M/S. Blue Star Limited vs Union Of India
2008 Latest Caselaw 2194 Del

                 "REPORTABLE"
*          HIGH COURT OF DELHI AT NEW DELHI

+                  OMP No.389/2002

                                 Date of decision : 10.12.2008

#     M/S. BLUE STAR LIMITED                     ..... Petitioner

!                  Through : Mr. Arun Khosla, Advocate
                             Ms. S. Kakkar, Advocate.

                            Versus

$     UNION OF INDIA                .....Respondent
^         Through : Mr. R.V. Sinha, Advocate
                    Mr. A.S. Singh, Advocate.

%
      CORAM:
      HON'BLE MS. JUSTICE ARUNA SURESH

     (1) Whether reporters of local paper may be
         allowed to see the judgment?

     (2) To be referred to the reporter or not? Yes

     (3) Whether the judgment should be reported
         in the Digest ?                     Yes

                        JUDGMENT

ARUNA SURESH, J.

1. This objection petition under Sections 30 and 33 of

the Arbitration Act, 1940 (hereinafter referred to as

„Act‟) is directed against the arbitral award dated

3.7.2002 passed by the sole arbitrator, Shri

K.K.Mutreja.

2. Petitioner/objector Company is a duly registered

company and is engaged in the business of Central

Air-conditioning. Central Public Works Department

(hereinafter referred to as „CPWD‟) is a department

of Central Government operating with regional set

ups throughout the country for construction,

maintenance and repairs of all works and building

financed from Civil Works Budget and has its

western region office at Bombay. Central

Electrical Division is one of its units having

registered office at ISP Quarters, Near Gymkhana,

Nasik Road. India Security Press (ISP), client of

the respondent CPWD, invited tenders for the work

of installing central air conditioning plant of ISP,

Nasik vide Notice Inviting Tenders (NIT) Ref.

No.54/NCELD/88/761 dated 14.9.1988. Petitioner

submitted its technical bid on 14.10.1988 vide

technical bid No.SR/.R261/188 and its financial bid

vide letter No.SR/261(F) dated 28.10.1988. CPWD

upon considering the offer of the petitioner in

detail sought some clarifications from the

petitioner on 17.11.1988 vide its letter No.54 (238)

CONT/BCEC/2310 dated 1.12.1988 which was duly

replied by the petitioner on 9.12.1988 vide its letter

No.SR/261(F). There was further correspondence

between the parties on 26.11.1988, 9.12.1988,

31.3.1989 and finally respondent accepted the

tender of the petitioner on 14.4.1989 being Letter

of Award No.54/NCELD/89-90/978/990.

3. The conditions of the contract forming part of the

NIT issued by the respondent contained a clause

10cc which provided for price escalation. The

stipulated period of completion for the said work

was 12 months and price escalation under clause

10cc was applicable to the work. As per the

petitioner under clause 10cc the base date for

calculating price escalation was the last date when

the tender was received. The tender was stipulated

to be received by December, 1988 and therefore,

the base date was applicable not only to the work

executed during the original completion period but

also to the work done during the extended

completion period, that is, till completion of the

entire contract and release of the final payment by

the respondent.

4. Execution of the work per se the contract could not

be completed within the period of 12 months on

account of delay in the completion of civil work and

the work could be completed only on 24.9.1992.

5. The manner in which escalation was intended to

be allowed, according to the petitioner, was as per

clause 10cc of the agreement and the petitioner‟s

claim in the sum of Rs.1,26,708/- and Rs.5,80,939/-

respectively aggregating to Rs.7,07,647/- was made

towards the escalation in the price applicable to

the work carried out till the date of completion and

the said claims and payments against the same

were released by the respondent.

6. The process of raising bills in the respondent

department was carried out on the basis of entries

in the measuring book and accordingly, the

aforementioned claims of escalation were paid by

the respondent department as Running Bill Nos. 8

and 11 respectively and payments against the said

bills were released without any interference or

representation in this regard by the petitioner.

