National Council for Cement and Building Materials vs Subhash B. Rathod

Mukul Mudgal, J.—These are Objections the Award dated 27th April, 1987, passed by the Arbitrator in pursuance of Clause (O) of the Agreement dated 18th April, 1985 entered into between the petitioner-National Council for Cement & Building Material and respondent-Subhash B. Rathod.

The said Clause (O) reads as follows:-

"ARBITRATION

Except where otherwise provided in the contract all questions and dispute relating to the meaning of any of the clause of this contract and as to quality or workmanship or the quality of materials used or supplied or as to any other question, claim, right matter or thing whatever, in any way arising out of or relating to the contract or the execution or failure to execute the same whether arising during the progress of the contract or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed solely by the Director General, National Council for Cement and Building Materials. There will be no objection to any such appointment that the appointment has been made by the Director General, National Council for Cement and Building Materials, that he had to deal with the matters to which who contract relates and that in the course of his duties as the Director General of NCBM, he had expressed views on all or any of the matter in dispute or difference. The arbitrator to whom the matter is originally referred being unable to act for any reason, the Director General, National Council for Cement and Building Materials shall appoint another person to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by the Director General, National Council for Cement and Building Materials, as aforesaid should act as arbitrator. The award of the arbitrator shall be final and binding on all the parties to the contractor. Subject as aforesaid, the provisions of the Arbitration Act 1940 or Statutory modification or enactment of the rules made there under and the time being inforce shall apply to the arbitration proceedings under this clause."

The respondent who is an entrepreneur wanted to set-up a cement plant in Karnur and approached the petitioner for know-how for the aforesaid purpose and an Agreement dated 18th of April, 1985 was entered into between the parties and as per the Agreement the petitioner was entitled to the payment of Rs.10,000/- which was a non-refundable registration fees and 5% per cent of the next ex-works value for all the plant and equipment as under:-

"2-a) An amount equal to 2% of the estimated nett ex-works value as defined hereinabove in the release of drawing by NCBM.

b) An amount equal to 2% of the nett ex-works value as defined hereinabove, on completion of delivery of the kiln equipment at the plant site.

c) The balance amount of 1% of the nett ex-works value as defined hereinabove shall be paid by the licensee to NCBM within 30 days of completion of commissioning of the plant and satisfactory demonstration of guarantee trials of the plant."

The petitioner sent the requisite data and drawings to the respondent who paid a sum of Rs.1,60,000/- by way of a cheque towards 2% per cent estimated value of the plant as per Clause F 2 (a) of the Agreement dated 18th April, 1985. When the petitioner presented the aforesaid cheque for encashment, it was dishonoured. The respondent by a letter dated 13th May, 1985 asked the cheque to be sent back so that it would be corrected and returned back to the petitioner. On 11th of June, 1985, the petitioner returned back the cheque to the respondent but the respondent thereafter neither corrected the cheque nor sent it back to the petitioner. Subsequently several letters were addressed to respondent for the payment of Rs.1,60,000/- plus overdue interest amounting to Rs.3,452.05. However, no payment was made by the respondent to the petitioner.

Consequently upon a Legal Notice dated 9th of July, 1986 sent by the petitioner having remained unattended to, in accordance with the above Clause O of the Agreement dated 18th April, 1985, Mr. Justice V.S. Deshpande was appointed as an Arbitrator, who entered upon reference and issued notice to the respondent and the respondent filed its reply to the Statement of Claim, filed by the petitioner. However, the respondent/Objector never appeared before the learned Arbitrator. Thereafter on the basis of the pleadings, the Arbitrator passed the impugned Award dated 27th of April, 1987, allowing the claim of the petitioner and holding inter-alia that the respondent was liable to pay Rs.2,20,475.40/- and interest on Rs.1,60,000/- @ 18% per annum from the date of entering the reference until the date of decree. The Award was filed in this Court on 25th of May, 1987 and Objections were filed in IA.4865/88 thereby by the respondent.

The respondent in his objections to the Award dated 27th of April, 1987 urged as under:-

(a) The impugned Award has been passed against the respondent on the basis of the admissions and for non-appearance of the respondent after filing of the reply. The liability in fact had been denied by the respondent in the written statement and respondent could not appear before the learned Arbitrator as no notice for the date fixed, was sent to him. The provisions of Order XII Rule 6 CPC do not apply to arbitration proceedings.

(b) The Arbitration misinterpreted the written statement of the respondent as lack of consideration, non-grant of technology and frustration of the contract due to the ban imposed by the Maharashtra Government on the setting up of mini cement plants was pleaded by the respondent. Therefore, the respondent had no obligation to pay. Only one part of admission has been partly relied upon without taking into account the effect of the other pleas. No award has been made on the counter-claim, filed by the respondent. Consequently the impugned Award is vitiated on the ground of misconduct.

