the sole arbitrator on 28-12-2004 after the application under Section 11(6) was already made by the dealer.
The Larger Bench approved the views expressed in Datar Switchgears Ltd. Vs. Tata Finance Ltd. reported at (2000) 8 SCC 151 and Punj Lloyd Ltd. Vs. Petronet MHB Ltd. reported at (2006) 2 SCC 638 which would be evident from Paragraphs 15 to 20 of the report which read:-
"15. In Datar Switchgears, a two-Judge Bench of this Court considered the scheme of Section 11, noted the distinguishing features between Section 11(5) and Section 11(6) and then considered the question whether in a case falling under Section 11(6), the opposite party cannot appoint an arbitrator after the expiry of thirty days from the date of demand. This Court held that in cases arising under Section 11(6), if the opposite party has not made an appointment within thirty days of the demand, the right to make appointment is not forfeited but continues, but such an appointment has to be made before the first party makes application under Section 11 seeking appointment of an arbitrator. If no appointment has been made by the opposite party till application under Section 11(6) has been made, the right of the opposite party to make appointment ceases and is forfeited.
16. In Punj Lloyd, the agreement entered into between the parties contained arbitration clause. The disputes and differences arose between the parties. Punj Lloyd (appellant) served a notice on Petronet (respondent) demanding appointment of an arbitrator and reference of disputes to him. Petronet failed to act. On expiry of thirty days, Punj Lloyd moved the Chief Justice of the High Court for appointment of the arbitrator under Section 11(6). Petronet had not made appointment till the date of moving the application. The designate Judge refused to appoint the arbitrator holding that the remedy available to it was to move in accordance with the agreement. Aggrieved by the said order, a writ petition was filed which was dismissed and the matter reached this Court. A three- Judge Bench of this Court referred to Datar Switchgears and held that the matter was covered squarely by that judgment and the view taken by the designate Judge in dealing with the application under Section 11(6) and the Division Bench was not right. This Court restored the application under Section 11(6) before the Chief Justice of the High Court for fresh consideration and appointment of the arbitrator in accordance with Section 11(6).
17. We are in full agreement with the legal position stated by this Court in Datar Switchgears which has also been followed in Punj Lloyd.
18. Section 11(8) provides that Chief Justice or the designated person or institution, in appointing an arbitrator, shall have due regard to two aspects, (a) qualifications required of the arbitrator by the agreement of the parties; and (b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator. In Northern Railway Administration, a three-Judge Bench of this Court considered the scheme of Section 11. Insofar as Section 11(8) is concerned, this Court stated that appointment of the arbitrator or arbitrators named in the arbitration agreement is not a must, but while making the appointment the twin requirements mentioned therein have to be kept in view.
19. If we apply the legal position exposited by this Court in Datar Switchgears to the admitted facts, it will be seen that the Corporation has forfeited its right to appoint the arbitrator. It is so for the reason that on 09.08.2004, the dealer called upon the Corporation to appoint the arbitrator in accordance with terms of Clause 29 of the agreement but that was not done till the dealer had made application under Section 11(6) to the Chief Justice of the Allahabad High Court for appointment of the arbitrator. The appointment was made by the Corporation only during the pendency of the proceedings under Section 11(6). Such appointment by the Corporation after forfeiture of its right is of no consequence and has not disentitled the dealer to seek appointment of the arbitrator by the Chief Justice under Section 11(6). We answer the above questions accordingly.
20. Section 11(8) does not help the Corporation at all in the fact situation.
Firstly, there is no qualification for the arbitrator prescribed in the agreement. Secondly, to secure the appointment of an independent and impartial arbitrator, it is rather necessary that someone other than an officer of the Corporation is appointed as arbitrator once the Corporation has forfeited its right to appoint the arbitrator under Clause 29 of the agreement."
It is not disputed that the order appointing Justice Batabyal does meet at least one of the twin tests, namely, independence and impartiality of the person appointed as an arbitrator. The other question remains is the qualifications required of arbitrator by the agreement.
It is too late in the day to contend that the communication made by the authority concerned declining the reference to arbitration would only give a right to the respondent to pursue its remedies by filing a suit. This point was not raised or argued before the learned arbitrator. On the contrary, the petitioner before the arbitrator has prayed for adjudication of its counter-claim.
The other significant factor required to be taken into consideration is with regard to the stand of the petitioner before the learned Single Judge at the time of hearing of the application for appointment of arbitrator.
It would appear from the order that the respondent, in fact, had prayed for adjudication of their claim before the arbitrator. This clearly shows that the respondent wanted to have the matter adjudicated by the arbitrator. This would constitute a waiver. Any pleading filed thereafter before the arbitrator with the phrase "without prejudice" would be of little or no consequence. The phrase "without prejudice" is to be contextually applied and understood. The petitioner, in fact, has invited the arbitrator to adjudicate its counter-claim and having suffered an award cannot now turn around and question the jurisdiction of the arbitrator on the ground of quorum-non-juris. The prayer for consideration of counter-claim coupled with submission of counter-claim before the arbitrator clearly estopped the petitioner now to raise objection about the constitution of arbitral tribunal. The petitioner has consciously agreed to have the dispute resolved by a Court appointed arbitrator and not by a Gazetted Railway Officer. The petitioner cannot approbate and reprobate. The intention of the petitioner to have its claim adjudicated is manifest from the notes of argument filed before the arbitrator where the respondent has specifically prayed for allowing its counter-claim in full. Moreover, in my view, the appointment of a Gazetted Railway Officer refers to the status of the arbitrator and possibly not to his qualification. Under such circumstances, the ground of challenge to the jurisdiction of the arbitrator in deciding the dispute is rejected.
However, in so far as the claim on account of interest on the security amount is concerned there being an express bar, the same cannot be allowed. The said security amount shall not carry any interest. The award stands modified to the aforesaid extent. The application for setting aside the award is, thus, allowed in part. Accordingly, the matter is disposed of.
However, there shall be no order as to costs.
Urgent xerox certified copy of this judgment, if applied for, be given to the parties on usual undertaking.
(Soumen Sen, J.)