Calcutta High Court
Als-Mbl Joint Venture vs The State Of West Bengal on 3 March, 2020
Author: Ashis Kumar Chakraborty
Bench: Ashis Kumar Chakraborty
IN THE HIGH COURT AT CALCUTTA
ORIGINAL JURISDICTION
ORIGINAL SIDE
APO 46 of 2019
GA 492 of 2019
ALS-MBL JOINT VENTURE
VS.
THE STATE OF WEST BENGAL
BEFORE:
The Hon'ble JUSTICE ASHIS KUMAR CHAKRABORTY
For the petitioners: Mr. Jayanta Kumar Mitra, Sr. Advocate,
Mr. Ayan Banerjee, Advocate,
Mr.Arijit Bhowmik, Advocate,
Mr.Soumo Chaudhury, Advocate.
For the respondent: Mr. Jishnu Chowdhuri, Advocate,
Mr. Paritosh Sinha, Advocate.
Judgement on: 03.03.2020
Ashis Kumar Chakraborty, J.
This is an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (in short, "the Act of 1996") at the instance of the claimant against the majority decision passed by the Arbitral Tribunal on November 22, 2018 allowing the objection raised by the respondent with regard to maintainability of the arbitration proceeding. The appellant has also filed an application, GA No. 492 of 2019 praying for stay of operation of the said impugned majority decision of the Arbitral Tribunal.
Shortly stated, the facts leading up to the present appeal are that in response to the notice inviting tender issued by the respondent, State of West Bengal for improvement of Chakda-Bongaon and Kapa-Barajaguli Section of State Highway 1 under the West Bengal Corridor Development Project, the appellant being the Joint Venture of two companies, namely A. L. Sudershan Construction Company Limited and Mackintosh Burn Limited submitted the bid which was accepted by the respondent on August 12, 2005 and the contract price was fixed at Rs.79,96,70,805.00/-. The terms and conditions of the contract relating to the subject work were those stipulated in the conditions of the contract forming various parts, as well as those stipulated in the Condition of Particular Applications (hereinafter referred to as "the COPA") and the various sub-clauses thereunder. As per sub-clause 67.1 of the COPA any dispute of any kind whatsoever arising between the parties herein in connection with or arising out of the said contract would initially be referred in writing to the Disputes Adjudication Board (hereinafter referred to as "the DAB") for its decision. The said sub-clause further provided that unless the member or members of the DAB have been previously mutually agreed upon by the parties and named in the contract, the parties shall, within 28 days of the commencement date, jointly ensure the appointment of the DAB. The said sub-clause also contemplated, inter alia, that if the parties fail to agree upon the appointment of a replacement member of the DAB within 28 days from the date on which a member of the Board declines to act or is unable to act as a result of death, disability, resignation or termination of appointment the "appointing body" or the "official named in the Appendix to Bid" shall, after due consultation with the parties, appoint such member of the DAB and such appointment shall be final and conclusive. The said DAB was required to communicate its decision, on the disputes referred to it, within 84 days from the date of receipt of the reference of the disputes. As per sub- clause 67.3 of the COPA if either party is dissatisfied with the decision of the DAB or the DAB fails to give notice of its decision the parties shall attempt to settle such dispute amicably before the commencement of arbitration. However, unless the parties do not agree otherwise, arbitration may be commenced on or after fifty-sixth day after the day on which the notice of dissatisfaction was given, even if no attempt for amicable settlement has been made. Further, sub-clause 67.4 of the COPA contemplated that any dispute in respect of which the decision, if any, of DAB has not become final and binding under sub-clause 67.2 and amicable settlement has not been reached, such disputes between the parties herein shall be referred to arbitration of two Arbitrators (one be appointed by each party) and a Presiding Arbitrator be appointed by the Arbitrators.
