Calcutta High Court
T.K. Sarkar vs State Of West Bengal on 27 September, 2006
Equivalent citations: 2007(2)ARBLR508(CAL), 2007 A I H C 825, (2007) 2 ARBILR 508
Author: Kalyan Jyoti Sengupta
Bench: Kalyan Jyoti Sengupta, Aniruddha Bose
JUDGMENT Kalyan Jyoti Sengupta, J.
1. This appeal is against the judgment and order dated 12th April, 2005 passed by the learned Trial Judge whereby and whereunder an award passed by the learned sole arbitrator dated 5th March, 2003 is set aside, on the application of the respondent, State of West Bengal under Section 34 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the said Act'). The short facts of present appeal are set out hereunder:
Appellant hereunder contended that there has been a concluded contract for execution of certain civil works between the appellant and the respondent. The said agreement was concluded upon acceptance of tender submitted by the appellant, by the Superintending Engineer, Mayurakshi Canal Circle by his Memorandum No. 4084 dated 28th May, 1979. The detailed work was also stated in the work order. The appellant started work and indeed completed certain ground works but the respondent illegally terminated the work order and thereby the appellant was prevented from performing the balance work. In spite of repeated demands and requests the respondent failed and neglected to make payment of the bills for the works done by the appellant. As such, there arose dispute between the parties and in terms of the arbitration agreement the appellant time and again called upon the respondent to appoint arbitrator for adjudication of the dispute. Notwithstanding repeated demands and requests such appointment was not made by the State in terms of the arbitration agreement, as such, the appellant approached this court under the provision of Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the said Act'). The said application was not contested and the Hon'ble Mr. Justice Sujit Kumar Sinha (as His Lordship then was) held there existed arbitrable dispute, and allowed the application. Thereafter, the then Hon'ble Acting Chief Justice S.B. Sinha was pleased to appoint Hon'ble Mr. Justice A.M. Sinha, retired judge of this court, as a sole arbitrator. The learned arbitrator upon notice to the parties held sittings on a number of days and finally made and published the award on 5th March, 2003. It appears that before the learned arbitrator both the parties raised following points:
(1) Is the claim referred to arbitration maintainable in the absence of execution of formal contract as alleged ? (2) Did the claimant execute any work after acceptance of the tender of the claimant by the respondent ? (3) Is the termination of the contract by or on behalf of the respondent on 26th November, 1979 valid ? (4) Is the claim barred by limitation ?
(5) Is the claimant entitled to any award on the claim as made out in the statement of facts ? and (6) To what relief, if any, the claimant is entitled ?
2. Before the learned arbitrator the appellant/claimant made various claims. The learned arbitrator finally allowed the claim by his award of an aggregate sum of Rs. 1,32,308 and allowed interest at the rate of 8% per annum and also allowed the lump sum cost of Rs. 20,000. In the ordering portion, however, the learned arbitrator has awarded interest at the rate of 10% instead of 8%.
3. The respondent was successful in persuading the learned Trial Judge that there has been no concluded contract between the parties to bind themselves, nor there was any arbitration agreement. Hence, entire reference is invalid and illegal and arbitrator has no jurisdiction.
4. Mr. Hiranmoy Dutta, learned counsel for the appellant, assailing impugned judgment and order, contends that learned Trial Judge, while setting aside the award exceeded his jurisdiction under Section 34 of the said Act. Two basic differences under the law between the principal agreement and arbitration agreement have been ignored by the learned Trial Judge as it is settled principle of law that arbitration agreement subsists for the purpose of resolution of dispute between the parties as to performance and/or nonperformance and/or termination of the principal contract notwithstanding its termination. He urges that learned judge should have held that upon acceptance of tender submitted by the appellant, contract has been concluded for which the execution of formal contract is a formality and failure of which does not render concluded contract non est. The learned judge should have, on the facts and circumstances, upheld the award of the learned arbitrator that when work order was issued upon acceptance of tender the execution of formal contract by the appellant was not mandatory nor the same is sine qua non.
5. The learned judge committed error in law holding that the claim of the appellant and his demand for arbitration are barred by limitation. The court has no jurisdiction to interfere with the findings of the learned arbitrator on this point as the same are mixed question of fact and law, he is the final arbiter. He further submits that the learned judge has totally misunderstood the scope and power under Section 34 of the said Act which is not akin to appellate power.
6. While submitting he has drawn our attention to the provision of Section 7 of the said Act and also relied on a decision on the question of existence of the arbitration agreement of the Supreme Court rendered in the case of Union of India v. A.L. Rallia Ram and in the case of J.K. Jain and Ors. v. Delhi Development Authority and Ors. .
