Bombay High Court
Muncipal Corporation Of Gr Bombay vs M/S Patel Engineering Co.Ltd on 24 February, 2017
Author: Anoop V. Mohta
Bench: Anoop V. Mohta, P. R. Bora
dgm 1 app-1145-2005-judgment.sxw
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 1145 OF 2005
IN
ARBITRATION PETITION NO. 472 OF 2003
The Municipal Corporation of Greater Bombay
A statutory corporation constituted under the
provisions of M.M.C. Act, 1888, having its
Office at Municipal Head Office, Mahapalika
Office Building, Mahapalika Marg,
Fort, Mumbai 400 001 ... Appellant
(Original
Respondents)
vs
M/s. Patel Engineering Co. Ltd.,
A company registered and incorporated
under the Companies Act 1956, having its
Registered Office at S.V. Road,
Post Box No. 8357,
Jogeshwari West, Mumbai 400 102 .... Respondents
(Orig. Petitioners)
Mr. Kevic Setalwad, Senior Advocate with Mr. Sandip Patil, Mr. Ravi
Sirsikar, Mr. Anuypam Surve and Mr. Ameya Kulkarni for the
Appellant/MCGM.
Mr. D. J. Khambata, Senior Advocate with Mr. Rohan Cama i/by
M/s. Bachubhai Munim & Co. for the Respondents.
1/18
::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 :::
dgm 2 app-1145-2005-judgment.sxw
CORAM: ANOOP V. MOHTA AND
P. R. BORA, JJ.
DATE: 24 February, 2017
ORAL ORDER (Per Anoop V. Mohta, J.):-
Called out from final hearing Board. Heard finally, by consent of the parties.
2 The Appellants-original Respondents have challenged impugned order dated 21 March 2005 passed in the Arbitration Petition under Section 33 of the Arbitration Act, 1940 (for short, "the Arbitration Act"), wherein the Respondents' above-stated Application is allowed in terms of prayer (a) which is reproduced below :-
"a) That this Hon'ble Court may be pleased to order and declare that the Arbitration Agreement between the parties contained in Clause 97 of the General Conditions of the Contract has come to an end and/or has exhausted itself and there is no Arbitration Agreement in existence between the parties."
3 The basic events are as under :
In March, 1988, the Municipal Corporation of Greater Bombay (BMC) floated a Tender notice inviting tenders, inter alia, in respect of an underground tunnel which was part of Bombay III 2/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 ::: dgm 3 app-1145-2005-judgment.sxw Water Supply Project. The tenders were invited for different parts of the aforesaid Project by issuing tender notices and invitations to tender including in respect of the construction of an underground Tunnel between Dr. E. Moses Road and Ruparel College. On 16.05.1988, Patel Engineering Ltd. (the present Respondents) submitted its tender for execution of the work of construction of the aforesaid underground tunnel between Dr. E. Moses Road and Ruparel College. On 23.08.1989, the Appellant (MCGM/BMC) accepted the aforesaid tender of Patel Engineering Ltd. in respect of the construction of the underground tunnel Between Dr. E. Moses Road and Ruparel College (i.e. Contract No. 2769-IN/1750-IN/10-
200. On 16.10.1989, Patel Engineering Ltd. commenced work under the aforesaid contract. On 07.08.1992, BMC gave notice to Patel Engineering Ltd. under Clause 90(a) of the General Conditions of the Contract to start and proceed with the work of excavation of Tunnel by using Tunnel Boring Machine (TMC) with due diligence within 30 days from receipt of the notice and failing which threatened further action including cancellation of the contract. On 04.09.1992, Suit filed by Patel Engineering Ltd. in the High Court being Arbitration Suit No. 2984 of 1992 for taking the 3/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 ::: dgm 4 app-1145-2005-judgment.sxw Arbitration Agreement between the parties on file and for an order referring the disputes between the parties to arbitration. On 16.10.1992, consent order passed in the aforesaid Arbitration Suit, by Mr. Justice S.M. Jhunjhunwala, interalia referring all disputes including the disputes regarding validity of the termination of the contract to Arbitration before Mr. Justice D.M. Rege (Retd.). On 05.12.1992, BMC wrote to Patel Engineering Ltd. informing them that the aforesaid contract was terminated and cancelled. On 16.01.1993, Patel Engineering Ltd. filed their Statement of Claim for the following reliefs:
(a)A declaration that the termination of their contract by BMC was invalid.
