Hindusthan Steel Ltd. vs Bhai Sundar Dass Sardar Singh Pr. Ltd.

Masud, J.—In this application Hindusthan Steel Limited has made an application against the Respondent contractor for an injunction restraining the said contractor and the joint arbitrators from proceeding with the arbitration pending before the said arbitrators. The circumstances under which the application has been made, as set out in the petition, may be briefly stated as follows:

The concluded contract came into existence between the Petitioner and the contractor in connection with certain specified engineering works of Durgapur Steel Plant. The contract provides an arbitration clause which reads as follows:

All questions, disputes or differences of any kind whatsoever, arising out of, or in connection with the contract, at any time, whether-during the progress, of the work or after its completion or whether before or after the determination of the contract, other than questions, disputes or differences for the decision of which specific provisions have been made in the foregoing clauses of these conditions (hereinafter referred to as ''excepted matters'' and decisions on such ''excepted matters'' according to the said specific provisions shall be final and binding on the contractor and shall not be reopened or attempted to be reopened on the ground of any informality, omission, delay or error in the proceeding in or about the same or on any other ground whatsoever) shall be submitted in writing by the contractor to the employer, and the employer shall, within a reasonable time, after the submission of the same make and notify its decision thereon in writing. If the contractor be dissatisfied with the decision of the employer on any matter in question, dispute or difference on any ground in connection with this contract or as to the withholding by the employer of any certificate to which the contractor may claim to be entitled to, or if the employer fails to make a decision within a reasonable time, then and in any such case but not including any of the excepted matters, or matters for which the contractor has given no claim certificates, the contractor may within ten days of the receipt of such decision or after the expiry of a reasonable period of time, as the case may be, demand in writing that such matter in question, dispute or difference in connection with this contract be referred to arbitration. Such demand for arbitration shall be delivered to the employer by the contractor and shall specify the matters which are in question, dispute or difference and only such question, dispute or difference, other than any of the excepted matters in respect of the contract of which the demand has been made and no other shall be referred to arbitration.

The further progress of any work under the contract shall, unless otherwise directed by the engineer, continue during the arbitration proceedings, and no payment due or payable by the employer shall be withheld on account of such proceedings, provided, however, that it shall also be open to the arbitrator or arbitrators to consider and decide whether or not such work shall continue during the arbitration proceedings.

Matters in question, dispute or difference other than the excepted matters, in respect of this contract to be submitted to arbitration as aforesaid, shall be referred to decision to (i) a sole arbitrator who shall be the chairman or any officer of the employer nominated by the chairman in that behalf in cases in which the claim in question is below Rs. 50,000 and in cases in which the issues involved are not of a complicated nature. The chairman or the officer nominated shall be the sole judge to decide whether or not the issues involved are of a complicated nature;

(ii) the arbitration of two persons, one to be nominated by the employer and the other by the contractor or failing agreement between these two arbitrators to an umpire appointed by them before proceeding with the arbitration in respect of all claims of and above the value of Rs. 50,000 and for all claims, irrespective of the amount or value of such claims, if the issues involved therein are of a complicated nature. Such submission shall be deemed to be a submission to arbitration and the decision of such arbitration shall be final and conclusive under the provisions of the Indian Arbitration Act, 1910, and of the rules thereunder and all statutory modifications thereof shall govern all such arbitration proceedings and shall be deemed to apply to and be incorporated in this contract. The venue of arbitration proceedings shall be the General Manager''s Administrative Office of the Durgapur Steel Plant.