(c) The respondent could not be heard as no notice for specified dated was issued to him before proceeding ex-parte. Statement of Claims was neither verified nor supported by an affidavit. This is an error of law inherent in the Award.

(d) Since the petitioner is a public sector undertaking and the Maharashtra Government has imposed a ban, on account of the Government policy the contract has been rendered frustrated, and no unjust enrichment can be enjoyed by the petitioner when no technical assistance, guidance or service was rendered or provided. Due to the frustration of the contract parties were discharged of their obligations.

The petitioner have naturally pleaded for upholding the Award.

The following authorities were relied upon by the respondent in support of his pleas:-

"1. Modern Neon Signs Vs. Union of India and Another,

Dudh Nath Pande Vs Suresh Chandra Bhattasali AIR 1986 SC 159

K.V. George Vs. Secretary to Government, Water and Power Department, Trivandrum and Another,

Lovely Benefit Chit Fund and Finance Pvt. Ltd. Vs. Shri Puran Dutt Sood and Others,

Lohia Jute Press P. Ltd. and Others Vs. The New India Assurance Co. Ltd. and Others,

Prem Nath L. Harsaran Dass and Another Vs. Om Parkash L. Ram Kishen Dass Aggarwal,

Tyebbhai Essubhai Thanawalla Vs Abdul Husein Tyebally 1924 Bom 149

Pratapsingh Vs. Kishanprashad and Co. Ltd., "

8.(a) In so far as Modern Neon Signs Vs. Union of India and Another, is concerned, The judgment merely decides the question whether the Court can pass a judgment regarding a part of the Award without waiting for the determination of the disputed portion of the Award and, Therefore, this judgment could not have any application on the facts of the present case as all the disputes have been decided by the Arbitrator.

(b) In Dudh Nath Pande Vs Suresh Chandra Bhattasali AIR 1986 SC 159 it has been held that it is not permissible to rely on part of admissions ignoring others. However, this judgment cannot apply as the respondent has been unable to given any Explanation why Rs.1,60,000/- was paid by him in the first instance. The disowning of the payment indirectly by pleading that the drawings were not working drawing is a clear afterthought and hence the above cited judgment has no application to the present case.

(c) In K.V. George Vs. Secretary to Government, Water and Power Department, Trivandrum and Another, it has been held that after the Award is made on the basis of claim of one party and the counter-claim of another party is kept for determination subsequently, it amounts to misconduct. The Learned Counsel for the respondent has not been able to show how the Arbitrator ignored the counter-claim filed by the respondent. A perusal of the impugned Award shows that no clear-cut counter-claim had been made on behalf of the respondent. In substance all that was stated in the written statement was that if at all there is a case for refund of Rs.10,000/- on account of registration fees paid by the respondent as absolutely no work had been done by the respondent as per the agreement. The agreement itself stated that the said amount of Rs.10,000/- was non-refundable and amounted to registration fees and consequently this plea even if assumed to be a counter-claim has been rightly not granted. Furthermore by upholding the plea of the petitioner for Rs.1,60,000/- the respondent''s plea for refund of Rs.10,000/- stands impliedly rejected. In any event the arbitrator is not bound to decide the counter-claim in the absence of the respondent. The pleadings in this case which according to the respondent himself amounts to counter-claim are as follows:-

"If at all it is the case for the refund of Rs.10,000/- (Rupees Ten Thousand Only) paid by the respondent as absolutely no work has been done by the claimant as detailed in the agreement itself, the agreement is one sided and does not bind the respondent. The project cannot be implemented.

Wherefore the respondent submits that the claim be rejected with costs and a decree be passed in favor of the respondent for Rs.10,000/- (Rupees Ten Thousand Only)."

Accordingly, the above judgment cannot have any application.

(d) So far as Lovely Benefit Chit Fund and Finance Pvt. Ltd. Vs. Shri Puran Dutt Sood and Others, is concerned, the above judgment holds that the Arbitrator should give notice to defaulting party specifying date, time and place. The above judgment proceeded on the basis that an Arbitrator ought not to proceed ex parte against a party if he has failed to appear in one of the sittings. In the present case, the respondent failed to attend any hearing except filing his reply and thus this decision has no application to the present case. (e) Lohia Jute Press P. Ltd. and Others Vs. The New India Assurance Co. Ltd. and Others, , it has been held that ex-parte award is liable to be set aside. In the present case there was notice issued to the respondent and upon being served respondent filed its reply but he never appeared before the Arbitrator. Accordingly the aforesaid judgment has no application as the award has been passed after considering the written statement.

(f) In so far as Prem Nath L. Harsaran Dass and Another Vs. Om Parkash L. Ram Kishen Dass Aggarwal, is concerned, it has been held that when Arbitrator did not offer parties reasonable opportunity of being heard it amounted to misconduct. In the present case the respondent has been unable to show that he was not given reasonable opportunity of being heard. Respondent himself had chosen to stay away from the proceedings. Accordingly, he cannot claim reliance on the aforesaid judgment.

