Bombay High Court
Municipal Corporation Of Gr. Bombay & ... vs M/S. Kulkarni & Co. & Another on 5 November, 1998
Equivalent citations: 1999(1)BOMCR269
ORDER P.S. Patankar, J.
1. This is challenging the Award dated 14th June, 1996. The respondent No. 1 was granted the work of construction of a School Building at Malvani, Malad (West). The petitioners issued a letter dated 6th May, 1985 entrusting the said work to the respondent No. 1. This was because of the earlier grant of work to the respondent No. 1 for building a school of Gandhigram Scheme School at Juhu. The same rates were affected for the construction at Malwani. Respondent No. 1 sent a letter dated 8th May, 1985 giving proposal for the lumpsum payment for steel for the construction with an additional premium of 9.9%. The Additional Municipal Commissioner gave approval on 15-5-85 to the said proposal of the respondent No. 1. On 6th August, 1985, the Executive Engineer conveyed the said decision of the Additional Municipal Commissioner. The date of commencement was fixed at 11-7-85 and to be completed before September 1988. The contract was valued at Rs. 1,33,20,500/-. On 12th December, 1985, the Education Committee passed a resolution, inter alia, sanctioning the said grant of the contract including making the general terms and conditions applicable to the said contract. On 7th March, 1986, the petitioners issued a work order to the respondent No. 1. The respondent No. 1 was further asked to give security deposit, various insurance policies and to complete the contractual formalities and return the document duly signed. The respondent No. 1 complied with those formalities. On 3rd July, 1986, the General Body of the Municipal Corporation passed a resolution approving Awarding of the said contract as per the Education Committee Resolution. On 21st April 1986, the contract document was signed by respondent No. 1 and forwarded to the petitioners for necessary completion of the formalities. Four copies thereof were also sent. It seems that one copy was returned to the respondent No. 1 signed by the Executive Engineer of the petitioners. On 15th September, 1987, the petitioner issued a letter to the respondent No. 1 informing the termination of the contract. As the respondent No. 1 has completed some work, he approached the Municipal Commissioner. The Municipal Commissioner agreed for appointment of an independent expert adviser for valuing the work completed. As the respondent No. 1 wanted to allot the said work to a 3rd party, the petitioners filed a suit in the City Civil Court for injunction. The respondent No. 1 also sought an interim order in the said matter. As the interim order was not granted the respondent No. 1 filed Appeal from Order No. 1312 of 1992 in this Court. My brother Sawant, J., passed an order dated 17th December, 1992 referring the said dispute about the payment in respect of the work done to an independent expert adviser or an arbitrator whose advice or Award would be binding upon both the parties. In the Civil Application No. 2788 of 1993 taken out in the said A.O., an order came to be passed on 24-11-93. By consent, the matter was referred to an arbitrator acceptable to both the parties. Later on, Arbitration Petition No. 26 of 1995 was filed by the respondent No. 1 praying for appointing an arbitrator. On 24th March, 1995, my brother Variava, J., passed an order referring certain claims of the respondent No. 1 for arbitration. Respondent No. 1 filed Appeal No. 268 of 1995 praying that the other claims may also be referred for arbitration. The Division Bench passed the order on 24-7-96 referring those other claims for arbitration Justice Chandurkar (Chief Justice Rtd.) There is no dispute that those claims are also arbitrated by Justice Chandurkar, Chief Justice (Rtd.) and the payments are also made by the petitioner to the respondent No. 1 in that respect.
2. On 14th June, 1996, the impugned Award has been passed by the learned Arbitrator.
3. The learned Counsel appearing for the petitioner has assailed the said Award on 3 grounds.
4. The main argument advanced by the learned Counsel for the petitioner is that there was no concluded contract between the parties and hence there could have been no arbitration proceedings and the Award was invalid. Considering the earlier orders passed by this Court, it is not possible to accept that there could have been no reference for arbitration. The orders were passed by this Court practically by consent of the parties. Further part of the claim was referred by the order passed by the Division Bench to the arbitrator, Mr. Justice Chandurkar (Retired Chief Justice). It was arbitrated and the petitioner has also made the payment to the respondent No. 1 under it.
The next question is whether there was concluded contract between the parties or not. The learned Counsel for the petitioner submitted that there was no contract complying with the provisions of sections 69, 70 and 71 of the Bombay Municipal Corporation Act, 1888. Section 69 of the said Act confers power on the Commissioner to execute the contract on behalf of the Corporation and section 70 sets out the mode of executing such contract entered into by the Commissioner in such manner and form as would bind the Commissioner, if such contract is on his behalf. Section 70(1)(a) provides that the contract shall be sealed with the common seal of the Corporation.