It is the case of the appellant, despite its readiness, willingness and competence to complete the works under the contract within the stipulated date of completion due to delays and defaults on the part of the respondent and for reasons beyond its control the work was completed in the month of January, 2010. At this juncture, it is to be noted that in this case long after expiry of 28 days from the commencement date, on February 15, 2006 the parties had mutually appointed Shri Narendranath Roychaudhuri, retired Secretary of the Government of West Bengal, as the sole member of the DAB. The appellant claims that due to the delay in completion of the contract it had not only suffered huge loss but the respondent even refused to pay its legitimate dues. By a letter dated May 12, 2012 the appellant referred the disputes and differences arisen between the parties with regard to its claim against the respondent to Shri Raychaudhuri, the sole member of the DAB under Clause 67.1 of the COPA. However, by a letter dated May 27, 2012 Shri Raychudhuri informed the petitioner and the Project Director of the respondent that by letter dated December 29, 2010 he had already expressed that his service as the member of the DAB may not be required beyond January 31, 2011 and specific consent of both parties are required regarding his continuation as the member of the DAB. By a letter dated July 26, 2012 the petitioner informed Shri Raychaudhuri that it is agreeable in continuation of his service as a member of the DAB for adjudication of the disputes and differences in relation to the subject works. A copy of the said letter was also forwarded to the Project Director of the respondent seeking for his quick response. The Project Director of the respondent, being the competent authority of the respondent received the said letter dated November 26, 2012 but did not respond to the same. The respondent even did not make any proposal for appointment of a new member of the DAB. On April 26, 2012 the appellant wrote a letter dated November 26, 2012 to the Project Director of the respondent asserting that in view of the conduct of the respondent in not responding to the said letter dated July 26, 2012 it seems that process of adjudication through DAB is not possible and as such, it is entitled to invoke arbitration and refer the matter to the Arbitral Tribunal. By the said letter the appellant invoked sub- clause 67.4 of COPA and nominated a retired Chief Engineering of Metro Railway, Kolkata as its nominee Arbitrator and requested the respondent to appoint its nominee Arbitrator within 60 days. Thereafter, on March 15, 2013 the Project Director of the respondent issued a letter to the petitioner informing that as per sub-clause 67.4 of the COPA the respondent has appointed a retired Secretary of Housing Department of the Government of West Bengal as their nominee Arbitrator. Thereafter, both the Arbitrators appointed one retired Judge of this Court as the Presiding Arbitrator.
After the Arbitral Tribunal entered into reference both the parties were directed to file their respective pleadings. The claimant filed statement of claim on July 24, 2013. On November 26, 2014 the respondent filed an application under Section 16 of the Act of 1996. In the said application the respondent raised objection to the maintainability of the arbitration proceeding on three grounds. In the first place, it was urged that the claimant had already received final payment of the tender work. Secondly, the claimant had accepted the final measurement drawn by the respondent. Thirdly, the disputes between the parties cannot be decided in arbitration without the dispute being first referred to the DAB. The claimant appellant contested the said application. On April 7, 2015 the Arbitral Tribunal held that the grounds urged by the respondent in the application under Section 16 of the Act of 1996 would involve questions of the fact and rejected the said application. The Arbitral Tribunal, however, held that their said decision is without prejudice to the rights of the respondent and the question of maintainability of the arbitration proceeding, if raised by the respondent, will be adjudicated at the final stage of the proceeding. On June 1, 2015 the respondent filed its statement of defence, raising objection to the maintainability of the arbitral proceeding, inter alia, on the ground of absence of the reference proceeding before the DAB. Thereafter, the petitioner adduced evidence through its witness. The respondent, however, did not adduce any evidence through any witness. On February 07, 2017 the Presiding Arbitrator passed his decision that the claimant, the appellant herein having not exhausted the procedure of DAB is not entitled to maintain the arbitration proceeding. However, the Arbitrator nominated by the claimant held that in the present case when by the letter dated July 26, 2012 the claimant gave its consent to the continuance of Sri Raychaudhuri as the member of the DAB there was substantial compliance by the claimant of the requirement of sub-clause 67.1
(d) of the COPA. Even the nominee Arbitrator appointed by the respondent agreed with the decision of the nominee Arbitrator of the claimant. The respondent changed its nominee Arbitrator and filed an application before the Arbitral Tribunal for review of their majority decision dated February 7, 2018. The claimant appellant filed their counter-affidavit and raised objection to the maintainability of the said review application before the Arbitral Tribunal. The respondent contended the said review application. By an order dated October 1, 2018 the Arbitral Tribunal held that the respondent did not get an opportunity to argue on the question of sufficiency of the letter dated July 26, 2012 as to the requirement of sub-clause 67.1 (d) of the COPA and there was a procedural defect which can be corrected through review/recall of the order dated February 7, 2018. Thus, by the said order the Arbitral Tribunal allowed the review application filed by the respondent and recalled the said order dated February 7, 2018.
