Kerala High Court
The State Of Kerala vs K.V.Joseph & Sons on 27 July, 2010
Author: Pius C.Kuriakose
Bench: Pius C.Kuriakose
IN THE HIGH COURT OF KERALA AT ERNAKULAM
RP.No. 960 of 2009()
1. THE STATE OF KERALA,
... Petitioner
2. THE SUPERINTENDENT OF ENGINEER,
Vs
1. K.V.JOSEPH & SONS,
... Respondent
For Petitioner :GOVERNMENT PLEADER
For Respondent :SRI.RAJIV ABRAHAM GEORGE
The Hon'ble MR. Justice PIUS C.KURIAKOSE
Dated :27/07/2010
O R D E R
PIUS C. KURIAKOSE, J.
-----------------------------------------------
RP. No. 960 of 2009 in A.R. No. 1 of 2007
-----------------------------------------------
Dated this the 27th day of July, 2010
O R D E R
The respondents in Arbitration Request No. 1 of 2007, viz., the State and the Superintending Engineer seek review of the order of this Court dated 25-6-2007 in the arbitration request on various grounds. The arbitration request was submitted by the applicant therein (hereinafter referred to as the contractor) under sub-sections (6) and (8) of Section 11 of Arbitration and Conciliation Act, 1996. The prayer in the request was that Justice B.M.Thulasidas, a former Judge of this Court nominated by the applicant as their nominee, be appointed as the sole arbitrator for adjudicating upon the disputes and differences which have arisen between the contractor and the respondents in the arbitration request (hereafter referred to as the Government). It was averred that the work of "CRF Works - Improvements to Kadambanad - Mannady - Enathu- RP. No. 960/09 -2- Ezhamkulam Road in Pathanamthitta District" was awarded to the contractor and a formal contract agreement was executed between the contractor and the Government on 25-5-2004. Disputes arose between the parties during the course of the execution of work and by Annexure-I notice produced along with the A.R. the contractor treated the contract as ended and called upon the Government to pay a sum of Rs.34,75,89,178.40 together with interest within 30 days. As the above claim was rejected by Annexure-II, letter invoking the arbitration clause contained in the agreement, the contractor sent Annexure - III containing the names of five retired Judges of this Court, one of them a former Chief Justice of the High Court of Madhya Pradesh, to be considered by the Government for appointing one among them as the sole arbitrator for adjudicating the disputes and differences between the parties. It is on the allegation that in spite of elapse of more than two months RP. No. 960/09 -3- after Annexure - III was received by the Government there was no response from the side of the Government and it was under such circumstances that the contractor appointed Justice B.M.Thulasidas as their nominee arbitrator and issued Annexure- IV calling upon the Government to appoint their nominee arbitrator under clause 25.3 of the conditions of contract. The applicant referred to clause 25.3(c) of the general conditions of contract as well as the special conditions of contract and stated that if one of the parties failed to appoint its arbitrator in pursuance of sub-clause (a) and (b) within 30 days, then the Council, I.R.C. should appoint arbitrator on behalf of the defaulting party. There was no response from the Council, I.R.C. to Annexure - V notice which was sent to them. It is under such circumstances that the A.R. was submitted to this court and Annexure - VI produced along with the A.R. is the copy of the arbitration clause contained in condition No.3 of the RP. No. 960/09 -4- special conditions of contract forming part of the contract agreement. A detailed counter affidavit was filed on behalf of the Government refuting the various claims of the applicant. However, towards the end of the counter affidavit it was stated that in case this Court is inclined to appoint Arbitral Tribunal, either Justice T.V.Ramakrishnan, former Judge of this Court or Sri.E. Kurian Mathew, Chief Engineer (Retired) be appointed as the sole arbitrator. Despite the above stand taken in the counter affidavit, at the Bar both sides submitted that it is ideal to have both Justice T.V.Ramakrishnan and Sri.E.Kurian Mathew as the Arbitral Tribunal. This Court however, on considering the submissions addressed on behalf of the parties became inclined to allow the arbitration request and appointed Sri.B.M.Thulasidas, retired Judge of this Court and Sri.Kurian Mathew, retired Chief Engineer, Kerala PWD as joint arbitrators for constituting the Arbitral Tribunal to RP. No. 960/09 -5- adjudicate on the disputes. It is the above order that is sought to be reviewed by the Government by filing the instant review petition.
