Orissa High Court
National Aluminium Company Ltd. vs Panda Engineering Works Pvt. Ltd. And ... on 10 May, 1991
Equivalent citations: AIR1991ORI297, AIR 1991 ORISSA 297, (1991) 2 ARBILR 322
JUDGMENT K.C. Jagdeb Roy, J.
1. The petitioner has preferred this Civil Revision challenging the order of the Subordinate Judge, Angul dated 22-12-1990 passed in Arbitration Misc. Case No. 52 of 1990.
2. The petitioner had filed a petition under Section 33 of the Arbitration Act before the Subordinate Judge, Angul with a prayer to direct the Opposite Party Nos. 2 and 3, namely, the Arbitrators.
(a) to take up the arbitrabllity, maintainability of the claims raised by the claimant-Opp. Party No. I M/s. Panda Engineering Works Private Limited as preliminary hearing and direct Opposite Parties Nos. 2 and 3, the Arbitrators to take up issues Nos. 33, 34, 35 and 38 as preliminary issues.
(b) to decide the scope ambit and effect of clause 20 and clause 10 of the General Conditions of Contract between the petitioner and Opposite Party No. 1,
(c) to hold that the claims raised by the claimant-Opposite Party No. 1 before the learned Arbitrators are not maintainable, arbitrable and not within the scope of the Arbitration Clause, and
(d) to pass any other orders or direction as the Court deems fit and proper.
3. Issues Nos. 33, 34, 35 and 38 are as follows:--
Issue No. 33: Whether the claims are arbitrable and maintainable?
Issue No. 34: Whether the claims are covered under the terms of the Agreement?
Issue No. 35: Whether the claims are covered under excepted matters?
Issue No. 36: Whether the claims are beyond the terms of the Agreement?
A very statement of facts leading to the filing of this petition under Section 33 are stated thus:
The Opposite Party No. 1 was one of the tenderers for the work of Raw Water Intake Piping System for C.P.P. Angul. His tender was accepted by the petitioner-company (National Aluminium Company) and the aforesaid work was given to the Opposite Party No. 1 for execution. Opposite Party No. 1 did not complete the work and the petitioner gave a notice to the Opposite Party No. 1 to encash the bank guarantee amounting to Rs. 19,60,560/- kept with the petitioner. The Opposite Party No. 1, however, moved this Court in O.J.C. No. 3276 of 1988 praying for issue of a writ to the petitioner directing them to release the bank guarantee of the Opposite Party No. 1 amounting to Rs. 19,60,560.00 and to give a direction to pay the aforesaid sum if encashed during the pendency of the writ application. The Hon'ble High Court after hearing the parties directed "that both parties will take such steps as required under the contract entered into between them to appoint Arbitrator and to refer to the Arbitrator the disputes relating to the award in question within four weeks". That on the petitioner's (M/s. Panda Engineering Private Ltd.) furnishing an undertaking to the Opposite Parties, namely, NALCO and another that it will furnish bank guarantee for the entire sum, the Opp. Party will refund the sum of Rs. 19,60,560.00 admittedly drawn by them on encashing the bank guarantee of the petitioner during pendency of this case and within a week after receipt of the said amount the petitioner will furnish the bank guarantee which will remain valid till the proceeding before the Arbitrator is concluded.
4. The present petitioner being aggrieved by the said order of the Hon'ble Court passed in O.J.C. No. 3276 of 1988 preferred the Civil Appeal before the Hon'ble Supreme Court being Civil Appeal No. 2439 of 1989 arising out of S.L.P. No. 4007 of 1989 in which the Hon'ble Supreme Court modified the order of the Hon'ble High Court regarding the amount concerning the bank guarantee and directed as follows :--
".......... Wedirect the appellant No. 1 M/s.
National Aluminium Co. Ltd. to pay a sum of Rs. 10 lacs (Ten lacs) out of the amount of Rs. 19,60,650/- which is in dispute, to the respondent M/s. Panda Engineering Works Pvt. Ltd. within two weeks and direct M/s. Panda Engineering Works Pvt. Ltd. to furnish the bank guarantee for Rs. 10 lacs in favour of the 1st appellant within the week thereafter. We make an order accordingly. The order of the High Court is modified to the above extent. This payment is subject to the ultimate award to be passed in the arbitration proceedings. The appeal is disposed of."
This order was passed by the Hon'ble Supreme Court on 17-4-1989.
