Delhi High Court
Jansatta Shakari Awas Samiti Ltd. vs Organic India on 25 August, 2005
Author: Swatanter Kumar
Bench: Swatanter Kumar
JUDGMENT Swatanter Kumar, J.
1. Jansatta Sahkari Awas Samiti Ltd. (hereinafter referred to as the Society) on 20th December, 2003 filed a petition in the Registry of this Court under Section 11 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the Act) praying for appointment of an arbitrator as the respondent had failed to appoint the same despite service of notice and had failed to concur with the suggested arbitrator and prayed for an appointment of arbitrator, as per procedure laid down.
2. The Society is duly registered under the registration No. 2271 in Distt.Ghaziabad (U.P.) on 30th March, 1998. The agreement was signed between the Society and M/s. Organic India, Architect and Consultant, respondent in the petition in terms of clause Part-B(ii) making its covenants binding on both the parties. On 23rd July, 1998 another agreement was signed between the Society M/s. Govind Ram Chaprana & Sons, contractors for execution of Housing Project having estimated costs of Rs. 7,53,44,346/-. It was stated in the agreement in unambiguous terms that the project has to be completed within 24 months from the date of commencement of the work by the Contractor. The work was carried on. There were certain difficulties and the Society was not happy with the progress of the work and its quality by the Contractor. However, on 29th August, 2000 M/s. Anil Ashok & Associates, Chartered Accountants, rechecked the costing of the project given by the Architect and their apportionment flatwise. The Chartered Accountant was appointed to recheck the accounts to complete the internal audit of the project. On 7th April, 2001 work on complete internal audit began. The external electrification work was awarded by the Society to M/s. Power Line Cables India Pvt.Ltd. on 10th April, 2001 and the said work was to be completed within 45 days at the costs of Rs. 40,75,000/-. Certain disputes arose between the said Company and the Society. An internal audit report was made which was replied by the by the then Secretary of the Society Shri Amrish Kumar. Noticing the discrepancies pointed out in the audit report, the Managing Committee prepared an action plan on 26th April, 2002 and also lodged an FIR against the Accountant of the Society for siphoning Rs. 13,21,000/- of the Society on 9th February, 2002. On 17th January, 2003, the new Management of the Society issued a letter to the Contractor alleging to extort excess payment from the Society without even completing the project and in connivance with the members. Vide letter dated 31st January, 2003, the Society called upon the contractor to submit the account of the material received and their consumption. No reply was received to the said letter. On 11th July, 2003, a legal notice was sent to the architect and consultant by the Society for professional misconduct, breach of agreement and cheating the Society of the huge amount. Again a notice was sent on 15.9.2003 through Advocate to the said party demanding Rs. 2 crore as compensation and also to accepting the arbitration of Shri Alok Kumar, Advocate. No reply was received by the Society from the architect even to this notice, resulting in filing of the present petition under Section 11(6) of the Arbitration Act. Reply to this petition was filed on behalf of architect and the consultant stating that the application was not maintainable as there was no agreement of arbitration between the parties in respect of the alleged dispute. The arbitration agreement exists only in respect of professional charges to be paid by the petitioner to the respondent. As the disputes do not relate to the professional fee, there cannot be any reference to the arbitrator. The name of Mr.Alok Kumar, Advocate was not acceptable to the respondent as arbitrator, as there is a provision of panel of the arbitrators to be appointed and not a single arbitrator. According to the respondent, each party is entitled to appoint one arbitrator and the application is stated to be malafide and intended to pressurise the architect and in any case there is no clause of the agreement under which the respondent could be made liable for deficiency of services. It is generally averred in the reply that correspondence stated in the para has not been received by the respondent, as claimed by the petitioner. There is no dispute between the parties which can be referred to arbitration in respect of the points raised by the petitioner and prayed for dismissal of the petition. Rejoinder to this was filed by the petitioner reiterating the averments made in the petition and further clarifying that the arbitration clause is for appointment of a sole arbitrator and that the disputes raised in the petition are referable to the arbitration and the petitioners were ready to accept any arbitrator which may be appointed by the Court.