2. It is urged that the Superintending Engineer entered into the subject contract with the contractor only in his official capacity and by order of the Governor. It is apparent from G.O. (MS) No. 53/78/PW&E dated 8-5-1978 that the Government had ordered that the system of arbitration in Public Works Engineering Contracts will be restricted to contracts with estimated PAC of Rs.2 lakhs and below. Later by Annexure-I GO (MS)45/85/PW dated 16-5- 1985 the Government dispensed with the system of arbitration in engineering contracts in the contract works in Public Works Department completely, irrespective of the PAC and further the Government directed the Chief Engineer (General) that necessary instructions be given to all officers of the PWD to implement Annexure - I G.O. by deleting the RP. No. 960/09 -6- arbitration clause from all tender forms and agreements. It is urged that pursuant to Annexure - I G.O. the Government issued Annexure - II G.O. (GO (MS) 10/85/PW & E dated 27-1-1986 introducing amendments to be incorporated in the notice inviting tender for works, the tender form, the form of agreement and the special conditions to the agreement in respect of PWD works. It is urged that by virtue of Annexures I and II, the Government expressly and unequivocally declared that arbitration shall not be a means of settlement of all or any of the disputes or claims or anything on account of any contract entered into between the PWD Contractor and the Government of Kerala. It is pointed out that it was obligatory on the part of the Superintending Engineer who is the second review petitioner to have deleted the arbitration clause in the special conditions of contract which is part of the printed format of the agreement in question. It is also pointed out that in RP. No. 960/09 -7- the works contract agreement, admittedly executed between the parties there is a clause that arbitration shall not be a means of settlement of disputes or claims. It is submitted that the existence of the arbitration clause in the special conditions which is due to non deletion of that clause by the Superintending Engineer can be treated only as an inadvertent omission. It is urged in the memorandum of review petition that under the cover of arbitration the contractor is claiming unconscionable compensation amount of Rs.34,75,89,178/- as against the agreed contract amount of Rs.9,98,44,495/-. The review petition reiterates that in the teeth of Annexures I and II Government Orders providing that no contract with the executive Government as comprehended by Article 299 of the Constitution shall contain a provision for arbitration, the existence of any arbitration clause in PWD contracts contrary to the express intention of the executive Government will be inoperative. RP. No. 960/09 -8- It is urged that provision of a contract which is contrary to the stipulations contained in any directives issued by the Governor under Article 299 will be void and unenforceable against the Government. It is contended on that basis that the arbitration clause can only be considered as nugatory and non est. It is conceded that the non-applicability of the arbitration clause in a PWD contract was not brought to the notice of this Court either by filing the statement of objections or while addressing arguments before this Court in the arbitration request. But it is contended that participation in the arbitration request will not amount to acquiescence,waiver or ratification on the part of the Government. The doctrine of promissory estoppel would not stand in the way of Government in assailing the provisions of arbitration clause at any stage. It is submitted that the Superintending Engineer who is an officer of the Government acted beyond the scope of his authority. It is RP. No. 960/09 -9- pointed out that the constitutional provisions and Section 175(3) of the Government of India Act, 1935 contemplate that Government contracts made in exercise of the executive power of the State shall be made by the Governor through such persons as the Governor may direct or authorise. These provisions are enacted as a mater of public policy as the Government should not be saddled with any loss for unauthorised contracts. These provisions have been enacted in public interest and hence the omission on the part of the Government to bring to the notice of this Court Annexures I and II by filing counter affidavit in the A.R. cannot be considered as waiver by the Government of its objection. In the review petition the review petitioner relies on the judgment of the Supreme Court in State of Punjab v. Om Prakash, 1988(2) KLT SN 71, M/s. Jith Ram Shivkumar v. State of Haryana, AIR 1980 SCC 1285, M/s. Leo Construction Contractors v. Government of Kerala, 1989 RP. No. 960/09 -10- (1) KLT 215. It is also pointed out that the Superintending Engineer who had entered into the contract with the contractor in this case on behalf of the Governor was acting unauthorisedly while executing the contract in question and in this context it is pointed out that the very same Superintending Engineer executed another contract relating to execution of work "CRF- Construction of Erumeli - Chalakkayam - Phase - 3" in the same district in tune with the Government orders by excluding the arbitration clauses.
