Falcon Gulf Creamics Ltd. vs Nucon India Pvt. Ltd.
1992 Latest Caselaw 318 Del

JUDGMENT

Usha Mehra, J.

(1) Falcon Gulf Creamics Ltd., a Company incorporated under the Indian Companies Act has invoked the arbitration clause against Nucon India Pvt. Ltd.

(2) In short the case as put up is that the petitioner entered into an agreement for the construction of a factory, office and other buildings. The agreement was executed on 15th June, 1987. The time was the essence of the contract. The work was to be executed subject to the conditions as stipulated in the said agreement. According to petitioner the measurements were neither recorded as per the specifications nor as per the schedule of rates given in the agreement. That till date, the completion certificate has not been issued by the architect. According to the petitioner, respondent committed breach in the completion of the work. That the respondent and the architect colluded with each other and defrauded the petitioner. The architect in collusion with the respondent had passed various bills which on the face of it are wrong. The respondents have wrongly increased the measurements as well as part charges of the work. The petitioner has not been given the 2/o discount as agreed upon between the parties. Since the architect has not given the certificate of completion as such the defect liability period has yet not commenced. The respondents have fabricated the final bill. As per the agreement, the cement was to be supplied by the petitioner and in fact had been supplied by the petitioner, but the architect has wrongly recommended the payment towards the cost of extra cement which is contradictory in term of the previous running bills on which the architect had given the certificate that no amount was payable on this account. The schedule of quantity regarding the expansion joint has also been determined wrongly by adopting a method of calculation which was never agreed between the parties. Since the respondent and architect have colluded to defraud the petitioner, therefore, the petitioner is not liable to pay the amount alleged to have been certified by the architect. Since disputes have arisen between the parties, these are liable to be referred to arbitrator as per Clause 28 of the agreement.

(3) The suit has been contested by the respondents inter alia on the grounds that during the currency of the contract, the petitioner never raised any dispute. Moreover, the architect's certificate under Clause 26 of the agreement is final and that having not been challenged within 28 days, the present petition is barred. On merits, it has been denied that disputes had arisen on account of any breach committed by the respondent. It has also been denied that the measurements have not been recorded according to the agreement or that the architect in collusion with the respondent has defrauded the petitioner In fact, the respondent has already filed a petition of winding up against the petitioner, which is pending in the High Court of Rajasthan at Jaipur and the present petition is a camouflage to defeat the petition of the respondent pending at Jaipur, under the Companies Act. According to respondent, all the items under the sub head Rcc Works were changed due to the fact that the structure was modified by substituting the initial design which entailed use of steel structure by introducing Rcc roof structure as desired by the petitioner for technical reasons. Therefore, the expansion joints necessarily increased manifold Along with several other items. Under Clause 26 of the agreement, in case any dispute arises regarding the final bill duly certified by the architect, the aggrieved party must raise the same within 28 days thereof, but the petitioner having not raised any dispute within the specified time, as such, in terms of the Clause 26, the present disputes arc barred and the decision of the architect has become final, conclusive and binding on both the parties. The decision of the architect cannot be referred to arbitration.

(4) I have heard Mr. Rajiv Sawhney, Senior Advocate for the petitioner and Mr. P.B. Menon, Senior Advocate for the respondent. The petitioner has enumerated the disputes in para 9 of the petition. It is an admitted fact on record that the agreement executed between the parties dated 15th June, 1987, contained an arbitration Clause No. 28, which is reproduced as under : "ARBITRATION If any difference dispute or question shall arise between the parties as to the meaning of effect of this contract or as to the rights or liabilities of the parties arising hereunder or as to any other matters or things relating to the contract or arising out or in connection herewith either during the continuance of this contract or after any termination thereof, the same shall be referred to the arbitration of one arbitrator to be nominated by each party to the dispute and such arbitrator shall be held in accordance with and subject to the provisions of the Indian Arbitration Act 1940 or any statutory modification or re-enhancement thereto or thereof for the time being in force, and all proceedings in any such arbitration/shall be binding to on the parties aforesaid and may be made a rule of the Court of competent jurisdiction at Delhi at the instance of any party. If the parties agree to refer the matter in dispute to arbitration before the completion of contract, the works under the contract shall be continued by the contractor during the arbitration proceedings, unless otherwise directed by the Employer in writing or unless the matter is such that the works cannot be possible be continued until the decision of the arbitrator is obtained and save as these which otherwise expressely provided in the contract or payment due or payable by the employer shall be withheld on account of such arbitration proceedings unless it is the subject matter or one of the subject matter itself. The venue of such arbitration shall be fixed by the arbitrators at their sole discretion."

