Ravinder Kumar Khanna & Anr. vs National Hydroelectric Power ...
1998 Latest Caselaw 806 Del

JUDGMENT

S.K. Mahajan, J.

1. On a petition filed under Sections 14, 17 and 29 of the Arbitration Act the Arbitrator filed his award dated 19.12.1991 along with proceedings in this Court. Notice of filing of the award was served upon the parties and respondent No. 1 has thereafter filed its objections under Sections 30 and 33 of the Arbitration Act.

2. The case set up in the objections is that the respondent had entered into an agreement with M/s. Metal Pressing of which petitioner No. 1 claims to be the sole proprietor on 27.2.1985 for fabrication, manufacture and erection of semi-circular pressing of diameter 10.7 m at Aamruchi near Dul in Kaishtwar, District Doda, J&K and fixing C.G.I. sheets complete in all respects. Certain disputes having arisen between the parties the petitioner served a notice dated 1.5.1989 upon the Chief Engineer of Dulhasti Project of respondent No. 1 reference of the same to an Arbitrator. The Chief Engineer upon receipt of this communication from the petitioner wrote to respondent No. 2 that in terms of the agreement Clause 55.1 para (ii) a panel of Arbitrators was sent to the Counsel for the petitioner for empanelment of one of the empanelled Arbitrator for appointment and the contractors had conveyed their acceptance for his appointment as an Arbitrator Respondent No. 2 was, therfore, asked to convey his acceptance for appointment as an Arbitrator to enable the Chief Engineer to proceed further in the matter. Respondent No. 2 communicated his acceptance vide telegram dated July 18, 1989. It appears that thereafter no decision formally appointing respondent No. 2 as Arbitrator was taken by respondent No. 1 nor the same was conveyed to the Arbitrator. However, respondent No. 2 vide his letter dated 7th December, 1989 on his own entered upon the refernce and directed the parties to file the statement of claims within the time mentioned in the said letter. Respondent No. 2 was informed by respondent No. 1 vide its letter dated 21.5.1990 that since no notification and terms of reference in regard to his appointment had been issued by the Competent Authority he should withdraw the proceedings held by him and not to take any further steps in the matter. Respondent No. 1 did not thereafter appear before respondent No. 2 as according to it the said respondent No. 2 continued with the arbitration proceedings even in the absence of respondent No. 1 and proceeded to make and publish his award on 19.2.1991. On the award being filed in Court, respondent No. 1 has challenged the same on the following grounds :

1. That respondent No. 2 was not properly appointed as Arbitrator.

2. That no reference of the disputes for adjudication was made to respondent No.2.

3. Respondent No. 2 deliberately assumed jurisdiction fully knowing that he was not validly appointed.

4. That the Arbitrator was required to give reasons for giving his award. However, no reasons have been given; and

5. The award was made beyond the statutory period of four months and was, therefore, liable to be set aside.

3. In reply to the objections it is stated by the petitioners that after the petitioners had invoked the arbitration agreement between the parties for reference of certain disputes to an Arbitrator, respondent No. 1 sent a panel of Arbitrators for acceptance of one of them for appointment as an Arbitrator. The petitioners conveyed his acceptance for appointment of respondent No. 2 as an Arbitrator and respondent No. 1 thereafter sought the concurrence of respondent No. 2. It is also stated that once concurrence had been taken from respondent No. 2 there was nothing more required to be done by respondent No. 1 and since the Chief Engineer himself was the Appointing Authority the Arbitrator would be deemed to have been validly appointed. It is further submitted that after the Arbitrator had invited the parties to file statement of claims respondent No. 1 was duly represented by an officer before him and sought time to file the reply. This request of respondent No. 1 was granted by respondent No. 2. The Chief Engineer, DHP, Kishwar further by his telegram received by the Arbitrator-respondent No. 2 on 18.1.1990 requested the said respondent to extend the time for filing reply as the statement of claims was received by the Chief Engineer only on 11.1.1990. Another letter dated 19.2.1990 was written by respondent No. 1 requesting further time to file the reply as it was handicapped because of non-availability of certain relevant records. It is, therefore, submitted by the petitioners that respondent No. 1 is estopped from challenging the jurisdiction of the Arbitrator as by its own conduct it had permitted the Arbitrator to proceed with the matter and once it had submitted to the jurisdiction of the Arbitrator it cannot challenge his jurisdiction only because the award has gone against it.