3. To the review petition the contractor has filed a detailed counter affidavit repudiating the averments made and grounds raised in the RP. It is submitted that the review petition is not maintainable. It is pointed out that the Arbitration and Conciliation Act 1996 is a complete and comprehensive Act by itself both as regards substantive and procedural law relating to arbitration, conciliation and RP. No. 960/09 -11- mediation and the said statute does not provide for a review of orders passed by the Honourable Chief Justice or the designated Judge under Section 11. It is also pointed out that section 16 of the act empowering the Arbitral Tribunal to rule on its own jurisdiction including any objections with respect to the existence or validity of the arbitration agreement was introduced with the view of reducing the role of courts during the course of the arbitral proceedings. It is pointed out that the review petition is hopelessly delayed. Till the date of the R.P. in September 2009 more than 30 sittings of the Tribunal had taken place as provided under Section 4 of the Arbitration Conciliation Act 1996 and in all these sittings there was full and complete participation by the review petitioners. The review petitioners are deemed to have waived their right to object to the alleged noncompliance of any requirement of deleting the arbitration clause.
RP. No. 960/09 -12-
4. As regards Annexure I G.O. relied on by the review petitioners it is contended that a proper reading of the G.O. would clearly indicate only that the decision is to dispense with existing system of referring to arbitration of disputes in Public Works Engineering Contracts, the value of which was Rs.2 lakhs and below and it is contended that directions were issued to the Chief Engineer (General) to take necessary action for implementing G.O. dispensing with arbitration relating to small contracts of Rs.2 lakhs and below. As regards Annexure II G.O. it is contended that by this G.O. amendments to notice inviting inviting tenders for works (Form No.83), form of tender (Form No.84) and form of agreement (Form No.GW 132) were indicated and it was directed that the amended forms should be used for all types of PWD works irrespective of the PAC. The contention of the Government that by virtue of the two G.Os. the Government has expressly and unequivocally declared that RP. No. 960/09 -13- arbitration shall not be a means of settlement of all or any of the disputes or claims entered into between a PWD Contractor and the Government of Kerala is repudiated. It is submitted that in the present contract none of the forms referred to in Annexure II G.O. find a place and in fact the contract in question being a centrally funded project national competitive bidding was resorted to and the PWD, Government of Kerala is only the executing agency and therefore the conditions applicable to national competitive bidding were made applicable to the contract. The counter affidavit refers to paragraph 16 of the counter affidavit which had been filed in a arbitration request No. 1 of 2007 and contends that the review petitioners cannot now be heard to say that the Superintending Engineer did not delete the arbitration clause in the special conditions of contract. It is submitted in the counter affidavit that the parties having acted upon the contract based upon the terms RP. No. 960/09 -14- entered into and the contractor having substantially completed the work under the contract, the review petitioners should not be permitted to go back on the terms entered into and agreed upon in writing, dealing at arms length and seek to change the terms of the agreement to deny settlement by arbitration. The counter affidavit denies the averments in the review petition that the agreement contains a clause signed by both parties that arbitration shall not be a means of settlement of disputes.
5. It is contended that the contract being a centrally funded scheme, Annexures I and II G.Os. promulgated by the Kerala Government did not apply. The provision in the special conditions for arbitration is binding on parties especially as there is no provision in the contract providing that all or any of the G.Os. promulgated by the Government will be applicable to the contract in question. It is pointed out that when the contractor's bid was accepted by the RP. No. 960/09 -15- Superintending Engineer vide selection notice dated 25-5- 2004 it was specifically provided that G.Os. dated 19-8- 1997 and 21-11-1992 will be applicable to the contract at hand and not Annexures I and II G.Os.
