State of Gujarat vs Tulsi Construction and 1

Honorable Mr. Justice R.M. Chhaya

The present appeal is directed against the judgment and decree dated 31.8.1988 passed by the 4th Joint Civil Judge (S.D.), Baroda in Misc. Application No. 22 of 1988 being an application u/s 14 of the Arbitration Act, 1940 (hereinafter referred to as "the Act") and subsequent objections under Sections 30 and 33 of the Act, whereby the Trial Court has been pleased to pass the following order:

The applicant M/s. Tulsi Construction, Raopura, Pipla Gate, Baroda is entitled to get Rs. 31,31,930/- (Rupees thirty one lac thirty one thousand and nine hundred thirty only) alongwith interest as shown below with costs of this application from the opponent no. 1.

1) Interest at the rate of 11% p.a. is allowed from 25.9.1986 to 14.6.1987 i.e. pre-arbitration interest on a sum of Rs. 31,31,930/- from opponent No. 1.

2) No interest is allowed from 15.6.1987 to 29.12.1987 i.e. the period pendentelite before the arbitrator.

3) Interest at the rate of 18% p.a. is allowed from 30.12.1987 till the date of decree on a sum of Rs. 31,31,930/- from the opponent no. 1.

4) Interest at the rate of 18% p.a. is allowed from the date of decree till the payment or realisation of the full decreetal amount from the opponent No. 1.

dated 22.2.1987, the applicant sent the following three names, out of which, one may be appointed as sole arbitrator within the time stipulated under Clause 52. It is evident that by the said notice dated 22.2.1987, the applicant recommended the following three names - (i) Shri R.G. Patel, (ii) Shri G.J. Soneji, and (iii) Shri J.C. Patel. It further revealed that as no reply was received by the applicant, by a further communication dated 25.5.1987, the applicant informed opponent No. 1, through the Chief Engineer, Irrigation Department of Karjan project, that the applicant sent names of three officers, out of which, one name should have been suggested and appointed as sole arbitrator to arbitrate upon the disputes between the applicant and opponent No. 1. It was also further informed that in fact the applicant had suggested the name of Shri R.G. Patel. However, as Shri R.G. Patel declined to act as an arbitrator, the applicant has selected Shri J.C. Patel, retired Superintending Engineer out of the list given by the applicant and further informed opponent No. 1 that Shri J.C. Patel will now be the sole arbitrator to arbitrate upon the disputes between the applicant and opponent No. 1. Accordingly, by the communication of even date i.e. 25.5.1987, the applicant also informed Shri J.C. Patel - opponent No. 2. It appears from the record that inspite of the same, opponent No. 1 did not remain present before the arbitrator and the arbitrator decided the same and published his award on 29.12.1987.

After the said award was passed, the applicant herein filed the present application being Misc. Application No. 22 of 1988 and prayed for the following reliefs:

Direct the opponent No. 2 to file the award made and signed dt. 29.12.1987 alongwith pertaining documents and evidence in this Hon''ble Court;

Allow the costs of this application;

Grant any other just and proper relief in view of the present circumstances of the case.

On receipt of the notice, written statement was filed by opponent No. 1. It is pertinent to note at this stage that as the arbitration fees were not paid even though opponent No. 2-the arbitrator had informed both the parties, initially the copy of the award was not submitted by the arbitrator before the Court. However, by application Exh.6 dated 4.2.1988, the same came to be placed before the Trial Court with all relevant documents including the exhibits as well as file of corresponding meetings. The objections were raised by way of filing written statement at Exh.11 by opponent No. 1. It appears that the applicant thereafter filed Exhs.13 and 14 giving reply to the objections so raised by opponent No. 1. The Trial Court after considering the evidence on record by the impugned judgment and award confirmed the said award of the arbitrator and made it a rule of the Court. Hence, appeal before this Court.

Heard Ms. Moxa Thakkar, learned AGP for the appellant and Mr. P.R. Thakkar, learned advocate for opponent No. 1.

