M/s Ninan and Co. vs National Projects Construction Corporation Ltd.

A.K. Sikri, J.

IA No. 438/2007

The respondent herein has filed objections to the award which were registered as IA No. 8495/1990. This IA was dismissed in default on 9.1.2007 and award dated 19.1.1990 was made rule of the Court. In this application, the prayer is made for recalling of this order. Learned counsel for the petitioner has no objection if the prayer made in this application is granted. Order dated 9.1.2007 is recalled and IA No. 8495/1990 is taken up for consideration on merit. This application stands disposed of.

IA No. 8495/1990

The petitioner company entered into an agreement dated 21.1.1988 with the respondent as sub-contractor to carry out the work of excavation (boring) of tunnel of upper Sindh Hydel Project State II in Jammu and Kashmir. This work was awarded to the respondent by the Jammu and Kashmir Government which was sub contracted to the petitioner. Clause 6 of this agreement is an arbitration clause. Certain disputes and differences between the parties arose out of this agreement. Thus, the Chairman and Managing Director of the respondent appointed Sh. B.N. Waghray as the sole arbitrator to decide the said disputes. The arbitrator entered upon reference, invited claims and counter claims and after recording evidence, oral and documentary, heard the parties and made and published his award dated 19.1.1990. As per this award, the learned arbitrator has directed the respondent to pay to the petitioner the following claims:

i) a sum of Rs. 7,22,580/- as against all the claims of the petitioners.

ii) Rs. 1000/- being expenses incurred for the stay of the Arbitrator at Cochin.

After this award was made, the petitioner filed petition under Sections 14 & 17 of the Arbitration Act for filing the award in the Court and passing decree in terms thereof by making the same rule of the Court. The respondent has, however, filed objections by means of present application which is contested by the petitioner. The learned counsel for the respondent pressed the following objections to the award:

a) At the time when the reference was made, the petitioner was not registered under the Partnership Act and, therefore, it could not have made a valid claim against the respondent. In support of this submission, reliance was placed on Section 69 of the Partnership Act to contend that before reference could be sought by a partnership firm it was necessary that it was registered under the Partnership Act. Section 69 of the Partnership reads as under:

Effect of non-registration.--(1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.

(2) No suit to enforce a right arising from a contract shall be instituted in any court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.

(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect,--

(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm, or

(b) the powers of an official assignee, receiver or court under the Presidency-towns Insolvency Act, 1909 (3 of 1909) or the Provincial Insolvency Act, 1920 (5 of 1920) to realise the property of an insolvent partner.

(4) This section shall not comply,--

(a) to firms or to partners in firms which have no place of business in [the territories to which this Act extends], or whose places of business in [the said territories], are situated in areas to which, by notification under [section 56], this Chapter does not apply, or

(b) to any suit or claim of set-off not exceeding one hundred rupees in value which, in the Presidency-towns, is not of a kind specified in section 19 of the Presidency Small Cause Courts Act, 1882 (5 of 1882), or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.

It was argued that the words "other proceedings" occurring in Section 69 of the Partnership Act would include arbitration proceedings as well. This very objection was raised before the learned Arbitrator as well. The learned Arbitrator noted that the petitioner was duly registered on 22.9.1989 with registration No. 2245/89, after reference was made to the Arbitrator. He further opined that such a registration was necessary if the petitioner wanted to file petition u/s 20 of the Arbitration Act for appointment of the Arbitrator. However, in case of arbitration without intervention of the Court, compulsory registration was not required as there were no proceedings in the Court. In this case, since Chairman and Managing Director of the respondent had the necessary power to appoint the Arbitrator and on request being made by the petitioner he appointed the Arbitrator referring the disputes and the appointment was not made by the Court or on the directions of the Court, no such registration was necessary when such reference was made.