(b)A direction to BMC to pay Rs.17,44,866/- with interest @ 22% per annum.
(c) An award of Rs.402.12 lacs by way of damages.
An award of Rs.99,20,843/- with interest @ 22% per annum from 16.12.1994.
4 On 15.03.1993, BMC filed their Reply in which have denied the submissions and claims of Patel Engineering Ltd. BMC also filed a Counter Claim against Patel Engineering Ltd., interalia, stating that:
4/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 :::
dgm 5 app-1145-2005-judgment.sxw • As per the terms of the Contract in view of the (alleged) failure of Patel Engineering Ltd. to carry out the entire work, BMC was entitled to complete the work at the risk and cost of Patel Engineering Ltd. • The actual additional cost of executing the balance work under the contract could not be estimated by BMC at that point of time and hence BMC reserved their right and sought liberty to omit to make any claim on that count therein and reserved their right to make fresh claim in respect of the actual risk and cost of Patel Engineering Ltd. 5 On 28.04.1993, Patel Engineering Ltd. filed their Rejoinder to the Statement of Claim and Reply to the Counter Claim denying BMC's claim. In August 1994, BMC invited fresh tenders for completion of the remaining works under Contract No.W-20(A) during the pendency of the arbitral proceedings before the Learned Arbitrator. On 14.12.1994, BMC awarded the balance work of the aforesaid Contract to M/s. Hindustan Construction Co. under Contract No.W-20(A). On 10.01.1995, M/s. Hindustan Construction Ltd. commenced work under the aforesaid Contract No.W-20(A).
6 On 22.04.1997, Award passed by His Lordship Mr. Justice D.M. Rege (Retd.) that Patel Engineering Ltd. was entitled to recover from BMC and BMC was liable to pay to Patel Engineering Ltd. a sum of Rs.21,08,046.22 with interest thereon @ 12% per annum from 5 th December, 1992 till the date of the Award and @ 18% per annum thereafter till the decree or payment whichever is earlier and the BMC 5/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 ::: dgm 6 app-1145-2005-judgment.sxw was entitled to recover from Patel Engineering Ltd. and Patel Engineering Ltd. was liable to pay to BMC a sum of Rs.17,42,243/- with interest thereon @ 12% per annum from 19.12.1994 till the date of award and thereafter @ 18% till the decree or payment whichever was earlier. It is to be noted that, none of the parties challenged the award and the award has been fully implemented by both parties. In the Award no liberty was reserved to BMC to make claims subsequently 7 On 09.08.2000, M/s. Hindustan Construction completed the work under the aforesaid Contract No. W-20(A). In March, 2001, M/s. Hindustan Construction submitted their final bill. On 24.06.2001, statement of price variation escalation was prepared in respect of the amount payable to M/s. Hindustan Construction Co. Ltd. and subsequently paid. On 24.02.2003, BMC issued notice to Patel Engineering Ltd. demanding a sum of Rs.21,33,18,276.74 with interest at the rate of 18% per annum and threatened to invoke the arbitration clause in the event of Patel Engineering Ltd. failing to make payment of the aforesaid amount within 14 days from the receipt of this letter. It is to be noted that this letter was issued almost 11 years after the commencement of the Arbitration proceedings and 6 years after the Award thereon.
6/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 :::
dgm 7 app-1145-2005-judgment.sxw 8 On 03.08.2003, Arbitration Petition No. 472 of 2003 filed by
Patel Engineering Ltd. under Section 33 of the Arbitration Act, 1940 for a declaration that the arbitration agreement between the parties contained in clause 97 of the General Conditions of the contract had come to an end and/or had exhausted itself and that there was no Arbitration Agreement in existence between the parties. On 14.11.2003, reply filed by BMC to the aforesaid Arbitration Petition No. 472 of 2003. On 21.03.2005, the Learned Single Judge has passed order allowing the Petition and granting prayer (a), which reads as under :
"That this Hon'ble Court may be pleased to order and declare that the Arbitration Agreement between the parties contained in Clause 97 of the General Conditions of the Contract has come to an end and/or has exhausted itself and there is no Arbitration Agreement in existence between the parties."