Thereafter, the Arbitral Tribunal held fresh hearings to decide the issue raised by the respondent alleging lack of its jurisdiction to proceed with arbitral proceeding on the ground of absence of the proceeding before the DAB. After hearing the argument advanced by the learned counsel appearing for the respective parties, the new Arbitrator nominated by the respondent held admittedly the claimant by its letter dated July 26, 2012 expressed its agreement in continuance of the services of Shri Raychowdhuri as the sole member of the DAB for adjudication of the disputes and differences between the parties and consent from the respondent was expected by the claimant. The respondent did not give its consent nor proposed for replacement of sole member of the Board as provided in sub-clause 67.1 (d) of the COPA or reconstitution of a three member Board as originally agreed upon. Thus, according to the said Arbitrator, there was a failure on the part of both the parties to appoint the DAB after the sole member of the DAB refused to adjudicate the dispute and difference unless consent is given by the both the parties. He held that appointment of the DAB was the responsibility of both the parties and the letter dated July 26, 2012 addressed to the sole member of the DAB by the claimant with a copy to the respondent cannot be treated as substantial compliance of sub-clause 67.1(d) of the COPA.
The Presiding Arbitrator held that when the respondent in the arbitral proceeding did not intimate its consent to the claimant's willingness to the continuance of Shri Raychudhuri as the sole member of the DAB as per sub-clause 67.1(d) of the COPA the claimant ought to have approached the respondent to agree to a proposal of replacement of Shri Raychaudhuri by any other suitable qualified person. Relying on the decision of the Supreme Court in the case of Commissioner of Central Excise -vs- Harichand Sri Gopal reported in (2011) 1 SCC 236 cited by the respondent, the Presiding Arbitrator further held that, in case even the respondent kept silence the claimant could have availed of arbitration for resolving the disputes under sub-clause 67.4. He further held that in the present case requirement of sub-clause 67.1(d), which were not complied could not be treated as a minor of irregularity. The Presiding Arbitrator held that mechanism prescribed in sub-clause 67.1 was not exhausted by the claimant in not asking the respondent for replacement of the sole member of the DAB, the letter dated July 26, 2012 issued by the claimant was not sufficient compliance of sub-clause 67.1 (d) of the COPA and, therefore, reference of the disputes to arbitration is bad as the stage was not reached when the arbitration was availed. With these findings the Presiding Arbitrator concluded that the arbitration proceeding is not maintainable as the tribunal does not have any jurisdiction to try the disputes refer to it.
However, the Arbitrator nominated by the claimant held that any provision, for its strict compliance must itself be a complete code. According to him, in the absence of any appointing authority as referred to sub-clause 67.1(d) of the COPA the said Clause cannot be strictly complied with. He further held that although the consent to continue with Shri Raychaudhuri was available from the claimant but no such consent was forthcoming from the respondent and it is to be concluded that the respondent was unwilling to continue to carry the dispute redressal through DAB. With the silence of the respondents to the petitioner's offer to continue with the service of Shri Raychaudhuri as the sole member of the DAB, the respondent had in effect frustrated the process of pre-arbitral adjudication of disputes. Considering the documents on record the said Arbitrator found that by the said letter dated March 15, 2013 even the respondent had given a go-bye to the pre-arbitral steps by positively acting in referring the disputes to arbitration. Therefore, the nominee Arbitrator of the claimant appellant held that the Arbitral Tribunal has full jurisdiction to decide the disputes refer to it. Nevertheless, in view of the majority decision of the Presiding Arbitrator and the nominee Arbitrator of the respondent the application filed by the respondent under Section 16 of the Act of 1996 stood allowed.
