Airports Authority Of India vs S.N. Malhotra & Sons And Anr.
2001 Latest Caselaw 1909 Del

JUDGMENT

V.S. Aggarwal, J.

1. By this common judgment, both the petitions, being O.M.P.No. 1 of 2000 and O.M.P.No. 2 of 2000 can conveniently be disposed together. It is not in controversy that question involved in both the above said matters are identical and, therefore, they can be taken up together. For sake of convenience, the facts are being taken from O.M.P. No. 1 of 2000, entitled Airports Authority of India v. S.N. Malhotra & Sons and Anr.

2. The Airport/Authority of India has filed the application under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside of the arbitral award.

3. The work of special repairs to Terminal Building at IGI Airport, Terminal-II during 1996-97 regarding certain' renovation of a particular area had been awarded to the to the respondent M/s. S.N. Malhotra & Sons. The amount settled was negotiated at Rs. 9,01,797/-. The agreement was entered into between the parties on 18.9.1996. The work was to commence on 31.8.1996 and it had to be completed on 28.2.1997. After the final bill had been made, respondent had set up certain claims vide letter dated 30.6.1998. He invoked the arbitration agreement and requested for reference of the said dispute to arbitration. Respondent No. 2 was appointed as the sole arbitrator, subject to admissibility of Clause 25 of the agreement between the parties. The arbitrator had submitted the award on 30.9.1999.

4. The applicant asserts that the award is liable to be set aside because Rs. 39,839/- has been allowed on account of non-sanction of the extension of time. It is claimed that the said claim could be decided by the arbitrator and it could only be adjudicated by the competent authority under Clause 2 of the agreement. The award is further being assailed alleging that the arbitrator acted without jurisdiction with respect to claims No. 1(f) and 3(c) with respect to non-payment of Item No. 64 and on account of security deposit. It is also the case of the applicant that the arbitrator acted without jurisdiction with respect to claim No. 1(e) regarding non-payment of difference of cost of black and approved sample of red granite, Claim No. 2 on account of alleged loss in profitability due to reduction in the scope of the work and claim No. 7 on account of cost of arbitration.

5. Reply has been filed and respondent No. 1 contends that it is his case that request for extension of time was submitted by him long back but the petition had failed to grant the extension of time and in the final bill paid on 24.3.1998 an amount of Rs. 39,839/- was with-held. The petitioner had granted the extension of time up to 1.7.1997 and levied compensation of Rs. 34,664/-. It was an after-thought. It is denied that the arbitrator could not adjudicate the said dispute. Clause 2 of the contract did no cover the same. It would only apply if the contractor would have delayed the contracted work because of his own fault. Herein the delay was because of non-availability of site, wiring not done by the electrical department, non-availability of relevant drawings, non-approval of pattern for fixing, granite and non-completion of electrical fixtures on false ceiling and walls etc. Regarding other claims, it is contended that the petitioner had not sent any notice required under Section 55 of the Indian Contract Act.

6. The first and foremost question that comes up and seeks an answer is as to whether the petitioner can raise the plea that the arbitrator acted without jurisdiction when such a pleas was not taken before the arbitrator.The learned counsel for the respondent vehemently urged that such an objection must be taken before the arbitrator and if it had not been taken, keeping in view the clear language of Section 16 of the Act, the petitioner is now debarred from raising such a plea.

7. Section 16 of the Act reads as under :

16. Competence of arbitral tribunal to rule on its jurisdiction.-(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defense; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in Sub-section (2) or Sub-Section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in Sub-Section (2) or Sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34.

8. Perusal of the aforesaid clearly shows that the jurisdiction has been conferred on the arbitral tribunal to decide its own jurisdiction but plea that the arbitral tribunal does not have jurisdiction shall be raised not alter than submission of the statement of defense and the plea that arbitral tribunal is exceeding the scope of its authority can be raised as soon as the matter alleged to be beyond the scope of its authority is raised. Such a contention can be raised later on and the arbitral tribunal may admit the same if he consider the delay to be justified. A party aggrieved by such an award later can make an application for setting aside of such arbitral award in accordance with Section 34. This question had come up for consideration before the Supreme Court in the case of OLYMPUS SUPERSTRUCTURES PVT. LTD. v. MEENA VIJAY KHETAN AND ORS., . The Supreme Court did take note of the relevant provisions but did not decide the controversy.

9. In this regard, a reference can also be made to Section 34 of the Act. Sub-section (1) of Section 34 provides that an award can be set aside in accordance with Sub-section (2) and (3) of Section 34. For the purposes of the present controversy, Clause (iv) of Sub-section (2)(a) of Section 34 is important and reads :-

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

10. A perusal of Section 16, read with Section 34(2)(a)(iv) clearly that so far as Section 16 of the Act is concerned, the objection has to be taken before the arbitral tribunal that he is exceeding the scope of authority or his act is without jurisdiction an the aggrieved party can only get the matter set aside under Section 34 of the Act. But perusal of Clause (iv) of Sub-section (2)(a) of Section 34 clearly shows that it is couched in a language which is much wider than the scope of Section 16 of the Act. It is independent of Section 16 because it makes no reference to Section 16 in this regard. If the intention of the legislature was that if the matter is not raised before the arbitral tribunal pertaining to his jurisdiction, the parties would be totally barred from raising it subsequently, then a clear reference would have been in Section 34 in this regard. Section 16 of the Act is basically confined to when the arbitral tribunal does not have the jurisdiction or it exceeds the jurisdiction while under Section 34 if the award deals with disputes not contemplated by and not falling within the terms of the submission to arbitration and such like matters contemplated therein the award can be set aside. This conclusion gets support from reading of Sections 12 and 13 of the Act. Under Section 13 also the parties have to take up the matter and challenge the procedure of arbitrator and his appointment and they can subsequently, of the arbitrator decides to the contrary, challenge the award as permitted under Sub-section (5) of Section 13 of the Act. There is no such reference to Section 13 in Section 34 of the Act. Therefore, the obvious conclusion is that the grounds contemplated in Section 34 are independent of other grounds in the other provisions of the Act, which permit challenging of the award. Consequently, the petitioner is entitled to raise the said plea.

