Continental Construction Ltd. vs Chief Engineer (Construction) ...
2001 Latest Caselaw 1829 Del

JUDGMENT

V.S. Aggarwal, J.

1. The present Petition has been filed by M/s. Continental Construction Limited (hereinafter described as "the Applicant") invoking Sub-section (6) of Section 11 of the Arbitration and Conciliation Act, 1996 (for short "the Act").

2. The relevant facts are that the applicant company had entered into a contract for construction of sub-structure including well foundation and prestressed concrete box girders for road upper-structure with contractor' own deign in connection with the construction of rail link between Chitauni (U.P.) and Bagah (Bihar). Certain disputes had arisen between the applicant and the Indian Railways/Union of India. the General Manager, North-Eastern Railways, Gorakhpur as per the arbitration clause did not act upon the applicant's request for appointment of elected arbitrator. It has therefore, been prayed that the matter in question is governed by the Act and therefore, been prayed that the matter in question is governed by the Act and therefore, the arbitrator, as such, may be appointed.

3. In the reply filed, the petition has been contested. Preliminary objection has been taken that the civil courts at Delhi have o territorial jurisdiction to entertain the petition. The tenders were invited from Gorakhpur, U.P. The respondent is also based n Gorakhpur, U.P. The agreement was executed at Gorakhpur and it was signed even at Gorakhpur. General Manager, South-East Railways, Gorakhpur is an independent entity and, therefore, the courts at Delhi have no jurisdiction. Further-more, it is prayed that the application is purported to be under Section 11 of the Act. The provisions of the said Act are not applicable because it has been pointed that applicant company had entered into the agreement for construction of sub-structure for road-cum-rail bridge dated 15.10.1992 for execution of work. The contract was completed in 1994. Thereafter the applicant raised certain disputes in terms of the letter of 168.8.1994. The said claim of the applicant was rejected. The applicant invoked arbitration Clause 64 of the General Conditions of the Contract dated 16.1.1995. In terms of the arbitration clause, General Manager, North-East Railway, sent a panel of four Railway Officers as contractor/applicant's nominee arbitrator. Thereafter, the General Manager of North East Railway also selected a third nominee arbitrator Shri S.C. Gupta. The said co-arbitrator appointed Shri A.K. Mishra as an umpire. Since the arbitration clause is alleged to have been invoked before coming into force of the new Act, the provisions of Section 11 of the Act are not attracted. It is alleged that the matter could only be governed under the Arbitration Act, 1940.

4. During the course of submissions, it was these two preliminary objections, raised on behalf of the respondent, which had been pressed into service. First and foremost, it was alleged that the civil courts at Delhi have o jurisdiction to entertain the suit because, as referred to above and rementioned at the risk of repetition, according to the respondent the tenders were invited at Gorakhpur, the contract was entered into at Gorakhpur, the work was executed outside the jurisdiction of this court and, therefore, the civil courts at Delhi have no jurisdiction to entertain the suit.

5. In normal circumstances, it is correct and it can not be disputed by any stretch of imagination that if the contract had been entered into and the tender invited as well as the work executed outside the jurisdiction of the court, in that even this court will have no jurisdiction to entertain the suit. Reliance on behalf of the respondent was being placed on the Full Bench decision of this court, in the case of GUPTA SANITARY StorES v. UNION OF INDIA and Anr., . In the cited case, Mrs. Gupta Sanitary Stores had entered into a contract with Union of India for improvement of water supply at Joshimath (UP). There was an arbitration clause in the contract. Disputes between the parties had arisen. They were referred to the sole arbitration of Shri K.S. Sil, Commander Works Engineer. One of the question that came up for consideration was as to whether the courts at Delhi had the jurisdiction to entertain the suit or not. Keeping in view the fact that the contract was made at Uttar Pradesh and work also executed therein, it was held that no part of the cause of action had arisen in Delhi. It was further held that the Union of India does not carry on business when it enters into military engineering contractor for the improvement of water supply. In paragraph 59, this Court held :-

59. On the facts of the present case I must hold that Delhi courts have no jurisdiction to entertain the petition under Sections 14 and 17 of the Arbitration Act. The contract was made in U.P. The work was executed in U.P. The Commander Works Engineer has his headquarters and head office in U.P. No part of the cause of action has arisen in Delhi. The Union of India does not carry on business when it enteres into a military engineering contract for the improvement of water supply at Joshimath. It is a public service undertaken in the exercise of the sovereign power of the State.