(18) 5. The question for consideration is whether these disputes are covered under Clause 21 and can be referred to arbitration ? Mr. Menon, appearing for the respondent, contended that the disputes which have been raised by the petitioner pertains to the alleged collusion of the respondent with the architect and thereby the petitioner being defrauded. The fraud on the part of architect pleaded by the petitioner, cannot be gone into nor can be adjudicated by an arbitrator. In fact it does not amount to any difference dispute or question relating to the meaning or effect of the contract or as to the rights and liabilities arising out of or under the contract. Furthermore, the integrity of the architect cannot be challenged before the arbitrator. As per Clause 26 of the agreement, the power has .been given to the architect to certify the value of the work done by the contractor and, that too, at the reduced rates for those items connected with the defective work and the decision, opinion or the certificate and direction of valuation by the architect with respect to all or any of the matter under this contract shall be final, in order to appreciate the contention of the parties. Clause 26 of the agreement is reproduced as under: . "THE works shall not be considered as completed in all respects till the architects have certified in writing that they have been completed and fit for use and occupation. If any defects or defective workmanship which was not noticed at the time of certifying the running account bills, is noticed by -the architects at the time of final bill or during defects liability period, the architects shall certify the value of work done by the contractor at the reduced rates for these items connected with the defective work, provided that the defective work is within the acceptable limits as per standards and the decision of the architects shall be final and binding on both the parties to the contractor and the employer in this regard. The decision, opinion, directions, certificate of valuation by the architects with respect to all or any of the matters under this contract shall be final, conclusive and binding on both the parties and shall have to be without appeal. But if either the employer or the contractor be dissatisfied with the decision of the architects on any matter, question, or dispute, of any kind, then either party (the Employer or the Contractor) may within 28 days after receiving notice to such decision give a written notice to the other party requiring that such matters which are in dispute or difference of which such written notice has been given; the matter shall be referred to arbitration. The arbitrator shall have power to open up review of certificate opinion, decision, requisition or notice pertaining to the matter referred to him and to determine the same by his award. Upon every or any such references and award respectively shall be at the discretion of the arbitrator. The award of arbitrator shall be paid and binding on both the parties. All arbitration proceedings shall be conducted in the Court of Delhi only."

(6) Mr. Menon contended that in view of Clause 26, since the disputes were not raised within 28 days, the present petition is not maintainable and is barred by time. Since the architect has certified the final bill hence no dispute arises. Clause 26 will have a ..overriding effect even on Clause 28. A qualified technical person was appointed as architect with the consent of the parties and the petitioner cannot be allowed to question his integrity now, nor his authority should ordinarily be questioned. His decision can be questioned only in a civil suit and not by way of arbitration. In fact. the bare reading of Clause 26 would show that it is quite comprehensive and all embraces and gives finality to the decision of the architect. All the disputes which are alleged to have arisen pertains to the measurement recorded during the currency of the contract and the architect after giving due consideration to the same gave his certificate .Therefore, these measurements and the valuation having become final cannot be gone into by an arbitrator nor these can be called disputes covered under Clause 28 of the agreement.

