National Highways Authority Of ... vs Pnc Constructions Co. Ltd.
2005 Latest Caselaw 1004 Del

JUDGMENT

Mukul Mudgal, J.

1. This is an appeal under Section 37(2)(a) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the `Act') against the order dated 24th July, 2003 by which the Arbitral Tribunal held the claims Nos.1,2,3,4,7,8,9 and 10 of the respondent/contractor adjudicated by the Disputes Review Expert(hereinafter referred to as the `DRE') beyond the scope of reference to the arbitration and thus declined to entertain the pleas of the appellant in respect of such claims.

2. The facts of the case as follows:-

The respondent/contractor was awarded on 29th December, 1995 the work of four laning of Km. 8000 to Km. 24.000 of Agra-Gwalior Section of NH-3 in the State of Uttar Pradesh (Contract Package No.NS-4/UP) by the appellant National Highways Authority of India(NHAI). Thereafter disputes arose between the parties. The DRE stood appointed on 8th February, 2001. On 16th October, 2001, 20 disputes were referred to Engineer for his decision by the respondent/contractor under Clause 24.1 which reads as follows:-

"24.1 If the Contractor believes that a decision taken by the Engineer was either outside the authority given to the Engineer by the Contract or that the decision was wrongly taken, the decision shall be referred to the Dispute Review Expert within 14 days of the notification of the Engineer's decision."

3. The other relevant clauses of the contract between the parties reads as follows:-

"4Engineer's Decision

Except where otherwise specifically stated, the Engineer will decide contractual matters between the Employer and the Contractor in the role representing the Employer

24 Disputes (already extracted)

25 Procedures for Disputes

25.1 The Dispute Review Expert shall give a decision in writing within 28 days of the receipt of a notification of a dispute.

25.2 He shall be paid daily at the rate specified in the Contract Data together with reimbursable expenses of the types specified in the Contract Data and the cost shall be divided equally between the Employer and the Contractor, whatever decision is reached by the Dispute Review Expert. Either party may refer a decision of the Disputes Review Expert to an Arbitrator within 28 days of his written decision. If neither party refers the dispute to arbitration within the above 28 days, the Dispute Review Expert's decision will be final and binding.

25.3 The arbitration shall be conducted in accordance with the arbitration procedure stated in the Special Conditions of Contract."

Even before the Engineer's decision had been arrived at under Clause 4 as extracted hereinabove the respondent referred 20 disputes to DRE. The Engineer in the meanwhile on 6th November, 2001 had given his decision rejecting all the 20 disputes raised by the respondent/contractor. On 27th December, 2002 the DRE gave its decision by allowing claim Nos.1,2,3,4,7,8,9 and 10(called `A' group for convenience) in favor of the respondents/contractor and rejecting the contractor's claim Nos.5,11,12,13,15,17,19,20(called `B' group). However, the remaining four claims were settled between the parties. On 23rd January, 2003 the respondent/contractor invoked the arbitration clause in respect of dispute Nos.5,11,12,13,15,17,19,20(group `B') which were rejected by the DRE within the period of 28 days of the DRE's order as stipulated by clause 25.2. It is not in dispute that within 56 days of the order of DRE and beyond the period of 28 days stipulated in Clause 25.2, the appellant herein also referred the claims of the respondents which were allowed by the DRE for reference to the arbitration. On a plea raised by the respondent about the maintainability of the arbitration in respect of the `A' group claims, the arbitral tribunal held that it did not have any jurisdiction in respect of the claims sought to be referred by the appellant on the 56th day as clause 25.2 of the contract barred the reference of dispute to the arbitration beyond 28 days. The said order of the arbitral tribunal has been challenged before this Court under Section 37 of the Act. Section 37 of the Act reads as follows:-

"37. Appealable orders.__(1) An appeal shall lie from the following orders (and from no others) to the court authorised by law to hear appeals from original decrees of the court passing the order, namely:-

(a)granting or refusing to grant any measure under Section 9;

(b) setting aside or refusing to set aside an arbitral award under Section 34.

(2) An appeal shall also lie to a court from an order of the arbitral tribunal--

(a) accepting the plea referred to in Sub-Section (2) or Sub-Section (3) of Section 16; or

(b) granting or refusing to grant an interim measure under Section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section affect or take away any right to appeal to the Supreme Court."

The other relevant sections of the Act necessary for disposal of this appeal are Sections 5 and 43(3) which read as follows:-

"5.Extent of judicial intervention.__ Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."

"43. Limitations.---

(1) ...

(2) ...

(3) Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may or such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper."

While there is no pleading in respect of the undue hardship specifically contained in the memo of appeal, the learned counsel for the appellant has nevertheless relied upon paragraph m) at Page 7 of the appeal which reads as follows to contend that Court can derive the plea of the undue hardship on the basis of averment contained in the appeal:-

(m) "For that the impugned order is highly prejudicial and exposes the Appellant to the liability of more than Rs. 80 lakh."

It is apparent that the pleadings are woefully deficient and do not even take note of the mandate and requirement of Section 43(3) of the new Act. Section 43(3) does not require a mere legal pleading but undue hardship has to be based on factual pleadings which are not properly present there in the present case. In the interest of justice, the Court could have adjourned the matter so as to permit the appellant to amend the memo of appeal subject to the payment of the costs. This would have unnecessarily delayed the disposal of this matter and the pending arbitration between the parties. However, Mr. Sharma, the learned counsel for the respondent was gracious enough not to insist upon this resort provided costs were paid to the respondent. In this view of the matter, in the event of appellant's succeeding in this appeal, the costs are required to be imposed on the appellant.