Section 71 prescribes that no contract of the nature specified in sub-section (2) of section 70, not executed as provided in the said section, shall be binding on the Corporation. It is the contention of the learned Counsel for the petitioner that there was no common seal of the Corporation put upon it as per section 70(1)(a) and it was not signed by the two members of the Education Committee as provided by the proviso to sub-section (2) of section 70. Hence it was not executed as per section 70 and not binding on the Corporation.
5. As noted above, the respondent No. 1 was issued with the work order by the petitioners. The proposal made by the petitioner for increasing the steel rate was accepted by the Additional Commissioner of respondent No. 1. Respondent No. 1 has also sent four copies of the contract signed by him. One copy signed by the Executive Engineer was also given to him. The Education Committee has also passed the resolution sanctioning the grant of the contract to respondent No. 1 on 12-12-85. The Corporation itself in its General Body Meeting on 3-7-86 approved the Awarding of the said contract as per the Education Committee's Resolution. Section 61 provides for certain obligatory matters which the petitioner has to carry out. Section 61(Q) provides for making suitable accommodation available for primary school education. Section 70(2) is as under :---
"70(2) The common seal of the Corporation which shall remain in the custody of the Municipal Secretary, shall be affixed in the presence of two members of the Standing Committee to every contract or other instrument (other than contract relating to the acquisition of immovable property or interest therein or a right thereto), require to be under seal and such contract or instrument shall be signed by the said two members of the Standing Committee in token that the same was sealed in their presence. The signatures of the said members shall be distinct from the signatures of any witnesses to the execution of any such contract or instrument.
Provided that in the case of any contract entered into for the purposes of Clause (Q) of section 61, the seal shall be so affixed in the presence of, and the contract shall be signed by, two members of the Education Committee in lieu of two members of the Standing Committee."
When the Education Committee itself has approved the grant of contract to the petitioner, it cannot be said that the proviso to section 70(2) is not complied with in the present case. The contract is not merely signed by two members of the Education Committee, but it was approved by the entire Education Committee.
6. Section 5 of the Bombay Municipal Corporation Act, 1888 provides for composition of the Corporation. Section 5(2) reads as under :--
"5(2) The Corporation shall, by the name of "The Municipal Corporation of Greater Bombay" be a body corporate and have perpetual succession and a common seal and by such name may sue and be sued"
Section 64 provides for functions of the several Municipal Authorities. It reads as under:--
"64(1) The respective functions of the several municipal authorities and of any committee appointed under section 39, 40, 41, 49-A or 50 shall be such as are specifically prescribed in or under this Act.
(2) Except as in this Act otherwise expressly provided, the Municipal Government of (Greater Bombay) vests in the Corporation."
When the General Body of the Corporation has put its seal on the contract by approving it in its General Body Resolution dated 3rd July, 1986. This is nothing but putting common seal of the Corporation. The Corporation under section 5(2) is a body corporate having perpetual succession and a common seal. Therefore, it is not possible to accept that no common seal was put and hence there was no concluded contract. Considering the above facts, first it cannot be said that there was no concluded contract between the parties. In any case, at the most one can say that there was some irregularity in it, but the petitioner cannot take advantage of such irregularity. When the respondent No. 1 has as per the work order gave the necessary security deposits, legal charges and executed insurance policies and also carried out part of the contractual work it would be highly unfair to raise and accept such contention. Further, such a contention was not raised when this Court has passed the orders referring the dispute to the arbitration, as mentioned above.
7. The learned Counsel for the petitioners then submitted that there was variation made in the contract by the respondent No. 1 by letter dated 8th May, 1985. He submitted that according to section 69(e) of the B.M.C. Act, this should have been as per procedure required for execution of original contract. Since it was not done there could have been no variation and respondent No. 1 is not entitled to claim the benefit it thereunder. Section 69(e) reads as under :--
"69. With respect to the making of contracts under or for any purpose of this Act, the following provisions shall have effect, namely :--
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(e) the foregoing provisions of this section shall, as far as may be, apply to every contract which the Commissioner shall have occasion to make in the execution of this Act; and the same provisions of this section which apply to an original contract shall be deemed to apply also to any variation or discharge of such contract."