After the commencement of the work, disputes and differences arose between the parties and the contractor indicated to the Petitioner to refer those disputes to arbitration. The Petitioner agreed to settle those differences by arbitration which the Petitioner itself has described in the petition as ''the said first arbitration''. On January 26, 1966, the contractor informed the Petitioner their decision to appoint K. M. Bhatia as its arbitrator and requested the Petitioner to nominate its arbitrator. On February 10, 1966, the Petitioner informed the contractor -the appointment of S.N. Banerjee as its arbitrator in the ''said first arbitration''. By a letter dated April 29, 1966, the said arbitrators informed the contractor to file their statement within 15 days from the receipt of the said letter. Direction was also given to the Petitioner to file its counter statement. On or about May 21, 1966, K. M. Bhatia, acting as the arbitrator of the said first arbitration, wrote a letter to the contractor a copy of which was forwarded to the Petitioner. The Petitioner came to know from the said copy that the contractor had applied to the Petitioner for inclusion of certain other items in the said first arbitration. In the said letter, K. M. Bhatia also requested the Petitioner to give its decision at an early date so that the new items might be included in the said first arbitration. Thereafter, by a letter dated June 1, 1966, the contractor nominated K. M. Bhatia to act as an arbitrator in respect of the new claims. By a letter dated July 21, 1966, the Petitioner was informed by the lawyer on behalf of the contractor that as the Petitioner had failed to nominate the arbitrator-in respect of the new claims, K. M. Bhatia was appointed to act as the sole arbitrator in the reference relating to the new items. On August 24,1966, the Petitioner made an application to this Hon''ble Court for an order that the purported appointment of K. M. Bhatia to act as the sole arbitrator be set aside. After hearing the parties on November 24, 1966, Datta J. was pleased to set aside the appointment of K. M. Bhatia as the sole arbitrator. Thereafter, the Petitioner came to know that the Respondent made two ex parte applications on August 29, 1966 and September 8, 1966, to the Court of Subordinate Judge, Dist. Burdwan, and obtained four months'' extension to file the award in the said first reference. On or about December 19, 1966, K. M. Bhatia and S.N. Banerjee held the first and second sittings in the said first " arbitration. After the directions for filing of the documents by the said joint arbitrators, they gave a notice of the meeting to be held by them on July 20, 1967, by a letter dated July 12, 1967. The Petitioner submitted before the arbitrators through its counsel that the arbitrators had become functus officio as the order of the Court of Subordinate Judge, Burdwan, extending the time to make the award was invalid inasmuch as the said Court had no jurisdiction to extend the date of making the award in the said first reference. On July 23, 1967, the arbitrators, after hearing the parties, were pleased to adjourn the meeting and directed the parties to get the time extended from the appropriate Court in accordance with law. It is also alleged that the contractor moved another ex parte application on July 27, 1967, before the Burdwan Court and obtained another order for extension of time for making the award. The Petitioner came to know on August 19, 1967, that the. arbitrators had fixed next meeting of the arbitration on September 20, 1967. By a letter dated August 31, 1967, the Petitioner requested the arbitrators not to hold the sitting. But the Petitioner was informed by a letter dated September 6, 1967, that the arbitration proceedings would be held on September 20, 1967, unless contrary order from competent Court was received by them prior to that date. (Thereafter, the present application was made on September 14, 1967, and an interim injunction was obtained restraining the arbitrators from proceeding with the said first reference.

Mr. Dilip Kumar Sen with Mr. Bysak has contended that there has been only one valid reference pending on August 24, 1966, when the Petitioner has made an application u/s 9 of the Arbitration Act in the said reference for setting aside the appointment of K. M. Bhatia as the sole arbitrator. Fresh disputes were sought to be included by the contractor in the said first reference, but the reference with respect to this dispute was never agreed upon by the Petitioner at least till the Petitioner made the said application on August 24, 1966. As there was no second reference on August 24, 1966, and as the only valid reference that was pending was the said first reference, the Petitioner''s application on August 24, 1966, for setting aside the appointment of K. M. Bhatia was made in the said first reference. On the basis of these facts Mr. Sen has argued that the earliest application that was made in respect of the first reference was in the Calcutta High Court on August 24, 1966, and accordingly, the Calcutta High Court was the only Court which had jurisdiction to grant extension of the date of making the award u/s 31(4) of the Indian Arbitration Act, 1940. The orders of the Burdwan Court granting extension to make the award u/s 28 are without jurisdiction and, as such, there has been no valid extension of time for making the award and the arbitrators have become functus officio.