6. It is highlighted that in the light of the sworn statement of the Joint Secretary to Government who is the deponent in the counter affidavit dated 16-6-2007 it is futile for the review petitioners now to contend that the omission to place on record the existence of the Annexures I and II G.Os. before this Court at the time of hearing was due to inadvertence. It is contended that the filing of the review petition amounts to gross abuse of process of this Court. It is pointed out further that after completion of the pleadings 12 issues were settled by the Arbitral Tribunal and that recording of evidence is over and the claimant's counsel has completed his arguments and the counsel for respondents who are the review petitioners has commenced his RP. No. 960/09 -16- arguments. A total of 45 sittings have been held so far by the Arbitral Tribunal spread over nearly two years and interim award published directing the petitioners to pay an amount of Rs.2.43 crores towards admitted amount for work done and the said amount was actually paid to the respondents. It is submitted that considerable amounts have been already expended by the parties towards cost of arbitration. It is then pointed out that numerous correspondence exchanged between the parties to the contract during the pendency of the work and thereafter various officials of the review petitioners including the 2nd review petitioner had adverted to or referred to the the arbitration clause in the contract all of these items of correspondence are before the Arbitral Tribunal. The present attempt of the review petitioner is only to protract the arbitral proceedings by attempting to mislead this Court. It is also pointed out that for numerous works in RP. No. 960/09 -17- Kerala carried out by the Kerala PWD, Kerala Water Authority, Kerala State Transport Project etc. arbitration has been and is the means of settlement of disputes between the parties and by having the issues adjudicated by learned arbitrators of proven integrity, no prejudice is being caused to anybody. Lastly it is submitted that in this case no prejudice will be caused to the applicants as the issues are being considered by an Arbitral Tribunal consisting of two retired Judges of this Court and a retired Chief Engineer of PWD regarding whose integrity and learning the Government cannot have any legitimate ground.
7. It was Sri.K.R.Ganesh, Senior Govt. Pleader who addressed arguments before me on behalf of the review petitioner. Raising very spirited and persuasive arguments on the basis of various grounds raised in the RP Sri.K.R.Ganesh submitted that there is every warrant for recalling the order of this court constituting Arbitral Tribunal RP. No. 960/09 -18- for adjudicating the disputes between the parties. Referring to the judgment of the Supreme Court in Inderchand Jain v.Motilal, 2009(3) KLT SN 65 Mr.Ganesh submitted that power of review under Order 47 Rule 1 of the Code of Civil Procedure can be invoked for any other sufficient reason than the reasons mentioned under the above provision of the Code of Civil Procedure. In support of his argument that there is no scope for reporting the doctrine of equitable estoppel against the Government in a case where orders are passed on behalf of the Governor of Kerala by virtue of the powers under Article 229(1) of the Constitution ignoring public interest the learned Government Pleader relied strongly on the judgment of the Supreme Court in M/s. Jit Ram Shiv Kumar v. State of Haryana, AIR 1980 SC 1285. For the same proposition the learned Govt. Pleader relied on the judgment of the Supreme Court in State of Punjab v. Om Prakash, 1988(2) KLT SN 71. The learned counsel RP. No. 960/09 -19- submitted that where there is contravention of the provisions of Article 299(1) of the Constitution, i.e., when contract is entered into in gross violation of existing Government Orders, the plea of estoppel cannot be raised against the Government, when the Government requests that a patent illegality done by the representative of the Government should be undone. Mr.Ganesh submitted that it cannot be as though the Government