JUDGMENT Sanjay Kishan Kaul, J.
Page 0832 IA 3690/1995 (Objections under Section 30 and 33 of the Arbitration Act, 1940)
1. A Letter of Intent dated 01.09.1984 was placed on the petitioner by the respondent Corporation for supply of insulating material for the Tandur project (AI) in view of the offer of the petitioner in response to a tender enquiry of the respondent dated 4.6.1984. The detailed order was thereafter placed by the respondent vide the purchase order dated 5.9.1984. Disputes arose between the parties in respect of the said contract and in view of the arbitration clause 18 of the General Terms and Conditions of Contract, the petitioner filed proceedings under Section 20 of the Arbitration Act, 1940 (hereinafter referred to as 'the said Act'). However, the court was informed by the respondents that the Arbitrator was already appointed in pursuance to the letter dated 15.3.1990. Shri B.K. Madan, the Sole Arbitrator made and published his award dated 15.12.1994 awarding a sum of Rs.1,46,308.08 along with future interest at the rate of 15% per annum simple interest from one month after the date of the award till the date of payment or date of decree, whichever was earlier. The respondent aggrieved by the same, has filed the present objections under Section 30 and 33 of the Act.
2. The claim of the petitioner was that the respondent failed to inspect the goods despite notice, there was non-availability of rail wagons duly intimated to the respondent and the goods were ultimately sent by road to the respondent which were unconditionally accepted by the respondent. Despite this fact, the respondents had withheld various amounts of the petitioner.
3. Learned Senior Counsel for the respondent contended that the amounts awarded are towards the amount withheld by the respondent on account of liquidated damages and bank charges. The liquidated damages of 5% were imposed in view of the decision taken in the year 1986 on account of late supply by the petitioner. The total amount of liquidated damages amounted to Rs.2.14 lakhs out of which Rs.2 lakhs were recovered from the process of recovery of Rs.1.40 lakhs from the running bills and Rs.0.60 lakhs from the bill dated 29.4.1989. The balance is stated not to have been recovered.
4. A perusal of the award dated 15.12.1994 shows that the same is without any reasons assigned for the award and thus the scope of scrutiny is extremely limited. In view of this position, learned senior counsel for the respondent confined the submissions only to two aspects. Firstly, that the complete award was more than the subject matter of reference under Section 20 of the said Act while the Arbitrator could have adjudicated upon only the disputes referred to arbitration. Secondly, in so far as the imposition of liquidated damages is concerned, the authority of the engineer is final in view of the clauses of the General Conditions of Contract.
5. The first plea is based on the averments contained in the petition filed in the court of District Judge, Delhi under Section 20 of the Act where the Page 0833 grievance was made about the respondent withholding Rs.77,525.23 towards liquidated damages. However, the award relates to the claim not only for the said amount of liquidated damages but also towards the liquidated damages of Rs.65,521.05 imposed by the respondent apart from the withheld amount towards bank charges of Rs.3261.80. A reading of the petition thus shows that in so far as the claim set out in the petition is concerned, it is only for the sum of Rs.77,525.23 along with interest due thereon. A perusal of the proceedings before the learned Additional District Judge of 29.3.1990 shows that the Senior Law Officer of the respondent made a statement to the effect that Shri B.K. Madan, Chief General Manager (Finance) of the respondent had been appointed as the Sole Arbitrator in the matter in question and thus the respondent had no objection for the reference of the disputes. On the statement so made, the learned Additional District Judge ordered on 02.04.1990 as under:
2.4.90. Pre: Parties counsels.
Order In view of the statement of Sh. K.K. Jain, Law Officer of the respondent and of the ld. counsels for parties the petition stands disposed of accordingly, as the respondent is stated to have appointed/nominated Sh. B.K. Madan, the Chief General Manager (Finance) of the respondent as sole arbitrator in the matter in question to decide the disputes as per law. I leave the parties to bear their own costs of these proceedings. File be consigned to record room.
Announced in open court. on 2/4/90.
(R.K. Tewari) Addl. Distt. Judge:
Delhi
6. Since there was a dispute about the scope of the reference itself, the letters dated 15.3.1990 and the sanction dated 9.3.1990 appointing the arbitrator were called for. The letter dated 15.3.1990 refers to a decision of the Chairman-cum-Managing Director of the respondent vide his order dated 9.3.1990 nominating and appointing Shri B.K. Madan as the Sole Arbitrator. 9.3.1990 is actually the decision of the CMD on a note put up regarding the subject matter of dispute. The note is dated 15.12.1989 which discusses the issue of the order being placed, the supply being completed by 7.6.1985 and the decision to impose liquidated damages for delay in supply of material for Rs.74,172.02. An internal committee of the respondent had given a recommendation that the liquidated damages imposed for delay in supply should not be waived off but the matter was being followed up by the petitioner by calling upon the respondent vide letter dated 15.7.1989 and reminder dated 27.9.1989 for the appointment of the Arbitrator. Since the appointment of the Arbitrator needed the approval of the CMD, the CMD was directed to nominate the Arbitrator. The CMD so appointed Shri Madan as the Arbitrator for the case.
