Bombay High Court
Shri P. Kumaran vs Executive Engineer, Works Division And ... on 3 November, 1998
Equivalent citations: (1999)101BOMLR340
Author: M.B. Shah
Bench: M.B. Shah
JUDGMENT M.B. Shah, C.J.
1. Heard the learned Counsel for the parties.
2. Unfortunately, the 1st Respondent has made various incorrect statements in the affidavit in reply. In the present case, admittedly, at no point of time, Applicant was intimated that Final Bill was ready for payment. It is also an admitted fact that at no point of time the Applicant has received any amount on the basis of the bill which was prepared in the year 1991. Yet, this Application for referring the matter to the Arbitrator is opposed.
3. This Application is filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointing and referring the dispute for arbitration as provided in Clause 25 of the Contract. On the basis of an Agreement dated 10th April, 1985 entered into between the Applicant and the Respondent No. 1, the contract was awarded to the Petitioner for execution of the work as mentioned therein. It is also an admitted fact that the work was completed on 12th May, 1987. After completion of the work, on 27th July, 1989 Petitioner wrote a letter to the Executive Engineer, P.W.D., Panaji, Goa, (Exh. P-6 to the Affidavit of the Petitioner) that even though two years and four months have passed since the completion of the work, the Final Bill has not yet been finalised or paid to him by the Department. Security deposit has also not been refunded to him even though the same was due for refund. It is also, inter alia, stated that he was required to incur extra expenditure and suffer losses on account of prolongation of overheads, shipments and other supervisory staff, machinery, tools and plants and other construction equipments and also to pay labour charges for which he was entitled to be compensated by the department. He has also made various other, claims. He has, therefore, requested that finalisation of payment be done at the earliest and inform him as to when the final bill will be finalised for payment.
4. Thereafter, by letter dated 8th April, 1991 (Exh. P-7) the Petitioner intimated the Executive Engineer that the Final Bill of the work prepared by the Division was not acceptable to him because several sums of monies due have not been included in the said Final Bill and therefore the Final Bill was signed under protest. This was required to be written because on 15th March, 1991, [Exh. P-7 to the Affidavit in Reply filed by V.S. Savant], a Final Bill containing number of blanks is produced on record to indicate that Final Bill was prepared and was signed by the Applicant. It is not disputed that on the said Final Bill, the Applicant has put his signature. It also bears an endorsement "accepted under protest". Thereafter, Applicant wrote a letter dated 8th June, 1991 raising number of contentions and calling upon the Respondents to settle and pay the amount claimed therein and also stated that if the amount is not paid, the disputes and differences be settled by arbitration as per the provisions of Contract. Again he wrote a letter on 14th June, 1991, Exh. P-9 for similar request. To this letter, the Executive Engineer by his letter dated 14th October, 1991 replied that it was felt that the Applicant's claim will be settled by mutual discussion and therefore the Applicant was requested to attend the office for discussion immediately. On the basis of the said letter, meeting was held in the chambers of the Executive Engineer on 29th October, 1991. At that time the Divisional Accountant was also present. On the basis of that meeting, Applicant wrote a letter dated 31st October, 1991, Exh. P-11 to the Executive Engineer wherein it has been stated as under:
With reference to your letter cited above, and the discussion with you along with your Divisional Accountant in your chamber on 29.10.1991, I am pleased to advance an amicable settlement, in this matter, as desired by you. During the discussion, you have also admitted the fact that most of the claims put forth by me, vide my letter dated 8.6.91 were genuine. Incidentally, at an earlier stage, the then Executive Engineer concerned, was also in favour of a settlement at the Departmental level, and we had a minutes of meeting in this regard on 22.4.89, and I was assured of a settlement shortly. Unfortunately, this did not materialise.
However, I expect that for your efforts in this regard will fetch a positive result, and I would be grateful to you for the same, thus averting Departmental losses, and relieving me from huge financial crises. I assure you my full cooperation for the said settlement, provided the settlement is made within 40 days from the date of receival (sic) of this letter.