7. He says further on the question of limitation that on November 26, 1979 the contract was terminated. On July 8, 1982, i.e. within three years of the termination of the contract the appellant requested the Chief Engineer to refer the dispute to arbitration. He has drawn our attention to Section 21 of the said Act to understand the time when the arbitral proceedings commence. If the provision of law is applied to the facts and circumstances of this case, it will appear that the claim of demand for arbitration or for that matter claim on merit is not barred. On the question of power and jurisdiction of arbitrator, he has referred to a decision of this court . He has also brought two other Supreme Court decisions for the proposition of law on the question of fact finding in the arbitration proceeding, for assistance of this court. The said two decisions were rendered in case of Sudarsan Trading Company v. Government of Kerala and Anr. and in case of B.V. Radha Krishna v. Sponge Iron India Limited respectively.
8. Learned counsel for the respondent submits that the judgment and order passed by the learned judge is absolutely perfect and this court should not interfere with the same. He contends that on the admitted fact there has been no contract between the parties, as such there was no existence of the arbitration agreement. It is true that appointment of arbitrator was made through intervention of the court but in view of Section 16 of the said Act it is open for the learned arbitrator to decide the question of his own jurisdiction. Since the agreement itself has been terminated and upon refund of earnest money the contract stood discharged, there cannot be any arbitral dispute. The learned arbitrator has fallen in error by not applying the basic principle of law. In support of his submission he has relied on the decision of the Supreme Court . He further submits that the learned judge has rightly found the mistake of the learned arbitrator on the question of limitation. In this connection he has drawn our attention to Section 43 of the said Act and also highlighted the fact that the contract was terminated on 26th November, 1979 whereas demand for arbitration was made on 4th June, 1989, as such the claim, if any, is barred by limitation. Before 4th June, 1989 there did not exist any jural relationship between the parties to constitute any acknowledgement and admission for saving the period of limitation. The learned arbitrator has committed patent mistake in holding that factually there has been conclusion of contract on fact and law in this case and there cannot be any contract because there had been no formal contract executed between the parties. In this connection the learned counsel for the respondent had relied on a decision of the Supreme Court and the decision of the learned Single Judge rendered in case of Union of India v. Pioneer Construction reported in (2003) 4 CHN 163 : 2004(1) Arb. LR 199 (Cal.).
9. We have heard the learned counsel and re-examined the points raised by the respective parties. Two questions to our mind are involved in this appeal:
(1) Whether learned Trial Judge on the facts and in the circumstances of this case has followed the correct proposition of law while setting aside the award on the question of existence of the arbitration agreement and the arbitral dispute ?
(2) Whether the learned Trial Judge has exceeded his jurisdiction while upsetting the decision of the learned arbitrator on the mixed question of fact and law as regards the point of limitation for invoking arbitration proceedings and on merit or not ?
10. To decide the matter the learned Trial Judge posed one question to himself: whether the award published by the arbitrator can be assailed on the ground that there was no valid arbitration agreement between the parties and in the alternative, the arbitrator should not have allowed the claim, as the claim was hopelessly barred by the laws of limitation.
11. It appears to us the learned Trial Judge, rejecting the contention of Mr. Dutt and relying on his earlier decision in case of Union of India v. Pioneer Construction (supra), has held that there has been no arbitration agreement as the acceptance of tender by the State Government in this case was conditional upon conclusion of formal agreement between the parties. In other words the learned judge found that since in terms of the letter dated 25th May, 1979, there was no execution of formal agreement for the works submitting duplicate tender in the office within the time stipulated as mentioned in the said letter, there was no agreement as such there was no arbitration agreement.
12. It further appears that the learned Trial Judge after holding that there has been no arbitration agreement, proceeded to decide the matter on merits and held that demand of arbitration as well as the claim on merit is hopelessly barred by limitation.
13. From the records, we find the learned arbitrator framed several issues. The first issue was relating to maintainability of arbitration in the absence of execution of formal contract. According to us this issue is mixed question of fact and law. While answering this issue the learned arbitrator on fact concluded that by the letter dated 25th May, 1979 the State/respondent through their authorized officer, Superintending Engineer, has accepted the tender submitted by the claimant/appellant.
14. He has found in his own way in the hearing with reasons that with the acceptance of this tender the agreement appeared to have been concluded and the claimant started work on and from 28th May, 1979. The learned arbitrator while deciding this has relied on a decision of Madras High Court in the case of Maheswari Metals and Metal Refinery v. Madras State Small Industries Corporation Ltd. and also examined the oral evidence and documentary evidence.
