Prabhubhai J. Rathod vs Union Of India (Uoi) And Ors.
2006 Latest Caselaw 624 Bom

JUDGMENT

R.M.S. Khandeparkar, J.

1. Heard. Rule. By consent, rule made returnable forthwith.

2. The present petition arises from the order passed by the learned single Judge of this Court on 8-7-2005 in Miscellaneous Civil Application No. 39 of 2005 in exercise of powers delegated to him by the Hon'ble Chief Justice under Section 11(6) of the Arbitration and Conciliation Act, 1996, hereinafter referred to as "the said Act". By the impugned order, the application filed by the petitioner for appointment of an arbitrator has been dismissed.

3. The contention of the petitioner is that the arbitration clause between the parties required appointment of two arbitrators in case the arbitral claim exceeds Rs. 3,00,000/- and that the arbitral claim put forth by the petitioner under his application under Section 11 read with Sections 12, 14 and 15 of the said Act filed before the learned single Judge disclosed the total claim of Rs. 5,48,680/-. It was, therefore, necessary for the learned single Judge to appreciate that the authorities had acted illegally and in contravention of the contractual provisions while appointing sole arbitrator to deal with the arbitral claim of the petitioner and that therefore the application ought to have been allowed and the arbitrator ought to have been appointed. The learned single Judge, according to the petitioner, wrongly construed the claim of the petitioner to be for Rs. 70,000/- and being inflated by adding interest amount thereto to the tune of Rs. 4,51,680/-. Reliance is sought to be placed in the decision of the Apex Court in the matters of Konkan Railway Corpotion Ltd. and Ors. v. Mehul Construction Co. and S.B.P. and Co. v. Patel Engineering Ltd. and Anr., reported in 2005 AIR SCW 5932.

4. The learned Advocates appearing for the respondents, on the other hand, submitted that the slab limit for the appointment of sole arbitrator was enhanced to Rs. 5,00,000/- under the Circular dated 21-12-1983 and hence the Clause (2) of the arbitration under the agreement between the parties, which prescribes the limit of Rs. 3,00,000/- for the appointment of sole arbitrator, does not apply to the case in hand and therefore no fault can be found with the decision of the competent authorities in appointing sole arbitrator to deal with the arbitral claim of the petitioner. It is further sought to be contended that in any case the claim of the petitioner does not exceed Rs. 4,51, 680/- and that is apparent from his claim letter dated 11-8-2004. Clause (7) thereof, wherein the total claim has been quantified as Rs. 4, 51,680/-, which is obviously much below the amount of Rs. 5,00,000/-.

5. Undisputedly, the agreement between the parties and the tender documents furnished to the petitioner by the respondents reveal that the arbitration clause in the agreement provides for the limit of Rs. 2,99,999.99 ps. for the appointment of sole arbitrator and in case the claim being of Rs. 3,00,000/- and above, the need for appointment of two arbitrators. It is pertinent to note that the tender notice related to the year 1986-87. While the circular under which the limit was enhanced to Rs. 5,00,000/- was dated 21-12-1983. The tender documents made available to petitioner, which comprised of the clause relating to arbitration, specifically prescribed that in case of the claim being Rs. 3,00,000/- and above, it is necessary to have two arbitrators. Obviously, this contractual term in the agreement executed much after the said circular will be binding upon the authorities. Being so, the contention that on account of enhancement of the limit for appointment of sole arbitrator to the tune of Rs. 5,00,000/- by the circular, it cannot be said that the same ipso facto apply to the case in hand wherein the contractual term between the parties specifically disclosed that only in case of the claim being below Rs. 3,00,000/-, sole arbitrator could be appointed and in case the claim being Rs. 3,00,000/- and above, it is necessary for appointment of two arbitrators.

6. As regards the arbitral claim is concerned, undisputedly, the same was quantified by the petitioner under the letter dated 11-8-2004. There were as many as eight claims enumerated thereunder and they read thus:

1. Claim No. 1 : Payment of Final Bill amount as prepared by the Railway Officials amounting to Rs. 2200.00.

2. Claim No. 2 : Payment towards refund of balance Security Deposit amount to Rs. 4,200.00.

3. Claim No. 3 : Payment towards extra items of works executed by me amounting to Rs. 1,45,000.00.

4. Claim No. 4 : Payment towards extra rates for additional financial expenditure incurred by me for executing heavy excess quantity of all the items of works over and above the Agreement provisions, as per order in Site Order Book by Railway Officials, amounting to Rs. 1,55,000.00.

5. Claim No. 5 : Payment towards under utilization of labours, staffs, machineries, vehicles, equipment etc., amounting to Rs. 70,000.00.