6. The attention of the court has further been drawn to the Full Bench decision of this court in the matter of HINDUSTAN METAL WORKS v. UNION OF INDIA, 1987(1) ARB.L.R. 6. In the cited case in response to the invitation of tenders issued from the Divisional Superintendent Office, Lucknow. The plaintiff had submitted his tender which was for white washing and annual repairs of the staff quarters in various places, all within the operational jurisdiction of the Divisional Superintendent, Lucknow. Disputes had arisen and one of the questions for consideration was as to whether the civil courts at Delhi had the jurisdiction to entertain the petition or not. Since the Headquarters of North Railway was at Delhi, it was held that the Courts at Delhi have jurisdiction to entertain the suit. In this regard, the court held as under:-

Principal place of business cannot be made to depend on each tender for it is well known that tenders are issued by various authorities depending upon their respective financial powers. Principal place of business must be a regular, fixed place independent of each tender. It may be noted that under Section 80 of the Code of Civil Procedure where a notice has to be given it is provided that in the case of the suit where it relates to the railways the General Manager of that railway is the competent authority to receive notice. In that view if any suit is to be filed notice has to be given to the General Manager of the concerned railway. The General Manager's office which is the headquarters of each railway must, therefore, be taken to be the place where the General Manager and control is exercised. It is common case that the headquarters of Northern Railway is at Delhi.

7. Keeping in view the two full Bench decision of this court, referred to above, it becomes unnecessary to ponder with other precedents but suffice it to refer the decision from the Bombay High Court in the case of STATE OF MAHARASHTRA and Ors. v. RANJEET CONSTRUCTION, 1986(1) ARB.L.R. 436. In the cited case tender had been accepted and communicated to the contractor at Pune. The contract was signed at Kohlapur. The question had arisen whether the courts at Pune had the jurisdiction to entertain the suit or not. The Bombay High Court held that the courts at Pune did have the jurisdiction to entertain the suit.

8. Reverting back to the facts of the present case, it is not in controversy that the tenders were invited by the General Manager, North-East Railway, stationed at Gorakhpur. The contract had been entered into therein and the work even had been executed outside the territorial jurisdiction of this Court. If that was so, there was no controversy keeping in view the decision of this Court in the case of HINDUSTAN METAL WORKS v. UNION OF INDIA (supra). However, Annexure-14 is the letter that had been issued by the Chief Engineer, North-East Railway, Gorakhpur. Relevant extract of the same reads :-

The tender has been accepted by the Ministry of Railways for and on behalf of the President of India and the acceptance has been communicated under Chief Engineer (con)/CBP, N.E. Railway, Gorakhpur's letter No. W/CON/362/741/(III)/W-3 dated 03.07.1992.

9. It is abundantly clear from the aforesaid that though the General Manager, North-Eastern Railway was the person who had to enter into the contract and if he had done so, this court would not have the jurisdiction to entertain the petition. Herein, the above said letter clearly shows that the tender, in fact, was accepted by the Ministry of Railways and this fact had been communicated to the Chief Engineer, North-Eastern Railway. In other words, the Ministry of Railways, which is situated in Delhi, would confer the courts at Delhi the jurisdiction to entertain the suit. Keeping in view this fact, it must be held that the courts at Delhi have the jurisdiction to entertain the suit.