4. On the pleadings of the parties the following issues were framed :

1. Whether the plaintiff No. 1 at the relevant time was the sole proprietor of M/s. Metal Pressings?

2. Whether the appointment of the defendant No. 2 as Arbitrator was valid?

3. Whether the Award is liable to be set aside in view of the objections stated in I.A. 7015/92?

4. Relief.

Issue No. 1 :

5. It is contention of Mr. Seth that the agreement was entered into with M/s. Metal Pressings and the award, therefore, in favour of Ravinder Kumar Khanna is bad. The petitioner has filed an affidavit stating that he was sole proprietor of M/s. Metal Pressings. There is no rebuttal to this evidence of the petitioner. I, therefore, hold that Ravinder Kumar Khanna was the sole proprietor of M/s. Metal Pressings.

Issue No. 2 :

6. It is the contention of Mr. Seth that respondent No. 2 was never appointed as an Arbitrator and he had, therefore, no jurisdiction to adjudicate the disputes between the parties. By letter dated 1.7.1989 the Chief Engineer had informed respondent No. 2 that after a panel of names had been sent to the petitioner, the petitioner had agreed to the name of respondent No. 2 to be appointed as an Arbitrator and the Chief Engineer by this letter, therefore, requested respondent No. 2 to convey his acceptance for appointment as an Arbitrator. It is the contention of Mr. Seth, learned Counsel for respondent No. 1 that till such time acceptance was received from respondent No. 2 there was no question of appointing him as Arbitrator and as there was no formal appointment, respondent No. 2 could not function as an Arbitrator. He has placed reliance upon the letter of respondent No. 2 written on 3.5.1990 to respondent No. 1. It is stated in the said letter that "On going through the records, it has been observed that a proper letter of reference with regard to the appointment of the undersigned as Sole Arbitrator has not been received so far. I would, therefore, request you to do the needful at an early date". Subsequent to this letter respondent No. 1 by letter dated 6.8.1990 informed the Arbitrator that while he has been personally informed by the Law Officer of the respondent Company that no notification by the Competent Authority has been issued appointing him as an Arbitrator he was putting it on record by that letter that there was no proper reference to or appointment of respondent No. 2 as an Arbitrator and that he was assuming himself to have been validly appointed as an Arbitrator. It was further stated that as his appointment had not been done by the Competent Authority and in any case even after his unilaterally assuming jurisdiction on 7.12.1989 the period of four months had expired, the Corporation did not propose to attend any hearing in the matter before him and that it will not take any notice of any proceedings that may be held ex-parte by respondent No. 2.

7. Mr. Anil Kumar, learned Counsel for the petitioner has, however, contended that firstly it was the Chief Engineer himself who is the Competent Authority to appoint the Arbitrator under the terms of the agreement and it is, therefore, not correct to say that the Arbitrator was not appointed by the Competent Authority. Secondly, he submits that the respondent participated before the Arbitrator and took adjournments for filing reply to the statement of claims of the petitioner and by its own conduct respondent No. 1 is now estopped from challenging the jurisdiction of the Arbitrator.

8. In terms of Clause 55.1 all questions of disputes or differences between the parties were to be referred to the Sole Arbitrator appointed in the following manner :

"(i) Either of the parties may give to the other notice in writing of the existence of such question dispute or difference;

(ii) Within thirty (30) days of receipt of such notice from either party the Chief Engineer In-charge of work at the time of such dispute shall send to the contractor a panel of three persons and thereafter the contractor within fifteen (15) days of receipt of such panel communicate to the Chief Engineer the name of one persons from such panel and such a person shall then be appointed Sole Arbitrator by the Chief Engineer.

(iii) Provided that if the contractor fails to communicate the selection of a name out of the panel so forwarded to him by the Chief Engineer then after the expiry of the aforesaid stipulated period of the Chief Engineer shall without delay select one person from the aforesaid panel and a point him as the sole Arbitrator."

9. A perusal of the arbitration agreement between the parties show that it is the Chief Engineer In-charge of the work at the time of disputes who is the Competent Authority to appoint the Arbitrator. In terms of office order dated 18.7.1979 in the case of the appointment of an Arbitrator to adjudicate the disputes of value of more than Rs. 1 lac the Competent Authority is required to consult and obtain prior approval of the corporate office. It is, therefore, the contention of Mr. Seth that even assuming that by letter dated 1.7.1989 respondent No. 2 was appointed as an Arbitrator by the Chief Engineer, it was done without prior approval of the corporate office in terms of the guidelines dated 10.7.1979 and the appointment is, therefore, not valid. I am unable to accept the contention of Mr. Seth. The office order 18.7.1979 are the guidelines framed by respondent No. 1 for its offices and the petitioner is not bound by the same. The Arbitrator was to be appointed in accordance with the agreement and the Competent Authority under the agreement is only the Chief Engineer. The petitioner is, therefore, not concerned whether approval of the corporate office was taken or not and in case by letter dated 1.7.1989 the Chief Engineer has appointed the Arbitrator, the same, in my view, is a valid appointment.

