M/s. Anushree Constructors and Consultants Pvt. Ltd. vs M/s. P.S.L. Engineering Pvt. Ltd. and another

S.D. Pandit, J.—Petitioner M/s. Anushree Constructors and Consultants entered into a contract on 12.10.1988 with the defendant M/s. PSL Engineers Pvt. Ltd. for construction of a factory building. The contract work was valued at Rs. 20,03,118/-. The said work was to be carried out in three phases and they were to be completed on 31.3.1989, 30.9.1989 and 31.1.1990. It is alleged by the plaintiff that the work could not be completed during the stipulated period due to various failures on the part of defendant No. 1. He had completed the first phase work on 31.7.1989 and the second phase on 30.11.1989 and had submitted his, in all, 11 bills. The eleventh bill was submitted on 9.3.1990.

After the completion of the second phase of work the contract was revoked and though he demanded the amount for the work done and the amounts towards the losses suffered by him, the defendant No. 1 did not pay the same. He, Therefore, wrote a letter on 7.1.1991 to the designated architect, M/s. Space Design Associates to give his decision on the various claims made by him as per the term of Clause No. 37 of the agreement between him and defendant No. 1. But the said designated architect did not give any decision on his claim. The plaintiff had given bank guarantees to guarantee the performance of the contract and according to the plaintiff the said bank guarantees are also illegally encased by defendant No. 1. He has, Therefore, filed the present petition u/s 20 of the Arbitration Act to appoint an Arbitrator and to refer the disputes between the parties for his adjudication.

The claim of the plaintiff is resisted by defendant No. 1. The main contention raised on behalf of defendant No. 1 is that the plaintiff''s claim is premature. As per the terms of Clause No. 13 of the contract between the parties, the dispute between the parties must be first decided and adjudicated by the designated architects M/s. Space Design Associates. The plaintiff had not approached the said designated architect and has rushed to the court. Consequently, plaintiff''s present suit is not tenable as the same is premature.

It is further contended that the claim of the plaintiff that the work could not be completed due to fault on the part of defendant No. 1 is false. As a matter of fact, plaintiff himself was not in a position to complete the work. plaintiff had also not carried out the work properly and there were many defects in the works carried out by him. The claims made by the plaintiff against defendant No. 1 are illegal and contrary to the record. It is further contended that encashment of the bank guarantee bonds executed by defendant No. 2 Canara Bank by defendant No. 1 is proper and legal and, Therefore, in these circumstances, the plaintiff''s suit claim is not tenable. Thus, it is contended that plaintiff''s suit be dismissed with costs.

In view of the rival contentions of the parties my learned predecessor had settled two issues. Those issues and my findings thereon Along with the reasons Therefore are stated herein below :

---------------------------------------------------------------------- S. No. Issues Finding ---------------------------------------------------------------------- 1. Whether the present petition is premature No. for the reasons stated in para No. 3 of preliminary objections of the reply filed by defendant No. 1 ? 2. To what relief, if any, the plaintiff is As per entitled ? final order ---------------------------------------------------------------------- 6. There is no dispute over the fact that the parties have entered into a contract and Clause No. 37 of the agreement between the parties governs the settlement of disputes between them. The said clause No. 37 of the Agreement reads as under :

"Settlement of Dispute by arbitrations :

All disputes and differences of any kind whatever arising out of or in connection with the contract or the carrying out of the works (whether during the progress of the works, or after their completion and whether before or after the determination, abandonment or breach of the contract) shall be referred to and settled by the architect who shall state his decision in writing. Such decision may be in the form of a Final Certificate or otherwise. The decision of the Architect with respect to any of the excepted matters shall be final and without appeal as stated in the preceding clause. But if either the owner or the Contractor be dissatisfied with the decision of the Architect or any matter, question or dispute of any kind (except any of the excepted matters) or as to the withholding by the Architect of any certificate to which the contractor may claim to be entitled, then and in any such case either party (the owner or the contractors) may within twenty-eight days after receiving notice of such decision give a written notice to the other party through the Architect requiring that such matters in dispute be arbitrated upon. Such written notice shall specify the matters which are in dispute and such dispute or difference of which such written notice has been given and no other shall be and is hereby referred to the arbitration and final decision of a single arbitrator being a Fellow of the Indian Institute of Architects to be agreed upon and appointed both by the parties or in case of disagreement as to the appointment of a single arbitrator to the arbitration of two arbitrators both being Fellows of the Indian Institute of Architects, one to be appointed by each party, which arbitrator shall before taking upon themselves the burden of reference appoint an umpire.