5. To this letter there is no reply. No settlement has taken place. It has been pointed out that even alleged Final Bill is also unpaid nor the Applicant was intimated that cheque was ready for payment and that he should collect it. It is true that subsequent correspondence is not produced in the Court. It may be stated that Applicant has not raised any contention till he gave Notice on 25th January, 1996 (Exhibit P-3). By the said Notice, he requested the Executive Engineer to pay him the amounts as mentioned therein from Claim No. 1 to Claim No. 17 with interest at 21% per annum. He also called upon to finalise and pay the amounts within 10 days on receipt of the said letter, failing which, as dispute and difference would arise for non-payment of the said amounts, the matter be settled by arbitration as provided in the Contract. As there was no response, the Applicant wrote a letter to the Chief Engineer, P.W.D. Panaji, Goa and requested that the matter be referred to the Arbitrator as provided in Clause 25 of the Agreement.
6. That letter was replied [after lapse of 7 months] on 22nd April, 1997 by the Chief Engineer that the alleged claims cannot be referred to Arbitrator as the same were barred by limitation. Hence, the Petitioner has filed this Application on 6th August, 1997.
7. From the aforestated facts, one thing is clear that at no point of time the Respondents have paid to the Applicant Final Bill towards the work executed or completed by the Applicant. It is also clear that at no point of time, the Applicant was intimated that Final Bill was ready for payment. In this context Clause 25 of the Agreement, which provides for arbitration, is required to be considered. It, inter alia, reads as under:
Clause 25. Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by the Chief Engineer, Goa, Daman and Diu, Public Works Department, in charge of the work at the time of dispute or if there be no Chief Engineer, the administrative head of the said Goa, Daman and Diu, Public Work Department at the time of such appointment. It will be no objection to any such appointment that the Arbitrator so appointed is a Government servant, that he had to deal with the matters to which the contract relates and that in the course of his duties as Government servant he had expressed views on all or any of the matters in dispute or difference. The Arbitrator to whom the matter is ordinarily referred being transferred or vacating his office or being unable to act for any reason, such Chief Engineer or administrative head as aforesaid at the time of such transfer, vacating office or inability to act, shall appoint another person to act as Arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by such Chief Engineer or administrative head of Goa, Daman and Diu, P.W.D. as aforesaid should act. as Arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all. In all cases where the amount of the claim in dispute is Rs. 50,000/- [Rupees Fifty Thousand] and above, the Arbitrator shall give reasons for the award.
Subject as aforesaid the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under the clause.
It is also a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute.
It is also a term of the contract that if the Contractor(s) do/does not make any demand for arbitration in respect of any claim/s in writing within 90 days of receiving the intimation from the Govt. that the bill is ready for payment the claim of the Contractor(s)will be deemed to have been waived and absolutely barred and the Govt. shall be discharged and released of all liabilities under the contract in respect of these claims.
The Arbitrator(s) may from time to time with consent of the parties enlarge the time, for making and publishing the award.
[Emphasis supplied]
8. From the said clause it is apparent that the main condition is that the Contractor has to make demand for arbitration in respect of any claim in writing within 90 days from receipt of intimation from the Government that "the bill is ready for payment". As stated above, no such intimation is given to the Applicant. However, heavy reliance is placed by Mr. Sethna, learned Counsel for the Respondent, on the bill prepared in the year 1987 and on the said bill Applicant's signature is taken on 15.3.1991. The learned Counsel was asked to produce Final Dill prepared by the department. At this stage, original record were called for verification. Surprisingly, it is found that the so called Final Bill is not a Final Bill at all but is Running Bill (Final) for the work executed by the Applicant. It indicates Running Bill (Final) of) he Work of strengthening of existing weir at Opa, Khandepar, left bank, downstream, protection wall. Whether this Running Bill is to be taken as final or not is not required to be decided in this matter because admittedly at no point of time the Department has informed the Applicant that the Final Bill was ready for payment as provided in clause 25 of the Agreement.
