Andhra HC (Pre-Telangana)
State Of Andhra Pradesh Rep. By The ... vs S. Raghurama Reddy, Contractor Rep. By ... on 27 January, 1993
Equivalent citations: 1993(1)ALT387
Author: Syed Shah Mohammed Quadri
Bench: Syed Shah Mohammed Quadri
ORDER B. Subhashan Reddy, J.
1. At issue, are two important points for consideration arising under the Arbitration Act, 1940, namely;
(i) whether the Arbitrator earlier appointed to resolve a dispute can entertain suo motu reference made by a party raising a further claim without being referred by the authority concerned; and
(ii) whether the principles underlying Order 2, Rule 2 of Code of Civil Procedure are applicable to the proceedings under the Arbitration Act, 1940.
2. These two matters arise out of a common judgment rendered in O.P.No. 52/85 and O.S.No. 54/85 by the Court of the Principal Subordinate Judge, Anantapur on 9th March, 1992 The said legal proceedings arose Out of the arbitration award passed by the 2nd respondent in O.P. No. 52/85purporting to be in exercise of his powers as Arbitrator under the provisions of the Arbitration Act, 1940. While CRP No. 2141/92 is directed against the judgment in O.S.No. 54/85, the CMA is directed against the judgment rendered in O.P.No. 52/1985. By the common judgment referred to above, the court-below has made the award of the arbitrator, rule of the court in O.S.No. 54/85 by repelling the contentions raised by the appellant herein in O.P.No. 52/1985 to set aside the said award.
3. The facts, briefly stated, are as under: The 1st respondent entered into an agreement in C.R. Agt. No. 6/73-74 undertaking the work of construction of a by-pass road at Anantapur on Hyderabad-Bangalore National Highway for a lump-sum amount of Rs. 17,68,652/-. The contract was entered into interse, the 1st respondent and the respondents 1 and 2 in O.S.No. 54/85. Though the case of the 1st respondent is that he has completed the works as per the agreement, reckoning the peirod from 26-6-1973 on which date the site was handed-over to him, but allegations were made against him that he did not complete the work on time and that he had committed breach of contract. On the other hand, his case was that he was entitled to certain amounts under several heads from the governmental authorities mentioned above and in view of the raising of the said dispute, the Government issued G.O.Rt.No. 909, dated 21-9-1976 appointing Mr. T, Nabi Sahib, retired Executive Engineer as Arbitrator and then he entered upon the said reference. The Executive Engineer, R & B, National High Way Division, Anantapur, the 2nd defendant in the suit has filed statements in defence refuting the claim made by the 1st respondent. The Arbitrator passed an award dated 2-6-1977 for a lumpsum amount of Rs. 3,50,000/-. The 1st respondent, not satisfied with the same, has raised another dispute directly with the arbitrator mentioned above and the latter has again entered the reference and passed the 2nd award dated 2-8-1979 for an amount of Rs. 1,36,686/- in favour of the 1st respondent, Two suits, namely, O.S.Nos. 69/ 81 and 71 /81 were lodged on the file of the Court of the Principal Subordinate Judge, Anantapur to make the said awards rule of the court and the governmental authorities had filed O.P. Nos. 59 /77 and 75/79 in the said court for setting aside the said two awards passed separately. The said court, while passing decrees and making the awards rule of the court in O.S.No. 69/81 and 71/81, has dismissed the O.P.Nos. 59/77 and 75/79. As the said judgments and decrees rendered in O.S.Nos. 69 and 71 of 1981 and O.Ps.59 and 75 of 1977 were not challenged further, they had become final. Pursuant to the same, the full amounts covered by the said awards which became the rule of the court were paid to the 1st respondent and he had also acknowledged the same by passing receipt endorsing full satisfaction. So far, so good.
4. But the thirst of the 1st respondent for more money out of the same transaction after tasting two successful awards in his favour, did not permit him to stop there and he then ventured to make a 3rd reference to the arbitrator named above directly and the said arbitrator was so generous that he immediately entered on the reference on the said suo motu dispute raised by the 1st respondent for awarding interest on the amounts awarded by the arbitrator earlier till the date of payment @ 18% per annum. The arbitration reference was sought for by the 1st respondent in that regard by making an application dated 1-12-1984 and notices were issued and after hearing both the parties, the award was passed by the arbitrator on 28-1-1985 readily accepting the claim of the 1st respondent and not heeding to the objections raised by the governmental authorities. It is this award, which was made rule of the court by the Court of the Principal Subordinate Judge, Anantapur by his judgment dated 9-3-1992 passed in O.S.No. 54/85 while dismissing the O.P.No. 52/85 filed for setting aside the award.