10. Reverting back to the second contention, indeed before proceeding further, one can refer to some of the admitted facts. It is not in controversy that there is an arbitration agreement between the parties to refer the disputed to the arbitrator in accordance with the procedure prescribed. It is also not in dispute that the applicant had raised certain disputes in terms of the letter dated 16.8.1994. The said claim was rejected and the applicant had invoked the arbitration clause vide letter of 16.1.1995 and had given the name of his nominee arbitrator by letter of 11.9.1995. The provisions of the Arbitration and Conciliation Act, 1996, had been made applicable only in the year 1996. The earlier ordinance took the shape of the Arbitration and Conciliation Act. The relevant clause of the Arbitration reads:-

Subject as aforesaid, Arbitration Act, 1940 and the Rules there under and any statutory modification thereof shall apply to the Arbitration proceedings under this Clause.

11. Reliance on behalf of the petitioner was strongly place don the decision of the Supreme Court in the case of THYSSEN STAHLUNION GMBH v. STEEL AUTHORITY OF INDIA LIMITED, . The learned counsel for the petitioner read to the court different paragraphs from the judgment to bring home the point that since the provisions of the Arbitration and Conciliation Act, 1996 have come into being, the same would govern the disputes. In other words, according to him, the Arbitration Act, 1940 has no role to play.

12. Before the Supreme Court, in the case of Thyssen Stahlunion GmBH (supra), there were three petitions. In the case of Thyssen Stahlunion GmBH the disputes had arisen and arbitral proceedings commenced on 14.9.1995 under the Arbitration Act, 1940. Before the arbitrator was appointed, the Act of 1996 had come into force. In the other case, pertaining to M/s. Rani Construction Private Limited, there was an agreement, which provided that the matter would be governed by the Arbitration Act, 1940 or any statutory modification or re-enactment thereto. The Supreme Court, in the case of Thyssen Stahlunion GmBH held that the Arbitration Act, 1940 would continue to prevail while keeping in view that in the case of M/s. Rani Construction Pvt. Ltd., it had been agreed that the new enactment, if any, would govern the matter, it was held that the Arbitration and Conciliation Act, 1996 would be applicable.

13. In this regard, one can conveniently refer to certain paragraphs from the decision in the case of Thyssen Stahlunion GmBH (supra). In paragraph 24, the Supreme Court explained the words "in relation to" occurring in Section 85 of the Act. The relevant portion reads:

24. The expression "in relation to" cannot expand the scope of the saving clause in Section 85(2)(a) beyond "arbitral proceedings" to the enforcement of an award. Section 85(2)(a) of the new Act saves only those provisions of the old Act and the Foreign Awards Act that would apply to arbitral proceedings and not the proceedings to enforce the arbitral award. Reference in this connection may be made to a decision of this Court in Navin Chemicals Mfg. & Trading Co. Ltd. v. Collector of Customs, .

Thereupon, in paragraph 33, the Supreme Court again held:

33. Section 85(2)(a) of the new Act is in two limbs : (1) provisions of the old Act shall apply in relation to arbitral proceedings which commenced before the new Act came into force unless otherwise agreed by the parties, and (2) new Act shall apply in relation to arbitral proceedings which commenced on or after the new Act came into force. First limb can further be bifurcated into two : (a) Provisions of Old Act shall apply in relation to arbitral proceedings and (b) old Act will not apply in such cases where the parties agree that it will not apply in relation to arbitral proceedings which commenced before the new Act came into force. The expression "in relation to" is of widest import as held by various decisions of this Court in M/s. Doyback Systems Pvt. Ltd., ; Mansukhal Dhanrajamal Jain, ; M/s. Dhanrajamal Gobindram, ; and Navin Chemicals Mfg., . This expression "in relation to" has to be given full effect to, particularly when provisions" of the old Act. That would mean that the old Act will apply to whole gambit of arbitration culminating in the enforcement of the award. If it was not so, only the word "to" could have sufficed and when the Legislature has used the expression "in relation to", a proper meaning has to be given. This expression does not admit of restrictive meaning. First limb of Section 85(2)(a) is not a limited saving clause. It saves not only the proceedings pending at the times of commencement of the new Act but also the provisions of the old Act for enforcement of the Award under that Act.