I am of the view that the learned Arbitrator has rightly described the legal position in law on this aspect. Section 69 of the Partnership Act puts an embargo on a partnership firm which is an unregistered firm from approaching the Court or filing other proceedings. However, such a provision would not come into play when intervention of the Court is not sought. Under the scheme of Arbitration Act, 1940, by which statute the present case is governed, the reference to the Arbitrator could be made with or without the intervention of the Court. It is only when the intervention of the Court is sought and a firm wants to file a petition u/s 20 of the Arbitration Act for this purpose that such a registration is compulsorily required. However, when the appointment of the Arbitrator is without the intervention of the Court, as provided in Section 8 (2) of the said Act, obviously there are no legal proceedings instituted by the partnership firm and in such a case bar u/s 69 of the Act would not come into play. This issue stands concluded by the judgment of the Supreme Court as well as of this Court in Kamal Pushp Enterprises Vs. D.R. Construction Company, . The Supreme Court answered precisely very this question in the following manner:

The prohibition contained in Section 69 is in respect of instituting a proceeding to enforce a right arising from a contract in any court by an unregistered firm, and it had no application to the proceedings before an arbitrator and that too when the reference to the arbitrator was at the instance of the appellant itself. If the said bar engrafted in section 69 is absolute in its terms and is destructive of any and every right arising under the contract itself and not confined merely to enforcement of a right arising from a contract by an unregistered firm by instituting a suit or other proceedings in court only, it would become a jurisdictional issue in respect of the arbitrator''s power, authority and competency itself, undermining thereby the legal efficacy of the very award, and consequently furnish a ground by itself to challenge the award when it is sought to be made a rule of court. The case before us cannot be said to be one such and the learned counsel for the appellant though was fully conscious of this fact, yet tried to assert that it is open to the appellant to take up the objection based upon Section 69 of the Partnership Act, at any stage - even during the post-award proceedings to enforce the award passed. The award in this case cannot either rightly or legitimately be said to be vitiated on account of the prohibition contained in Section 69 of the Partnership Act, 1932 since the same has no application to proceedings before an arbitrator. At the stage of enforcement of the award by passing a decree in terms thereof what is enforced is the award itself which crystallises the rights of parties under the Indian Contract Act and the general law to be paid for the work executed and not any right arising only from the objectionable contract. It is useful in this connection to refer to the decision of this Court in Satish Kumar v. Surinder Kumar wherein it has been stated in unmistakable terms that an award is not a mere waste paper but does create rights and has some legal effect besides being final and binding on the parties, It has also been held that the award is, in fact, a final adjudication of a court of the parties'' own choice and until impeached upon sufficient grounds in an appropriate proceeding, an award which is on the fact of it regular, is conclusive upon the merits of the controversy submitted for arbitration. Consequently, the post award proceedings cannot be-considered by any means to be a suit or other proceedings to enforce any rights arising under a contract. All the more so when, as in this case, at all stages the respondent was only on the defence and has not itself instituted any proceedings to enforce any rights of the nature prohibited u/s 69 of the Partnership Act before any court as such. We see no infirmity or error whatsoever in the decision of the courts below to call for our interference in this appeal. The appeal fails and shall stand dismissed.

In the case of Noida Toll Bridge Company Ltd. Vs. Mitsui Marubeni Corporation, this Court followed the aforesaid judgments and also referred to various other judgments in arriving at the same conclusion. Likewise, Calcutta High Court in Babulal Dhandhania Vs. Gauttam and Co., held that the expression ''proceeding'' occurring in Section 69 (3) would mean something in the nature of a suit, i.e., proceeding which is instituted or initiated in a Court and does not refer to an arbitration aliunde the Court. Hence Section 69 could not preclude a party from making a reference to arbitration without the intervention of the Court, in pursuance of an arbitration clause in a contract with an unregistered firm. I, therefore, do not find any substance in this objection.