3. During the pendency of this petition before the Court, the Contractor filed another petition on 2nd August, 2004 in the Registry of this Court under Section 11 of the Act praying that the Architects (respondent in petition No. 250/93) be appointed as sole arbitrator to go into the disputes and claims of the contractor. It is stated by the contractor that as per clause 2.12 of the agreement between the Society and the Contractor, the disputes arising between the parties were required to be referred to the Architect, owner of M/s. Organic India. It is further the case of the petitioner that with ulterior motive, the respondent-Society is avoiding the payment of Rs. 74,40,000/- plus interest which is due from the respondent and are levelling false allegations against the contractor. It is stated that the President of the Society had agreed to sort out the differences with the help of the Architect. Petitioner had approached the respondent for payment of their dues and had written various letters. A notice dated 14th January, 2004 was received on behalf of the respondent, whose reply was sent on 12th February, 2004 and the petitioner had made a request that as per terms of the agreement dated 23rd July, 1998, the Architect should be appointed as the arbitrator, but no reply thereof has been received by the petitioner, even after a reminder dated 9th March, 2004. As the respondents are sitting over the matter, the petitioners have filed the present petition praying for appointment of the arbitrator as the sole arbitrator in terms of the agreement. This petition is also contested by the Society on the ground that Architect cannot be appointed as an arbitrator, as civil and criminal proceedings have already been initiated against the said Architect for siphoning the funds of the Society as well as deficiency in services resulting in huge loss to the Society. It is stated that an FIR has also been lodged against Som Sharma, the Architect of the Firm. It is further averred that the measurement of civil work and quality check was done and a report was made on 1st September, 2002 making it crystal clear that the Contractor has fraudulently over drawn a sum of Rs. 81,69,444/- from the Society. In the event the Architect is appointed as arbitrator, it will violate the basic rule of law. The receipt of the notice issued by the petitioner to the respondent-Society is not disputed and it is stated that the Society had declined to concur to the appointment of Architect as the sole arbitrator for the reasons aforenoticed. In view of the above facts, it will be appropriate to dispose of both these petitions by a common order. Before examining the contents of the merits and contentions raised, reference to the arbitration clause existing in the two agreements, which otherwise is not in dispute, can be carefully referred at this stage itself.
Agreement dated 23rd July, 1998 executed between the Society and the Contractor 2.12 In case of any point of dispute/difference between the contractor and the employer, the same shall be referred to the Architects M/s. Organic India, whose decision shall be final and binding on both the parties to this contract agreement.
xxxx xxxx 2.21 All disputes arising out of or in any way connected with this agreement shall be dealt with only in the courts of New Delhi.
Contract agreement dated 30th March, 1998 executed between the Society and the Architect.
xiii. Arbitration: Where any differences or disputes arise out of the conditions of engagement and scale of professional fees can not be determined in accordance with the clause Part C-(V) or any other clause of this agreement, it shall be referred to the arbitration of a person to be agreed upon between the two parties within one month after either party has given notice to the other or written request to concur on the appointment of an arbitrator.
The Panel, if any, of the arbitrators shall comprise of the following :-
One member to be nominated by the owner.
One member to be nominated by the Architects.
One member to be nominated by the nominee's mutually agreeable.
4. The basic contention raised on behalf of the Architect while opposing the appointment of an arbitrator in AA 250/2002 is that the disputes are beyond the scope of the arbitration clause, as they can only relate to the scale of professional fee and nothing more. The deficiency in service, as alleged, lies to the Society because of the acts of ommission and commission by the architect, is not the dispute, which can be referred to the arbitrator in terms of the above arbitration clause. The arbitration clause of the agreement between the Society and the Architect has been worded very liberally and is of wide ramification. As per this clause, any difference or disputes arising out of any commission or engagement and scale of professional fee, if not determined in accordance with the clause any other clause of the agreement then it had to be referred to the arbitration of a person to be agreed upon between the parties within one month, after either party had given notice to concur appointment of an arbitrator. If the parties failed to do so then arbitration has to be referred to the panel of arbitrators, as spelled out above. For the purposes of knowing what are the relevant clauses and the disputes arise out of commission of engagement is a term which would take within its ambit the whole agreement executed between the parties. The responsibilities of the Architect, architect's services and the general clauses under the head of construction stage spell out that the duties and obligation of the Architect towards the Society were pervasive, still specific and entire conduct of the contract was subject to the supervision and inspection of the Architect. All these terms and conditions would be the terms of engagement and at least prima facie it will be difficult to the Court to interpret that the arbitration clause executed between the parties restrict itself only to professional charges. The bare reading of the clause shows that it is one of the heads under the arbitration clause which is specifically referable to the arbitration. In fact, it may not even be very necessary for this Court to adjudicate this issue finally at this stage because whether a particular dispute covered by the arbitration agreement is not itself, is a question referable to arbitral forum. The provisions of Section 16 of the Act clearly state that an arbitral tribunal may rule its own jurisdiction including ruling on an objection with regard to the existence and validity of the arbitration agreement. Such wide is the jurisdiction of the arbitral forum under the provisions of the Act. In this regard, reference can be made to the judgments of the Supreme Court judgments in Union of India and Anr. v. L.K. Ahuja & Co. , Nimet Resources Inc. and Anr. v. Essar Steels Ltd. Secur Industries Ltd. v. Godrej & Boyce Mfg. Co.Ltd. and Anr. and one judgment of this Court in the case of Ajay Gupta v. Union of India and Anr. (Arb.P.60/2005) decided on 11th August, 2005.