7. It was alleged by the petitioner that the respondent

committed a volte face on its commitment with

regard to the escalation during the original

contractual period by deducting the earlier

released sum of Rs.7,07,647/- at the time of

settlement of the 17th running bill. The respondent

weren‟t firm on its commitment with regard to

grant of escalation in payment for the work carried

out by the petitioner during the original contractual

period and gave escalation in payment only for the

work done during the extended period of the

contract with the base date remaining the same as

December, 1988.

8. Dispute arose regarding payments and the

petitioner raised following claims:-

(i) Claim No.1 in a sum of Rs.7,07,647/- which

was allowed under running bills no.8 and

11 towards escalation and payments were

made and subsequently withdrawn.

(ii) Claim no.2 in a sum of Rs.21,33,821.19/-

towards interest on the above said sum of

Rs.7,07,647/- at the rate of 20% per annum

compounded quarterly in accordance with

the practice followed by financial

institutions and banks from March, 1991

till the date of filing the instance claim.

(iii) Claim No.3 pendente lite and future

interest at the rate of 20% per annum on

the aggregate sum of Rs.28,31,468.19/- for

the period of the pendency of the arbitral

proceedings, pronouncement of award and

for the period thereafter till the payment of

the awarded amount.

9. The dispute was referred for arbitration to

arbitrator Dr. Y.P.C. Dangey by the Chief Engineer

(E) West Zone, CPWD, Mumbai vide letter No.T-

26/(5)/CE/E/WZ/98/122 on 19.2.1988 and the notice

of reference of disputes to the arbitrator was given

to both the parties and the arbitration proceedings

commenced on 16.8.1991. Latter, after the

resignation of Y.P.C. Dangey, Shri K.K.Mutreja,

Ministry of Urban Development, Mumbai was

appointed as arbitrator by Chief Engineer, WZ(E)

CPWD, Mumbai vide letter No.T-

31(5)CE(E)/WZ/387 dated 8.8.2001 who entered

into reference on 18.10.2001. The case came up for

effective hearing on 23.11.2001 at New Delhi. The

petitioner raised a claim to the tune of Rs.7.1 lakh

towards escalation in payment under clause 10cc of

the agreement.

10. The arbitrator while rejecting the claim of the

petitioner observed:-

"Harmonious construction of the condition quoted by the claimants, leaves no doubt in my mind and leads me to conclusion that if the work was completed within the period of the contract itself, the claimants would have been entitled to no increase, but if the contract was concluded in a period of 1 year and 1 day, the claimants would have been entitled to increase in cost by the agreed formula for work done in that extra 1 day only and not the entire period, and analogous to this, for any extent of extended period."

11. The award was signed at Mumbai on 3.7.2002.

12. The respondents in their counter affidavit while

refuting the objections to the Award challenged the

jurisdiction of this court to entertain the objection

petition as no cause of action either in full or in

part arose in Delhi. It is alleged that the

agreement was executed in Maharashtra and the

award under challenge was made at Mumbai by the

learned Arbitrator K.K. Mutreja, having its office at

Mumbai and the award was delivered to the parties

by the learned Arbitrator within the territorial

jurisdiction of the courts at Maharashtra.

Therefore, this court has no territorial jurisdiction

to entertain the matter.

13. Respondent has also refuted the claim of the

petitioner for escalation charges and has averred

that the escalation charges were payable for the

period after expiry of the stipulated period of the

contract and inadvertently, the payment of

escalation charges were also made for the period of

the contract which was rightly recovered from the

claimant and under these circumstances, the

arbitrator has rightly rejected the claim of the

petitioner while passing the impugned award.

14. Petitioner in reply to the counter affidavit of the

respondents has put forth that the learned

Arbitrator and his predecessor Y.P.C. Dangey had

held the entire arbitration proceedings at Delhi and

this court, therefore, has the jurisdiction to

entertain the objection petition.

15. The foremost issue to be decided in the present

petition is whether this court at Delhi has

territorial jurisdiction to entertain this objection

petition.