15. The learned arbitrator held that when there has been factual termination of contract, conclusion of contract is axiomatic. The learned arbitrator, therefore, held that arbitration proceedings was maintainable as there was concluded contract containing arbitration agreement. Normally when appointment of arbitrator is made through intervention of the court, issue relating to existence of arbitration agreement is not required to be decided by the learned arbitrator once again but the position of the law at that time was that irrespective of order passed by the High Court or Supreme Court under Section 11 the question of jurisdiction could be raised before the learned arbitrator and he was obliged to decide this issue first under the provision of Section 16 of the Act. Therefore, this question of jurisdiction, namely existence of the arbitration agreement notwithstanding the order passed by this court appointing arbitrator, was raised and decided by the learned arbitrator in the manner we have summarized hereinabove. It is thus clear the existence of the arbitration agreement, in other words question of jurisdiction of the learned arbitrator, is absolutely mixed question of fact and law. It is well settled principle of law that while deciding the matter, the power of the court under Section 34 of the said Act is not to the extent to that of appellate court for appreciation of fact and interpreting the law is absolutely prohibited unless findings both on fact and law patently perverse, meaning thereby, when appreciation of evidence and interpretation of law are rendered without any sense of ordinary prudent man. While interpreting law if two views are possible the court's view cannot be substituted with the view taken and adopted by the learned arbitrator in exercise of jurisdiction under Section 34 of the said Act. This proposition of law has been well settled long time by our superior law courts which will be discussed a little later on another aspect.
16. Here question is, what is the implication if no contract is concluded is the precise question first. The learned judge has quoted the text of the letter and from the letter it is clear as has been correctly found by the learned arbitrator that the tender has been accepted and appellant was asked to commence work treating the said letter as being a work order. The learned arbitrator did not found that formal execution of the agreement as contemplated in the said letter is a condition precedent, so in our opinion it was not for the learned Trial Judge to substitute his own interpretation relying on his earlier judgment (supra). In terms of the letter of acceptance of tender at the highest the parties could have entered into formal agreement either adopting the terms and conditions contained in the tender document in toto or modifying it. In that case the situation would have been innovation or alteration of the agreement, which has been concluded on acceptance of the tender. It is settled law that notice inviting tender is treated as an invitation to treat and act. When the tender is submitted by the intending party it is called for and once this tender containing all the terms and conditions including arbitration clause is accepted the agreement is complete. Therefore, factually in this case or in case of this nature it would be invariable position of law that no formal contract is required and acceptance of tender is treated to be the contract, unless any term in the tender document provides for specific stipulation for which execution of the formal contract is mandatory and must.
17. Here admitted position is that there has been an unambiguous arbitration agreement in the tender document and that is why this court, under Section 11 has referred the parties to arbitration by appointing the learned arbitrator. In the case of J.K. Jain and Ors. v. Delhi Development Authority and Ors. (supra) the Supreme Court has made the above legal position clear. In paragraph 7 it is held as a proposition of law amongst others:
...Where there is an arbitration clause in a contract, it amounts to two contracts into one. One relating to the execution of work entrusted in the manner prescribed and the other how to resolve the dispute arises in respect of the said contract. Whenever one party to the dispute asserts that there is an arbitration agreement by which the parties had agreed to refer the dispute to an arbitrator which is disputed and challenged by the other party to the agreement, it has to be examined and determined. To constitute "an arbitration agreement". It is not necessary that there should be a formal agreement or that the terms should all be contained in one document. All that is necessary is that from the documents it must appear that the parties had agreed to submit present or future differences to arbitrator.
18. It is true the said decision was rendered under the old Arbitration Act, 1940 but the proposition of law still holds good in the field as of today, as going by the definition of arbitration agreement in the present Act. In a fairly old decision of the Supreme Court in case of Union of India v. A.L. Rallia Ram (supra) it has been observed in paragraph 11 that:
11. Section 175(3) does not in terms require that a formal document executed on behalf of the Dominion of India, and the other contracting party, alone is effective. In the absence of any direction by the Governor-General under Section 175(3) of the Government of India Act prescribing the manner, a valid contract may result from correspondence if the requisite conditions are fulfilled. The contracts for sale "War disposal" goods were not directed by the Governor-General to be made by a formal document executed on behalf of the Governor-General as well as by the purchasing party. It is true that Section 175(3) uses the expression "exercised" but that does not by itself contemplate execution of a formal contract by the contracting parties. A tender for purchase of goods in pursuance of an invitation issued by or on behalf of the Governor-General of India and acceptance in writing which is expressed to be made in the name of the Governor-General and executed on his behalf by a person authorized in that behalf would conform to the requirement of Section 175(3).
19. At present the similar provision with that of Section 175(3) of Government of India Act, 1935 has been made in the Constitution regarding execution of contract on behalf of the government. Thus, the learned arbitrator had correctly followed established principle of law and there has been no misreading or misapplication of the law. On the contrary, we with respect are rather constrained to observe that the learned Trial Judge has not followed the correct proposition of law regarding formation of contract. Moreover, the learned Trial Judge with utmost humility, extended his unwarranted jurisdiction to hold and observe that there has been no arbitration agreement. The views taken by the learned Trial Judge in his earlier decision reported in (2003) 4 CHN 163 : 2004 (1) Arb. LR 199 (Cal.) in case of Pioneer Construction in view of the Supreme Court decisions discussed above and the law discussed by us, is not a correct decision and the same should not be a good law and we accordingly overrule such proposition of law.