The Arbitrator, the Arbitrators or the Umpire shall have power to open up, review and revise any certificate, opinion, decision, requisition or notice, save in regard to the excepted matters in dispute which shall be submitted to him or them and of which notice shall have been given as aforesaid.

Upon every or any such reference in the cost of and incidental to the reference and Award respectively shall be in the direction of the Arbitrator, or Arbitrators or the Umpire who may determine the amounts thereof, or direct the same to be taxed as between attorneys and client or as between party and party, and shall direct by whom and to whom and in what manner the same shall be borne and paid. This submission shall be deemed to be a submission to Arbitration within the meaning of the Indian Arbitration Act 1899 or any statutory modification thereof. The Award of the Arbitrator or Arbitrators or the Umpire, shall be final and binding on the parties. Such reference except as to the withholding by the architect of any certificates under Clause 4, to which the Contractor claims to be entitled shall not be opened or entered upon until after the completion or alleged completion of the works or until after the practical cessation of the works arising from any cause unless with the written consent of the owner and the contractor. Provided always that the owner shall not withhold the payment of an interim certificate, nor the contractor, except with the consent in writing of the architect, in any way delay the carrying out of the works by reason of any such matter question or dispute being referred to arbitration, but shall proceed with the work all due diligence and shall until the decision of the Arbitrator or Arbitrators or the Umpire to be given, abide by the decision of the architect and no award or the "Arbitrator or the arbitrators of the Umpire shall relieve the contractor of his obligations to adhere strictly to the architect''s instructions with regard to the actual carrying out of the works. The owner and the contractor hereby also agree that arbitration under this clause shall be a condition precedent to any right of action under the contract."

Relying on the above clause it is contended that as per the above clause the contractor must first make a claim to the architect and the architect shall state his decision in writing and if the party to the contract is dissatisfied with the decision of the architect the party has to give a written notice to the other party through the architect requiring the architect to refer the matter for arbitration. Learned counsel for the defendant, Mr. Sethi, has vehemently urged before me that as the plaintiff has not followed the said procedure, the plaintiff''s present suit is premature. In support of that contention he has cited before me the case of M/s. International Building and Furnishing Co. (C.L.) Pvt. Ltd. v. Indian Oil Corporation Limited (1995) 1 A.D. Del 689 : 1995 (1) Arb. LR 548. Before considering the principles laid down and the facts of the said case it is necessary to refer to the documents produced by the plaintiff in this case.

plaintiff has produced in his documents the letter dated 7.1.1991, addressed by him to M/s. Space Design Associates, the designated architect for the contract in question. In the said letter the present plaintiff has clearly mentioned his various claims against the defendant No. 1 by giving the necessary details of his claim and then he has written as under :

"We now call upon you to give your decision in writing in terms of Clause 37 of the Agreement. The said decision it is prayed should include relief on account of interest on the above amounts with effect from the date the above amount become due till the date of actual payment by employer. It may be noted that in case of non-payment of the above amounts as per this demand we would also be entitled to payment of interest with immediate effect at the current rate of interest. This may also be treated as a notice under this Interest Act, 1978.

We further call upon you to convey your decision within 15 days from the receipt of this communication from us failing which it will be presumed that you have refused to give decision entitling us to take further steps, as may be advised."