5. Mr. B.V. Rammohan Rao, the learned counsel for the appellant urges two contentions, namely, (1) that the arbitrator had no jurisdiction to enter the reference as the same is unauthorised and was not referred by the competent authority i.e., the Government; and (2) that, in any event, the arbitration proceedings were barred by the principles underlying Order 2, Rule 2 of the Code of Civil Procedure. His contention is that, though there is an arbitration clause, the said clause entitles either of the parties to raise a dispute and the same has to be referred by the Government naming the arbitrator and that was already done in G.O.Rt.No. 909, dated 21-9-1976 and he entered the reference and passed the award. According to him, even the 2nd reference was bad, but inasmuch as the awards were made and also were made rule of the court and the plea of the Government to set aside the said awards was negatived and as the same had become final, the said decrees were honoured and the 1st respondent had obtained the said amounts in full satisfaction of his claims. It is contended further that after the said references were ordered and after the amount was received in full settlement of his claims, the 1st respondent was not entitled to raise a further claim and the arbitrator absolutely had no jurisdiction to enter the reference as there was no valid reference made for conducting such arbitration proceedings. The further contention is that, inasmuch as the claims were already made and they were enquired into and the awards passed and had also become rule of court, further claim was barred on the analogy of the principles embodied under Order 2, Rule 2 of the Code of Civil Procedure. In support of his contention touching upon the aspect of Order 2, Rule 2 C.P.C. Mr. Rammohan Rao, cited the judicial precedents reported in Venkata Ratnamma v. Sundara Ratnamina, 1984(1) ALT 88, Delhi Development Authority v. M/s. Alkarrm , , K.V. George v. Secretary to Govt, Water and Power Dept.,Trivandmm, and NTP Corporation Ltd. v. P.K. Ramaiah & Co , 1992 (1) APLJ 86.
6. lnso far as the decision in Venkata Ratnamma's case, 1984 1 ALT 88 is concerned, the same is only relevant so far as the enunciation of principles under Order 2, Rule 2 of C.P.C. is concerned. In that case, a suit was filed earlier for recovery of interest on the foot of a mortgage and later on, after 2 years, another suit was filed for recovery of principal and interest and it was held by a Division Bench of this court that the subsequent suit was barred under Order 2, Rule 2 of C.P.C. There is one distinction, in that, the said ruling dealt with an appeal arising out of a regular suit, but the lis involved in the instant case on hand is as to whether the same principles underlying Order 2 Rule 2 CPC are also applicable to arbitration proceedings which is the prime point for consideration. The decision in Delhi Development Authority's case, , squarely applies to the facts of the instant case. In that case also, while the claim was made and the dispute raised was referred to arbitration, a further dispute was raised and during that period, the arbitrator made and published the award. After the said award, a request for referring some other items for arbitration was made and when the same was not acceded to, Section 20 of the Arbitration Act was invoked seeking a reference to an Arbitrator. In so far as the first point with regard to the power of the court to appoint the Arbitrator is concerned, that has got no bearing on the facts of this case. Accepting the contention of the Delhi Development Authority that the 2nd reference was barred by the principles underlying Order 2, Rule 2 of C.P.C. the said Division Bench, even though observed that the provisions of Order 2 Rule 2 in terms do not apply because Code of Civil Procedure is not applicable to the Arbitration proceedings, yet held that the administration of justice would require that there should not be multiplicity of proceedings and the parties should not be permitted to raise disputes over and over again, once the disputes have been settled either by a pronouncement of a court of competent jurisdiction or by an award of an Arbitrator. Concluding the judgment,the above court held at paragraph 16:
".....We are unable to agree with the learned single judge that in no case, would the provisions or .2, Rule 2 be applicable. While the learned single Judge has rightly held that the principles of res judicata apply to arbitration proceedings, but we are unable to agree with him that the provisions of Order 2, Rule 2, which according to the learned single Judge are draconian in nature, would never be applicable. In our opinion, the provisions of Order 2, Rule 2 would apply, as we have already stated herein- above, if the request for referring more disputes to arbitration is made, after the making of the award. Once an award has been made, a party cannot be permitted to raise more disputes which he/it could and ought to have raised earlier."
At paragraph 16 of the decision in K.V. George's case (3 supra), the Supreme Court held thus:
"In the instant case, the contract was terminated by the respondents on April 26,1980 and as such all the issues arose out of the termination of the contract and they could have been raised in the first claim petition filed before the Arbitrator by the appellant. This having not been done, the second claim petition before the Arbitrator raising the remaining disputes is clearly barred."
The Supreme Court has held that principles of res judicata as provided in Section 11 of the Code of Civil Procedure are applicable to arbitration case, as by virtue of Section 41 of Arbitration Act, the provisions of Code of Civil Procedure will apply to arbitration proceedings and that the provisions of res judicata are based on the principles that there shall be no multiplicity of proceedings and that there shall be finality of proceedings and that the said principles are also applicable to arbitration proceedings as well. In that case, a 2nd reference which was answered by the Arbitrator by passing the award was struck down by the High Court of Kerala applying the principles of Order 2, Rule 2 of CPC and the said judgment of Kerala High Court was upheld by the Supreme Court.