6. Claim No. 6 : Payment of loss towards heavy blockage of amount as above from claim No. J to 5 (i.e. for Rs. 3,76,400.00) @ 20% of profit amounting to Rs. 72,280.00.

7. Claim No. 7 : Payment towards loss of interest on above amount (i.e. Rs. 4,51,680.00) @ 24% from 1-7-1987 till the claimed is released to me. The amount is not shown at present, it will be specified during hearing.

8. Claim No. 8 : Payment towards cost Litigation and Arbitration proceedings etc., from Railway if the case is not settled and payment is not made to me, amounting to Rs. 1,00,000.00.

7. Referring to claim Nos. 6 and 7, it was sought to be contended on behalf of the respondents that the petitioner has clearly quantified the total claim to Rs. 4,51,680/-. The contention is totally devoid of substance. The claim No. 7, as it is quoted above, clearly discloses the amount as quantified to the extent of Rs. 4,51,680/-, is accompanied by the claim for interest at the rate of 24% from 1-7-1987 on the said amount. Though the arithmetical calculation of the entire amount due, excluding the interest amount, from 1-7-1987 has been described as Rs. 4,51,680/-, at the same time the petitioner has specified that he has also claimed interest on said amount at the rate of 24% from 1-7-1987 onwards. Obviously therefore, while considering the total claim of the petitioner on 11-8-2004, it has to be calculated by adding the interest amount which had accrued at the rate of 24% from 1-7-1987 till July, 2004 on Rs. 4,51,680/- and it is the contention of the petitioner that having so calculated, the total amount would be Rs. 5,48,680/-. Whether the petitioner would be entitled for such interest or not is totally a different issue with which we are not concerned at this stage. We have merely to consider, the total amount claimed by the petitioner on 11-8-2004 and the said claim discloses the amount of Rs. 5,48,680/-. In any case, the same exceeds even the sum of Rs. 5,00,000/-.

8. It is, however, the contention of the respondents that the interest amount cannot be considered to ascertain the total amount of claim to decide the issue relating to the number of arbitrators. In this regard, the relevant clause in the tender documents read thus:

64(3)(a) Arbitration : Matters in question, dispute or difference to be arbitrated upon shall be referred for decision to:

(i) A sole Arbitrator who shall be the General Manager or a Gazetted Officer nominated by him in that behalf in cases where the claim in question is below Rs. 3,00,000/- and in cases where the issues involved are not of a complicated nature. The General Manager, shall be the sole judge to decide whether or not the issues involved are of a complicated nature.

(ii) Two Arbitrators, who shall be Gazetted Railway Officers of equal status to be appointed in the manner laid down in Clause (3)(b) for all claims of Rs. 3,00,000/- and above, and for all claims irrespective of the amount or value of such claims if the issues involved are of a complicated nature...

Plain reading of the above clauses would reveal that while considering the issue relating to total claim, the same does not make any differentiation between the principal amount and the interest amount. It rather speaks of claim of the party. Obviously the claim would include interest amount also. Therefore, while considering the total claim of the claimant, the principal as well as the interest amount accrued thereon on the date of the claim has to be considered and the total amount of claim has to be considered for the purpose of ascertaining as to whether the matter will have to be referred to a sole arbitrator or before two arbitrators. Apparently, this aspect has not at all been considered by the learned single Judge while rejecting the application on 8-7-2005.

9. The majority decision of the Apex Court in M/s Patel Engineering's case (supra) has clearly held that the power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power and it is a judicial power and the power that is exercised by the designated Judge would be that of the Chief Justice as conferred by the statute. It was further held thus:

The Chief Justice or the designated judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. This will be, his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualification of the arbitrator or arbitrators. The Chief Justice or the judge designated would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the judge designate.

10. The ruling above quoted obviously discloses that designated Judge while dealing with the application under the said Act has to deal with the aspects regarding the existence of a valid arbitration agreement, existence of otherwise of live claim, existence of condition for exercise of his power, etc. Such power obviously includes adjudication of the issue relating to the total arbitral claim in the matter. In relation to the issue as to whether the matter ought to have been referred to sole arbitrator or two arbitrators, the impugned order nowhere discloses any such exercise in terms of power under Section 11(6) of the said Act read with the said decision of the Apex Court in M/s Patel Engineering's case having been done by the learned single Judge. Needless to say that in view of the decision in M/s Patel Engineering's case, the decision delivered in Konkan Railway's case (supra) stands overruled.

11. For the reasons stated above, therefore, the impugned order cannot be sustained and is liable to be set aside and the matter remanded to the learned single Judge to deal with the application in accordance with the provisions of law and taking into consideration the observations hereinabove.

12. The rule is made absolute in above terms with no order as to costs.