The order upheld inter alia, the following submissions advanced by the Counsel for Patel Engineering Ltd.:-
• That the cause of action for claiming damages on account of the work that remained incomplete arose in the year 1992, when the contract was terminated. When the counter claim was filed by BMC before the arbitrator, the BMC had sought leave of the learned arbitrator to make a claim for damages because the amount of damages was not quantified at that time. In the award the learned arbitrator though referring to the statement in the reply of BMC that they were seeking leave of the arbitrator, did not grant the leave . Therefore, the only remedy available to BMC was to challenge the award on that ground, but BMC did not challenge the award and accepted the same. Therefore, in these circumstances invocation of the arbitration clause now for claiming damages was barred by principles analogous to Order 2 Rule 2 of CPC.
• That the cause of action for claiming damages arose in the year 1992 when the contract was terminated and that in any case when BMC 7/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 ::: dgm 8 app-1145-2005-judgment.sxw awarded the contract to Hindustan Construction Company in December, 1994, they knew what was the amount of damages, therefore, they could have added their claim by amending their Reply filed before the arbitrator. However as BMC did nothing, even if it was assumed that the leave of the arbitrator sought by BMC was granted by the arbitrator, then too the claim for damages had to be made within a period of three years from the date of accrual of the cause of action. Admittedly, no such claim had been made within a period of three years from the date of accrual of the cause of action. Therefore, the claim was also barred by the law of limitation. That even the claim of BMC that invocation of the arbitration clause would be governed by the provisions of the new Act (1996 Act) and not the old Act (1940 Act) is not proper because the cause of action for claiming damages arose in the year 1992 when the contract was terminated and not when the amount of damages got crystalised. In 1992 when the cause of action arose it was the old Act (1940 Act), which was in force and therefore the new Act (1996 Act) would not apply.
9 On 20.06.2005, present Appeal is filed by the BMC against the aforesaid Order and Judgment dated 21 March, 2005. On 02.02.2006, this Court admitted the present Appeal keeping open the issue of maintainability of the Appeal to be considered at the time of hearing of the appeal.
10 The relevant Sections of Arbitration Act, 1940 are as under : 8/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 :::
dgm 9 app-1145-2005-judgment.sxw "5. Authority of appointed arbitrator or umpire irrevocable except by leave of Court:- The authority of an appointed arbitrator or umpire shall not be revocable except with the leave of the Court, unless a country intention is expressed in the arbitration agreement.
12. Power of Court where arbitrator is removed or his authority revoked:- (1) Where the Court removes an umpire who has not entered on the reference or one or more arbitrators (not being all the arbitrators), the Court may, on the application of any party to the arbitration agreement, appoint persons to fill the vacancies.
(2) Where the authority of an arbitrator or arbitrators or an umpire is revoked by leave of the Court, or where the Court removes an umpire who has entered on the reference or a sole arbitrator or all the arbitrators, the Court may, on the application of any party to the arbitration agreement, either -
(a) appoint a person to act as sole arbitrator in the place of the person or persons displaces, or
(b) order that the arbitration agreement shall cease to have effect with respect to the difference referred. (3) A person appointed under this section as an arbitrator or umpire shall have the like power to act in the reference and to make an award as if he had been appointed in accordance with the arbitration agreement.
15. Power of Court to modify award:- The Court may by order modify or correct an award -
9/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 :::
dgm 10 app-1145-2005-judgment.sxw
(a) where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred ; or
(b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision ; or
(c) where the award contains a clerical mistake or an error arising from an accidental slip or omission.
16. Power to remit award:- (1) The Court may from time to time remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks fit -
(a) where the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred ; or
(b) where the award is so indefinite as to be incapable of execution ; or
(c) where an objection to the legality of the award is apparent upon the face of it.
(2) Where an award is remitted under sub-section (1) the Court shall fix the time within which the arbitrator or umpire shall submit his decision to the Court:
Provided that any time so fixed may be extended by subsequent order to the Court.
(3) An award remitted under sub-section (1) shall become void on the failure of the arbitrator or umpire to reconsider it and submit his decision within the time fixed.