7. The ratio decided in N.T.P. Corporation Ltd.'s case (4 supra), is altogether different, in which it was held that when the contractor receives the amount in full and final settlement of his claim, no matter remains for arbitration and this is based on the doctrine of waiver. This question does not arise in the case before us, as the recitals in the receipt acknowledging the payment do not mention to the effect that the amount was received in full and final settlement of the claims of the 1st respondent and the said receipt, Ex.A-1, only recites that the 1st respondent received the amounts in full satisfaction of a particular decree passed.
8. Mr. P.Srirama Murthy, the learned counsel appearing for the 1st respondent submits (i) that the 1st respondent was entitled to directly seek for arbitration proceedings and that the arbitrator has rightly entertained the said proceedings and passed the award; and (ii) that Order 2, Rule 2 CPC is not applicable to arbitration proceedings. In support of his arguments, he cited the judgments reported in Secretary, Irrigation Department, Govt. of India v. G.D. Roy, , Pushraj v. Clive Mills Co, and Kerorimall v. Union of India, . The Constitution Bench of the Supreme Court in G.C. Roy's case (5 supra) dealt with a matter arising under Arbitration Act and resolved the conflict which was hitherto raised with regard to the power of the Arbitrator to grant pendente lite interest. Resolving the said conflict of decisions, the Supreme Court has authoritatively pronounced that the Arbitrator has power to award pendente lite interest overruling the earlier judgment to the contra in Executive Engineer, Irrigation, Galimala v. Abanduta Jena by making a reference to the provisions of Section 34 of Civil Procedure Code and Sections 3 and 4 of Interest Act, 1978. May be, that the Arbitrator has got power to award the interest and that power cannot be doubted in view of the authoritative pronouncement of the Supreme Court referred to supra, but the question for consideration in the instant case is totally different as the 1st respondent had already raised the dispute projecting several claims, not in one reference, but two references, and the same have culminated into awards and also decrees because of the same having been made rule of the court. The question in the instant case is not with regard to entitlement of pendente lite interest in arbitration proceedings, but it is with regard to competency of arbitrator who became functus officio on passing of the earlier awards, suo motu acting on the direct reference made by a party and the application of principles underlying Order 2, Rule 2 of CPC in view of the fact that the claim which was made could have been made earlier but was not in fact made. But, Mr.-P. Sriramamurthy lays stress on the observations made by the Supreme Court at paragraph 45, which read:
"Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes - or refer the dispute as to interest as such,- to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite . It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view."
He wants us to read the decision of the Supreme Court that arbitration proceedings are maintainable, laying emphasis on the bracketted words "along with the claim for principal amount or independently". His argument is that the claim for interest which made by a 3rd reference is independent of the earlier claims and as such, it is maintainable. We are afraid, we cannot accede to this contention as we cannot read the said Supreme Court judgment as laying down such a proposition that Order 2, Rule 2 of CPC is not applicable. The purport of the said judgment of the Supreme Court is that the arbitrator is entitled to award pendente lite interest and that it need not be claimed along with principal amount, but it can be claimed independently also and the same can be simultaneous proceedings, but not to the extent of stretching that a party who has got a claim for both principal amount and interest amount, can only seek for arbitration proceedings for principal amount first, then after it culminates into award and decree by a rule of the court and after receipt of the said amount, can conveniently seek for award of interest. The judgment rendered in Pushraj's case (6 supra) holding that one arbitration agreement made gives rise to more than one dispute, has got no relevancy for the purpose of the decision in the instant case. The judgment rendered in Kerorimall's case (7 supra) is that Order 2, Rule 2 is not applicable to the arbitration proceedings and that there can be successive references of arbitration is no longer a good law and in view of the judgment rendered in G.C. Roy's case (5 supra), the judgment in Kerorimall's case (7 supra) stands impliedly over-ruled.
9. In view of what is stated supra, we hold that the arbitrator had become functus officio the moment he has passed the award and the same having been made a rule of court earlier and that neither the 1st respondent was entitled to make a claim dated 16-9-1983 nor was the arbitrator entitled to enter the said. reference. Further, inasmuch as the reference which was made in G.O. Rt.No. 909, dated 21-9-1976 (Ex. A-5) was already decided and award passed and culminated into a decree, the dispute with regard to the contract in question exhausted and no more dispute can be entertained and that too directly by an application of the 1st respondent. We also hold that the principles analogous to Order 2, Rule 2 are applicable to arbitration proceedings and that the 3rd reference sought for by the 1st respondent on 16-9-1983 and the entertaining of the dispute by the Arbitrator on such reference and his rendering the award are all barred by the principles of Order 2, Rule 2 of CPC. As such, the Arbitrator had absolutely no jurisdiction to decide the matter and the entire arbitration proceedings covered by O.P.No. 52/85 and O.S.No. 54/85 are vitiated and accordingly, the said award and consequent decree passed in O.S.No. 54/85 is set aside. C.R.P.No. 2141/92 and C.M.A. No. 1018/92 are accordingly allowed. We, however, make no orders as to costs.