5. Another objection raised on behalf of the architect-respondent is that the notice for appointment of arbitrator was not received by the respondent. The notice dated 11th July, 2003 and 15th September, 2003 stated to have been sent by registered post. The original postal receipts of the notices have been placed on record. They were addressed at an address given in the agreement. The correctness of the address stated in the letter being that of the respondent is not even disputed during the course of arguments. What is stated in paragraph 7 is a vague denial. It states "the correspondence stated in this para has not been received by the respondent, as claimed by the petitioner". This denial is no denial in law. It is specifically averred in the corresponding para that the notices is not by speed post and by registered post informing the respondent that they were invoking the arbitration agreement. Postal receipts have been annexed to the petition as annexures 2 and 3. Once a notice is dispatched by registered post at an admittedly correct address, the presumption would be in favor of the delivery of such a document rather than against it. Learned counsel appearing for the respondent while relying upon the judgment of this Court in Maxon Printech Ltd. v. Govt. of Nagaland and Anr. and our judgment in the case of Varun Associates v. Army Welafare Housing Organisation (Arb.P.No.222/2004) decided 28th July, 2005, contended that once notice is not received, the petition is not maintainable as pre-condition to exercise a power under Section 11 of the Act is not satisfied. In those cases, no proof of service was filed and even the notices were sent under postal certificates to which no such presumption is attachable. As such these judgments are not really of such a great help to the respondent. Another important factor is that during the course of arguments, learned counsel for respondents were required to accept the petition as a notice for arbitration and make an appointment in terms of the arbitration clause. Even this was not acceptable to the respondent which further indicates that conduct of the respondent is not in-conformity with law. Equally untenable is the contention of the respondent while relying upon another judgment of this Court in Munish Gupta & Ors, v. Ram Dass and Ors. that the notice was not in conformity with the arbitration clause and as such the petition was not maintainable. In the notice served by the Society, they had named the sole arbitrator. It was only in default thereof that a panel was appointed. The notice had complied in substance with the requirement of law as well as the arbitration clause, as such this judgment is of no help to the petitioner.
6. Coming to the other petition, the Society had served a notice upon the contractor on 20th July, and in the notice dated 12th February, 2004 the Society had narrated the facts of the case in great detail on the need of the independent arbitrator and nominated an arbitrator Mr.Som Sharma, as arbitrator in terms of the agreement and respondent-contractor was required to agree to the said appointment. The receipt of this notice is admitted by the petitioner, but it is stated that the agreed arbitrator was only the architect, as such the respondent in petition No. 250/03 could only be appointed as arbitrator. There is no other objection raised in this petition.
7. The parties to these proceedings are ad idem with regard to distance of an arbitration agreement. As aforenoticed the arbitration clause between the Architect and the Society is wide enough to include very dispute. However, this question could be examined even by the arbitrator if an objection is so raised by the party before the arbitrator, as arbitrator has complete jurisdiction to decide with regard to his own jurisdiction as well as of existence of an arbitration agreement. In fact, it is the common case of the parties that the dispute particularly in the case of the contractor and the Society are liable to be referred to the arbitration. It is the person/persons who are to be appointed as arbitrator, which is in dispute. According to the contractor, Architect should be appointed as a sole arbitrator while according to the Society the Architect could not be appointed as an arbitrator as there are serious disputes between the Society and the Architect itself. Arbitration agreement and the proceedings are founded on principle of mutuality and the procedure adopted by the arbitral forum has not only to be fair, but there should be actually fairness to the extent that they could not be questioned. Not only nemo est supra legs, but nemo debet esse judex in propria causa.
8. If for the dispute raised by the contractor against the Society and vis versa architect is appointed as an arbitrator in terms of the said arbitration agreement, obviously the architect would determine all disputes which are stated to have arisen in AA 250/2003, does not only impliedly but actually he would determine the fate of the claims raised against the architect by the Society. This would offend any known canone of arbitral jurisprudence. It is necessary that parties must get fair opportunity to prove their cases before the arbitral forum in a just and fair manner. In fact the Society could not have named the architect as the sole arbitrator in view of the pendency of the petition before this Court. They had suggested the name of an Advocate as their arbitrator to which the respondent failed to react. In the case of Datar Switchgear Ltd. v. Tata Finance Ltd. and Anr. JT 2000 (Supp.2) SCC 226, the Supreme Court held that nomination mentioned in the arbitration clause gives a right to suggest the name of the arbitrator to the other side and appointment could be done with the concurrence. This contention of the appellant in that case was rejected by the Supreme Court wherein Their Lordships held that nomination is equivalent to the word "appointment" and in given cases, nomination virtually amounts to appointment for a specific purpose. In the agreement between the Society and the Contract there is no alternative method provided to sole arbitrator in the event parties failed to accept the same. In these circumstances, it will be just fair, equitable and keeping in view the economic limitation of the parties as pleaded that a sole arbitrator be appointed in both these cases to look into the disputes arising between the contractor, Society and the Architect as well.
9. Thus while partially allowing both these petitions, Mr.Justice V.S. Aggarwal, a retired Judge of this Court is appointed as a sole arbitrator, who may enter upon the reference and proceed in accordance with law. Parties are directed to appear before him on 8th September, 2005. Both these petitions are disposed of in the above terms while leaving the parties to bear their own costs.
10. Liberty to the parties to move before the arbitrator for an interim order in relation to the measurement of the work or any other allied prayer which had been made in IA 7113/2004 & 5788/2003. Both IAs are dismissed with liberty, as granted above.