7. Learned senior counsel for the respondent thus contended that what was sought to be referred was only what was claimed by the respondent and in view of the statement made in the proceedings under Section 20 of the Act, the Arbitrator could not have arbitrated upon any other claim other than referred by the court.
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8. In so far as the issue of liquidated damages being an excepted matter is concerned, learned counsel has relied upon clause 5.1 of the Conditions of the Contract which is as under:
Liquidated damages for delay in delivery shall be levied at the rate of 1/2% of the contract value per fortnight or part thereof. The liquidated damages however shall be subject to a ceiling of 5% of the contract value. The Corporation will however not be bound to prove that it has suffered to the extent of the liquidated damages claimed.
9. Learned counsel states by reference to clause 18.1 that in view of what is contained in clause 5.1, the question of liquidated damages was outside the purview of the Arbitrator. Clause 18.1 is as under:
18.1 In the event of any question, dispute, breach of or difference arising in respect of the meaning and scope of terms and conditions herein or in connection with any matter under this agreement (except for those matters which are to be decided as per provision made in these terms and conditions), the same shall be referred to the Sole Arbitration by an officer of the Cement Corporation of India ltd., New Delhi appointed by its Chairman-cum-Managing Director, there will be no objection if the arbitrator is an employee of the Corporation and he had at any time in discharge of his duties as an employee has expressed views on all or any of the matters in dispute or difference. The award of the arbitrator shall be final and binding on the parties of this contract.
10. Learned senior counsel referred to the judgment of the Division Bench of the Sikkim High Court in Principal Chief Engineer-cum-Secretary, Sikkim Public Works Deptt. (Roads and Bridges), Government of Sikkim v. M.B. Chettri 1995 (2) Arb. LR 313, to contend that an arbitrator does not have jurisdiction to entertain a claim which has not been referred to him as the same would be a patent lack of jurisdiction in him. The same principle would be applicable in respect of entertaining a claim beyond the amount specified in the order of reference. It was observed in para 6 as under:
6. We find ourselves not inclined to endorse the view of the learned Trial Court that since, the objector did not take any objection regarding jurisdiction of the arbitrator at any time during the arbitration proceedings, he was estopped from challenging the jurisdiction of the arbitrator in the court after the award went against him. In our view reliance placed on Union of India v. Manipur Builders Association (supra), in support of the view was misplaced. A distinction has to be made between a case where there is patent lack of jurisdiction and a case where lack of jurisdiction is latent. In the former type of cases, acquiescence of parties could not be material. The Supreme Court observed in Tarapore & Co. v. State of Madhya Pradesh , in paragraph 19: "It deserves to be stated that if an authority would lack jurisdiction in the sense that the subject matter is not amenable at all to its decision, i.e., the case be of patent lack of jurisdiction, acquiescence of the parties Page 0835 would not be material inasmuch as it is called law that by agreement jurisdiction cannot be conferred". In Union of India v. Manipur Builders Association (supra), lack of jurisdiction was not patent. In that case, an objection was taken in the court that appointment of the arbitrator was not in terms of the arbitration clause which provided that the arbitrator should be Additional Chief Engineer, Central Public Works Department in charge of the work at the time of dispute or if there be no Additional Chief Engineer at the time of such appointment. The objection was that as no Additional Chief Engineer was in charge of the work at the relevant time, it was the Administrative Head of the CPWD at the time of appointment, who was competent to appoint the arbitrator, it was in this context that it was observed that at no stage the respondent raised any objection as to the jurisdiction of the arbitrator. "All the time he took a chance to get an award in his favor." It was pointed out that a "reference may be invalid if there is some defect in the contract mentioning the arbitration clause or in the arbitration agreement itself. In such a case, the defect cannot be cured by waiver. But, when there is no such defect in the contract or in the arbitration clause, but there is some irregularity in exercise of jurisdiction a party cannot be allowed to turn round and take an objection afterwards as to the jurisdiction of the arbitrator if he once submitted to the Arbitration Proceedings, filed his claims and took part in the proceeding without any objection." Thus, that was a case where an irregularity was held to be in exercise of jurisdiction and not a patent lack of jurisdiction. Since an arbitrator does not have the jurisdiction to entertain a claim which has not been referred to him. If he entertains such a claim, there is a patent lack of jurisdiction in him. Similarly, entertaining a claim beyond the amount specified in the order of reference also suffers from the same defect and such an objection can be taken in the court even when no such objection was taken during arbitration proceedings.