10/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 :::
dgm 11 app-1145-2005-judgment.sxw
19. Power to supersede arbitration where award becomes void or is set aside:- Where an award has become void under sub-section (3) of section 16 or has been set aside, the Court may by order supersede the reference and shall thereupon order that the arbitration agreement shall cease to have effect with respect to the difference referred.
33. Arbitration agreement or award to be contested by application:- Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide that question on affidavits:
Provided that where the Court deems it just and expedient, it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit.
39. Appealable orders:- (1) An appeal shall lie from the following orders passed under this Act (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order :-
An order -
(i) superseding an arbitration ;
(ii) on an award stated in the form of a special case ;
(iii) modifying or correcting an award ;
(iv) filing or refusing to file an arbitration agreement ;
(v) staying or refusing to stay legal proceedings where there is an arbitration agreement ;
(vi) setting aside or refusing to set aside an award ;
Provided that the provisions of this section shall not apply to any order passed by a Small Cause Court. 11/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 :::
dgm 12 app-1145-2005-judgment.sxw (2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court."
11 Order passed under Section 33 is not appealable under Section 39 of the Arbitration Act is the main objection. The Appeal, even otherwise, is not maintainable under Letters Patent Act. In support of the same, the following judgments are cited:
(1) State of West Bengal v. M/s. Gourangalal Chatterjee1 (2) Municipal Corporation of Gr. Bombay v. Patel Engineering Company Limited2 (3) Suresh Jayantilal Ajmera and ors v. Rasiklal Gokaldas Ajmera,3 (4) The Union of India v. The Mohindra Supply Co.4 (5) Brahmadeo Choudhary v. National Insurance Co Ltd.5 (6) M/s. Uttam Singh Dugal and Co.Pvt. Ltd v. M/s.
Hindustan Steel Ltd., Bhilai6 (7) G.C. Sharma v. The University of Delhi7 12 In answer to the above, the learned counsel for the 1 (1993) 3 SCC 1 2 AIR 1994 Bom. 80 3 AIR 1997 Bom. 279 4 AIR 1962 S.C. 256 5 AIR 1983 Patna 3 6 AIR 1982 Madhya Pradesh 206 7 AIR 1982 Delhi 227 12/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 ::: dgm 13 app-1145-2005-judgment.sxw Appellants, submitted that the Appeal is maintainable as the order falls within the ambit of Section 39(i) of the Arbitration Act. He cited the following judgments:
(1) M. H. Tejani v. Mrs. Kulsumbai M. Jetha8 (2) M/s. Singhal Engineering Co vs. State of U. P.9 (3) Calcutta Municipal Corporation v. Pawan Kumar Saraf and anr.10 (4) George Joseph v. Food Inspector11 (5) Vinita M. Khanolkar v. Pragnam Pai and ors.12 (6) Orma Impex Pvt. Ltd vs. Nissai ASB PTE Ltd.13 (7) State of Orissa and anr. v. Damodar Das14 13 By consent, we have heard the Counsel only on the
maintainability of Appeal as the merit will be considered, if Appeal is maintainable.
14 Considering the scheme of connected provisions of the 8 AIR 1967 Bombay 300 9 AIR 1980 Allahabad 365 10 (1999) 2 SCC 400 11 MANU/KE/0591/1988 12 (1998) 1 SCC 500 13 (1999) 2 SCC 541 14 (1996) 2 SCC 216 13/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 ::: dgm 14 app-1145-2005-judgment.sxw 1940 Act, we are inclined to observe that though the Application is filed under Section 33 and as the same is allowed by the learned Single Judge, but in view of the facts and the circumstances so recorded above, including the averments so made in the Application filed by invoking Sections 5, 12 and 33 at belated stage, after parties having proceeded with arbitration based upon the consent terms of the Reference, and as Award itself was passed, the prayer raising the issue about the existence and validity of the arbitration agreements has effect of "superseding an arbitration" as contemplated under Sections 19, 23 and 33 of the Arbitration Act read with Section 39 of the Arbitration Act, 1940. 15 Section 33 contemplates and grant liberty to the parties to challenge the existence of an arbitration agreement. But we have to consider all the connected sections of the Arbitration Act, including Sections 12, 14, 31 and 33. The challenge to the validity of the arbitration agreement and to have its effect determined, are the ingredients of Section 33. Those are required to be tested in the scheme of Section 19, where the power is given to the Court to supersede arbitration, where Award becomes void 14/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 ::: dgm 15 app-1145-2005-judgment.sxw or is set aside. Though terms superseding an arbitration is not specifically mentioned in Section 33, the impugned order passed by the Court ultimately resulting into "the arbitration agreement cease to have effect with respect to the difference referred". The enforceability is, superseded by the impugned order in question. The existence of the arbitration agreement, prior to the impugned order just cannot be overlooked so also the action taken by the parties. Merely because Section 33 was invoked, the scheme of Sections 19 and 33 of the Arbitration Act still remained as interconnected.