10. The question now, however, is whether by letter dated 1.7.1989 the Chief Engineer has appointed the Arbitrator? As per procedure prescribed in the arbitration agreement within 30 days of the receipt of notice from the party the Chief Engineer is required to send to the contractor a panel of three persons and thereafter the contractor within 15 days of the receipt of such panel is required to communicate to the Chief Engineer the name of one of the persons from such panel and such a person will then be appointed the Sole Arbitrator by the Chief Engineer. In this case after the contractor had approved the name of respondent No. 1 it was left to the Chief Engineer to appoint him as the Arbitrator. The availability of such a person to act as an Arbitrator is in normal circumstances also to be seen by the Appointing Authority. In case the person approved by the contractor is appointed an Arbitrator by the Competent Authority and subsequently he declines to act, the Chief Engineer may have to send another panel to the contractor for approval of such a person whose name has been approved by the contractor is required to be taken by the Chief Engineer before a formal appointment is made. This is exactly what has been done by the Chief Engineer when he wrote letter dated 1.7.1989 to respondent No. 2. The Chief Engineer by his communication dated 1.7.1989 to respondent No. 2 had asked him to convey his acceptance "for appointment as Arbitrator in the case to enable us to proceed further in the matter". Language of the letter clearly shows that this was not a letter appointing respondent No. 2 as the Arbitrator but it was only seeking the acceptance of respondent No. 2 to enable the Chief Engineer to proceed further in the matter. It was on receipt of such acceptance to his appointment that the Chief Engineer was to formally appoint respondent No. 2 as an Arbitrator. Even the terms of reference had not been mentioned in the letter written by the Chief Engineer and respondent No. 2 was, therefore, not aware as to what was the term of reference. Even respondent No. 2 himself appeared to be of the view that his appointment was not proper and it was for this reason that he on 3.5.1990 wrote to the General Manager (Law) of respondent No. 1 as under :

"On going through the records, it has been observed that a proper letter of reference with regard to the appointment of the undersigned as Sole Arbitrator has not been received so far. I would, therefore, request you to do the needful at an early date".

11. Immediately on receipt of this letter respondent No. 1 on 21.5.1990 requested respondent No. 2 to withdraw the earlier proceedings and not to take any further step in the aforesaid matter till further communication. Respondent No. 2, however, in proceedings held on 27.6.1990 recorded that he cannot take cognizance of the communication received from respondent No. 1 as his authority could not be revoked except with the leave of the Court and he, therefore, continued to proceed with the arbitration which ultimately resulted in making and publishing the impugned award.

12. From the above it is clear that neither there was any formal appointment of respondent No. 2 as an Arbitrator nor the terms of reference of the disputes alleged to have been referred to him were sent to him. In the absence of terms of reference before respondent No. 2 the said respondent was not aware as to what has to be decided by him and his initial appointment itself being not proper he could not record in the proceedings held on 27th June, 1990 that his authority could be revoked only with the leave of the Court. In my view, respondent No. 2 has assumed jurisdiction which was not vested in him and he, therefore, was not competent to proceed with the reference.

13. In view of the above discussion I am of the opinion that the appointment of respondent No. 2 as an Arbitrator was not proper.