11. With this back drop, one can conveniently revert to the other submissions so raised and that was that the arbitrator was in error in going into the claim of Respondent No. 1 whereby vis-a-vis Claim No. 3(b), the levy of Rs. 34,664/- was held to be an after-though. In the present case the work was to start on 31.8.1996 and was to be completed on 28.2.97. It had been completed much later. Clause 25 of the contract provides for disputes to be referred to arbitration with respect to "CLAUSE 25: Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question claim, right matter or thing whatsoever, in any way arising out of or relating to the contract, designs drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the work, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred it the sole arbitration of the person appointed by the Chief Engineer International Airports Authority of India, in charge of the work at the work time of dispute or if there be no Chief Engineer, administrative head of the Department of Engineering of said Authority at the time of such appointment .....". Clause (2) of the agreement in this regards assumes importance and reads :-

"CLAUSE 2: The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be deemed to be of the essence of the contract on the part of the contractor and shall be reckoned from the 10th day after the date on which the order to commence the work is issued to the contractor. The work shall throughout the stipulated period of the contract be proceeded with all due diligence and the contractor shall pay as compensation an amount equal to one per cent or such smaller amount as the Chief Engineer/Superintending Engineer/Addl. Chief Engineer (whose decision in writing shall be final) may decide on the amount of the estimated cost of the whole work as shown in the tender for every day that the work remain uncommenced, or unfinished, after the proper dates. And further to ensure good progress during the execution of the work, the contractor shall be bound in all case in which the time allowed for any work exceeds one month (save for special jobs) to complete one-eight of the whole of the work before one-fourth of the whole time allowed under the contract has elapsed; three-eight of the work, before one-half of such time has elapsed and three-fourth of the work, before three-fourth of such time has elapsed. However, for special jobs if a time schedule has been submitted by the contractor and the same has been accepted by the Engineer-in-Charger, the contractor shall comply with the said time schedule. In the event of the contractor failing to comply with this condition, he shall be liable to pay as compensation as amount equal to one per cent, or such smaller amount as the Chief Engineer/Superintending Engineer/Addl. Chief Engineer (whose decision in writing shall be final) may decide on the said estimated cost of the whole work for the every day that the due quantity of work remains incomplete; provided always that the entire amount of compensation to be paid under the provisions of this clause shall not exceed ten per cent of the estimated cost of the work as shown in the tender."

12. It is crystal clear from the aforesaid that it had been agreed that time was the essence of the contract and the work had to be completed within the stipulated period. In case it is not done, he was liable to pay compensation and an amount equal to one per cent or such smaller amount, as the Chief Engineer/Superintending Engineer/Additional Chief Engineer may decide and his decision shall be final. This was a special agreement and it was out of the preview of arbitration clause because Clause 25, as already reproduced above, unfolds itself with the words "Except where otherwise provided in the contract". In other words, certain disputes were taken out of the jurisdiction of the arbitrator. Therefore, the dispute under Clause 2 was not contemplated to be decided by the arbitrator.

13. When the arbitrator went into the same and decided it than the Act must be taken to be without jurisdiction and hit by Section 34(2)(a)(iv) of the Act. In coming to this conclusion, one is supported by the decision of the Supreme Court in the case of PRABARTAK COMMERCIAL CORPORATION LIMITED v. THE CHIEF ADMINISTRAtor DANDAKARANYA PROJECT AND ANR., 1991 (1) ARBITRATION LAW REPORTER 282. In that case also the arbitration agreement contained certain disputes to be excluded. The same were decided by the arbitrator. it was held that the arbitrator could not deal with it and the decision of the Superintending Engineer would have been final. In paragraph 4, the Supreme Court held :

4. The learned Judge of the High Court held that Clause 14 containing the arbitration agreement had no application to the dispute in question which fell under Clause 13A and, therefore, the arbitrator had no jurisdiction in the matter. He held that the reference of the dispute to the arbitrator was invalid and the entire proceedings before the arbitrator including the awards made by him were null and void.

14. A Division Bench of this court in the case of DELHI DEVELOPMENT AUTHORITY v. M/S. SUDHIR BROTHERS 1995 (2) ARBITRATION LAW REPORTER 306 also had the occasion to deal with the same controversy. The Division Bench held that disputes which were excluded from the arbitration clause, could not be adjudicated by the arbitrator. The arbitrator in the facts of the case, was therefore, held to be not justified in going to the merits of the matter of the said excluded disputes.

15. The position herein is identical. It has already been recorded above that the arbitrator could not adjudicate the said dispute and to that extent the award would be liable to be modified. No other argument has been raised.

16. For these reasons, the application is allowed in part. In O.M.P. No. 1 of 2000, it is held that out of the total award, the applicant would not be liable to pay Rs. 34,664/-.

17. In O.M.P. No. 2 of 2000, for the same reasons, the applicant will not be liable to pay Rs. 35,159/- and to that extent the award is modified.

18. Parties are left to bear their own costs. Subject to aforesaid, both the petition are disposed of.