16. Learned counsel for the petitioner while referring

to para 12 of the petition has argued that the

learned Arbitrator had held entire arbitration

proceedings in Delhi and the headquarter of

respondent is situated at New Delhi thereby giving

this court the jurisdiction to entertain the present

objection petition.

17. Mr. R.V. Sinha, learned counsel for the respondent

has argued that no cause of action in full or in part

had arisen in Delhi as the agreement was executed

in Maharashtra and the award dated 3.7.2002 was

finally made at Mumbai by the arbitrator, Shri

K.K.Mutreja who had his office at Mumbai and the

award was delivered to the parties by the learned

arbitrator within the territorial jurisdiction of the

court at Maharashtra and therefore, this court has

no territorial jurisdiction in the matter.

18. As defined in Section 2 of the Act, „Court‟ means a

Civil Court having jurisdiction to decide the

questions forming the subject matter of a suit, but

does not, except for the purpose of arbitration

proceedings under Section 21 include a Small

Cause Court.

19. Section 30 of the Act lays down the grounds for

setting aside the award. An award can be set aside

by a court if it is of the view that arbitrator or

umpire has misconducted himself or the

proceedings, or the award has been made after the

issue of an order by the court superseding the

arbitration or after arbitration proceedings have

become invalid under Section 35, or the award has

been improperly procured or is otherwise invalid.

20. Section 31 of the Act speaks of jurisdiction of a

court where an award may be filed to be made a

rule of the court, or any award or objection to the

award or any other application relating to the

Arbitration Act or the award can be filed.

21. For the sake of brevity Section 31 of the Act is

reproduced as below:-

"31. Jurisdiction.

(1) Subject to the provisions of this Act, an award may be filed in any Court having jurisdiction in the matter to which the reference relates.

(2) Notwithstanding anything contained in any other law for the time being in force and save as otherwise provided in this Act, all questions regarding the validity, effect or existence of an award or an arbitration agreement between the parties to the agreement - or persons claiming under them shall be decided by the Court in which the award under the agreement has been, or may be, filed, and by no other Court.

(3) All applications regarding the conduct of arbitration proceedings or otherwise arising out of such

proceedings shall be made to the Court where the award has been, or may be, filed, and to no other Court.

(4) Notwithstanding anything contained elsewhere in this Act or in any other law for the time being in force, where in any reference any application under this Act has been made in a Court competent to entertain it, that Court alone shall have jurisdiction over the arbitration proceedings and all subsequent applications arising, out of that reference, and the arbitration proceedings shall be made in that Court and in no other Court."

22. In "Jatinder Nath v. Chopra Land Developers

Pvt. Ltd. & Anr., AIR 2007 SC 1401", question

regarding jurisdiction of the Court at Faridabad to

entertain the petition under the Act cropped up for

decision. Underlying provisions contained in

Section 31,32,33 of the Arbitration Act were

analysized and interpreted by the Apex Court as

follows:-

"12.............Section 31(1) of the Act provides that an Award may be filed in any court having jurisdiction in the matter to which the reference relates. Under that section, the Award can be filed in the court within whose jurisdiction the

property in dispute lies. Parties cannot give jurisdiction to a court under Section 14 by consent if that court does not has jurisdiction. If an award refers to an immovable property, the court having jurisdiction in respect of the same will entertain an application under Section 14. In order to decide as to which court has jurisdiction to entertain a petition under Section 14, reference has to be made to Section 2(c) read with Section 31(1) of the Act. Merely because the arbitrator chooses to hold the proceedings in a place where no suit could be instituted, and chooses to make an award at that place, it would not give the court of that place territorial jurisdiction to decide the matter under the Act. Section 30 refers to ground for setting aside an award. Section 30 is to be read with Section 33. The idea behind the entire scheme of the Arbitration Act appears to be that an application by a party challenging the validity of correctness of the award on whatever ground has to be made under Section 33. Section 33 is the only section under which a party is given the right to apply to the court to challenge either the agreement or the award. Under the Act, therefore, after the Award has been filed a party is permitted to make an application under Section 33 to bring all kinds of defects to the notice of the court and the court will give reliefs either under Section 15 or Section 16 or even under Section 30 of the Act. In an arbitration without the intervention of the court, an award can be filed in any court