5. The Opposite Party No. 1 pursuant to the order of the Court, has appointed his Arbitrator but without giving notice to the petitioner and filed the claim statement before the Arbitrator. After receipt of the order of appointment of the Opposite Party No. 1's Arbitrator, the petitioner appointed his Arbitrator and also filed its counter claim before the Arbitrator. The Arbitrators entered into reference on 3-7-1990 on which day the present petitioner filed an application to take the arbitrability and maintainability of the claims as preliminary issues. On 4-7-1990, 40 issues were framed by the Arbitrators and on 6-7-1990 the Arbitrators held that Issues Nos. 30, 32 and 39 will be taken up as preliminary issues and other issues with the objection of its arbitrability, maintainability and jurisdiction to adjudicate upon them will be decided in due course of law. After this order was passed by the Arbitrators, the petitioner filed a petition under Section 33 of the Arbitration Act before the Subordinate Judge, Angul which is numbered as Arbitration Misc. Case No. 52 of 1990. The final order dated 22-12-1990 was passed by the Subordinate Judge in the said Arbitration Misc. Case is impugned in this Civil Revision.
Before the Subordinate Judge, Opposite Party No. 1 (M/s. Panda Engineering) filed a counter to the said application raising the following objections:
(1) In view of the directions given by the Hon'ble High Court confirmed by the Hon'ble Supreme Court, there was a valid reference to the Arbitrators. There is no question of the Arbitrators having no jurisdiction to decide the dispute. The Arbitration proceeding was maintainable and the claims are accordingly arbitrable.
(2) That the Court had no jurisdiction under Section 33 of the Arbitration Act to entertain such a petition and decide the arbitrability and maintainability of the claims before the Arbitrators.
The Subordinate Judge after considering the petition and the objections filed by the Opposite Party No. 1 came to a finding that the judgment of the High Court and the Supreme Court had taken into consideration the claims and counter claims made by the petitioner and the Opposite Parties and thought that there was dispute between the parties which are to be referred to arbitration and accordingly their Lordships directed for reference of the dispute to the Arbitrators. The Subordinate Judge further held that in the present case although the Hon'ble High Court had not referred the matter to the Arbitrators but it gave sufficient directions about the existence of the dispute between the parties. The Court accordingly held that in view of that he held that there was a valid reference to the Arbitrators and in view of the decision of the Hon'ble High Court and the Supreme Court, he was not competent under Section 33 of the Arbitration Act to give any finding as to the maintainability of the reference and if the issues can be heard preliminarily. The Subordinate Judge also found that the decision of the Arbitrators was to the effect that point of arbitrability will be decided on merit. According to the Subordinate Judge, the allegations that some of the items are not arbitrable being excepted matters under clause 50 of the agreement, the decision of the Arbitrators to take up this matter on merits in due course in the Arbitration proceeding was justified. The Subordinate Judge, however, held the following in para 9 of his order.
"There is definitely some claims which are to be decided by the Arbitrators and some claims are not arbitrable."
But he came to observe that this can only be decided on merit in usual course and could not be decided as preliminary issues. The refusal of the Arbitrators to treat some issues as preliminary issues cannot be questioned before him in application under Section 33 of the Arbitration Act and ultimately held that he did not find any reason to direct the Arbitrators to decide the above issues, namely, Issues Nos. 33, 34, 35 and 38 as preliminary issues.
6. The trial Court while expressing its opinion regarding his jurisdiction to entertain such a petition under Section 33 filed by the petitioner stated in his order that the power of the Court under Section 33 of the Arbitration Act cannot be taken recourse to against refusal of the joint Arbitrators to treat some issues as preliminary issues, the remedy lies elsewhere. If the petitioner would have come before him by filing a suit before referring their disputes to the Arbitrators, the Court could have given any finding on the above issues. But since the petitioner has already appointed his Arbitrator and the disputes have been referred by the petitioner and the Opposite Party to the Arbitrators and they have participated in the arbitration proceeding, such a petition under Section 33 of the Arbitration Act did not lie to his court. Accordingly, the Court held that he had no jurisdiction to entertain such a petition and decide the maintainability and arbhrabifity on such issues. Regarding the allegation of the petitioner that some of the disputes are based on factual aspects and under clause 50 of the Agreement were required to be decided by the Engineer first.