Mr. Somnath Chatterji with Mr. A. Mitra for the contractor has submitted that this application is a misconceived application and should be dismissed in limine. According to him, the first reference in which K. M. Bhatia and S.N. Banerjee were appointed as joint arbitrators relates to the contractor''s claim of about Rs. 15 lakhs. The contractor wanted a new claim of about Rs. 6 lakhs to the same arbitrators, but the Petitioner did not agree. Thus, the new claim could not be a claim in respect of the said first reference. It was in respect of the said new claims, the contractor appointed K. M. Bhatia as their nominee. The Petitioner was informed that K. M-Bhatia would be acting as the sole arbitrator. The appointment of K. M. Bhatia as the sole arbitrator was in respect of the new claim. The Petitioner filed their application before the Calcutta High Court on August 24, 1966. The said application had nothing to do with the said first reference and, accordingly, on August 29, 1966, there could not be any bar for them u/s 31(4) of the Act to make the application for extension of the date to file the award before the Burdwan Court in the first reference. The earliest application in the said first reference, according to him, was made in the Burdwan Court on August 29, 1966, and as such the proceedings before K. M. Bhatia and S.N. Banerjee in the said first reference are valid under orders of extension of date to file the award of the Burdwan Court. Mr. Chatterjee has also argued that the Petitioner has obtained an injunction on suppression of material facts and, as such, no relief should be granted to the Petitioner.

I may now examine the contentions of the parties. The substantial point raised by Mr. Sen is that the Petitioner moved the Calcutta High Court on August 24, 1966, in respect of the dispute raised by the contractor which the Petitioner himself has described in para. 12 of the petition as the said first arbitration. The Petitioner having made the earliest application in the said first arbitration in this Hon''ble Court the orders of the Burdwan Court extending the date to file the award are without jurisdiction. It is also argued that when the Petitioner moved the said application on August 24, 1966, there was no other reference pending and, as such, the said application must have been made in the said first reference. It seems to me there is no dispute as to the proposition of law, urged by Mr. Sen, that if an application is made in a particular Court with respect to one reference all other applications in respect of the same reference must be made in the same Court. But in my view the said proposition of law has no application in the facts and circumstances of this case. Admittedly, the Petitioner agreed to settle disputes and differences between the parties in respect of the contractor''s claims for about Rs. 15 lakhs. In the said reference K. M. Bhatia and S.N. Banerjee were duly appointed as arbitrators, and the Petitioner admits that the said reference is a valid reference. On April 29, 1966, the joint arbitrators directed the parties to file their claims and Mr. Vayadyanatham was appointed as the umpire. On May 26, 1966, the contractor submitted another set of claims amounting to Rs. 6 lakhs (approx.) to the Petitioner before the said joint arbitrators. But the Petitioner by letters dated June 25 and June 28, 1966, categorically stated that the new claims for Rs. 6 lakhs could not be referred to the said joint arbitrators in the pending reference. It may be added here that on July 1, 1966, the contractor appointed K. M. Bhatia, one of the joint arbitrators, as its nominee in respect of the new claims and called upon the Petitioner to appoint its arbitrator. The Petitioner rightly did not nominate their own arbitrator, but the contractor''s lawyer by his letter dated July 21, 1966, purported to appoint K. M. Bhatia as the sole arbitrator on the alleged failure of the Petitioner to appoint their nominee. The arbitration agreement specifically lays down the procedure as to the stage when the reference to arbitration would arise. The parties have agreed to abide by the said procedure and they are bound by the same. Under the said agreement any dispute raised by the contractor must first be referred to their employer, that is, the Petitioner. Thereafter, the Petitioner would examine the contractor''s claim and it is only when the employer refused to accept the contractor''s claims the matter would be referred to arbitration. Thus permission to refer the contractor''s claim to arbitration is the first step before the question of appointment of an arbitrator would arise. With respect to the contractor''s first set of claims, as stated earlier, admittedly, the necessary permission was granted by the Petitioner and a valid reference was duly made. But with respect to the second set of claims the Petitioner has been examining the new claims of the contractor of June 1, 1966, when the contractor chose to appoint K. M. Bhatia as its arbitrator. In fact, the Petitioner by their letter dated June 25, 1966, has specifically sated that permission for reference to arbitration for the second set of claims has nothing to do with the submission of claims for the first set of claims already referred to arbitration.