having jurisdiction in the matter to which the reference relates. The award can be filed only in the court which would have jurisdiction in respect of the subject matter of the dispute. In order to decide the jurisdiction of the court, it is necessary to decide whether the court would have jurisdiction to try a regular suit between the parties in which the relief is claimed. Section 33 does not prescribe the court before which an application under this section may be filed, but Section 31 makes such provision. Section 31(2) provides that all questions regarding the validity, effect or existence of an award or an Page 1191 arbitration agreement shall be decided by the court in which the award has been filed or may be filed. Section 2(c) lays down the forum. The application has to be moved in the court within, whose jurisdiction the opposite party resides or carries on business or within whose jurisdiction any part of the cause of action arises. Residence or carrying on business of a party, apart from the place of accrual of a cause of action is relevant for determining the territorial jurisdiction of the court in arbitration cases, if the question so arises in connection with the subject matter of the dispute."

23. Territorial jurisdiction of a court in general is

determined by the provisions of Section 20 of the

Civil Procedure Code (hereinafter referred to as

„Code‟) which reads as follows:-

"20. Other suits to be instituted where defendants reside or cause of action arises.

Subject to the limitations aforesaid, every suit shall be instituted in Court within the local limits of whose jurisdiction-

(a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or

(b) any of the defendants, where there are more than one, at the time of the commencement of the suit actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or

(c) the cause of action, wholly or in part, arises."

24. The principle underlying the provisions of Clause

(a) and (b) of Section 20 is that a suit has to be

instituted at a place where the defendant is able to

defend the suit without undue trouble or

inconvenience.

25. Juxtaposed reading of Section 2(c); Section 31(2) of

the Act and Section 20 of the Code manifests that

the court having jurisdiction under the Act would

be the court competent to entertain a suit in regard

to the subject matter of reference, i.e. the dispute

which is sought to be referred to arbitration. The

objection petition therefore has to be moved in the

court within whose jurisdiction the respondent

resides or carries on business or within whose

jurisdiction the cause of action arose. Residence or

carrying on business by a party besides place of

accrual of cause of action becomes relevant for

determining the territorial jurisdiction of the Court

in arbitration cases, if the question is so raised in

connection with the subject matter in dispute.

26. Para 12 of the petition reads as follows:-

"That the respondent, being the Union of India and having its principal place of governance, general superintendence and management at Delhi and the

Arbitration proceedings having taken place at Delhi this Hon‟ble Court would have the territorial jurisdiction to entertain the present petition."

27. The facts in this case elucidate that the offer

inviting tender was made at Maharashtra. The

tenders were accepted by CPWD at Maharashtra,

the work of central air conditioning plant for ISP

Nasik was also awarded at Maharashtra. The work

of providing air conditioning plant was executed at

Maharashtra. The branch of the respondent

inviting tenders is Western Region Branch of

CPWD having its registered office at Mumbai in the

State of Maharashtra. The arbitral award was also

signed and delivered to the parties at Mumbai. No

part of cause of action pertaining to the dispute

arose at Delhi and the subject matter of the dispute

therefore lay at Maharashtra. Simply because the

arbitrator chose to hold proceedings at a place

namely Delhi where no suit could be instituted, it

would not vest with the Court at Delhi with the

jurisdiction to entertain the present objection

petition. The arbitrator could hold its proceedings

at any place of his choice. Proceedings conducted

by the arbitrator in no manner can be considered

as cause of action wholly or in part having arisen in

Delhi so as to vest jurisdiction in this court.

28. The next question to be considered is whether the

respondent, Union of India carried on its business

or worked for gain through Superintendent

Engineer (TLC) Central Public Works Department

and Executive Engineer (E), Central Electrical

Division, New Delhi to confer jurisdiction on the

courts at Delhi.