Ms. Moxa Thakkar vehemently submitted that in fact the very appointment of opponent No. 2 as arbitrator was bad and illegal and that opponent No. 2 was not appointed with consent of opponent No. 1. It is pointed out that in fact the Executive Engineer of opponent No. 1 had approached the Superintending Engineer, Bharuch and the communication dated 4.5.1987 was placed on record before the Court. It is submitted that as per the said communication dated 4.5.1987, discussion was held in the chamber of Chief Engineer and Joint Secretary on 29.4.1987 in connection with the claims put forth by the applicant under Clause 51 of the tender agreement and apropos to such discussion, the applicant was asked to submit documentary evidence and further details. It is submitted that in fact the said correspondences clearly establish the fact that the applicant had agreed in the said meeting to provide such documentary evidence in support of the claims raised by 3rd week of May 1987. It is submitted that in fact the said communication shows that the applicant was asked to approach the Superintending Engineer and in fact the Superintending Engineer called for further details as per Clause 51 of the tender agreement. It is submitted that instead of complying with the said requisition so made by opponent No. 1, the applicant appointed opponent No. 2 - Shri J.C. Patel, the sole arbitrator in the month of May 1987 itself. It is submitted that as such the appointment of opponent No. 2 was ex-parte. Opponent No. 1 never accepted the said appointment and in fact opponent No. 2 was also communicated that the applicant was called by opponent No. 1 to produce evidence and no such documents have been produced by the applicant and without consent of opponent No. 1, the appointment has been made. It is submitted that in fact opponent No. 2 was also informed that opponent No. 1 did not accept the appointment of opponent No. 2 as the sole arbitrator. Still however, opponent No. 2 proceeded ex-parte and has passed the award dated 29.12.1987. It is submitted that the application was filed before the Civil Judge (S.D.), Bharuch being Application No. 17 of 1988 on 30.1.1988 praying for stay against the award passed by opponent No. 2 herein.

Ms. Moxa Thakkar relying upon the covenants of the agreement pointed out that the agreement between the applicant and opponent No. 1 was for earth work and lining work of canal of Karjan Irrigation Project in the year 1982-83. It is submitted that the said agreement was signed for the work amount of Rs. 1,58,03,387.80 and the time limit to complete the said work was 24 months. It is submitted that as the work was not completed as per the time stipulated in the said agreement, the applicant by an application prayed for extension of time and accordingly, time was extended by opponent No. 1 till 16.11.1986. It is submitted that inspite of such extension, the work could not be completed and therefore, the applicant by another application prayed for extension of time which came to be extended till 22.2.1987. It is submitted that inspite of such extensions having been granted by opponent No. 1, the applicant could not complete the work. It is submitted that in these circumstances, the applicant approached opponent No. 1 under Clause 51. It is submitted that in fact Clause 51 of the tender document clearly provides stipulation of giving notice and its inherent time limit and therefore, the applicant could not have appointed opponent No. 2 as the sole arbitrator without consent of opponent No. 1 and without adhering to the said procedure as prescribed under Clause 51 of the tender document. As it is reiterated that in fact opponent No. 1 has never accepted the appointment of opponent No. 2 as the sole arbitrator and therefore, it was not even required to pay fees to opponent No. 2. It is submitted that the proceedings before opponent No. 2 as arbitrator have not been attended by opponent No. 1 and the award dated 29.12.1987 was not acceptable to opponent No. 1 and hence, opponent No. 1 was not required to pay any fees as claimed for by opponent No. 2.

It is further submitted that in fact the place of execution of work is within the jurisdiction of the Civil Court at Bharuch and opponent No. 1 had also directed the District Government Pleader, Bharuch to file an application for stay of the award passed by opponent No. 2 dated 29.12.1987. It is submitted that thus, opponent No. 2 as the sole arbitrator has not followed the principles of natural justice and on the said count also, the award dated 29.12.1987 deserves to be set aside. It is further submitted that on bare reading of the award passed by opponent No. 2, it reveals that opponent No. 2 as sole arbitrator has not given any definite and proper finding and has not in fact adjudicated the disputes raised between the applicant and opponent No. 1. It is further commenting on the award passed by opponent No. 2 submitted that the award is vague and there is an error of law on the face of the award. It is also submitted that in fact opponent No. 2 has misconducted as sole arbitrator, inasmuch as, that opponent No. 2 has not given the reasons for arriving at ex-parte conclusion. It is also submitted that the appointment of arbitrator was not as per the law and hence, the award published by the arbitrator requires to be set aside. Ms. Moxa Thakkar has also drawn attention of the Court to each of the 15 claims which have not been properly dealt with by the arbitrator and therefore, the appeal deserves to be allowed and the impugned judgment and order dated 31.8.1988 passed below Exh.15 in Misc. Application No. 22 of 1988 deserves to be set aside and the objections raised by opponent No. 1 deserves to be upheld.