Other objection raised was that the respondent was not given fair and reasonable opportunity by the learned Arbitrator to present its case. This objection flows from the fact that the Arbitrator had fixed the hearing of the case on 6th and 7th November, 1989 at Cochin when the concerned Engineer of the respondent could not appear due to non-availability of reservation which fact was communicated to the learned Arbitrator vide telegram dated 1.11.1989. Still the learned Arbitrator refused to adjourn the matter and proceeded with the matter and in utter disregard of the principle of natural justice. No doubt, when for sufficient cause a party is not able to represent itself, before the court or for that matter before the Arbitrator, principles of natural justice would demand that another opportunity be given to such a party to represent its case. There should be sufficient cause for non appearance to entitle such a party to have another date of hearing. In the instant case, matter was fixed before the learned Arbitrator on a previous occasion on 21.9.89. The respondent also knew that the venue of hearing was Cochin. The respondent, thus, knew on 21.9.89 itself that the next date is 6th November, 1989 at Cochin. They were, therefore, having sufficient time to make arrangements for their visit to Cochin. However, if steps were not taken for this purpose well in time but only few days before the date was approaching and because of this reason the concerned engineer could not get the reservation, the respondents have themselves to blame for creating such a situation. The learned Arbitrator dealt with the telegram of the respondent received on 4.11.1989 asking for adjournment but rejected the same giving aforesaid reason. He also mentioned that his air ticket was sent by the respondent in October 1989 for journey to Cochin which he had returned and, therefore, the reason that officer of the respondent could not get reservation was rather inconceivable.

It is also necessary to note that the respondent, in any case, does not suffer from any prejudice in as much as the counsel for the respondent was present in the hearing which was held on 6th and 7th November, 1989 who had made his submissions on behalf of the respondent.

In case Sohan Lal Gupta (Dead) thr. L.Rs. and Others Vs. Smt. Asha Devi Gupta and Others, which also related to the proceedings before the Arbitrator, the same very question of grant of reasonable opportunity in consonance with the principles of natural justice came up for consideration before the Apex Court. The Apex Court in detail analysed the subject of ''reasonable opportunity'' and the following passages of the said judgment succinctly described the legal position:

There cannot be any dispute with regard to the proposition of law that the parties would be entitled to a reasonable opportunity of putting their case. [See Montrose Canned Foods Ltd. v. Eric Wells (Merchants) Ltd.] A reasonable opportunity would mean that a party must be given an opportunity to explain his arguments before the Tribunal and to adduce evidence in support of his case. However, under the old Act, an oral hearing would only be permitted if a party requested one, unless there was some agreement to the contrary. (See Henry Southeran Ltd. v. Norwich Union Life Insurance Society.)

What would constitute a reasonable opportunity of putting case as also qualification of the right has been stated in Russel on Arbitration, 22nd Edn. paragraphs 5-053 and 5-054 which are in the following terms:

5-053. A reasonable opportunity of putting case.--Each party must be given a reasonable opportunity to present his own case. This means he must be given an opportunity to explain his arguments to the Tribunal and to adduce evidence in support of his case. Failure to comply with this requirement may render the award subject to challenge u/s 68 of the Arbitration Act, 1996. It is also a ground for refusing enforcement of the resulting award under the New York Convention.

5-054. Qualification of the right.--The need to allow a party a reasonable opportunity to present his case can give rise to difficulties. To what extent can the Tribunal intervene where, for example, a party''s submissions or evidence is needlessly long, repetitive, focuses on irrelevant issues or is sought to be made over an extended period of time? What if a party ignores procedural deadlines imposed by the Tribunal but maintains he still has points to put before it in support of his case? Inevitably, each situation has to be dealt with in its own context but the following general considerations should be taken into account.

There cannot, therefore, be any doubt that a party does not have an unfettered right. The arbitrator cannot only ask a party to comply with procedural orders and directions including those imposing limits as to time and content of submissions and evidence but the arbitrator also has a right of managing the hearing. In Russel on Arbitration, 22nd Edn. the law is stated thus:

5-057. Managing the hearing.--Similarly, a Tribunal cannot be expected to sit through extended oral hearings listening to long-winded submissions on irrelevant matters. The Tribunal is entitled, and u/s 33 is obliged and encouraged, to avoid the unnecessary delay and expense that would be caused by such an approach. The Tribunal should take a grip on the proceedings and indicate to the parties those areas on which it particularly wishes to be addressed and those which it does not consider relevant to the real issues in dispute. If a party fails to heed such guidance, the Tribunal might seek to focus the proceedings by allocating the remaining hearing time between the parties. This the Tribunal is entitled to do, provided it will allow a reasonable time for both parties to put forward their arguments and evidence.