Orders taking away the provision for arbitration from PWD contracts was not known to the contractor or the Superintending Engineer. In order to show that this court has noticed the Government Orders taking away the provision for arbitration for PWD contracts and approving the Government Orders Mr. Ganesh relied on the judgment of this Court in M/s. Leo Construction Contractors v. Government of Kerala, 1989 (1) KLT 215. To argue that an application for review of the order passed by the designated Judge under Section 11(6) of the RP. No. 960/09 -20- Arbitration and Conciliation Act Sri.Ganesh relied on the judgment of the Supreme Court in M/s. Jain Studios Ltd. v. Shin Satellite Public Co. Ltd. AIR 2006 SC 2686. (Interestingly paragraph 11 of this judgment was relied on by the counsel for the respondent also). Mr.Ganesh relied on the judgment of the Supreme Court in M.M.Thomas v. State of Kerala and another, (2000) 1 SCC 666 to argue that as a court of record, power and duty to review its own judgment for correcting its own mistake is inherent in every High Court. The counsel submitted that High Court is a court of record and unquestionably a superior court of plenary jurisdiction and is competent to determine the scope of its jurisdiction. Mr. Ganash relied on the judgment of the Supreme Court in H.Lathakumari v.Vamanapuram Block Panchayat and others, 2009 KHC 4439 to submit that even the Supreme Court has recognised the Government Orders excluding arbitration clauses from PWD contracts. Sri. RP. No. 960/09 -21- Ganesh lastly relied on the judgment of this Court in Southern Structurals Ltd. v. K.S.E. Board, 2008(1) KLT 105 after referring to Section 7 of the Arbitration and Conciliation Act and Sections 10, 14, 20, 21 and 22 to argue that any contract in which an arbitration clause is introduced by playing fraud on the Government will be a void contract and that the High Court cannot compel an unwilling party to go for arbitration on the basis of such a void contract.
8. The submissions of Mr.Ganash were met by Mr.Rajiv A. George, learned counsel for the respondent contractor. Mr. Rajiv referred to Sections 114 and rule 1 of Order 47 CPC and submitted that review can be allowed only on the grounds specifically mentioned in those provisions of the Code of Civil Procedure. Other sufficient reason envisaged by Rule 1 of Order 47 is a reason which is ejusdem generis with the reasons enumerated therein RP. No. 960/09 -22- before. Counsel submitted that in the present case the Joint Secretary to the Public Works Department who had filed counter affidavit on behalf of the Government in Arbitration Request No. 1 of 2007 had not only not denied the existence of the arbitration clause but had reiterated its existence. Mr. Rajiv would distinguish all the decisions cited on behalf of the Government by Mr.Ganesh on facts which according to the learned counsel are peculiar in this case. Referring to the judgment of the Constitution Bench of the Supreme Court in SBP & Co. v. Patel Engineering Ltd. and another, (2005) 8 SCC 618 Mr.Rajiv submitted that under that judgment the Supreme Court had overruled the earlier Constitution Bench decision in Konkan Railway Corporation Ltd. v. Rani Constructions (P) Ltd. (2002) 2 SCC 388 and held that the Chief Justice or his designate while dealing with an application under Section 11 was bound to decide whether he had jurisdiction, whether there was a valid RP. No. 960/09 -23- arbitration agreement, whether the person making the request was a party to the arbitration agreement and whether there subsisted a dispute/live claim capable of being arbitrated upon and that the decision of the designated Judge was a judicial one and not an administrative one. The counsel submitted that this is a case where there was a concluded contract and argued that once a concluded contract comes into existence, then terms of tender cannot override the terms and conditions of the completed contract. He relied on the judgment of the Supreme Court in Security Printing and Minting Corporation of India Ltd. and another v. Gandhi Industrial Corporation, (2007) 13 SCC 236.