Mr. Jayanta Kumar Mitra, learned Senior Counsel appearing in support of the appeal submitted that the order dated October 1, 2018 passed by the Arbitral Tribunal entertaining the application filed by the respondent for review of the order dated February 7, 2018 resulting in recalling of the said order dated February 7, 2018 as well as the majority decision of the Arbitral Tribunal holding that the arbitration proceeding is not maintainable are patently illegal and vitiated by perversity. It was argued for the appellant that as per sub-clause 67.1 of the COPA the disputes and differences arising between the parties out of the contract would initially be referred to in writing to the DAB for its decision. As per said sub-clause unless the member or the members of the DAB have been previously, mutually agreed upon by the parties and named in the contract the parties shall, within 28 days of the commencement date jointly ensure the appointment of the DAB. Further, sub-clause 67.1(d) of the COPA contemplated that if the parties fail to agree upon the replacement of a member of the Board of DAB within 28 days of the date on which a member of the Board declines to act or is unable to act as a result of death, disability, resignation or termination of appointment then the "appointing body" or "the official named in the Appendix Bid"
shall, after due consultation with the parties, appoint such member of the Board, and such appointment shall be final and conclusive. Mr. Mitra pointed out that the in the present case, neither there has been any "appointing body" nor any "Official named Appendix to Bid" who could appoint a substitute member of the DAB in consultation with the parties. Therefore, according to Mr. Mitra, the claimant was justified in expressing the willingness in continuance of the service of the said Shri Raychoudhury as the member of the DAB. He further submitted that a copy of the said letter dated July 26, 2012 issued by the claimant to Shri Raychaudhuri was forwarded to and received by the competent authority of the respondent but the respondent did not respond to the same. After waiting for a period of four months by letter dated November 20, 2012 the claimant appellant informed the respondent that in view of their inaction to respond to the said letter dated July 26, 2012 it seems that the process of adjudication through DAB is not possible and as such, the claimant appellant invoked the arbitration clause to refer its claim to the Arbitral Tribunal. By the said letter the petitioner also appointed its nominee Arbitrator and requested the respondent to appoint its nominee Arbitrator. Mr. Mitra next submitted that by the letter dated March 20, 2013 the Project Director of the respondent, being the competent authority did not dispute the assertion made by the petitioner that the process of adjudication through DAB is not possible and the respondent also invoked the arbitration Clause contained in sub-clause 67.4 of the COPA for appointing the retired Secretary of Housing, Government of West Bengal as the respondents' nominee Arbitrator. It was contended that the respondent accepted that the adjudication of the disputes and differences arisen between the parties cannot be referred to the DAB and it consciously invoked the arbitration clause, in any event, the respondent waived its right/for appointment of the DAB. It was urged by the appellant that in any event the respondent by appointing its nominee Arbitrator waived the right to refer the disputes to DAB. In this regard, learned Senior counsel relied on the Section 4 of the Act of 1996 and the decision of the Supreme Court in the case of M.K. Shah Engineers and Contractors -vs.- State of Madhya Pradesh, reported in (1999) 2 SCC 594. It was strenuously argued that in the present case the decision of the Presiding Arbitrator and that of the nominee Arbitrator of the respondent that the arbitration proceeding was not maintainable for non-compliance of sub-Clause 67.1(d) of COPA is vitiated by patent illegality and perversity. It was further submitted that the decision of the Supreme Court in the case of Hari Chand Sri Gopal (supra) which is an authority for interpretation of an exemption notification issued under the Central Excise Tariff Act, 1985 has no application in this case. Learned Senior Counsel for the claimant appellant pressed for setting aside of the said majority decision of the Arbitral Tribunal.