(7) Mr. Sawhney on the other hand contended that as per the agreement and in particular para 15 which deals with the record, measurements no other rates can be introduced except what are mentioned in the agreement nor the agreements can be recorded by adopting any other method than what is prescribed under the agreement. Under Clause 18 of the agreement, the petitioner was to supply to the respondent free of cost steel for Rcc works, steel for structural fabrications and cement in bags. Clause 24 provided for escalation and it was made clear that this being a time bound contract, escalation on account of any materials or labour will not be admitted by the petitioner and the reason for not giving escalation was that the construction material was to be provided by the petitioner at fixed price. Mr. Sawhney, thereafter contended that till date, the certificate as stipulated under Clause 26 has not been issued by the architect. Therefore, the defect liability period has not yet started and this fact has been pleaded by him in para 3.12 of the petition. This fact has not been denied by the respondent in reply to this para. On the contrary, the respondent has taken the plea that this assertion is irrelevant so far as the performance of the agreement is concerned. Therefore, in the absence of there being any such certificate, having been issued by the architect, as required under Clause 26 of the agreement, the said clause cannot be invoked nor it can be said that the decision of the architect has become final and binding. So for as the question of limitation is concerned, as argued by Mr. Menon, that is also a dispute. This required adjudication by an arbitrator as held by the Full Bench judgment of this High Court. Clause 26 would come into play only when architect has issued and filed certificate. The question of issuing notice and raising the claim within 28 days would arise thereafter. Since no certificate was issued, the question of counting the period of 28 days does not arise. In fact the petitioner is not challenging the certificate of the architect nor is he wanting the arbitrator to adjudicate whether there was a fraud committed by the architect in collusion with the respondent. The disputes which the petitioner seeking to be adjudicated by the arbitrator pertains to the interpretation of various clauses of the agreement and whether the measurements are in term of the agreement. And whether final bill has been prepared in accordance with the agreement and whether the schedule of quantities and the rate for providing expansion joints have been correctly measured and calculated. The contract has provided what is to be measured in cubic metres and what is to be measured in running metres, but the respondent in collusion with architect has changed the same. It is further contended by Mr. Sawhney, that the architect had rejected respondent's claim while passing the running bills but subsequently those very payment have been ordered to be paid. The Architect has not worked out the rates according to the agreement. These disputes are covered under Clause 28 as these relates to the interpretation of the agreement. These disputes have direct bearing on the rights and liabilities of the parties arising under the contract and in connection therewith. Therefore, they are liable to he referred to arbitration. Clause 28 is vide enough to cover all these disputes which have been mentioned in para 9 of the petition. Petitioner is only asking the arbitrator to interpret the agreement and not to declare architect's decision as fraud.

(8) As regard the objection of the respondents that the disputes are barred and cannot referred to arbitration, I find no force in this submission of Mr. Menon. Admittedly, Clause 26 of the agreement provides that if either party is dissatisfied with the decision of the architect on any matter or question etc., then the said party may within 28 days after receiving notice to the said decision of the architect ask the other party to refer the said dispute to arbitrator, meaning that the aggrieved party must raise the disputes within 28 days and if such a party fails to do so then that decision becomes final and cannot be adjudicated upon. I am afraid this in itself is a dispute as to whether architect has given any final decision in this case, and whether petitioner had the opportunity to challenge the same within 28 days. To my mind, this is a dispute in itself as held by our own High Court in the case of Ved Prakash Mittal v. The Union of India & Others . In that case, the arbitration clause in the agreement provided that the demand of arbitration was to be raised within a stated time and if that demand was not raised, then the Government could be discharged of all liabilities. Powers were given to the Chief Engineer to refuse to refer the disputes for arbitration because they were not raised within the stipulated time. On this, the Full Bench of this Court opined that this in itself is a dispute between the parties which ought to be referred to arbitration. Hence, in view of the Full Bench decision of our own High Court, I find no merit in the submission of Mr. Menon that since disputes were not raised within 28 days, therefores. these cannot be referred to arbitration,