20. We, therefore, approve the decision of the learned arbitrator that there has been arbitration agreement and the arbitration proceeding is also maintainable. While reading the judgment we wonder how the learned Trial Judge after holding that there has been no arbitration agreement could decide the matter by way of observation on merit. If this kind of decision is made then obviously the party affected by such decision is rendered completely remediless because decision on merit in the arbitration court will have the far-reaching effect if any alternative recourse is sought to be resorted to. If this judgment of the learned Trial Judge is left outstanding on merit then the claimant/appellant would not have any remedy to present his case before appropriate forum. We feel in a case of this nature after deciding the question of jurisdiction of the learned arbitrator the learned judge should not proceed to render decision on merit of the claim and counter-claim of the parties for variety of valid reasons. The arbitration court can decide the matter on merit only when it finds there has been valid arbitration agreement, as its authority in this regard is co-extensive with the learned arbitrator, and secondly it will be difficult for the party to get relief before appropriate forum on merit.
21. When a decision has been made by the learned Trial Judge we are obliged to examine his decision. It appears to us as rightly submitted by the learned counsel Mr. Dutt that the learned Trial Judge has exceeded his jurisdiction while re-appreciating the evidence and interpreting the law without having any findings of absurdity. He has come to his own findings upon analyzing his evidence and examining the documents that the claim of the appellant is barred by limitation. It might be or might not be, but when question of limitation is mixed question of fact and law in this case, decision of the learned arbitrator is not warranted to be examined upon re-appreciation of evidence and fact by the learned judge, as it is not a case wherein upon reading the records the court found that there has been no evidence or on reading evidence no reasonable prudent man could record findings as has been recorded by the learned arbitrator. We have gone through the award of the learned arbitrator. He has painstakingly answered each and every question posed by the respondent/State on merit both on question of limitation as well as question of existence of arbitration agreement and arbitrability of disputes. He has examined oral evidence and documentary as well. We do not think that we should commit same mistake, what the learned Trial Judge has done. We believe that learned judge was not perhaps reminded of the established proposition of the law laid down by the Supreme Court time and again in large number of cases. For the sake of instances we just repeat the decision of Supreme Court as follows:
In the case of Indian Oil Corporation v. Indian Carbon Ltd. it is held that where reasons for writing the award are stated in the award and for this reason, there was no error of fact and view taken by the arbitrator was a possible one to take and the arbitrator has made his mind known on the basis of which he has acted that is sufficient to note.
22. The award should not, therefore, be set aside on this ground.
23. In a recent decision of the Supreme Court in case of Bhagawati Oxygen Ltd. v. Hindustan Copper Ltd. reported in (2005) 6 SCC 462 : 2005(1) Arb. LR 608 (SC) it has been held that (para 25 of Arb. LR):
...the court while exercising the power under Section 30 cannot reappreciate the evidence or examine correctness of the conclusions arrived at by the arbitrator. The jurisdiction is not appellate in nature and an award passed by an arbitrator cannot be set aside on the ground that it was erroneous. It is not open to court to interfere with the award merely because in the opinion of the court other view is equally possible. It is only when the court is satisfied that the arbitrator had misconducted himself or the proceedings or the award had been improperly procured or is 'otherwise' invalid that the court may set aside such award.
24. Scope and power of Section 34 of the present Act is very well-known and in our view the power mentioned therein is much narrower than the power given under Sections 30 and 33 of the old Act. It has further been ruled by the Supreme Court in the cases and that the court has no jurisdiction to set aside award by substituting its own view in place of an arbitrator.
25. It is well settled principle of law that when there has been a mixed question of fact and law it is the arbitrator who is the final authority to decide it, not the court to decide exercising appellate jurisdiction. We are, therefore, unable to accept the argument of the learned counsel for the respondent/State that the judgment and order impugned does not call for any interference. Mr. Dutt is right in saying that the judgment of the learned Trial Judge is not based on established judicial pronouncements and has proceeded with ignoring the Supreme Court decisions as above, relying on his own earlier decision.
26. Therefore, we cannot uphold this decision.
27. The judgment and order of the learned Trial Judge is hereby set aside and the award of the learned arbitrator is restored.
28. There will be no order as to costs.
29. Learned counsel for the State has prayed for stay of operation of judgment and order. We stay the operation of the judgment and order for a period of three weeks after puja vacation.
Aniruddha Bose, J.
30. I agree.