Thus, the appointment of Bhatia as the sole arbitrator did not arise before August 24, 1966, and rightly Datta J. has set aside the appointment of K. M. Bhatia as the sole arbitrator. There cannot be any doubt that the said application has been made by the Petitioner in connection with the second set of claims of the contractor. The said application was made u/s 9 of the Act and the order for setting aside the purported appointment of K. M. Bhatia as a sole arbitrator was asked for against the contractor and the said Bhatia alone. It is significant that S.N. Banerjee the co-arbitrator in respect of the first set of claims was not impleaded. The obvious intention of the Petitioner was that any reference or arbitration proceeding in respect of the second set of claims should not be allowed to proceed. In the said petition one of the prayers reads as follows:

(d) If necessary, the time of appointment of an arbitrator on behalf of your Petitioner be extended to such time as this Hon''ble Court may seem fit and proper.

The Petitioner was thus asking leave to appoint their nominee in the second set of claims. There was no dispute with respect to the selection of the arbitrators in respect of the said first set of claims. A dispute was raised in respect of the second set of claims under the same arbitration agreement dated October 6, 1964, and the Petitioner''s only grievance was that, although the procedure in the arbitration clause was not complied with, the contractor had unlawfully appointed K. M. Bhatia as the sole arbitrator. Mr. Sen has argued that the contractor wanted to include the new set of claims in the first reference and, as such, the dispute relates to or arises out of the first reference. There is logic in the said argument because the question whether- the new set of claims is referable to the first reference or not, that itself would be a dispute relating to the first reference, and the Petitioners'' application before the Calcutta High Court on August 24, 1966, would be an application in respect of the first reference. But unfortunately the facts in this case would not1 support such contention. It was the Petitioner who refused to include the second set of claims in the first reference and the contractor accepting that position wanted to appoint new set of arbitrators in a new reference in respect of the second set of claims. Thus, there was no dispute in respect of the question whether the second set of claims should be referred to the first reference or not. As stated earlier, the Petitioner made the said application on August 24, 1966, in this Hon''ble Court in respect of the second set of claims and not in respect of the first reference at all. Accordingly, the contractor''s application before the Burdwan Court for extension of the date of filing the award on August 29, 1966, is the earliest application in respect of the first reference and, as such, the Burdwan Court ha^ rightly exercised the jurisdiction to pass the several orders of extension.

In this connection it is necessary for me to mention the conduct of the Petitioner in respect of the extension of date to file the award in respect of the first reference. On August 27, 1966, the Petitioner wrote to the contractor enquiring whether the application for extension of time to file the award of the arbitration had been made to the Calcutta Court or Asansol Court so that, they may express their opinion. On August 29, 1966, the time for making the award of the joint arbitrators was extended by the Burdwan Court. On September 5, 1966, the contractor wrote to the Petitioner stating that the application for extension of time had been made before the Burdwan Court. On September 8, 1966, the order dated August 29, 1966, was modified and/or clarified by the Burdwan Court. On September 14, 1966, the order for extension of time was forwarded to the Petitioner by S.N. Banerjee, one of the arbitrators in the first reference. On October 8, 1966, the Petitioner filed rejoinder to the contractor�s statement of fact. On December 10, 1966, the Petitioner requested the contractor to take steps for extension as was done by the contractor previously. On December 19, 1966 and December 21, 1966, the joint arbitrators held sittings and gave directions for filing the documents and the time was further extended by the Burdwan Court. It may be stated that, although the date to file the award in the first reference expired on December 29, 1966, the Petitioner filed affidavit of documents before the arbitration after January 10, 1967. On July 20, 1967, further sitting of the joint arbitrators was held and the time for making the award of the joint arbitration was again extended by the Burdwan Court on July 27, 1967. Thereafter on September 15, 1967, the Petitioner was advised to make this application and the Petitioner obtained interim injunction restraining the arbitrators from proceeding with an admittedly valid reference for the last ten months. Relying upon Waverly Jute Mills Co. Ltd. Vs. Raymon and Co. (India) Private Ltd., and Britannia Building and Iron Co. Ltd. v. Gobinda Chandra Bhattacharjee (1959) 64 C.W.N. 324 , 329, 331 Mr. Sen has also argued that consent or conduct of the party cannot invest jurisdiction to a Court which has not got the same in law. There is no dispute to the said proposition of law but, as held earlier, the Burdwan Court alone has the jurisdiction inasmuch as the said application has been made earliest on the point of time in the trust reference, and as such,'' the extra-ordinary conduct of the Petitioner cannot be justified on any ground.