9. Mr. Sethna, learned Counsel for the Respondents, further referred to the letter dated 17th April, 1989 [Exhibit 1 to the Affidavit-in-reply of the Executive Engineer], wherein he has stated that, the Final Bill for the mentioned work was kept ready and that the Applicant was directed to attend the office to sign the measurement book and measurement records as token of acceptance in full and final settlement. Various other disputed matters are mentioned. In my view, this letter cannot be interpreted to mean that the Department has prepared Final Bill and the amount was ready for payment. Even on the so-called Final Bill, applicant's signature was taken only on 15th March, 1991, That bill, as stated above, contains number of blanks.
10. Further, the contention which has been raised vehemently by the learned Counsel for the Respondent is that the claim made by the Applicant for referring the matter to the Arbitrator is time barred. In my view, similar question has been considered by the Supreme Court in the case of Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority . The Court held that in order to ask for a reference under Section 20 of the Act there must not only be an entitlement to money but there must be a difference or dispute which has arisen; it is true that on completion of the work a right to get payment would normally arise but where the final bills have not been prepared as appears from the record and when the assertion of the claim was made and there was non payment, the cause of action arose from that date. In the present case, prima facie the cause of action would arise from the date of refusal by the Chief Engineer by his letter dated 22.4.1997. Prior to that, the Respondents have never denied their liability for replied to the letter written by the Applicant. They have kept silence. The Court in the aforesaid case has specifically held that there should be dispute and there can only be a dispute when the claim is asserted by the one party and denied by the other on whatever term. Mere failure or inaction to pay does not lead to inference of the existance of dispute. Same is the position in the present case.
11. Mr. Sethna, learned Counsel for the Respondents, further relied upon the decision of the Supreme Court in the case of Wild Life Institute of India, Dehradun v. Vijay Kumar Garg , and submitted that, as the dispute was not raised within 90 days from the date when the bill was finalised, it should be deemed that the Contractor has waived his right to refer the dispute to the Arbitrator. He heavily relied on paragraph 6 of the said judgment, which reads as under:
6. It is also necessary to refer to the arbitration clause under the contract which clearly provides that if the Contractor does not make any demand for arbitration in respect of any claim in writing within 90 days of receiving the intimation from the appellants that the bill is ready for payment, the claim of the Contractor will be demand to have been waived and absolutely barred and the appellants shall be discharged and releasedof all liabilities under the contract in respect of these claims. The liability, therefore, of the appellants ceases if no claim of the Contractor is received within 90 days of receipt by the Contractor of an intimation that the bill is ready for payment. This clause operates to discharge the liability of the appellants on expiry of 90 days as set out therein and is not merely a clause providing a period of limitation. In the present case, the Contractor has not made any claim within 90 days of even receipt of the amount under the Final Bill. The dispute has been raised for the first time by the Contractor 10 months after the receipt of the amount under the Final Bill.
(emphasis supplied)
12. In the present case, as stated above, at no point of time, the Contractor was informed that the bill was ready for payment. At no point of time, the Contractor's claim was disputed. The amount is also not paid. On the contrary, in 1991, a meeting was held for settlement. Hence, tho1 aforesaid judgment would not be applicable to the facts of the present case.
13. In view of the aforesaid discussion, it would be difficult to hold that the application for referring the dispute to the Arbitrator is, on the face of it, time-barred.
14. However, it is clarified that, in the arbitration proceedings, it would be open to the Arbitrator to decide the question whether the claim made by the Applicant is barred by the period of limitation. It would be open to the parties to lead necessary evidence on this point.
15. After the arguments were over, this matter was again argued with regard to the effect of following part of the Arbitration Agreement:
Clause 25...
It is also a term of this contract that no person other than a person appointed by such Chief Engineer or administrative head of Goa, Daman and Diu, P.W.D. as aforesaid should act as Arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all.