On the other hand, Mr. Jishnu Chaudhuri, learned Counsel for the respondent submitted that the two Arbitrators and the Presiding Arbitrator held that the respondent did not have any opportunity to meet the point of substantial compliance of sub- Clause 67.1 (d) of COPA which was the basis of the majority decision of the Arbitral Tribunal dated February 07, 2018. According to him, a point of the procedural aspect of the arbitral proceeding arose and the Arbitral Tribunal rightly entertained the application for review of the majority decision dated February 07, 2018. It was argued that the decision of the Arbitral Tribunal dated October 01, 2018 recalling the earlier order dated February 07, 2018 suffers from no infirmity of law. He further submitted that, in any event, the claimant appellant has not filed the present appeal against the said order dated October 01, 2018 passed by the Arbitral Tribunal and as such, they cannot advance any argument to challenge the correctness of the said order. It was further argued for the respondent that the procedure followed by the Arbitral Tribunal to decide the objection raised by the respondent to the maintainability of the arbitration proceeding was absolutely correct. According to Mr. Chaudhuri, sub-Section (2) of Section 16 of the Act of 1996 in clear term lays down that a party shall not be precluded from raising a plea of lack of jurisdiction of the Arbitral Tribunal because he has pointed or participated in the appointment of an Arbitrator. Therefore, it was contended in spite of appointing its nominee Arbitrator by the said letter dated March 15, 2013 the respondent was entitled to challenge the jurisdiction of the Arbitral Tribunal to proceed with the arbitration proceeding. It was argued that there is no merit in the contention of the claimant appellant based on Section 4 of the Act of 1996. It was emphasised that it is settled law that an arbitration agreement has to be strictly construed and in the facts of the present case, the majority decision of the Arbitral Tribunal dated November 22, 2018 holding that the arbitration proceeding is not maintainable for non-compliance of sub-clause 67.1(d) of the COPA suffers from no legal infirmity and this Court would dismiss the appeal filed by the claimant appellant. It was lastly contended that the claimant in the arbitral proceeding was a joint-venture company and the present appeal filed the said joint venture Company, which is not a legal entity, is not maintainable. In this connection, learned counsel for the respondent referred to order XXX of the Code and the Division Bench decision of this Court in the case of Munshilal and Sons -vs- Modi Brothers, reported in 51 CWN 563. The respondent also cited the decision of a Co-ordinate Bench of this Court in the case of Gouranga Lal Chatterjee & Ors. -vs- Income Tax Officer & Ors., reported in (2001) 247 ITR 737 (Cal). Learned Counsel for the respondent pressed for dismissal of the appeal filed by the claimant appellant on the grounds urged by him.
In view of the objection raised by the respondent with regard to the maintainability of the appeal by the joint venture I find it appropriate to decide such appeal. In the present case, the appellant joint venture was awarded the contract by the respondent. The arbitration agreement is between the appellant joint venture and the respondent is the claimant in the arbitral proceeding. It is the appellant joint venture who was entitled to and invoked the arbitration clause. Further, the respondent has also invoked the arbitration agreement against the appellant joint venture who has executed the contract. The appellant joint venture is the claimant in the arbitral proceeding. Accordingly, the joint venture is entitled to maintain this appeal. This view is supported by the decision of a Co-ordinate Bench of this Court in the case of Munshilal and Sons (supra) cited by the respondent. Order XXX of the Code of Civil Procedure applicable for filing a suit by firms has no application in this case. In the case of Gouranga Lal Chatterjee (supra), a Co-ordinate Bench of this Court was dealing with a case under the Income Tax Act, 1961 and held that in view of the definition of "person" in Section 2(31)(v) of the same Act a joint venture cannot be treated as a "person". Even the said decision has no application in this case. Accordingly, I hold that the present appeal filed by the appellant is maintainable. With regard to the appellant's challenge to the decision of the Arbitral Tribunal dated October 01, 2018 recalling the earlier order dated February 07, 2018 I do not find any illegality being committed by the Arbitral Tribunal.
Now, I proceed to deal with the merit of the appeal filed by the appellant against the majority decision of the Arbitral Tribunal dated November 22, 2018.