The Court held that it appeared that some claims of Opposite Party No. 1 were under the excepted matters which are to be decided by the Engineer but the Court is not competent to decide the same when it is net a case of the petitioner that all the disputes are not arbitrable, the question of arbitration in the present case is a mixed question of facts and law which is to be decided on merits by the Arbitrators, The Court accordingly dismissed the said petition holding that the petition under Section 23 of the Arbitration Act filed by the petitioner was devoid of merit and, as such, was not maintainable and directed the joint Arbitrators to proceed with the proceeding in accordance with law.
7. I have heard the learned Counsel appearing for the parties. They have not left any stone unturned and presented all the facts relating to the agreement and the dispute. After hearing them in detail and going through the papers concerning the matters in hand and the impugned order, I am of the view that the learned Subordinate Judge misdirected himself regarding his jurisdiction in entertaining the application under Section 33 of the Arbitration Act which aims at avoiding the delays and requiring the parties to bring their disputes to courts for expeditious decision in form of petitions.
Section 33 of the Arbitration Act reads as follows:
"Section 33: Arbitration agreement or award to be contested by application :--
Any party to an arbitration agreement or of 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 the 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."
The section envisages three kinds of application, e.g. petitions (a) challenging the existence of an arbitration agreement of award, (b) challenging their validity, and (c) to have their effect determined.
The word "effect" in Sections 32 and 33 means "scope, tenor and drift". In fact determination of whether or not a dispute is covered by the arbitration agreement is determination of the effect of the arbitration agreement within the meaning of Section 33. In the case of Heavy Engineering Corporation Ltd. v. S.P. Arya, reported in AIR 1983 Pat 64, the Hon'ble Court has held thus (at page 65):
"..... ..... If a party to an arbitration agreement desires to have the effect of the arbitration clause determined by the Court viz., as to whether the disputes can be referred to an arbitrator being covered by the arbitration clause, the Court also has the authority under Section 33 to decide this question, i.e. as to whether the particular dispute was within the scope of the arbitration agreement, or not. By doing this the Court would simply examine the scope of the arbitration clause and it would be nothing beyond the determination of the effect of the arbitration agreement.............."
The Court is competent to decide and to determine the effect of the arbitration agreement after the Arbitrators have entered on reference.
In the case reported in AIR 1978 Cal 444, it was held thus (at page 448):
"...... Section 33 does not give any indication whatsoever that the effect of an arbitration agreement cannot be decided by the Court after the arbitrators have entered upon the reference. Section 23(2) stands on a different footings. After the Court makes a reference of a dispute to arbitration, it shall not deal with the same in the suit so long as the arbitration proceedings will remain pending. The principle behind the provision of Section 23 seems to be that a Court making the reference to arbitration should not ignore such reference and usurp the jurisdiction to decide the dispute itself pending such arbitration. In the instant case, the reference had not been made by the Court, but by the parties themselves and, therefore, there was no impediment for the Court to decide the scope and effect of the arbitration agreement."
In the present case, the learned Subordinate Judge was having a wrong notion that there was definite dispute of the parties before this Court or before the Supreme Court which the Court decided to be settled by the Arbitrators. The parties were fighting before this Court and the Hon'ble Supreme Court only relating to the release of the bank guarantee and the orders were only passed concerning the same. But since this bank guarantee is initially connected with the liability of the contractor, the Opposite Party No. 1, and claims and counter claims were being raised by the parties against each other and there was an agreement for arbitration of any dispute concerning the agreement, the High Court and the Hon'ble Supreme Court simply desired that the dispute should be settled before the Arbitrators as is required under the contract as immediately as possible. Therefore, a direction was given that they must present the dispute within four months from the date of the order and pending this settlement of dispute they wanted their order regarding the bank guarantee to be operative. This is, therefore, not actually a reference of any dispute by the High Court under Section 20(4) of the Arbitration Act to the Arbitrators. It is more so because admittedly there was no Arbitrator appointed by any party by the time the matter was concluded by the Court. It was only a direction of the High Court that the parties should settle their disputes in arbitration proceeding but that does not mean that anything that will be referred to the Arbitrator would be decided by him. The parties can question the maintainability or arbitrability of each or all the claims before the Arbitrators. So when the matters were referred to the Arbitrators and the petitioner found that some of the claims or all claims, according to him, are not arbitrable as they pertain to disputed question of facts and are required to be decided by the Engineer before the matter could be arbitrated upon and there were other matters which according to the petitioner were not at all arbitrable apart from this, there was nothing wrong for the petitioner-company to approach the Arbitrators with no application to decide those questions as preliminary issues but making an application does not amount to conferring right on the petitioner to force the Arbitrators to decide those as preliminary issue. The Arbitrators are free to take a decision as to which of the issues they can hear as preliminary issues.