16 In totality, considering the scheme and background of the matter and the evidents so referred above, we are of the view that the impugned order so passed by the learned Single Judge of granting Section 33 Application also falls within the ambit of Section 19 of the Arbitration Act. This is also in the background that prayer (a) so made which is reproduced itself provides that "the arbitration agreement between the parties has come to end and/or exhausted itself and there is no arbitration agreement in existence between the parties.". This prayer is available under the 15/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 ::: dgm 16 app-1145-2005-judgment.sxw scheme of Section 19 and not only under Section 33. 17 Conceptually "arbitration agreement" is different than the contract between the parties. The Court may set aside the Award and supersede the Reference in respect of differences referred. Once the arbitration agreement exists between the parties, in a given case, it may be referred for the arbitration proceedings afresh. This is basically when there is no dispute with regard to the fact about the existence of arbitration agreement and its Reference, prior to the order.
18 We are inclined to observe that in the facts and circumstances, the prayer so made and as granted by invoking Section 33 also falls within the ambit of Sections 19 and 25 of the Arbitration Act. The facts of the case brought all these Sections together to arrive at the conclusion that impugned order is an order of "superseding an arbitration". Therefore, the Appeal under Section 39 of the Arbitration Act is maintainable.
19 The judgment so cited by the learned counsel appearing 16/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 ::: dgm 17 app-1145-2005-judgment.sxw
for the Respondents is of no assistance having once observed that the Appeal under the Arbitration Act itself is maintainable. The issue of maintainability of Letters Patent Appeal and/or such Appeal does not arise, if specific appellate provisions are available as recorded above. The impugned order, therefore, so passed by the learned Judge cannot be stated to be falls exclusively within the ambit of Section 33, but it also falls within the ambit of Section 19 read with Section 33 of the Arbitration Act, 1940. 20 The judgments in M. H. Tejani and M/s. Singhal Engineering Co (supra), though are different on facts, but considering the scheme of the Arbitration Act so reflected in those judgments and for the reason so recorded above, we are inclined to hear the Appeal on merits as the Appeal so filed is maintainable as the order falls within the ambit of Section 39 (1) (i) of the Arbitration Act, 1940.
21 The issue of existence of no arbitration agreement by invoking Section 33 and the impugned order so passed, in our view, therefore, cannot be read in isolation by overlooking the purpose of 17/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 ::: dgm 18 app-1145-2005-judgment.sxw the arbitration proceedings so initiated as per the agreement between the parties. It is against the scheme to permit such party to go against their own arbitration agreement after the Reference so made. The Award, even if, passed is void and bad, the arbitration agreement still exists unless it is specifically ordered by the Court superseding the arbitration and/or its Reference. Section 33 so invoked, that itself cannot be the reason to hold that the Appeal as filed though facts and contents of the Applications fall within the ambit of Section 19, is not maintainable. We are inclined to reject the preliminary objection so raised. 22 Resultantly, the following order :
ORDER
(i) The Appeal under Section 39(i) of the Arbitration Act, 1940 as filed, is maintainable.
(ii) The matter be placed for hearing on merits before the Regular Bench.
(iii) The preliminary objection so raised is, therefore, rejected.
(P. R. BORA, J.) (ANOOP V. MOHTA, J.) 18/18 ::: Uploaded on - 27/02/2017 ::: Downloaded on - 28/02/2017 00:42:22 :::