As pointed out above, the proposal made by the respondent No. 1 by letter dated 8th May 1985 was approved by the Additional Commissioner on 15th May, 1985 and the Executive Engineer communicated the said decision to the respondent No. 1 by letter dated 6th August, 1985. The resolution was passed by the Education Committee on 12-12-85 approving the grant of contract to the respondent No. 1. The work order was issued on 7th March, 1986. The General Body of the Municipal Corporation approved grant of the said contract as per the resolution of the Education Committee by resolution dated 3-7-1986. Considering the above and for the reasons mentioned earlier for not accepting the contention that there was no concluded contract between the parties, I reject this contention.
8. The learned Counsel for the petitioner relied upon certain judgments. Though in my opinion, they have no application in the present case considering the above facts, I am making reference to them. He first relied upon U.P. Rajkiya Nirman Nigam Ltd. v. Indure Put. Ltd. & others. In the said case, the U.P. State Electricity Board had floated tenders for construction, supply and erection of mechanical equipment. The appellant U.P. Rajkiya Nirman Nigam Ltd. purchased the tender documents. The respondent approached the appellant for joint participation for submitting tenders td the Electricity Board. They decided to enter into an agreement in that respect. Only draft agreement dated 22nd June, 1984 was sent by the appellant to the respondent for signature. It was not signed by the appellant. Later on, respondent made a counter proposal deleting certain clauses and materially altering others. The tenders came to be submitted on the last date. Disputes arose between the parties and the respondent sent the notice through its Counsel claiming damages stating that there was arbitration agreement between the parties. A further notice was sent nominating an arbitrator by the respondent under Clause 14 of the draft agreement. The appellant disputed the existence of arbitration agreement and asserted that there was no concluded contract between the parties. Against this background, it was observed:--
" 19. In view of the fact that section 2(a) of the Act envisages a written agreement for arbitration and that written agreement to submit the existing or future differences to arbitration is a pre-condition and further in view of the fact that the original contract itself was not a concluded contract, there existed no arbitration agreement for reference to the arbitrators. The High Court, therefore, committed a gross error of law in concluding that an agreement had emerged between the parties, from the correspondence and from submission of the tenders to the Board....."
9. He next relied upon Pilloo Dhunji Shaw Sidhwa v. Municipal Corporation of the City of Poona. In the said case, the Transport Manager of the Municipal Corporation of Poona called upon the appellant to supply motor spare parts. The appellant agreed to supply the same by his letter. As the payment was not made, the appellant filed the suit. The contention raised by the respondent Corporation was that no contract was executed in the manner prescribed by the Bombay Provincial Municipal Corporations Act, 1949 and hence there was no enforceable contract. The Corporation sought to rely upon sections 70, 73, 74 and 75 of the said Act. First it is clear that there was no contract entered into at all. The Apex Court observed :
"6. A formal contract incorporating the agreed terms between the plaintiff and the Corporation was not and could not be executed and sealed as required by the Act, for, at the relevant time elections of Councillors to the Corporation had not been held, and no Transport Committee was constituted as required by section 25 of the Act and the powers of the Corporation were being exercised by the Commissioner pursuant to the transitory provisions. The Commissioner was, it is true, competent to exercise all the powers and perform all the duties of the Transport Committee. But under the rules in Ch. V the seal of the Corporation must be affixed in the presence of two members of the Transport Committee who sign it in token of the seal having been affixed to the contract. The Act clearly provided by section 74(2) that the contract which was not made in accordance with the provisions of the Act and the rules shall not be binding on the Corporation. The contract was not made in accordance with the provisions of the Act, for, it was not sealed and was by virtue of section 74(2) of the Act not binding upon the Corporation."
In that case, the trial Court granted compensation to the appellant on the basis of section 70 of the Contract Act i.e. listed price plus 12 1/2% increase notified by the manufacturers of the products. The High Court held that appellant was entitled to get fair market price. This was set aside by the Apex Court holding that the decree passed by the trial Court was right.
10. He then relied upon Dr. H.S. Rikhy v. The New Delhi Municipal Committee. In the said case, the respondent-Municipal Committee made allotment of certain shops to the appellants. This was under Punjab Municipal Act, 1911. The appellants went on paying the rent. The question arose between parties whether there was a relationship of landlord and tenant between them under the provisions of Delhi and Ajmer Rent Control Act, 1952. It was held that there was no such relationship created because there was no lease deed at all entered into between the parties and the provisions of section 47 of Punjab Municipal Act, 1911 were not followed. Section 47(2) required that every transfer of immovable property belonging to the Committee must be made by an instrument in writing executed by the President or the Vice President and at least by 2 other members of the committee whose execution shall be attested by the Secretary.