(g) In Tyebbhai Essubhai Thanawalla Vs Abdul Husein Tyebally 1924 Bombay 149 it has been held that if notice of meeting is not given then it amounts to misconduct. In the present case, this judgment cannot apply to the facts of the present case as the time to file reply was stipulated and as was the specified date of hearing, i.e., 13th April, 1987 when orders were passed.

(h) In Pratapsingh Vs. Kishanprashad and Co. Ltd., it was held that Arbitrator can proceed ex-parte after issuing notice of his intention to do so. The above judgment only held that it is advisable though no compulsory for an Arbitrator to give a notice of his intention to proceed ex-parte against the defaulting party. Obviously the above judgment cannot apply to the facts of the present case as the Court has not held that it is mandatory to put a defaulting party on notice that proceedings would be taken ex-parte.

In so far as the plea regarding non-giving of opportunity to the respondent and non-mentioning of the fact that the case was to be proceeded ex-parte is concerned, the Arbitrator had clearly written by Registered AD letter dated 20.3.1987 to the respondent to file written statement by 13th of April, 1987 and to appear in person on that day. This in my view is sufficient notice to the respondent. The respondent did not appear on 13.4.1987. Thus the Arbitrator was justified in proceeding ex-parte against the respondent. Significantly the Agreement between the parties does not postulate that the Arbitrator was required to give any reasons in the Award. This is clear from the perusal of Clause O extracted above.

I am thus of the view that the Arbitrator''s Award is justified because once the respondent had taken over the drawings/designs from the claimant/petitioner payments were made as per Clause F 2(a) by a cheque by the respondent which cheque was eventually dishonoured. The fact that by a letter dated 9th of September, 1985 the respondent offered to change the cheque, makes it abundantly clear that question whether the payment of that amount was due or not did nt arise at that stage. It was open to the respondent at the time when he wrote the letter dated 9.9.1985, to lodge a protest that the payment had not fallen due, but he failed to do so which clearly shows that the plea of not having become liable to pay the amount of Rs.1,60,000/- is a clear afterthought and the Arbitrator''s Award on this count cannot be faulted. Thus de hors the plea that the Arbitrator has misunderstood the plea of the respondent in reply to the statement of claims as that of non-traversal, the award is sustainable even otherwise because no where in its pleadings has the respondent/Objector explained why he issued a cheque for Rs.1,60,000/- and then asked for time to change the cheque by its letter dated 9th of September, 1985 without registering a protest that such sum was not due. Thus at that stage the respondent himself understood the Clause 2(a) to mean that the payments had become due upon delivery of drawings. I also cannot lose sight of the fact that it has been pleaded by the petitioner in reply to the affidavit of 30th June, 1989 filed by the respondent/Objector, that the respondent filed an application for setting aside the award on 13.11.87 and the said application was fixed on 15.12.1987 for disposal by the Arbitrator. However, on 15.12.1987 also no one appeared on behalf of the respondent and the said application was dismissed. There is no traversal of the above averment by the respondent.

Similarly it is for the first time a plea has been raised on behalf of the respondent in the Objections that the drawing/design issued by the petitioner was not a working drawing and the petitioner did not provide technical know-how. The previous and contemporaneous correspondence is totally silent on this count and accordingly this objection lacks merits. Thus it is very clearly demonstrated that this plea of the respondent is an afterthought. In so far as the non-consideration of the counter-claim of the respondent is concerned, the counter claim stands rejected by implication after the Arbitrator upheld the dues of Rs.1,60,000/-. By implication the claim for non-refundable registration fees of Rs.10,000/- obviously stands rejected which sum was clearly payable as per the contract. In any event as per the agreement between the parties the Arbitrator was not required to give reasons in support of his Award dated 27th of April, 1987.

In this view of the matter, there is no merit in the Objections raised on behalf of the respondent in IA.4865/88 which are accordingly dismissed.

Accordingly, the Award dated 27th of April, 1987 is made a Rule of the Court. A sum of Rs.2,20,475.40 towards claim Along with interest @ 18% per annum as awarded by the Arbitrator on the principal amount of Rs.1,60,000/- from the date of entering on the reference, i.e., with effect from 11.2.1987 till the date of the decree be paid within three months from today. If the amount Along with interest due under the Award is paid within 3 months from today, the Award shall not carry any future interest. However, if the payment is not made within three months from today, the awarded amount shall carry future interest at the rate of 12 per cent per annum from the date of decree till realization. Decree sheet be drawn up accordingly. There shall be no orders as to costs.

Accordingly, the suit & is stand disposed of in terms of this judgment.