S.D. Shinde and Company Contractor "Shri Parvati" vs The State of Maharashtra

V.R. Kingaonkar, J.—This Arbitration Appeal arises out of order rendered by learned Joint Civil Judge (S.D.), Nanded, in proceedings seeking indulgence of the Court to make award of Arbitrator as rule of the Court.

The appellant filed application before Civil Court alleging that after following due procedure the Arbitrator, duly appointed, had rendered award which may be made rule of the Court. The appellant''s application came to be dismissed.

The appellant is a company duly incorporated and deals in contractual Civil works. The Respondent called for tenders regarding the work for construction of earth work lining and structures of Isapur Right Bank Canal. The appellant filled the tender which was lowest one and, therefore, the contractual work was assigned to the appellant vide LCB Contract No. 11/87/88. The work order was issued on 9.12.1987. The appellant was directed to complete the work on or before 9.6.1990. There is no dispute about the fact that completion of the work was delayed. The appellant was granted third extension to complete the work on or before 30th September 1992. It appears that there was no further extension issued but the appellant continued to work notwithstanding the expiration of outer limit of third extension period. The Respondent terminated the works contract by virtue of a notice dated 30th October 1992. The notice, however, indicated that the authority to work was terminated with retrospective effect from 1.10.1992.

The appellant approached the Chief Engineer in order to ventilate his grievances. He contended that certain work was carried out by him and he was not at fault. No action was taken in pursuance to his representation. He had filed suit (RCS No. 143/1993) challenging the order pertaining to withdrawal of the work and for allowing encashment of the bank guarantee. That suit was dismissed in default. The appellant, therefore, communicated to the Respondent to appoint Arbitrator as per the Arbitration clause in the contract. No reply was, however, given by the Chief Engineer or other authorities. The appellant gave notice to the Chief Engineer on 3.12.1994. The appellant lastly communicated that on his part retired Superintending Engineer Shri S.M. Dandawate, was appointed as Arbitrator.

The Arbitrator commenced the Arbitration proceedings. The Respondent was informed by the Arbitrator regarding the procedure to be followed by him. The Respondent inter alia challenged authority of Shri S.M. Dandawate to act as an Arbitrator. The Respondent submitted that the appellant had failed to execute the work within the given time frame and thereby committed breach of the contract. The Respondent further submitted that they were required to engage another agency for completion of the work and, therefore, loss was incurred due to such irresponsible conduct of the appellant. It was further submitted that the Respondents had filed suit against the appellant for recovery of the damages and compensation to the tune of Rs. 53,83,375/- (Rupees fifty three lacs eighty three thousand three hundred seventy five). The Respondent, therefore, sought dismissal of the Arbitration proceedings.

Upon hearing both the sides and on consideration of the material placed before him, the Arbitrator rendered the award. He held that there was no breach of agreement on part of the appellant. He further held that the Respondent was liable to pay the difference of amount regarding the work executed by the appellant. It is pertinent to notice that the Respondent had challenged appointment of the Arbitrator by filing a suit which came to be dismissed. The Respondent preferred CRA No. 543/1996 which came to be dismissed by this Court on 30.4.1996.

It appears that the suit (Spl. C.S. No. 238/1995) is pending and has been stayed vide order dated 10.12.2003, rendered by this Court in W.P. No. 5171/2003.

While dismissing the CRA No. 543/96, this Court observed that legality of the Arbitrator''s appointment and his authority to render the award can be challenged in the Arbitration proceedings by the Respondent. Taking cue from such liberty, the Respondent questioned appointment of the Arbitrator and his jurisdiction in the proceedings before the Arbitrator. The contention of the Respondent was that as per the contract, retired person could not be appointed as sole Arbitrator. It was also contended that unilaterally the appellant could not have appointed Shri Dandawate. It was further contended that the Arbitrator committed misconduct while rendering the award by allowing certain items which were impermissible. It was further contended that the award was rendered without any sufficient material and, therefore, was improper and illegal. On these premises, the Respondent sought dismissal of the application seeking leave of the Court to make the award as rule of the Court.

The objections raised by the Respondent were accepted by the learned Civil Judge (S.D.), Nanded and the award was set aside. Feeling aggrieved, the appellant has come up in appeal.

Heard learned Counsel.