14. The next question is if the appointment of the Arbitrator was not proper, is respondent No. 1 estopped from challenging his jurisdiction by its conduct inasmuch as it had appeared before the Arbitrator and sought adjournments? On 28.12.1989 the petitioner filed his claim before the Arbitrator and by letter dated January 10, 1990 respondent No.1 was directed to file its claim to the statement of claims by 23.1.1990. On 18.1.1990 a telegram was received from respondent No. 1 requesting respondent No. 2 to kindly extend the date of filing of the reply to 23.2.1990. On 19.2.1990 an application was made before respondent No. 2 requesting for further six weeks' time for filing the reply as the relevant records were not available. On 6.3.1990 respondent No. 2 granted time to respondent No.1 to file its counter statement of facts upto 2.4.1990 and the proceedings were directed to be held on 16.4.1990. On May 3, 1990 proceedings were held by the Arbitrator and it was noticed that neither any reply has been received from respondent No. 1 nor even the copy of the agreement has been filed by the said agreement. The case was, therefore, adjourned to 14.5.1990. Information of these proceedings was given to the Chief Engineer. On the same date a letter was written by respondent No. 2 to the General Manager of respondent No. 1 requesting him to send a formal letter of reference with regard to his appointment as Sole Arbitrator. Can it, therefore, be said that by seeking adjournments from respondent No. 2, respondent No. 1 has submitted to his jurisdiction and once the jurisdiction of the Arbitrator has been challenged could he himself decide the question that he had the jurisdiction to enter upon the reference and decide the dispute between the parties? It is no doubt true that a party who takes part in the arbitration proceedings before the Arbitrator without any demur will be precluded by his acquiescence from challenging the award for lack of jurisdiction. If the Arbitrator is allowed to proceed with the reference without objection to his jurisdiction and competence by the parties, they will not be subsequently allowed to say that the award be set aside on the ground of lack of jurisdiction. Mr. Anil Kumar, therefore, submits that as respondent No. 1 had on two occasions sought time from the Arbitrator to file reply, it had acquiesced to the jurisdiction of the Arbitrator and is now precluded from challenging the award on the ground that respondent No. 2 did not have the jurisdiction to enter upon the reference.

15. I have not been able to persuade myself to agree with Mr. Anil Kumar. In U.P. Rajkiya Nirman Nigam Limited Vs. Indure Pvt. Ltd. & Others, , the U.P. Rajkiya Nirman Nigam Limited while stating that there was no valid and concluded agreement between the parties much less an arbitration agreement, still nominated an Arbitrator on their behalf to arbiter on the question "Whether there existed any valid and subsisting agreement between the parties and whether there existed any valid and binding arbitration clause between the parties"? Subsequently, they filed an application under Section 33 of the Arbitration Act in Court challenging the validity and existence of the arbitration agreement. The contention of respondent in that case was that as U.P. Rajkiya Nirman Nigam Limited had appointed an Arbitrator for reference of disputes to the Arbitrator they were estopped from challenging his jurisdiction as they had acquiesced in the jurisdiction of the Arbitrator and, therefore, they could not exercise the right under Section 33 of the Arbitration Act. On these facts the Supreme Court held that it was rightly pointed out by U.P. Rajkiya Nirman Nigam Limited that they had by mistake agreed for reference and the Arbitrator could not decide the existence of arbitration agreement or arbitrability of the disputes. The Supreme Court further held that for deciding the controversy about the jurisdiction of the Arbitrator, section 33 was the only remedy.

16. In my view, merely asking for an adjournment for filing the reply to the statement claims filed by the petitioner will not mean that respondent No. 1 had submitted to the jurisdiction of the Arbitrator or that there was any acquiescence on its part as alleged. In my view, the jurisdiction of the Arbitrator having been challenged and the Arbitrator himself being of the opinion that he had not been formally appointed nor any terms of reference has been referred to him it was not proper on the part of Arbitrator to continue with the arbitration proceedings and make and publish an exparte award against respondent No. 1.

17. Respondent No. 2 had no power to decide his own jurisdiction. Arbitrator is always entitled to inquire whether or not he has the jurisdiction to decide the dispute. He should refuse to deal with the matter at all and leave the parties to go to the Court, if he has a doubt about his jurisdiction to deal with the matter. In my view, no reference of disputes for adjudication was made to respondent No. 2 and the said respondent has assumed jurisdiction knowing fully well that he was not validly appointed. The award of the Arbitrator is, therefore, liable to be set aside on this ground alone.

18. The next ground of attack to the award is that under Clause 55.6 where the amount of claim before the Arbitrator was of the value of more than Rs. 1 lac the Arbitrator is required to give reasons for the award. As in this case no reasons have been given by the Arbitrator, the award is liable to be set aside.

19. I have gone through the award and find that after giving history of the case the Arbitrator has made his award as under:

"I hereby make my Award for the claims of the petitioner as under in seriatim:

Claim No.1: Payment of Rs. 2,20,000/- held from 10/1985 to 11/1987 Bank interest @ 18% p.a. Rs. 79,200/-.

Amount awarded Rs. 49,500/-

Claim No.2: Watch and ward of material from May, 1985 to November,1987 @ Rs. 1,400/- per month. Rs. 40,500/-.

Amount awarded Rs. 17,400/-.