(9) The dispute as stipulated in para 9 of the petition pertains to the measurement of according to the petition were not properly maintained or the calculation or the valuation was recorded properly. For this, according to the petitioner, no final certificate has been issued by architect. This fact has been asserted by the petitioner in para 3.12 of the petition. But there is no denial to the same. On the contrary a vague denial has been made in reply to para 3.12 in the written statement. Vague denial is no denial in the eye of law. Since no certificate by the architect has been placed on record having been issued in this case, hence no finality can be attached to the same. For this reason also the contention of the respondent cannot be justified that these disputes cannot be referred to arbitration.

(10) It is further asserted by the petitioner and not denied by the respondent that the defect period has not yet commenced because of lack of certificate by the architect. The assertion of the petitioner that the cement was supplied by the petitioner, whereas according to the respondent, on account of structural modification and by substituting the initial design, there has been a manifold increase in several items. This to my mind is a dispute in itself which is covered under Clause 28 of the agreement. Similarly, whether the breach was committed by the respondent or not is also a dispute covered under arbitration clause. The other claims of the petitioner pertains to the measurement and the classification and valuation of the rates of the work done which require the interpretation of various clauses of the agreement, and therefore, are disputes covered under Clause 28 of the agreement. This is a case where there is no dispute regarding the existence of arbitration clause. In such a situation, where the parties are at one, in asserting that they entered into a binding contract, but a difference has arisen between them, whether there has been a breach by one side or the other, or whether circumstances have arisen which have discharged one or both parties from further performance, such differences should be regarded as differences which have arisen, "in respect of", or "with regard to," or "under" the contract and an arbitration clause which uses these, or similar, expressions should be construed accordingly. I do not agree with Mr. Menon that these disputes are not covered by arbitration clause or that Clause 26 embraces all aspects of the case and has a overriding effect on Clause 21 that is the arbitration clause in the agreement. Since T have already come to the conclusion that the disputes referred in para 9 of the petition) are covered by the arbitration Clause 28, which is still effective and subsisting between the parties there remains only one question to be considered whether there is any sufficient reason why the matter in dispute should not be referred to arbitration. Mr. Menon's contention that since the petitioner has pleaded fraud and collusion between respondent and the architect which cannot be gone into by the arbitration, to my mind, has no force. Admittedly, fraud cannot be the subject matter of reference under an arbitration Clause in the contract, but the disputes raised and as enumerated in para 9 do not deal with the fraud on the part of the architect or of the respondent.

(11) The petitioner is not seeking declaration of fraud on the part of the architect or of the respondent. His grievances are that without any reason the architect has certified certain amounts which he had already rejected in the running bills. The dispute is whether the amounts subsequently allowed are justified or not, and this to my mind, can be gone into by the arbitrator. The collusion of the architect and the respondent and defrauding the petitioner are by way of explanation and not by way of seeking declaration.

(12) Mr. Menon's further contention that a qualified technical person was appointed and his decision cannot be questioned before the arbitration, this argument in this case does not arise, because as already observed above, there is no certificate so far issued by the architect as required under the agreement. Hence, the question of challenging his decision before the arbitrator does not arise. For all these reasons, I see no reason why this petition be not allowed. I must observe that the arbitration clause, as I have said, is not a stipulation in favor of either party. I am of the view that the doctrine of approbate and reprobate does not apply to prevent a party to a contract who has declined to proceed further with the performance of his obligations to the other party from invoking an arbitration clause in the contract for the purpose of setting all questions to which his declinature has given rise.

(13) I accordingly reject the objections of the respondent allow the petition with direction to both the parties to nominate their respective arbitrators in accordance with Clause 28 of the arbitration agreement who will adjudicate the disputes as mentioned in para 9 of this petition.

(14) The petition is accordingly disposed of.