Mr. Sen has, however, argued another important point which may discuss now. Relying upon Seth Thawardas Pherumal Vs. The Union of India (UOI), it is contended that a valid reference requires the assent of both sides. On August 24, 1966, when his client made this application before this Court there had been no valid reference pending in respect of the second set of claims. The application was made u/s 9 of the Act which, according to him, must pre-suppose a valid reference. On August 24, 1966, there was only one valid reference pending and that was a reference in respect of the first set of claims and, therefore, the said application could only be made in the first reference. He has, therefore, argued that as the said application has been made in the first reference, the Calcutta High Court alone has the jurisdiction to extend'' the date to file the award in respect of the first reference. Mr. Chatterjee, on the contrary, has argued that the Petitioner''s said application has been made in the second reference. In fact, in the list of dates submitted to me by him he has described the dispute as the second reference. I, however, accept the contention of Mr. Sen that on August 24, 1966, there was no existing second reference in the facts of this case. The word ''reference'' has not been defined in the Indian Arbitration Act. It is only stated u/s 2 of the Act that ''reference means a reference to arbitration''. The foundation of arbitrators'' jurisdiction lies on a valid reference, but that does not mean that in all cases the Court''s jurisdiction to hear an application u/s 9 of the Act must also be preceded by an agreed reference. A reference presupposes a valid arbitration agreement between the parties and a dispute between them. A party may refer the dispute to arbitration but the other party may not agree to such reference. The reference cannot be effective unless the parties agree or the Court directs the parties to reference. The next stage is the appointment of an arbitrator which is necessary to proceed with the reference. The question of appointment of an arbitrator or arbitrators does not arise where there is no valid reference. In the Supreme Court case, application was made to set aside an award in a case where the reference proceeded although the parties had not consented to arbitration. It is in that connection the Supreme Court made the observation that a valid reference is made only when the parties agree to refer their disputes to arbitration. In the present case, although the reference to arbitration in respect of the second set of claims has now been agreed, the Petitioner had not agreed to the same till August'' 24, 1966, and as such, there could not be a valid reference in respect of the second set of claims on that date. But, I cannot accept Mr. Sen''s contention that because the reference was not valid or complete in respect of the second set of claims the application u/s 9 could mot be made in respect of the second set of claims. It seems that Mr. Sen''s arguments could only be supported if the word ''reference'' in Section 9 can only mean a valid, existing or a complete reference. But it is common knowledge that, under the Indian Arbitration Act, the parties make applications although the arbitration agreement itself is denied or a dispute raised by a party is objected to on the ground that it is outside the scope of arbitration clause. Section 9 states that where an arbitration agreement provides that the reference shall be to two arbitrators certain consequences would follow. In the present case, it cannot be denied that the arbitration agreement provides for a reference to two arbitrators. It is true that before the reference was agreed upon by the Petitioner a sole arbitrator was appointed by the contractor. But that fact cannot debar the party affected to make the application. Otherwise, one party may appoint an arbitrator unlawfully or refer disputes which could not be referred to arbitration to an arbitrator and yet the party affected would not be able to make an application to the Court to prevent the continuation of unlawful arbitration proceedings. Under the arbitration agreement there may be more than one reference with respect to more than one set of disputes. In the instant, case, it just happened that one set of claims had been referred to in a valid reference. But that does not maintain that all further disputes at any stage of the proceeding must be referable to the pending reference. It is possible that there may not be any pending reference at all and yet the party affected may have to apply to the Court for restraining the opposite party to proceed with the arbitration on a lawful ground. He may win or succeed but the application can be made in a reference which is disputed or challenged by other party. Thus, in my view, there is nothing to prevent a party from making an application in respect of a new set of claims although a valid reference with respect to such claims is not complete or has not been made. The word ''reference'' in Section 9 does not necessarily mean a valid or complete or pending reference in all cases. Even assuming that an application u/s 9 is maintainable only with reference to a valid and complete reference in all cases, it does not follow that, because the Petitioner''s application on August 24, 1966, has been made in respect of an incomplete or invalid reference the application must have been made in respect of the first reference. The facts in the present case and the intention of the parties demonstratively show that the Petitioner''s application on August 24, 1966, had nothing to do with the first reference at all.

For all these reasons this application must fail and Respondent is entitled to costs. The interim order is vacated. As prayed for by Mr. Sen, the entire order is stayed for a month.