While taking note of the Thyssen Stahlunion GMBH, in paragraph 41, the Supreme Court again laid the following guidelines:

.... We are, therefore, of the opinion that it would be the provisions of the old Act that would apply to the enforcement of the award in the case of Civil Appeal No. 6036 of 1998. Any other construction on the Section 85(2)(a) would only lead to the confusion and hardship. This construction put by us is consistent with the wording of Section 85(2)(a) using the terms "provision" and "in relation to arbitral proceedings" which would mean that once the arbitral proceedings commenced under the old Act it would be the old Act which would apply for enforcing the award as well.

13. In other words, the Supreme Court clearly held that where the arbitral proceedings have commenced before coming into force of the Act of 1996, it would be the Act of 1940 which would be applicable but where the parties had agreed that the new enactment, if any, would govern the matter, in that case, it would be the new Act, which would be so applicable.

14. This conclusion is obvious from the perusal of Section 21 and Section 85 of the Act. Both the relevant provisions are being reproduced below for the sake of facility:

21. Commencement of arbitral proceedings.-- Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.

85. Repeal and saving - (1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed.

(2) Notwithstanding such repeal-

(a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force;

(b) all rules made and notifications published, under the said enactments shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act.

15. Perusal of the aforesaid reveals that it is subject to the agreement between the parties, but if a request has been made for referring the disputes to arbitration then the arbitration proceedings in respect to the particular dispute would commence on the date when such a request is made. Once arbitral proceedings have commenced, the Arbitration Act 1940 would continue to the applicable because of the saving clause provided under Section 85 of the Act of 1996.

16. In the facts of the present case, admittedly, the notice for seeking the appointment of the arbitrator had been issued before coming into force of the Arbitration and Conciliation Act, 1996. In other words, the arbitration proceedings had already commenced in the year 1995 when such a notice had been issued. As already noticed above, it is one of the conditions agreed between the parties that the Arbitration Act, 1940, the rules therein and any statutory modification would apply to the arbitration proceedings. Under the clause, the expression "modification" would only mean certain changes that might be made in the Arbitration Act, 1940 but a re-enactment, when the Arbitration Act, 1940 is repealed, will not be modification of the Arbitration Act, 1940. Therefore, it must be held that the parties had agreed that it was the Arbitration Act, 1940, as modified, which would apply to the proceedings, which as already referred to above, have commenced before Arbitration Act, 1940 was repealed. In other words, the petition necessarily have to be governed by the Arbitration Act, 1940.

17. Very close to the facts of the present case, is the decision of the Supreme Court in the case of SHETTY'S CONSTRUCTIONS CO. PVT. LTD. v. KONKAN RAILWAY CONSTRUCTION and Anr., . In the cited case before the Supreme Court, the claim has been laid by the Contractor for arbitration in March 1995. An arbitration suit even had been filed at Bombay on 24.8.1995. One of the controversies that come up before the Supreme Court was as to whether the matter would be governed by the Arbitration Act, 1940 or not. The Supreme Court held that if request was made in terms of Section 21 of the Arbitration and Conciliation Act, 1996 before coming into force of the said Act, the matter would be governed by the Arbitration Act, 1940. The findings of the Supreme Court read:

4. A mere look to Sub-section (2)(a) of Section 85 shows that despite the repeal of Arbitration Act, 1940, the provisions of the said enactment shall be applicable in relation to arbitration proceedings which have commenced prior to the coming into force of the new Act. The new Act came into force on 26-1-1993. The question therefore, arises whether on that date the arbitration proceedings in the present four suits had commenced or not. For resolving this controversy we may turn to Section 21 of the New Act which lays down that unless otherwise agreed to between the parties, the arbitration suit in respect of arbitration dispute commenced on the date of which the request for referring the dispute for arbitration is received by the respondents. Therefore, it must be found out whether the requests by the petitioner for referring the disputes for arbitration were moved for consideration of the respondents on and after 21-1-1996 or prior thereto.

18. Keeping in view the aforesaid, it must follow, therefore, that it is the Arbitration Act, 1940, which governs the parties in the present case and the present petition, therefore, filed under Section 11 of the Arbitration and Conciliation Act, 1996, is not maintainable.

19. For these reasons, given above, the petition must fail and accordingly is dismissed.

20. Parties are left to bear their own costs.