8. Law is well settled that Order 14, Rule 2(2) of the Code of Civil Procedure authorises the Court to dispose of an issue of law only by trying that issue first relating to
(a) the jurisdiction of the Court, or
(b) a bar to the suit created by any law for the time being in force, and for that purpose may, if it thinks fit, postpone the settlement of the other issues until after that issue has been determined, and may deal with the suit in accordance with the decision on that issue.
So an issue of fact or mixed question of fact, and law is not to be decided on a preliminary issue which should be decided on merits along with other issues in the suit.
In a case of Bijoy Rout Ray v. Madhusudan Panigrahi, reported in AIR 1986 Ori 105, this Court hold that (at page 106):
"..... ..... Court is to pronounce judgment on all issues. Same is the principle envisaged under Section 98 of the Act. Postponement of the settlement of other issues is possible only where the case or any part thereof may be disposed of on an issue of law only if that issue relates to the juriusdiction of the Court or being barred by law. Order 14 was, amended by Act 104 of 1976 to avoid piecemeal trials and where answer to an issue would depend upon consideration of evidence even though it relates to jurisdiction or a bar of suit by any law, the same would be heard along with other issues."
The Subordinate Judge was not hearing an appeal against the decision of the Arbitrator to hear the issues Nos. 33, 34, 35 and 38 as preliminary issues to be decided with other issues on merits.
The petitioner, however, under Section 33 of the Act has made further prayers out of which the first part of his prayer related to preliminary hearing of certain issues but the rest of the prayers were of very different in nature. The petitioner was questioning the scope, ambit and effect of clauses 30 and 50 of the general conditions of the contract and; were challenging the maintainability, arbitrability of the claims of Opposite Party No. 1. As already stated, one of the three prayers that could be made under Section 33 of the Arbitration Act is to require the Court to determine a particular issue in dispute if it is within the ambit of the agreement and within the scope of arbitration under the said agreement.
Sub-section (35) is an independent provision permitting a party to an arbitration proceeding to challenge before the Court, the arbitrability of any of the claims raised before the arbitrator and as I have already stated just because they have entered appearance before the Arbitrator and the Arbitrator is in seisin of the proceedings, the Court is not ousted of this jurisdiction to give a finding upon the arbitrability. The petitioner in his petition under Section 33 of the Act has raised various objections challenging the maintainability of the items of the claims raised by Opposite Party No. 1 and has categorically mentioned in para-20 of his petition under Section 33 of the Arbitration Act the grounds of non-arbitrability of such claims.
In Hindustan Steel Ltd., Bhilai Steel Project v. M/s. Kaushal Construction Co. Architects, Engineering Contractors, reported in AIR 1966 Madh Pra 249, the Court held thus (at page 250);
"For the foregoing reasons, it seems to me clear law that where, during the pendency of proceedings before an arbitration, any party to the arbitration agreement applies to the Court under Section 33 of the Act to have the effect of the arbitration agreement determined, the Court is bound to find out the questions on which the parties, have joined issue and then to hold which of such issues fall within the jurisdiction of the agreement. The Court has no power to dismiss an application, not even on the ground that the arbitration agreement is a clause in a contract and the decision may involve a declaration as to the existence or validity of the contract itself."
In the present case, therefore, the learned Subordinate Judge has failed to exercise the jurisdictin that was vested in it in disposing of the application under Sec. 33 of the Arbitration Act by giving its decision as to if any of the claims made before the Arbitrators was not arbitrable according to the agreement and he having refused to go into that question on the wrong apprehension that the disputes now are referred to the Arbitrator by the High Court and confirmed by the Hon'ble Supreme Court had the sanction of the High Court or the Supreme Court was wrong, and he has clearly failed to exercise the jurisdiction that was vested in him.
9. In view of that, the impugned order of the Subordinate Judge cannot be allowed to stand and is accordingly set aside. The matter is remitted back to the Subordinate Judge, Angul, who shall hear both the parties in accordance with the procedure contemplated under Section 33 of the Arbitration Act and give a finding if all or any of the claims preferred by the Opposite Party No. 1 are not arbitrable. Since the Opposite Party No. 1's money has been held up during the pendency of the arbitration proceeding, it is desirable that the learned Subordinate Judge may dispose of the petition under Sec. 33 of the Arbitration Act filed by the petitioner within 15-7-1991.
10. The Civil Revision is allowed but in the circumstances, there shall be no order as to costs.