(emphasis Supplied)
16. It was contended that, in this clause, there is a specific term that no person other than a person appointed by such Chief Engineer or administrative head of Goa, Daman and Diu, P.W.D. as aforesaid should act as Arbitrator, and, if, for any reason, that is not possible, the matter is not to be referred to arbitration at all. It is, therefore, contended that, assuming that the Applicant has made out a case for referring the matter to Arbitrator, yet, in view of the aforesaid specific term, this Court has no jurisdiction to refer the matter to the Arbitrator and arbitration clause would not survive by non-refusal or non-action by the Chief Engineer or administrative head by not referring the matter to the Arbitrator.
17. As against this, the learned Counsel appearing on behalf of the Applicant submitted that the aforesaid clause of the Central Public Works Department is interpreted by the Full Bench of the Delhi High Court in the case of Ved Prakash Mithal v. The Union of India and Ors. , and similar contention is rejected. In the aforesaid case, the Court has held in paragraphs 29 and 30 as under:
29. It will appear from this discussion that the Chief Engineer, "the chosen appointer", to use a phrase of Russell, is a third party. [Russell-Arbitration, 18th Edition, page 108, Mustill and Boyd, P. (sic). The parties to the dispute are the Contractor on the one hand, and the Union of India on the other. The Arbitrator has to be nominated by a person designated in the agreement. This is the contractual mechanism for appointment of the Arbitrator. Two important consequences follow from it. First, the function of this third party is ministerial and not judicial. As the Privy Council has said:
It is very common in England to invest responsible public officials with the duty of appointing Arbitrators under given circumstances. Such appointment should be made with integrity and impartiality, but it is new to their Lordships to hear them called judicial acts.
(Palgrave Gold Mining Co. v. Mc Millan 1892 AC 460 (470), per Lord Hobhouse).
The Supreme Court has said:
The powers and duties of the Court under Section 20(4) are of two distinct kinds. The first is the judicial function to consider whether the arbitration agreement should be filed or not. This may involve dealing with objections to the existence and validity of the agreement itself. Once that is done and the Court had decided that the agreement must be filed, the first part of its powers and duties is over. Then follows a ministerial act of reference to Arbitrator or Arbitrators appointed by the parties.
[Per Hidayatullah, J. in Re : Dhanrajmal Gobindram v. Shamji Kalidas and Co. ]
30. The second consequence is that a ministerial functionary cannot destroy the arbitration agreement. He cannot defeat the agreement. The law gives him no such power nor the arbitration agreement. The Supreme Court calls the matter of appointment by the Court or third party as "ministerial" act. The power to appoint is placed by the parties in the hands of the Chief Engineer. But the power to destroy the clause is not placed in his hands.
18. He further relied upon the decision of the Supreme Court in the case of Nandyal Co-op. Spinning Mills Ltd. v. K.V. Mohan Rao , wherein similar part of the arbitration clause is quoted in paragraph 4, and, after considering the various decisions, the Apex Court has observed that the Court gets jurisdiction to appoint an Arbitrator in place of the contract by operation of Section 8(1)(a), the administrative head in that case to appoint the Arbitrator and, if he neglects to appoint, the only remedy open to the Contractor was to have recourse to civil suit is without force. The Court further held that this would not be a case of contract providing for appointment of a named Arbitrator and, if the named person was not appointed, certainly, the only remedy left to the contracting party was the right to suit.
19. As against this, the learned Counsel, Mr. Sethna, appearing on behalf of the Respondents, vehemently contended that the aforesaid decisions are based upon provisions of Section 8 as well as Section 20 of the Arbitration Act, 1940 whereas, under the Arbitration Act of 1996, there are no similar provisions. It is his contention that, in view of the specific terms of the contract, if the administrative head fails to appoint Arbitrator, then, the Arbitration Agreement fails and the dispute is not to be referred to Arbitrator at all. For this purpose, he has relied upon two decisions, viz., Ama Corporation, Madras, v. Food Corporation of India , and Food Corporation of India v. A. Mohammed Yunus .