Per contra, Mr. P.R. Thakkar, learned advocate for opponent No. 1 has supported the award as well as the impugned judgment and order passed by the Trial Court. It is submitted that none of the circumstances as contemplated u/s 30 of the Act has arisen in the present case and therefore, the award deserves to be confirmed as is made rule of the Court by the Trial Court. It is submitted that in fact opponent No. 1, to the reasons best known to it, has neglected to respond to the notices issued under Clauses 51 and 52 of the tender agreement and has not even attended any of the proceedings before the arbitrator and furthermore, has not even paid the fees of the arbitrator. It is submitted that the arbitrator has threadbare considered the documents produced by the applicant before him and on correct appreciation of the same, has rightly granted the claims as prayed for by the applicant. It is submitted that on the contrary, on reading of the award, it transpires that the arbitrator after full application of mind has passed the award. Mr. P.R. Thakkar, in order to buttress his contention, has relied upon the cases of - (i) D.D. Sharma Vs. Union of India, reported in 2004 (4) Supreme 92, (ii) Bharat Coking Coal Ltd. Vs. L.K. Ahuja, reported in 2004 (6) Supreme 12, (iii) State of U.P. Vs. Allied Constructions, reported in 2003 (5) Supreme 418, and (iv) T.P. George Vs. State of Kerala and Another, .

Considering the rival submissions and the record and proceedings of the case, it transpires that the contract was executed between the applicant and opponent No. 1 under agreement No. LCB-4 of 1982-83 for the earth work and lining work etc. for R.B.C.D. system for canal of Karjan Irrigation Project. As the disputes arose, as recorded hereinabove, the applicant issued notices as contemplated under Clauses 51 and 52 which provide for statement of disputes and arbitration as per the tender document and as opponent No. 1 did not respond to the same under Clause 52 of the tender document, opponent No. 2 was appointed by the applicant. It appears from the record that the applicant had raised 15 claims including costs of arbitration as well as interest for various works undertaken by the applicant and because of various reasons. It appears that the arbitrator on his appointment by letter dated 25.5.1987 called a preliminary meeting on 15.6.1987. It appears from the record that by a communication dated 29.5.1987, opponent No. 2 had directed the applicant as well as opponent No. 1 to submit claim and counter claim statement on or before 15.6.1987. It appears that opponent No. 2 also directed the parties to submit documents showing the validity of his appointment as a sole arbitrator. It appears from the record that in response to the same, the applicant attended the preliminary meeting on 15.6.1987 and filed its claim statement and also filed documents marked Exh.C/1 containing 176 pages. It is also noted by the arbitrator that copies of these documents were also supplied to the Executive Engineer i.e. opponent No. 1. However, opponent No. 1 did not attend the said meeting held on 15.6.1987. It transpires from the record that the arbitrator has also noted that at several times, opponent No. 1 was called upon to reply to the claim statement filed by the applicant. However, no one appeared before the arbitrator. It also reveals from the record that in fact opponent No. 2 as sole arbitrator issued notice that if opponent No. 1 did not cooperate, the ex-parte hearing may be conducted. However, opponent No. 1 did not attend the same. It appears from the record that opponent No. 1 neither filed any reply nor attended the meeting before the arbitrator - opponent No. 2 herein. It appears that opponent No. 1 only made submissions that appointment of opponent No. 2 as sole arbitrator was not as per Clause 51 of the tender document. It appears from the record that such an objection raised by opponent No. 1 was replied by the applicant even before the arbitrator and the applicant had claimed that as per Clause 52, after waiting for the period so prescribed, the appointment of opponent No. 2 came to be made as sole arbitrator. It appears from the record that opponent No. 2 as sole arbitrator postponed the hearing for a considerable long time and as noted by the arbitrator in the award for four months, and thereafter, about more than 8 meetings were held. However, opponent No. 1 did not remain present. It appears from the record that in fact opponent No. 2 as sole arbitrator inspected the site also and having given sufficient opportunity to opponent No. 1, after considering the arguments on behalf of the applicant and taking into consideration the documentary evidence produced before opponent No. 2 as well as the oral submissions made for and on behalf of the applicant, the arbitrator had passed the award amounting to Rs. 31,31,930/- plus interest amounting to Rs. 7,89,417/-, total amounting to Rs. 39,21,347/- and had also further awarded simple interest at the rate of 20% per annum. It appears from the award that out of 14 claims, the arbitrator has partly allowed 8 claims and has rejected 4 claims and 2 claims have been withdrawn by the applicant before the arbitrator. It appears that the arbitrator has considered the evidence led before it and has passed the award claim-wise.