12. Learned counsel also referred to the judgment of the learned Single Judge of this Court in Batra Construction Co. v. DDA & Anr., 1999 (1) Arb.LR 347 to contend that an Arbitrator cannot enlarge the scope of the reference and entertain fresh claims without a further order of reference.
13. Learned senior counsel referred to the Division Bench judgment of this court in Delhi Development Authority v. Sudhir Brothers, 1995 (2) Arb LR 306, to advance the proposition that where the decision of a designated authority is final and not arbitrable, the Arbitrator had no jurisdiction to go into the said issue. In the said case, the question related to the decision of the Superintending Engineer whose decision was final. The arbitration clause opened with the words "unless otherwise provided". It was thus held that the Arbitrator could not have gone into the merits of the levy of compensation by the Engineer and the DDA ought not to have requested the Arbitrator to include the said amount in the arbitration award.
Page 0836
14. Learned counsel also referred to the judgment of the Supreme Court in General Manager, Northern Railway & Anr. v. Sarvesh Chopra . It was observed in para 8 as under:
In our opinion those claims which are covered by several clauses of the Special Conditions of the contract can be categorized into two. One category is of such claims which are just not leviable or entertainable. Clause 9.2, 11.3 and 21.5 of the Special Conditions are illustrative of such claims. Each of these clauses provides for such claims being not capable of being raised or adjudged by employing such phraseology as "shall not be payable", "no claim whatsoever will be entertained by the Railways", or "no claim will/shall be entertained". These are "no claim", "no damages", or "no liability" clauses. The other category of claims is where the dispute or difference has to be determined by an authority of the Railways as provided in the relevant clause. In such other category fall such claims as were read out by the learned counsel for the respondent by way of illustration from several clauses of the contract such as General Conditions Clause 18 and Special Conditions Clause 2.4.2(b) and 12.1.2. The first category is an "excepted matter" because the claim as per the terms and conditions of the contract is simply not entertainable; the second category of claims falls within "excepted matters" because the claim is liable to be adjudicated upon by an authority of the Railways whose decision the parties have, under the contract, agreed to treat as final and binding and hence not arbitrable. The expression "and decision thereon shall be final and binding on the contractor" as occurring in clause 63 refers to the second category of "excepted matters".
15. Learned counsel for the petitioner, on the other hand, pleaded that the quantum of liquidated damages could not be gone into in view of clause 5.1 but the question whether the liquidated damages could be imposed was arbitrable. In this behalf, learned counsel referred to the fact that clause 5.1 does not even say that the decision is final and binding. This plea is stated to be an afterthought and was not even raised in the arbitration proceedings. The only plea raised is that the liquidated damages were recovered as per the contract. It is for the first time in the objections that this issue of excepted matters has been raised and there is thus an element of acquiescence and waiver on the part of the respondent.
16. Learned counsel for the petitioner also emphasised the fact that the supplies were completed in July, 1985 and the liquidated damages were imposed on 13.4.1989 after more than four years and were thus clearly barred by time. This factor pleaded would be taken into account by the Arbitrator while deciding the claim though, of course, it cannot be culled out from the award as the award is non-speaking.
17. Learned counsel for the petitioner also referred to the joint statement of accepted facts submitted by both the sides before the arbitrator on Page 0837 11.1.1991 to submit that the pleas sought to be raised by the respondent were not agitated before the Arbitrator. Liquidated damages are also sought to be disputed on the ground that if part of the supplies had been completed, liquidated damages could have been at best imposed only on the remaining value of the supplies.
18. Learned counsel for the petitioner referred to the judgment of the Supreme Court in J.G. Engineers' Pvt. Ltd. v. Calcutta Improvement Trust & Anr. wherein it was observed as under:
12. The issue of termination of the contract in question, on the facts under consideration before us, does not relate to the jurisdiction of the arbitrator. Without going into the scope of clause 1.9 of the Information and Instructions to Tenders or that of clause 15 of the contract and assuming that issue of termination of contract can be brought within the scope of the said clauses and thus made an excepted matter but that would depend upon the fact whether Engineer's certificate under clause 1.9 has been issued or not. Therefore, specific plea had to be taken that such a certificate was issued and, therefore, the aspect of termination was not arbitrable. As already noticed no such fact was pleaded or contention urged in the counter statement of facts. In this view, it is not necessary to decide whether the issue of termination of the contract could be brought within the ambit of the excepted matter or not or that the Engineers certificate could be conclusive only as to the quality or measurement of the work done.