The record shows that the Arbitrator informed the parties by letter dated 14.11.1995 about the Arbitration proceedings. He called a preliminary meeting at Pune on 28.1.1996. It also appears that in the said meeting representatives of the appellant were present. Thereafter, several meetings were called wherein representatives of both the sides were present. The two final meetings were held on 30th and 31st January, 1998. The counter claim filed by the respondent was also considered. Ultimately, the Arbitrator came to the conclusion that the Respondents were liable to pay Rs. 60,62,080/-(Rupees sixty lacs sixty two thousand and eighty only) to the appellant.

The important question involved in this appeal is:

Whether in the facts and circumstances of the present matter, the Arbitrator was ineligible and disqualified to act as such because he is a retired Superintending Engineer of Irrigation Department.?

The learned Civil Judge held that the appointment of Shri Dandawate, was invalid for the reason that the Arbitration clause envisaged that Officer of the rank of Superintending Engineer or higher rank only was eligible for appointment as sole Arbitrator.

The Arbitration clause is as follows:

Within 30 days of receipt of notice from the contractor of his intention to refer the dispute to arbitration the Chief Engineer, Irrigation Department, Aurangabad shall send to the contractor a list of three Officers of the rank of Superintending Engineer or higher who have not been connected with the work under this contract. The contractor shall within (15) days of receipt of this list select and communicate to the Chief Engineer the name of one officer from the list who shall then be appointed as the sole arbitrator. In case contractor, fails to communicate his selection of name within the stipulated period, the Chief Engineer shall without delay select one officer from the list and appoint him as the sole arbitrator. If the Chief Engineer fails to send such a list within (30) days as stipulated, the contractor shall send a similar list to the Chief Engineer within (15) days. The Chief Engineer shall then select one officer from the list and appoint him as the Sole Arbitrator, within (15) days. If the Chief Engineer fails to do so, the contractor shall communicate to the Chief Engineer the name of one officer from the list who shall then be the sole arbitrator.

The appellant took necessary steps for calling upon the Chief Engineer to appoint an Arbitrator. It was for the Chief Engineer who was required to send names of three (3) officers of the rank of Superintending Engineer or higher rank, who were not connected with the work under the contract. This was not complied with by the Chief Engineer. The expression the officers of the rank of Superintending Engineer or higher rank is qualified by further explanation that they shall not have any connection with the work under the contract. This condition is more important. It would imply that such appointee must be completely disassociated with the work of said contract. It is but natural that a Superintending Engineer in service may be someway or the other connected with the work regarding the contract. In any case, the Arbitration clause No. 52 does not specifically disqualify "a retired Superintending Engineer". The retired Superintending Engineer is not specifically barred to work as sole arbitrator.

At this juncture, it is important to notice that the Respondent did not challenge the qualification of the Arbitrator by filing separate proceedings under the Arbitration Act, 1996. A suit was filed by the respondent in order to challenge the appointment of arbitrator but the same was dismissed. The CRA also came to be dismissed. Why a retired Superintending Engineer could not be appointed as the sole Arbitrator is rather difficult to comprehend. The Chief Engineer did not take initiative in appointment of any Arbitrator. Moreover, the representatives of the respondent participated in the proceedings before the Arbitrator. A counter claim was also filed before the same Arbitrator. Considering the conduct of the Respondent''s officers, I am of the opinion that principle of estoppel is applicable and the appointment of sole Arbitrator could not have been challenged. The challenge on this score ought to have been rejected by the learned Civil Judge.

Dt.16.12.2009.

The interpretation of the Arbitration clause could be made from another stand point of the view. It is of common knowledge that the Officer in service is employee of the Government and can not do any other work unless there is specific permission of the Government to undertake such work. The Arbitrator is entitled to receive remuneration. An Officer in service is not entitled to receive any remuneration because he is the paid employee and such payment can not be accepted without prior permission of the Government. The officer in service can not do the arbitration work within the working hours. If Rule 16 of the Maharashtra Civil Services (Conduct) Rules, 1979 is perused then it will be clear that such an Officer can not undertake private trade or employment. The Government servant is always considered to be on duty for all the time. He can not do extra private work unless is statutorily appointed or officially nominated to do such work besides the office work. In other words, ordinarily, an officer who is in service can not be appointed as arbitrator unless, of-course, there is some special permission granted by the Government or statute provides for such appointment. Considering such legal embargo envisaged under the Maharashtra Civil Services Rules, it does not stand to reason that the Arbitration clause provided for appointment of only officiating Superintending Engineer or anyone above such rank. In this view of the matter, the award could not be set aside on the ground that it was rendered by the retired Superintending Engineer, namely, Shri M.S. Dandawate.