29. The expression "voluntarily resides" appearing in

Section 20 of the Code is significant and is of

relevance to the facts and circumstances of this

case. This expression undisputedly refers to natural

persons and not to legal entities. Similarly, the

expression "carries on business" or "personally

works for gain" in no manner refers to the

functions carried on by the Union of India in

discharge of its executive powers conferred by

Article 298 of the Constitution. A contract made in

exercise of the executive power of Union of India

has to be expressed to be made by the President by

virtue of Article 299 of the Constitution. Clause (2)

of the said article also makes it clear that the

President shall not be personally liable in respect of

any contract or assurances made or executed on

his behalf. The President, therefore, cannot be said

to be personally working for gain within the

meaning of Section 20 of the Code.

30. Section 20 of the Code contemplates people

dwelling within the territorial limits of the court

and the persons indulging in commercial activities

within that area even if they do not dwell therein.

Thus, this Section in plain and unmistakable

language conveys that idea. Therefore, it would be

improper to bring the government within the

import of the expression "the defendant carries on

business, or personally works for gain". Therefore,

the courts at Delhi do not have the jurisdiction in

regard to disputes relating to all contracts

executed by Union of India simply on the reasoning

that Union of India has its office at New Delhi.

31. In "Binani Brothers (P) Ltd. v. Union of India,

ILR (1975) 2 Delhi 196", in similar

circumstances Division Bench of this Court held:

"....... The next question is whether the Union of India carried on business or worked for gain through the Director of Supplies and Disposals, New Delhi to confer jurisdiction on the courts at Delhi. The answer has to be in negative. The expression "voluntarily resides"

in Section 20 is significant. It necessarily refers to natural persons and not to legal entities. Likewise, the expression "carried on business" or "personally works for gain" do not refer to functions carried on by the Union of India is discharge of its executive powers conferred by Article 298 of the Constitution. While Article 299 of the Constitution provides that all contracts made in the exercise of the executive power of the Union shall be expressed to be made by the President clause (2) of this article states that the President shall not be personally liable in respect of any contract or assurance made or executed on his behalf. The President, therefore, cannot be said to be personally working for gain within the meaning of Section 20 of the Code of Civil Procedure. Justice Prithvi Raj in Insortex Pvt. Ltd. v. Union of India, Suit No.394 of 1967, decided on May 4, 1971, relying on R.J. Wyllie and Co. v.Secretary of State, AIR 1930 Lah 818; 126 IC 514, Dominion of India v. M/s. R.C. K.C. Nath and Co., Khulna and Azizuddin

and Co. v. Union of India, AIR 1955 Mad 345, had taken the same view."

This judgment was also referred to in „M/s.

Bakhtawar Singh Bal Kishan v. Union of India

& Ors., (1988) 2 SCC 293. Reference is also

made to "M/s. Prahlad Rai Dalmia v. Union of

India, AIR 1986 Delhi 76".

32. CPWD is the principal agency of the Central

Government for construction and maintenance of

Central Government buildings and other capital

assets. CPWD provided integrated construction

management services from project concept to

commissioning and of maintenance management in

the post construction stage. This department

functions with regional setup throughout India and

has a regional setup in Mumbai for West India.

Western Zone was formed in May, 1963 for more

efficient management of the increasing work load.

Thereafter, Western Zone-II, Central Zone and

various other Zones followed suite.

33. CPWD Western Zone had awarded this contract to

the petitioner for Central Air Conditioning Plant for

India Security Press (ISP), Nasik Road. ISP Nasik

Road is printing all kinds of security documents of

Government of India, State Government, Banks and

Foreign Countries. It prints, manufactures postal,

non-postal stamps, postal stationery items and

other security items such as passport, MICR and

Non-MICR cheques, Promissory Notes, savings

instruments and other misc. security items for

Financial Corporation, etc. ISP is under the direct

administrative control of the General Manager,

India Security Press, who is the Head of the

Department and also the Ex-Officio Controller of

Stamps of India, having its head office at Nasik.