19. Learned counsel referred to the judgment of the Food Corporation of India v. Sreekanth Transport where it was observed in para 9 as under:
9. But what about the rights preserved under clause 12? We searched in vain in that regard. The plaint is delightfully silent on that score excepting the averment as contained in para 8 as noticed above. The Food Corporation, therefore, as a matter of fact desired an adjudication of their claim to the extent of Rs.1,89,775 together with interest at the rate of 18 per cent per annum from the civil court rather than relying on the adjudicatory process available in the contract itself through their own Senior Regional Manager. The agreement as noticed above expressly provides that the adjudication shall be effected by the Senior Regional Manager and by no other authority and the decision, it has been recorded in the agreement, of the Senior Regional Manager would be final and binding on the parties. There is, therefore, a positive act on the part of the Food Corporation of India not to put any reliance on that particular clause of the agreement. There is, as a matter of fact, thus on the state of facts, as above, appears to be a positive relinquishment or abandonment of a right so far as the adjudication of the excepted matters is concerned by the appellant Corporation since the Corporation itself wanted to have it adjudicated by a civil court.
Page 0838
20. Learned counsel in the end referred to the Division Bench judgment of this court in Delhi Development Authority v. Hindustan Prefab Ltd. . The matter related to clause 2 where the decision of the Superintending Engineer was stated to be final clause 14 being the arbitration clause. It was observed in para 2 as under:
2. In support of her contention, learned Counsel for the petitioner has also relied upon Vishwanath Sood v. Union of India AIR 1998 SC 952 as well as DDA v. Sudhir Brothers . The learned designated authority placing reliance on P. Anand Gajapathi Raju & Ors. v. PVG Raju and Hindustan Petroleum Corporation Ltd. v. Pink City Midway Petroleums , held that if there is an arbitration clause in the agreement between the parties i.e. Clause 14 in this case, then under the new Arbitration and Conciliation Act, 1996, all disputes are to be referred to the Arbitrator. In the present case, in our opinion, whether the dispute, if any, can arise or has arisen qua Clause 2 of the agreement is also to be decided by the Arbitrator, because in our view there are some words in Clause 14 like 'matter or thing whatsoever in any way arising out of or relating to the contract... or otherwise concerning the works of the execution..." which are prima facie contradictory to Clause 2 of the agreement. The learned Additional District Judge's judgment is based on the decision of the Supreme Court and reliance by the learned Counsel for the petitioner on the authority which was prior to coming into effect of the new Arbitration and Conciliation Act, 1996, to our mind, is misplaced. The designated authority has only referred the connect matter for arbitration as per Clause 14 of the agreement and it is the Engineer Member of the petitioner who has been directed to appoint Arbitrator in terms of the said arbitration clause. Considering the totality of the facts and circumstances, we find no merits in this petition, the same is dismissed. Nothing said herein will tantamount to expression of opinion on the merits of the case/ disputes which shall be decided by the Arbitrator.
21. I have given a thoughtful consideration to the aforesaid submissions advanced by learned counsel for the parties.
22. The first issue, as noticed above, arises from the scope of reference. There is no dispute about the proposition that if a reference is made under Section 20 of the Act, then the Arbitrator cannot entertain a claim beyond the reference. The same would be the position with the counter-claim. This is the apparent legal position in view of the judgment in Batra Construction Co. Page 0839 case (supra) and Principal Chief Engineer-cum-Secretary, Sikkim Public Works Deptt. case (supra). However, the question which arises in the present case is whether such a reference was made. This is so in view of the fact that it is not in dispute that the petition filed under Section 20 of the Act refers to a lesser amount of claim than what has been awarded by the Arbitrator. A perusal of the statement made by the office of the respondent showed that the court was informed on 29.3.1990 that the arbitrator had already been appointed for the "matter in question". Thus, there was no objection for reference of disputes as set out in the petition. The order, however, passed was that in view of the statement made by the respondent, the petition stood disposed of. There was no specific reference made of the disputes as set out in the petition. It is in view of these circumstances that the respondent was asked to produce the relevant records in respect of the reference. The order made by the Competent Authority referring the matters to disputes only talked about the Arbitrator appointed "for the case". There is no restriction on the claim referred to. The question of liquidated damages was being agitated. The amounts in question were deducted by the respondent and thus were alleged to be wrongly recovered by the respondent as per the plea of the petitioner. The pleadings filed before the Arbitrator show that it was never the case of the respondent that the Arbitrator ought not to adjudicate upon the disputes or that there had not been any appropriate reference to the Arbitrator. The designated authority appointed the arbitrator. The parties thereafter accepted the jurisdiction and filed their respective pleas and claims. Thus, there was a joint reference to arbitration. It is not a case emanating from the orders of the Court under Section 20 of the Act, where the scope of the adjudication would be circumscribed by the matters in disputes set out in the petition under Section 20 of the Act. The occasion for the court to make the reference did not arise since in the meantime the Arbitrator was appointed.