4. The main plea of the appellant is that since the respondent failed to refer `A' group claims for arbitration, it causes undue hardship to him as (a) the claims arose from the same agreement (b) the connected claims are being considered by the arbitrator and (c) respondent itself had not followed the contract in so far as he chose to rush to the DRE even before the engineer under clause 5 had rendered his decision on 6th November, 2001.

5. Mr. Sharma, the learned counsel for the respondent has submitted that the clause has to be strictly followed and it is a evident from a bare perusal of clause 25.2 that the DRE's decision was final and binding which clearly indicated that the order was not challengeable and for that purpose has relied upon the judgment of the Hon'ble Supreme Court in National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co. & Anr., reported as JT 1997 (4) S.C. 180 and in particular para 19 thereof. The said para reads as under:-

"19. From the case law referred to above the legal position that emerges is that an agreement which in effect seeks to curtail the period of limitation and prescribes a shorter period than that prescribed by law would be void as offending Section 28 of the Contract Act. That is because such an agreement would seek to restrict the party from enforcing his right in Court after the period prescribed under the agreement expires even though the period prescribed by law for the enforcement of his right has yet not expired. But there could be agreements which do not seek to curtail the time for enforcement of the right but which provides for the forfeiture or waiver of the right itself if no action is commenced within the period stipulated by the agreement. Such a clause in the agreement would not fall within the mischief of Section 28 of the Contract Act. To put it differently, curtailment of the period of limitation is not permissible in view of Section 28 but extinction of the right itself unless exercised within a specified time is permissible and can be enforced. If the policy of insurance provides that if a claim is made and rejected and no action is commenced within the time stated in the policy, the benefits flowing from the policy shall stand extinguished and any subsequent action would be time barred. Such a clause would fall outside the scope of Section 28 of the Contract Act. This, in brief, seems to be the settled legal position. We may now apply it to the facts of this case."

In my view the aforesaid judgment is not applicable to the facts of the present case for the reason that the judgment clearly dealt with a situation where the forfeiture or waiver of right was clearly stipulated. IN the present case only the finality of the DRE's opinion is stipulated and there is no specific ban on an exercise of an appellate remedy stipulated under Section 37(2) of the Act. The learned counsel for the respondent's plea could have been worthy of consideration if clause 25.2 clearly stated that such an order will not be challengeable in appeal. Such a stipulation not having been provided in the agreement, the respondent's plea cannot be accepted.

6. The learned counsel for the respondent has also contended that the Section 5 of the Act limits the nature of the challenge which could be raised in these proceedings under Section 37(2) of the Act. However, the learned counsel for the appellant has submitted that the Section 5 provided the extent of judicial intervention in the manner provided under Section 43(3) which occurs under Part I of the Act. If the mandate of Clause 25.2 that proceedings be initiated within a time fixed for reference of disputes for arbitration operates in such a manner in a case so as to cause undue hardship it is open to the Court to extend the period as thought proper as per the mandate of Section 43(3) of the Act.

7. In an arbitration proceeding Section 5 of the Act restricts intervention except a manner permitted in Part I. Section 43 falls within Part I of the Act and 43(3) permits undue hardship to be put forward as a ground to challenge an order which applies the agreement which bars the submission of disputes to arbitration beyond the time fixed in the agreement. In the present case clause 25.2 forbids the raising of a challenge to the DRE's order beyond 28 days and such challenge before the arbitrator was sought to be raised beyond 28 days i.e. on the 56th day. In my view, therefore this Section 43(3) falling in Part I clearly applies and it is open to the Court to consider the issue of undue hardship canvassed by the appellant.

8. There is a delay of about 28 days in the espousal of the challenge to the DRE's order allowing claim in Group `A'. It is not in dispute that the respondent's Group `B' claims which were rejected by the DRE have been referred to arbitration. Furthermore due to the interim orders of this Court there has been no real progress before the arbitral tribunal in respect of `B' group of claims pending before it at the behest of the respondent. In this kind of a situation to deny the appellant the right to agitate his grievance in respect of clause 25.2 is indeed a case of undue hardship particularly when delay in seeking the reference is not more than 28 days and the arbitrator is seized of the said disputes in Group `B' at the behest of the respondent arising from the same contract. The impact of the claims of Group `A' are to the tune of about Rs.80 lakh as per the case put up by appellant and not specifically denied by the respondent.

9. Accordingly the appeal is allowed and the order dated 24th July, 2003 passed by the arbitral tribunal is set aside subject to the payment of the costs quantified at Rs.30,000/- payable to the respondent through its counsel not later than 20th August, 2005 for the reasons recorded for permitting to raise the plea of undue hardship without recourse to further hearings for amendment of the appeal.

10. The parties to appear before the arbitral tribunal on 12th September, 2005. The appellant is directed to file his objections to the respondent's claims before the arbitral tribunal within 4 weeks from today with an advance copy. The response to the said objections be filed within 4 weeks thereafter. It is made clear that the appellant cannot raise any other claim/counter claims except objections to Claims Nos.1,2,3,4,7,8,9 & 10 which allowed in favor of the respondent by the DRE. Both the counsel for the parties agree that since a lot of time has already elapsed and the proceedings were stayed in this Court on 2nd December, 2003, the arbitral tribunal be directed to dispose off the reference not later than six months from the first date of hearing after this court's order. Ordered accordingly. The arbitral tribunal shall also decide the claims (in group `B') of the respondent pending before it within the same period.

11. Appeal stands allowed and disposed of accordingly with costs as indicated above.