A copy of this letter is also endorsed to defendant No. 1. Admittedly, after this letter the designated architect has not given his decision as regards the claims and disputes raised by the present plaintiff. Defendant No. 1 has, however, produced the copy of the letter sent by the designated architect on 14.1.1991 to the present plaintiff. If the said letter is read then it would be quite clear that the said designated architect has accepted having received plaintiff''s letter dated 7.1.1991 but in this letter the designated architect has contended that he had not given the certificate for payment of his last 11th bill and that there is no finalisation of his claim and as there are certain allegations against him by the employer he should give his Explanation regarding the allegations of employer. The 11th RA bill was presented by the contractor on 9.3.1990 and the architect had not taken any steps on the same till he was served with the letter dated 7.1.1991. This conduct not giving any specific reply to plaintiff''s letter dated 7.1.1991 has been treated by the plaintiff as denial or any decision by the designated architect and because of the same he happened to come before the court and, Therefore, it could not be said that the claim of the plaintiff is premature.

In the case of Anand Kumar Jain v. Union of India 1984 RLR 438, it has been held by Hon''ble Mr. Justice B. N. Kirpal (Since elevated to the Apex Court) that the term about the demand for arbitration should be interpreted in a practical way. If no formal demand is made then even filing of an application u/s 20 would amount to a demand. If a demand is not accepted then there arises a dispute even though the demand is not justified. In the instant case till today the designated architect has not given any decision on the claim by the plaintiff in his letter dated 7.8.1991.

It is very pertinent to note that the wording of Clauses 37 in the Agreement between the parties and wording of Clause 6.6.10 in the contract between M/s. International Building and Furnishing Co. v. Indian Oil Corporation Limited (supra), are quite distinct. In that clause it has been clearly mentioned as under :

"The Contractor shall not be entitled to raise any claim nor shall the owner anyway be liable in respect of any claim by the contractor unless notice of such claim shall have been given by the contractor to the Engineer-in-Charge and the Site Engineer in the manner and within the times as aforesaid."

Quoted from para No. 3 of the judgment on page 691.

Then the clause further mentions that the contractor shall be deemed to have waived any or all the claims and all his rights in support of any claim not notified to the Engineer-in-Charge and the Site Engineer in writing in the manner and within the time aforesaid. But in Clause No. 37 in the case before me there is no such specific provision that no claim could be made without reference to the designated architect and that if the contractor happened to follow the procedure then it shall be presumed that he had waived his claim.

From the pleadings of the parties it is quite obvious that there are disputes and counter claims between the parties and the designated architect is not in a position to give his decision on the same. The clause of the contract between the parties does not make the decision of the designated architect final. It clearly mentions that even after the decision of the designated architect either party is entitled to move for appointment of an arbitrator through the designated architect. But in the instant case as the designated architect himself is not in a position to give any decision the plaintiff had to come before the court and when there is an agreement between the parties to make a reference to the arbitrator for deciding the disputes between the parties then this court can entertain the present petition and appoint an arbitrator to decide the disputes between the parties.

The decision of the Division Bench of our High Court on which the learned counsel for the defendant has put reliance is not applicable on facts to the case before me.

Thus, I hold that plaintiff''s suit could not be held to be premature in the circumstances of the case. Admittedly the differences and disputes have arisen between the parties and there is an agreement to refer them to an Arbitrator. Hence, the claim of the petitioner for appointment of an arbitrator and for making reference of disputes to them will have to be allowed.

I had asked both the sides to jointly suggest a name for appointment as arbitrator but they could not agree. Each of them have give list of three persons but there is no common name. As per the contract between the parties the arbitrator must be an architect and fellow of Indian Institute of Architects. I, Therefore, appoint Shri Benjamin Joshnu Moses of M/s. Benjamin & Benjamin, A-7, Nirman Vihar, Delhi-110092, past Vice-President of Indian Institute of Architects as an Arbitrator. Arbitrator Shri Benjamin Joshnu Moses should enter into arbitration and give his findings as regards the claim made by petitioner in para No. 4 of his petition and to consider and decide the counter claim of the respondent that might be made before him by the respondent by passing an Award with reason for his decision findings within six months from the date of this order. He should also decide the costs of the arbitration proceedings (including arbitrator''s fee) and as to who is liable to pay the same. Initially the petitioner to pay to the arbitrator an amount of Rs. 10,000/- towards fees of arbitrator. The said amount is to be adjusted as per the final decision of the arbitrator.

Both the parties to bear their respective costs of this petition.