For constituting a reasonable opportunity, the following conditions are required to be observed:

Each party must have notice that the hearing is to take place.

Each party must have a reasonable opportunity to be present at the hearing, together with his advisers and witnesses.

Each party must have the opportunity to be present throughout the hearing.

Each party must have a reasonable opportunity to present evidence and argument in support of his own case.

Each party must have a reasonable opportunity to test his opponent''s case by cross-examining his witnesses, presenting rebutting evidence and addressing oral argument.

The hearing must, unless the contrary is expressly agreed, be the occasion on which the parties present the whole of their evidence and argument.

It would also be necessary to reproduce para 29 which would reveal that the concept of ''prejudice'' is introduced in the case of hearing before the learned Arbitrator as well:

The principles of natural justice, it is trite, cannot be put in a straitjacket formula. In a given case the party should not only be required to show that he did not have a proper notice resulting in violation of principles of natural justice but also to show that he was seriously prejudiced thereby. In Chairman, Board of Mining Examination and Chief Inspector of Mines v. Ramjee this Court held: (SCC p. 262, para 13)

Natural justice is no unruly horse, no lurking land mine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditioned by the facts and circumstances of each situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating. We can neither be finical nor fanatical but should be flexible yet firm in this jurisdiction. No man shall be hit below the belt - that is the conscience of the matter.

(See also Union of India v. Anand Kumar Pandey and R.S. Dass v. Union of India.)

Likewise, in Hari Om Maheshwari Vs. Vinitkumar Parikh, which was again a case relating to arbitration proceedings, the Supreme Court reiterating the legal position referring to the aforesaid judgments specifically opined that grant or refusal of an adjournment by arbitrator would not be a ground for setting aside the award. That was a case where a party had remained absent on that date fixed in its presence for its evidence. Inferring that the said party was not willing to lead evidence, learned Arbitrator closed the evidence and posted the matter for making the award. Later, but before the award was made, the said party moved application for further opportunity to lead evidence which was not entertained and the award was made. Objection to this award that no reasonable opportunity was given was rejected. It was observed, in the process, that in such a situation, there is no scope of interfering with the independent discretionary jurisdiction of the arbitrator in a petition u/s 30 of the Arbitration Act, 1940. We are concerned exactly with the same position and even the objections are u/s 30 of the Arbitration Act, 1940. Therefore, this objection does not have any merit.

It was lastly argued that the claim Nos. 1 & 2 were not arbitrable. This objection has to be rejected and it is even not necessary to state in detail the argument. Reason is simple, not only such an objection was not raised before the Arbitrator, even in the IA filed there is no such objection and the submission is made at the time of arguments. The respondent, therefore, cannot be allowed to even raise this kind of objection. I may note that learned counsel for the respondent has cited two judgments in support of the plea that the claims were not arbitrable. It is not necessary to discuss those judgments. It would also be significant to point out that the award is non-speaking award and the scope of interference in such an award is highly limited. (See Sudarsan Trading Co. Vs. Government of Kerala and Another,

The objections are accordingly devoid of any merit and this IA is accordingly dismissed.

CS (OS) No. 273/1990

Having dismissed the objections, the award dated 19.1.1990 is hereby made rule of the Court. The award shows that no interest is given after taking note of the judgment in the case of Gujarat Water Supply and Sewerage Board Vs. Unique Erectors (Gujarat) (P) Ltd. and Another, However, interest can be awarded by this Court in exercise of its power u/s 29 (C) of the Act from the date of award. This is so held even in Gujarat Water Supply and Sewerage Board v. Unique Erectro (P) Ltd. (supra) and also by this Court in the case of Jagdish Chander Vs. Hindustan Vegetable Oils Corporation and Another, as well as in the subsequent judgments of the Supreme Court in State of Orissa Vs. B.N. Agarwalla, etc., and M/s. Jagdish Rai and Brothers Vs. Union of India, Interest @ 9% is accordingly awarded from the date of award till the decree as well as future interest from the date of decree till the date of payment. Decree be drawn accordingly.