Now, it may be gathered that the learned Civil Judge was pleased to set aside the award on the ground that detailed reasons were not recorded in support of award of compensation. The learned Civil Judge held that as per the agreement, the rate of extra items of the work to be carried out under directions of the Executive Engineer was Rs. 61/- per cubic, whereas the arbitrator awarded Rs. 147.50 per cubic. This was treated as major deficiency in the award and also misconduct of the arbitrator. The learned Civil Judge also observed that the arbitrator did not give detailed reasons as to why the counter claim of the respondent was disallowed. Obviously, it is required to be seen whether the award could be set aside only because detailed reasons were not recorded by the arbitrator.

In AIR 1990 1426 (SC) , the Apex Court observed that Arbitration Award is not liable to be remitted or set aside merely on the ground that no reasons have been given in support of the same. The relevant observations are quoted in para 38 as reproduced below:

In the result we hold that an award passed under the Arbitration Act is not liable to be remitted or set aside merely on the ground that no reasons have been given in its support except where the arbitration agreement or the deed of submission or an order made by the Court such as the one u/s 20 or Section 21 or Section 34 of the Act or the statute governing the arbitration requires that the arbitrator or the umpire should give reasons for the award.

In this view of the matter, when there was no specific agreement between the parties that the arbitrator shall give detail reasons in support of the award, the learned Civil Judge should not have interfered with the award on the ground that there was no reasoning recorded in respect of certain items of the claim.

It may be mentioned that Smt. Geeta Deshpande, learned Counsel for the Respondent strenuously argued that the award is unfair and that the same has been properly set aside by the learned Civil Judge because the findings recorded by the arbitrator are contrary to the record. She seeks to rely on Union of India (UOI) Vs. Arora Associates and Another, in this context. A Single Bench of this Court held that where the finding of arbitrator was contrary to the material available on record, the award could not be allowed to stand and was required to be set aside. In the fact situation of the present case only because certain rate is shown in the agreement and enhanced rate is considered while passing of the award, it can not be said that the findings are contrary to the record. The contradiction was not brought on surface. It is important to notice that the parties had agreed for escalation of the prices.

The learned Counsel would also rely on Union of India and Anr. v. Sohan Lal Puglia 2004 (5) ALL MR (S.C.) 147. In the given case, appointment of a retired District Judge was challenged and was set aside. It was noticed, however, that the employer had not refused to appoint the arbitrator and, therefore, the petition was not maintainable u/s 20 of the Act. Reliance is also placed on M/s. Graphic Interiors Vs. The Commander Works Engineer and others, . The arbitration award was set aside on account of misconduct of the arbitrator for omission to record reasons in the context of claims which were allowed. However, in the given case there was a specific agreement which provided and made it obligatory on the part of the arbitrator to indicate his finding along with the sums awarded separately on each individual item of dispute. Obviously, it was obligatory on the arbitrator to assign the reasons and record the findings as per the agreement. This authority can be distinguished on the fact situation of the present case. Mrs.Geeta Deshpande, also invited my attention to J.C. Budhraja Vs. Chairman, Orissa Mining Corporation Ltd. and Another, . The Apex Court held that granting of rate of interest in excess of what was claimed, could be regarded as a legal misconduct, vitiating the award to that extent. I do not find any parallel between facts of the given case and the facts of the present case.

It is well settled that normally the arbitration award can not be lightly brushed aside. It can not be set aside unless there are tangible reasons to infer misconduct or misfeasance by the arbitrator and for the reasons which are legally permissible under the provisions contained in Section 30 of the Arbitration Act, 1940.

Considering the foregoing reasons, I find it difficult to maintain the impugned order. Hence, the appeal is allowed. The impugned judgment and order rendered by the learned Civil Judge (S.D.), Nanded is set aside. The learned Civil Judge shall make the award a Rule of the Court by allowing the application of the Respondent. No costs.