9. I have anxiously considered the rival submissions addressed at the Bar. I have to remind myself at the very outset of the contours of the jurisdiction which is being invoked by the Government. It is trite by various decisions RP. No. 960/09 -24- including the judgment of the Supreme Court in Inderchand Jain v. Motilal, 2009(3) KLT SN 65 which was relied on by the review petitioners themselves and the judgment in Jain Studios Ltd. v. Shin Satellite Public Co. Ltd., 2006(5)SCC 501 that power of review is distinct in nature from appellate power. Discovery of new and important matter or evidence which after the exercise of due diligence by the petitioner was not within his knowledge or could not be produced by him at the time when the original order was passed or existence of any mistake or error which is apparent on the face of the record or existence of "any other sufficient reason" are the only grounds on which applications for review can be entertained and allowed. The expression "any other sufficient reason" appearing in clause ) of sub-rule (1) of Rule 1 of Order 47 has to be a reason homologous or atleast analogous to the other reasons mentioned earlier in the RP. No. 960/09 -25- said clause. In other words, unless sufficient reason highlighted by the Government is ejusdem generis with the other two reasons mentioned in clause(c) the same cannot be a sufficient reasons for the purpose of clause ) at all. The persuasive submissions of Mr. K.R.Ganesh notwithstanding, it is clear to my mind that any reason constituting ground for review under Order 47 rule 1 has not been made out by the Government in the present case. As rightly contended by the respondent contractor, the Government through the counter affidavit submitted in A.R. No. 1 of 2007 not only did not deny the existence of the arbitration clause which was being consistently relied on by the contractor but also admitted the same in paragraph 16 of the counter. While meeting the merits of the claims raised by the contractor it was contended by the Government that the claims had been raised with the malafide intention of extracting undue and unwarranted RP. No. 960/09 -26- benefits from the arbitration clause. As stated by me in the order in A.R. 1 of 2007 the Government after refuting the claims of the applicant contractor had suggested that if this court becomes inclined to appoint an Arbitral Tribunal either Justice T.V.Ramakrishnan, former Judge of this Court or Sri.E.Kurian Mathew, retired Chief Engineer be appointed as arbitrator. In fact, at the Bar, the counsel for the applicant contractor and the Government Pleader (then Sri.Shyson P.Manguzha) submitted that it will be ideal if this court appoints Justice T.V.Ramakrishnan and Sri.Kurian Mathew jointly as the Arbitral Tribunal. The judgment of the Supreme Court in Prasun Roy v. Calcutta Metropolitan Development Authority and another, (1987) 4 SCC 217 and State of Rajasthan v. Nav Bharat Construction Co., (2005) 11 SCC 197 give strong support to the contention that once existence of an enforceable and valid arbitration clause between the parties is admitted, it is not open to the RP. No. 960/09 -27- parties to raise a contention later that there was no valid enforceable arbitration agreement. It is not in dispute that the contract did contain the arbitration clause. But the contention is that the tender conditions did not contain the arbitration clause. But then the contract substitutes or supersedes the tender conditions as laid down by the Honourable Supreme Court in Security Printing and Minting Corporation of India Ltd. and another v. Gandhi Industrial Corporation, (2007) 13 SCC 236.
10. The fact situation in the present case also dissuades me notwithstanding Annexures I and II from thinking in terms of recalling my order which was passed virtually on consent. Pursuant to the order passed by me in arbitration request No. 1 of 2007 (presently sought to be reviewed) constituting Arbitral Tribunal consisting of a retired Judge of this Court and a retired Chief Engineer of PWD whose name was suggested by the Government itself RP. No. 960/09 -28- in their counter affidavit, those two arbitrators together would appoint again with consent of both sides another Judge of this Court as the presiding arbitrator and the above Arbitral Tribunal consisting of two Judges and a retired Chief Engineer had entered on arbitration. Several sittings, I am told by now about 60, were conducted spread over a period of two years. Entire evidence was taken, arguments of both sides is also completed. What remains is only the passage of the final award. An interim award was passed and published by the Arbitral Tribunal directing the review petitioners to pay to the respondent an amount of Rs.2.43 crores towards the work admittedly done and it is not disputed before me that the above interim award has been honoured. The passage and publication of the final award by the Tribunal is being postponed only because of the pendency of this review petition. I have not been convinced of any legal prejudice that may be caused to the RP. No. 960/09 -29- Government by allowing the Tribunal to complete its proceedings and publish its final award. The learning and integrity of the persons constituting the Tribunal was not questioned before me even for a moment. There is no reason for me to assume that the Tribunal will unmindful of the public interest involved in the matter and uphold any invalid or inconsistent claim raised by the contractor. I am satisfied that the present case is not one where the power of review can be invoked.
The RP will stand dismissed. No costs.
(PIUS C.KURIAKOSE, JUDGE) ksv/-