20. For deciding the aforesaid controversy, first I would refer to Section 11 of the Arbitration and Conciliation Act, 1996, which provides for a machinery for appointment of an Arbitrator/Arbitrators, in case there is an Arbitration Agreement between the parties and parties fail to appoint such Arbitrator/Arbitrators.
21. Section 11 reads as under:
11. Appointment of Arbitrators.-
(1) A person of any nationality may be an Arbitrator, unless otherwise agreed by the parties.
(2) Subject to Sub-section (6), the parties are free to agree on a procedure for appointing the Arbitrator or Arbitrators.
(3) Failing any agreement referred to in Sub-section (2), in an arbitration with three Arbitrators, each party shall appoint one arbitrator, and the two appointed Arbitrators shall appoint the third Arbitrator who shall act as the presiding Arbitrator.
(4) If the appointment procedure in Sub-section (3) applied and-
(a) a party fails to appoint an Arbitrator within thirty days from the receipt of a request to do so from the other party; or
(b) the two appointed Arbitrators fail to agree on the third Arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
(5) Failing any agreement referred to in Sub-section (2), in an arbitration with a sole Arbitrator, if the parties fail to agree on the Arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
(6) Where, under an appointment procedure agreed upon by the parties-
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed Arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
(7) A decision on a matter entrusted by Sub-section (4) or Sub-section (5) or Sub-section (6) to the Chief Justice or the person or institution designated by him is final.
(8) The Chief Justice or the person or institution designated by him, in appointing an Arbitrator, shall have due regard to-
(a) any qualifications required of the Arbitrator by the agreement of the parties; and
(b) other considerations as are likely to secure the appointment of an independent and impartial Arbitrator.
(9) In the case of appointment of sole or third Arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an Arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.
(10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by Sub-section (4) or Sub-section (5) or Sub-section (6) to him.
(11) Where more than one request has been made under Sub-section (4) or Sub-section (5) or Sub-section (6) to the Chief Justices of different High Court or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request.
(12)(a) Where the matters referred to in Sub-sections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration the reference to "Chief Justice" in those sub-sections shall be construed as a reference to the "Chief Justice of India".
(b) Where the matters referred to in Sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to "Chief Justice" in those subsections shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in Clause (e) of Sub-section (1) of Section 2 is situate and, where the High Court itself is the Court referred to in that clause, to the Chief Justice of that High Court.
22. In the present case, apparently there is an arbitration agreement in writing between the parties. It specifically provides that all questions and disputes, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract shall be referred to the sole arbitration of the person appointed by the Chief Engineer, Goa, Daman and Diu, Public Works, Department. Hence, as per Section 7 of the Arbitration Act, arbitration agreement is specific. Next question is with regard to the mode of appointment of the Arbitrator. The mode or machinery of appointment of Arbitrator is also provided. Question is if such mode or machinery of appointment fails, what is to be done. For that purpose, above-quoted Section 11 provides the remedy. Sub-section (6) of Section 11 specifically provides that where under an appointment procedure agreed upon by the parties a person, including an institution, fails to perform any function entrusted to him, the other party is entitled to request the Chief Justice for securing the appointment of Arbitrator. The scheme of Section 11 specifically provides that if procedural part of appointment of Arbitrator is not followed by the designated or agreed authority, the arbitration clause would not be frustrated or defeated. In this view of the matter, the condition that if the Chief Engineer or the Administrative head of Goa, Daman and Diu Public Works Department fails to appoint an Arbitrator, then the matter is not to be referred to arbitration at all would be inconsistent with the provisions of Section 11(6)(c) of the Act. In this view of the matter, there is no substance in the contention raised by the learned Counsel for the Respondent that the matter is not required to be referred to the Arbitrator.
23. In the result, the Application is allowed.
24. At the request of the learned Counsel for the parties, the matter is referred to the sole arbitration of Mr. Justice G.D. Kamat (retired Chief Justice of Gujarat High Court).
25. It is clarified that the learned Arbitrator would decide all questions, including the question whether the claim made by the Applicant is barred by period of limitation.