11. In respect of variation in the contract, he relied upon 32 Bombay Law Reporter 832 Pandu Laxman Gawand v. Municipal Corporation of Bombay. Considering the provisions of the Bombay Municipal Corporation Act, 1888, the Division Bench of this Court held that the initial sanction for the contract does not cover the subsequent variation in the contract. However, it is necessary to point out again that in this case the Education Committee's approval for the contract and the approval granted by the General Body of the Corporation are subsequent to the proposal dated 8-5-85 of the respondent No. 1 and acceptance and communication thereof on 6-8-85.
12. The learned Counsel for the petitioner next submitted that grant of interest by the arbitrator is not legal. He first submitted that the Claim No. 1(b) refers to payment under price variation clause. The interest granted in that respect is in Claim No. 2(1b). It was for pre-reference period i.e. 16-1-88 to 1-2-94 (reference was made on 1-2-94). He submitted that this could not have been granted. In support of his submission, he relied upon the Division Bench Judgment of this Court in 1996(2) Mh.L.J. 971 Maharashtra State Electricity Board v. M/s. Bharat Conductors Pvt. Ltd. & others. The Division Bench in para 27 observed that in case of claim in respect of unascertained damages there can be no such Award of interest. The learned Counsel for the respondent No. 1 submitted that it was as per Clause 74 of the General terms and conditions laid down by the petitioner and applicable to each contract and according to a fixed formula. He therefore submitted that the grant of interest was correct. The item is in case of labour and other materials. There is nothing to show that there was any fixed formula in that respect. It is in respect of the price variation. Though definite amount was claimed as price variation in the claim, it was for the arbitrator to fix it by the Award. Thus respondent No. 1 has not simply asked the arbitrator to fix the damages, the amount was required to be ascertained at the time of hearing. In my opinion, the learned Counsel for the petitioner is right in submitting that there could have been no grant of pre-reference interest under the claim 1(b) as mentioned in Claim No. 2(1-b).
13. The learned Counsel for the petitioner next submitted that there could have been no payment of pre-reference interest in respect of the price difference in respect of steel since it was also to be ascertained at the time of the Award. The learned Counsel for the respondent No. 1 pointed out that as per the proposal dated 8th May, 1985 respondent No. 1, the formula was suggested. The formula was as under : --
"Formula-- For 169.86 M of slab quantity, steel to be paid at 101 t (Torsteel 86 t plus Mild Steel 15 t). Steel to be paid at 1983 FMB rates plus premium of 9.9% on rates of for steel and mild steel. Extra reinforcement will be paid at prorate on concrete quantity. Steel escalation will be paid for total reinforcement."
This was approved by the Additional Municipal Commissioner. The learned Counsel for respondent No. 1 has rightly pointed out that one independent expert Engineer by name Mr. Gajapathy Rao was appointed by the Municipal Commissioner in respect of the payment of steel and he has also approved the same. There is reference about it in the Award. The claim in that respect was only to be computed. It was not a case of ascertainment of damages. Hence, as this was based upon the fixed formula, pre-reference interest on the said difference has rightly been granted for Claim No. 1(c) under Claim No. 2(1-c).
14. Similarly, it is also not possible to accept the contention of the learned Counsel for the petitioner that pendente lite interest on the payment under price variation clauses under No. 1(b) could not have been granted. As pointed out earlier, definite amount was claimed as price variation and it is not a case where the arbitrator was just asked to fix it and grant it.
15. The learned Counsel for the petitioner next submitted that the arbitrator under Claim No. 12 has granted interest on interest. It is clear from Claim No. 14. In Claim No. 12 he has come to the conclusion that the amount due is Rs. 1,09,03,079/-. In Claim No. 13, he has come to the conclusion that pendente lite interest should be Rs. 20,54,283/-. He has totalled it as Rs. 1,29,57,362/- and has granted interest at 18% till the date of payment or decree whichever is earlier. The learned Counsel for the petitioner is right in making this submission. Under Claim No. 14, he could have granted 18% interest on Rs. 57,32,616/ till the date of payment or decree, whichever is earlier.
16. Hence, the Award requires to be modified in respect of the payment of interest only as indicated above. There can be no interest payable as per Claim No. 2 1(b) (Rs. 7,56,647). The figure in Claim No. 12 shall be required to be amounted by deducting the said amount of Rs. 7,56,647/-. Similarly, in Claim No. 13, the consequential modification is required to be made deducting the said amount. Claim No. 14 is also altered granting interest on Rs. 57,32,616 at 18% per annum. Decree in terms of the modified Award. Respondent No. 1 shall also be entitled to 15% interest on the balance payable till the payment thereof, from the date of the decree.
17. Petition partly allowed.