Claim No.3: Shifting of site from Dul to Semna, shifting of material from Dul to Semna Rs. 23,000/-.

Amount awarded Rs. 2,300/-.

Claim No.4: Making of new labour hutments at Semna for 10 Nos. Labours. Rs. 19,000/-.

Amount awarded Rs. 19,000/-.

Claim No.5: Extra cost of labour and material due to double corrugation overlap instead of single as per agreement - area 3450 sq.m. @ Rs. 14/- per sq.m. Amount claimed: Rs. 40,300/-.

Amount awarded: Rs.22,425/-.

Claim No.6: Escalation on steel prices by Government of India Rs.30,860/-.

Amount awarded: Nil.

Claim No.7: Escalation in prices of steel by Government of India/JPC - Rs.30,880/-

Amount awarded: Rs. 27,792/-.

Claim No. 8: Salary of staff and supervisors from Oct., 1985 to Nov., 1987 @ Rs. 2,100/- per month for 26 months. Rs. 54,600/-.

Amount awarded: Rs. 8,400/-.

Claim No.9: Idle charges for plant and machinery from Oct., 1985 to Nov., 1987 @ Rs. 1,400/- per month. Rs. 36,400/-.

Amount awarded: Rs. 5,600/-.

Claim No.10: Escalation in labour wages from Oct.,1985 to Nov., 1987 - Rs. 1,12,000/-.

Amount awarded: Nil.

Claim No. 11: Interest on Bank guarantee of Rs. 50,000/- - Rs. 27,000/-.

Amount awarded: Rs. 5,000/-.

Counter Claims: Nil

In full and final settlement of claims and counter-claims of both the parties, the respondents, NATIONAL HYDROELECTRIC POWER CORPORATION LIMITED shall pay to the claimants, M/S. METAL PRESSINGS, a sum of Rs. 1,57,417/- (Rupees one lac fifty seven thousand four hundred seventeen only) with simple interest @ 15% (fifteen per cent) from two months after the date of Award and the claimants do pay to the respondents Rs. Nil. Both the parties shall bear their respective costs of the proceedings."

20. A perusal of the award shows that no reasons whatsoever have been given as to why the petitioner was entitled to the amount claimed by him. Where by an agreement between the parties the Arbitrator is required to give reasons, in my view, the award will be set aside in case such reasons are not given. The Arbitrator having, therefore, not given reasons envisaged under Clause 55.6 of the agreement, the award is liable to be set aside.

21. There is another reason for setting aside the award. In terms of para 3 of Schedule I to the Arbitration Act, 1940 the Arbitrators are required to make their award within four months from the date of entering upon the reference or within such extended time as the Court may allow. In this case, it is the case of the petitioner himself that the Arbitrator entered upon the reference on 7.12.1989 when he sent notice to the parties to file their statement of claims. That being so the Arbitrator ought to have given his award within four months from the date of entering upon the reference. The parties had not agreed to extend the time to enable respondent No. 2 to make and publish his award. The award is, therefore, clearly beyond the period prescribed by Arbitration Act, 1940. Mr. Anil Kumar when faced with this situation made an oral application to the Court to extend time as under Section 28 of the Arbitration Act, 1940 time to enable the Arbitrator to make and publish his award can be extended even after the award has been made. There is no dispute to the proposition advanced by Mr. Anil Kumar at that time to enable the Arbitrator to make and publish the award can be extended even after the award has been made. But, it depends upon the facts and circumstances of each case and facts of this case do not warrant the time to be extended. It is admitted case of the parties that on 21.5.1990 respondent No.1 had written to the Arbitrator not to proceed further in the matter as there was no proper reference to him. This letter having been written to the Arbitrator as early as in May, 1990, in my view, it was not proper for the Arbitrator to proceed with the matter more so when the time for making and publishing the award had expired and he should have called upon the petitioner to approach the Court for extension of time. In case the petitioner had approached the Court for extension of time at that stage, the entire matter would have been decided by the Court and the Arbitrator would not have to make and publish his award. The award has been signed on 19.2.1991 i.e. after about 9 months of the writing of the letter dated 21.5.1990 by respondent No. 1 to respondent No. 2 challenging his jurisdiction to enter upon the reference. In my view, therefore, it is not a fit case where the time can be extended to enable the Arbitrator to make and publish the award.

22. For the foregoing reasons the objections are allowed and the award dated 21.5.1990 made and published by the Arbitrator is set aside. In the facts and circumstances of the case, however, I leave the parties to bear their own costs.