Sub-Clause 67.1(d) of the COPA provides that any disputes or difference arising between the parties herein in connection with, or arising out of the contract or the execution of the works etc. shall be initially referred to in writing to the DAB for its decision. In terms of said sub-clause unless the member or members of the DAB have been previously, mutually agreed upon by the parties and named in the contract, the parties shall, within 28 days of the commencement date, jointly ensure the appointment of the DAB comprising one or three members, as stated in the Appendix to Bid. Further Sub-clause 67.1 (d) of the COPA contemplated four occasions when the "appointing body" or "the Official named in the Appendix to Bid" shall, after due consultation with the parties, appoint such member of the Board which shall be final and conclusive. One of such occasion was when the parties fail to agree upon the appointment of a replacement member of the DAB within 28 days of the date on which a member of the Board declines to act or is unable to act as a result of death, disability, resignation or termination of appointment, the "appointing body" or "the Official named in the Appendix to Bid"
could, after due consultation with the parties, appoint the member of the DAB. However, both the member Arbitrators as well as the Presiding Arbitrator found that in the instant case, admittedly no "appointing body" was appointed nor there was any "official named in the Appendix to Bid" who could, after due consultation with the parties appoint any new member of DAB to replace Shri Raychudhuri under sub-clause 67.1(d) of COPA. Thus, in the case on hand, there was no scope for the parties to comply with sub-clause 67.1(d) of the COPA in its entirety. In other words, there was no scope for strict compliance of sub-clause 67.1(d) of the COPA by the parties.
By the letter dated July 26, 2012 the claimant appellant not only expressed the readiness and willingness in continuance of the service of Shri Raychudhuri as the member of the DAB but also expressed its expectation for a quick response from the respondent employer so that the matter is not kept in abeyance for long. The respondent received the letter dated July 26, 2012 but it did not reply to the same. The respondent did not consent to the proposal of the claimant appellant for the continuance of Shri Raychudhuri acting as a member of the DAB as suggested by the petition. Nonetheless, the respondent even did not intend that a new member of the DAB be appointed in consultation with the claimant appellant. Thus, after waiting for four months, by the letter dated December 26, 2012 the claimant appellant informed the Project Director of the respondent, being the competent authority that it seems that the process of adjudication through DAB is not possible and as such it invoked, arbitration Clause by nominating its Arbitrator. By the letter dated March 15, 2013 addressed to the claimant appellant, the Project Director of the respondent being the competent authority did not deny the claimant's assertion in the said letter dated November 26, 2012 that it seems that the process of adjudication through DAB is not possible. The respondent, however, invoked sub-Clause 67.4 of COPA and appointed Shri Tarak Nath Sinha, Retired Secretary of Housing Department, Government of West Bengal to act as an Arbitrator for adjudicating the disputes and differences arisen between the parties out of the contract. From a bare reading of the letter dated March 15, 2013 it is ex-facie evident that there was a conscious decision of the respondent to invoke the arbitration clause contained in sub- clause 67.4 of the COPA and as such, it appointed the nominee Arbitrator to adjudicate the disputes and differences between the parities herein. For all these reasons, I find that the appellant is justified in its contention that the respondent was not entitled to challenge the jurisdiction of the Arbitral Tribunal to proceed with the arbitration proceeding to adjudicate the disputes and differences arisen between the parties herein. Further, as discussed above in this case when there was no scope for either of the parties to strictly comply with sub-clause 67.1(d) of the COPA and the respondent consciously invoked the arbitration clause, the appellant is also justified to contend that the majority decision of the Arbitral Tribunal in the impugned order dated November 22, 2018 is vitiated by patent illegality and perversity. Such contention is accepted by this Court.
For all the foregoing reasons, this appeal succeeds and the majority decision of the Arbitral Tribunal dated November 22, 2018 is set aside. The Arbitral Tribunal is directed to adjudicate the disputes arisen between the parties, resulting in claims of the claimant appellant on merit.
The Arbitral Tribunal shall make and publish the award within the month of June, 2019. If necessary the Arbitral Tribunal shall hold the arbitral sittings on day to day basis, without entertaining any prayer for adjournment at the instance of either of the parties.
With the above directions, the appeal as well as the stay application both stands disposed of.
There shall, however, be no order as to costs.
Urgent certified website copies of this judgment, if applied for, be made available to the parties subject to compliance with the requisite formalities.
(Ashis Kumar Chakraborty, J.)