It appears from the record of the Trial Court and also in this appeal, opponent No. 1 has based its case mainly on the ground that opponent No. 2 was illegally appointed. Opponent No. 1 has based its entire appeal before this Court on the aspect that opponent No. 2 was wrongly appointed by the applicant as sole arbitrator de hors the provisions of Clauses 51 and 52 of the tender agreement. It appears from the order impugned in this appeal that even before the Trial Court, same objections were raised as regards jurisdiction of the Court, appointment of opponent No. 2 as arbitrator being invalid and that opponent No. 2 has passed ex-parte award. It is clear from the order impugned in this appeal that the Trial Court has considered the fact that the arbitrator has filed the award before the Court at Baroda. The Trial Court has considered that acceptance of tender was communicated by opponent No. 1 by RPAD at Baroda and considering the provisions of Section 14(2) of the Act as well as Section 17 of the Act, has come to the conclusion that the Court at Baroda has jurisdiction. The Trial Court, after taking into consideration the factual aspects and on interpretation of Clauses 51 and 52 of the tender agreement, has come to the conclusion that as there was dispute between the parties i.e. the applicant and opponent No. 1, the arbitrator was required to be appointed under Clauses 51 and 52. The Trial Court has considered the fact that in fact the applicant had declared his intention to refer the disputes between the applicant and opponent No. 1 to the arbitrator and in fact the applicant had followed the procedure as provided under Clauses 51 and 52 of the tender agreement. The Trial Court has also considered the fact that inspite of various opportunities given by opponent No. 2 - the arbitrator, opponent No. 1 has failed to attend any of the meetings. The Trial Court has noted that opponent No. 1 has not raised any allegation against opponent No. 2.

Cumulatively considering these facts and evidence on record and on perusing Clause 51 of the tender document, it transpires that Clause 51 clearly provides that if the contractor considers any work demanded of him to be outside the requirements of the contract, or considers any drawings, record or rusing of the department on any matter in connection with or arising out of the contract or the carrying out of work to be unacceptable, he shall promptly ask the Executive Engineer in writing, for written instructions or decision. Clause 51 further provides that on receipt of written instructions or decision, the contractor shall promptly proceed without delay to comply with such instructions or decision given by the Executive Engineer. Clause 51 further provides that in case if the Executive Engineer fails to give his instructions or decision in writing within a period of thirty days after such request is being made or if the contractor is dissatisfied with the instructions or decision of the Executive Engineer, the contractor may within thirty days after receiving the instructions or decision appeal to the Superintending Engineer, who shall afford an opportunity to the contractor to be heard and to offer evidence in support of his appeal. The said Clause further provides that the Superintending Engineer shall give the decision on the same within a period of sixty days after the contractor has given the said evidence in support of his appeal. The said Clause further provides that if the contractor is dissatisfied with the decision, the contractor within a period of thirty days from the receipt of the decision shall indicate to refer the dispute to arbitration, failing which, the said decision shall be final and conclusive.

Similarly, Clause 52 of the tender document provides that all disputes or differences in respect of which the decision has not been final and conclusive shall be referred to the arbitration appointed under Clause 52. Clause 52 further provides that within thirty days of receipt of notice from the contractor of his intention to refer the dispute to arbitration, the Chief Engineer of the Irrigation Project 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 said Clause further provides that the contractor shall within fifteen days of receipt of such a list, select and communicate to the Chief Engineer the name of one such officer from the list who shall then be appointed as sole arbitrator. The said Clause further provides that if the contractor fails to communicate his selection of name within the stipulated time, the Chief Engineer shall without delay select one officer from the said list and appoint him as the sole arbitrator. The said Clause also provides further that if the Chief Engineer fails to end such a list within thirty days as stipulated, the contractor shall send a similar list to the Chief Engineer within fifteen days. The said Clause further inter-alia provides that in such a situation, the Chief Engineer shall then select one officer from the list and appointment him as the sole arbitration within fifty days. The said Clause also further provides that 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.

Considering the facts of this case as narrated hereinabove, the applicant has followed the procedure as provided under Clauses 51 and 52 of the tender agreement. In fact the conduct of opponent No. 1 is that he disregarded every communication sent by the applicant as provided under Clauses 51 and 52. It also reveals that inspite of repeated requests made by opponent No. 2 as sole arbitrator, except sending a written files to the appointment of opponent No. 2 as sole arbitrator, nothing has been done by opponent No. 1.

On perusal of the award passed by the arbitrator, it transpires that in fact the arbitrator has taken into consideration the evidence on record and has, on correct appreciation of the same, passed award dated 29.12.1987. From the facts narrated, it appears that opponent No. 1 has self-created the present situation.

The Apex Court in the case of D.D. Sharma (supra) has held in Paras 26 and 27 as under:

The arbitrator was, thus, required to consider as to whether the contractor can substantiate his claim relying on or on the basis of non-compliance of the conditions precedent in relation to the offer of rebate made by it in his letters dated 25.8.1983 and 22.11.1983. The said contention evidently was, thus, a subject matter of determination by the Arbitrator. An Arbitrator being a judge chosen by the parties, his decision would ordinarily be final unless one or the other condition contained in Section 30 of the Arbitration Act is satisfied for the purpose of setting aside his award. Once it is held that the construction of an agreement fell for consideration of the Arbitrator, the determination thereupon shall not ordinarily be interfered with.