23. I am thus of the considered view that the plea of the respondent of there being lack of jurisdiction arising from the award being more than the reference cannot be sustained.
24. The second objection arises from the fact as to whether liquidated damages fell within excepted matters. The relevant clause 15.1 has already been reproduced herein above. It is relevant to note that all that has been stipulated is that liquidated damages for delay were liable to be levied at the rate of half per cent of the contract value per fortnight or part thereof but subject to a ceiling of the 5% value. The respondent Corporation was not bound to prove that it had suffered to the extent of the liquidated damages claim. I am in agreement with the plea of the learned counsel for the petitioner that in view of the wording of the clause, the quantum could not be gone into. However, the issue whether the liquidated damages could be imposed was an issue which was arbitrable. This is so since the relevant clause 5.1 does not make the decision of the respondent Corporation "final and binding". It is also relevant to point out that the arbitration clause 18.1 does not begin with any non-obstante clause. The only exception made is in respect of matters which are to be decided as per the provisions made in the terms and conditions.
Page 0840
25. In Principal Chief Engineer-cum-Secretary, Sikkim Public Works Deptt. case (supra), the Apex Court has considered the question of the nature of clauses the subject matter of which was not arbitrable. These are "no claim", "no damages" or "no liability" clauses. The other category of claims is where a dispute or difference has to be determined by the authority designated as provided in the relevant clause. None of these eventualities exists in the present case. There is no specific authority designated whose decision is final and binding on this issue. It is thus not only in issue based on acquiescence or waiver.
26. There is also substance in the contention of the learned counsel for the respondent that in view of there being no such clear-cut exception provided for in clause 15.1, matters of acquiescence and abandonment would arise. In this behalf, the judgment in Food Corporation of India case (supra) may be referred to where the relevant clause 12 of the agreement was as under:
The decisions of the Senior Regional Manager regarding such failure of the contractors and their liability for the losses etc. suffered by the Corporation shall be final and binding on the contractors.
27. Despite the aforesaid position, it was found that the Food Corporation of India as a matter of fact desired an adjudication of their claim from a civil court rather than relying on the adjudicatory process available in the contract itself through their own Senior Manager. This positive act of Food Corporation of India not to put any reliance on that particular clause of the agreement was held to be a positive relinquishment or abandonment of a right so far as the adjudication of excepted matters is concerned.
28. In the present case, there is absence of such a clause providing for the decision of the particular officer to be final and binding on the petitioner. The respondent did not raise any objection about the matter being excepted matter even before the arbitrator. In fact, referring authority being the Managing Director of the respondent himself referred these very claims to the arbitrator since the claims really arise from the levy of liquidated damages by the respondent.
29. In view of the aforesaid, I do not find any merit even in this objection.
30. The last aspect is about the rate of interest granted at the rate of 15% per annum. It was put to learned counsel for the petitioner that this court has been granting interest at the rate of 12% per annum for the past including the relevant periods in question as per the prevailing rates of interest and thus the same interest ought to be granted. This position was not seriously disputed by learned counsel for the petitioner. I am of the considered view that the petitioner should be held entitled to interest at the rate of 12% per annum instead of 15% per annum from one month after the date of award till the date of decree.
31. The objections stand disposed of.
CS (OS) 171A/1995
32. In view of the objections having been disposed of, the award of Shri B.K. Madan, Sole Arbitrator dated 15.12.1994 is made a Rule of the Court Page 0841 with the modification that the petitioner is held entitled to interest at the rate of 12% per annum instead of 15% per annum from 15.1.1995 till date of decree. The petitioner shall also be entitled to future interest at the rate of 9% per annum simple interest from the date of decree till date of realisation.
33. The parties are left to bear their own costs.
34. Decree sheet be drawn up accordingly.