The court''s jurisdiction in this behalf is merely to see whether the Arbitrator has exceeded his jurisdiction or not. The High Court did not point out any material on the basis whereof it could be said to have been established that the two documents in question had not been considered by the learned Arbitrator. Such a conclusion could be arrived at if the award was a speaking one. The award being not a speaking one, the averments made therein should be accepted at their face value unless contrary is proved by the party questioning the validity of the award.

Similarly, in the case of Bharat Coking Coal Ltd. (supra), the Hon''ble Supreme Court in Para 11 held as under:

There are limitations upon the scope of interference in awards passed by an arbitrator. When the arbitrator has applied his mind to the pleadings, the evidence adduced before him and the terms of the contract, there is no scope for the court to reappraise the matter as if this were an appeal and even if two views are possible, the view taken by the arbitrator would prevail. So long as an award made by an arbitrator can be said to be one by a reasonable person no interference is called for. However, in cases where an arbitrator exceeds the terms of the agreement or passes an award in the absence off any evidence, which is apparent on the face of the award, the same could be set aside.

In the case of State of U.P. (supra), the Hon''ble Supreme Court in Para 4 has observed under:

Any award made by an arbitrator can be set aside only if one or the other term specified in Sections 30 and 33 of the Arbitration Act, 1940 is attracted. It is not a case where it can be said that the arbitrator has misconducted the proceedings. It was within his jurisdiction to interpret Clause 47 of the Agreement having regard to the fact-situation obtaining therein. It is submitted that an award made by an arbitrator may be wrong either on law or on fact and error of law on the face of it could not nullify an award. The award is a speaking one. The arbitrator has assigned sufficient and cogent reasons in support thereof. Interpretation of a contract, it is trite, is a matter for arbitrator to determine (see Sudarsan Trading Co. Vs. Government of Kerala and Another, . Section 30 of the Arbitration Act, 1940 providing for setting aside an award is restrictive in its operation. Unless one or the other condition contained in Section 30 is satisfied, an award cannot be set aside. The arbitrator is a Judge chosen by the parties and his decision is final. The Court is precluded from reappraising the evidence. Even in a case where the award contains reasons, the interference therewith would still be not available within the jurisdiction of the Court unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law. An error apparent on the face of the records would not imply closer scrutiny of the merits of documents and materials on record. Once it is found that the view of the arbitrator is a plausible one, the Court will refrain itself from interfering [see U.P. State Electricity Board Vs. M/s. Searsole Chemicals Ltd., and M/s. Ispat Engineering and Foundry Works, B.S. City, Bokaro Vs. M/s. steel Authority of India Ltd., B.S. City, Bokaro, .

In the case of T.P. George (supra), the Hon''ble Supreme Court in Paras 7 and 8 has held as under: 7. We have considered the rival submissions. It is to be seen that the question, whether the Supplemental Agreement dated 20th October, 1983 debarred the appellant from pursuing his claims, was before the arbitrator. Such a question having been referred to the arbitrator the view of the arbitrator would be binding if it is one which is possible. The arbitrator has taken note of the appellant letters dated 6th October, 1983 and 24th November, 1983 and come to a conclusion that the Supplemental Agreement had been got executed and that the same was executed without prejudice to the claims which had already been made. This is a possible view.

We have seen the impugned judgment delivered by the High Court. The High Court has not at all considered the letter dated 6th October, 1983 and 24th November, 1983 nor dealt with the question as to whether or not the Supplemental Agreement was got executed. The High Court has not even considered the effect of the Supplemental Agreement having been executed without prejudice to the claims which had already been made. Even if the High Court had considered these aspects it could not have substituted its views for those of the arbitrator as it could not be said that the view taken by the arbitrator is unreasonable or one which cannot be arrived at by a reasonable person. In this view of the matter the impugned judgment cannot be sustained and is set aside in respect of claims under Items 12(i) and (k).

Considering the submissions made by the learned advocates appearing for the parties and on appreciation of the evidence on record, no such situation for setting aside the award as envisaged u/s 30 of the Act arises in this case. The arbitrator has, on correct appreciation of the evidence before him, passed the award dated 29.12.1987 and it has been rightly made rule of the Court by the Trial Court. This appeal, therefore, fails and the same is hereby dismissed. However, in the facts and circumstances of the case, there shall be no order as to costs. Registry is directed to send back the Record and Proceedings forthwith.