34. ISP is an industrial establishment of Government of

India under the Ministry of Finance. Therefore, to

say that Union of India carries on business at Delhi

and courts at Delhi have the jurisdiction to

entertain this objection petition is a fallacy. Union

of India carries on its business all over India and it

cannot be held by the court that a suit against

Union of India can be instituted in any court of

India merely because Union of India is located

throughout India and therefore the Union of India

carried on business throughout India. As already

discussed above, Union of India being a legal entity

cannot be said to be voluntarily residing and

personally working for gain at Delhi because the

expression appearing in Section 20 of the Code

refers to natural persons only.

35. True that ISP is a commercial undertaking of Govt.

of India, however, the present contract was entered

into by the petitioner and CPWD through Executive

Engineer (E), Central Electrical Division, ISP

Quarters, Nasik Road to be executed at Nasik. The

financial bid was submitted by the petitioner to the

respondent at Nasik. Contract was entered into

between the parties at Mumbai, the work was

awarded to the Petitioner at Mumbai, work

contract was executed by the petitioner at Nasik,

the award was pronounced and signed at Mumbai.

Therefore, for all purposes the respondents resided

and worked for or carried on business activities at

Mumbai.

36. Learned counsel for the petitioner has referred to

"Sharma Enterprises vs. C.M.C. Ltd., 2003 III

AD (Delhi) 472", to emphasis that this court has

held under the circumstances that court at Delhi

has jurisdiction to entertain the petition under the

Arbitration Act. The said petition was filed by

Sharma Enterprises for appointment of an

arbitrator who was stationed at Delhi and the

respondent C.M.C. Ltd. had objected to the

territorial jurisdiction of this court on the

contentions that not only the agreement between

the parties was entered and executed at

Secundarabad but also the work was executed at

Hyderabad and the parties had agreed to invoke

the jurisdiction of the courts at Secundrabad in

respect of the disputes arising of in any way

connected with the agreement. While rejecting the

objection of the respondent, this court held that

since corporate office of the petitioner was situated

in Delhi though the registered office at Hyderabad

and part payment was made at Delhi though most

of the payments were made at Hyderabad and in

the face of the said facts and also in view of clause

34 contained in the arbitration agreement

according to which all disputes and differences

were to be referred and settled by the Project

Manager, Consultant who was stationed at Delhi.

Courts at Delhi had the jurisdiction to entertain

petition under the Arbitration Act.

37. However, the facts and circumstances of this case

are different from the facts and circumstances

which was under consideration by this court in

Sharma Enterprises (supra) case. In the said

case, the respondent CMC Ltd. was a statutory

corporation within the meaning of Section 20 of the

Code and therefore, the jurisdiction could be

conferred on the court within whose jurisdiction

the principal place of business was located,

whereas Union of India is neither a corporation nor

has any legal entity.

38. "Sthapati Engineers & Builders vs. Central

Building Research Institute & Anr., 66 (1997)

Delhi Law Times 232", is another judgment of

this court cited by the learned counsel for the

Petitioner to support his submissions that this court

has the jurisdiction to entertain this objection

petition. In the said case, respondent was a unit of

Council of Scientific Industrial Research Society

having its registered office at Delhi. Besides,

Binani Brothers‟ case (supra), M/s. Bakhtawar

Singh Bal Kishan‟s case (supra) were not

brought to the notice of the court nor were

considered while deciding the said suit.

39. Similarly, "Food Corporation of India v. M/s.

Evdomen Corporation, AIR 1999 Supreme

Court 2352", is not applicable to the facts and

circumstances of the case. The jurisdiction of the

Bombay High Court to entertain a suit under its

ordinary civil jurisdiction was determined by

Clause 12 of Letters Patent of Bombay High Court

and it was held that Section 20 CPC would not be

applicable to High Court in its original civil

jurisdiction in view of Section 120 and Clause 12 of

Letter Patent of the Bombay High Court.

40. In the light of my discussion as above, it is

concluded that this court has no territorial

jurisdiction to entertain the present objection

petition. Hence, the objection petition be returned

back to the petitioner for refiling the same in the

Court having jurisdiction within 90 days from the

date of the order. In case the objection petition is

instituted in the competent court of jurisdiction as

ordered, it would be treated having been instituted

within time. Registry shall ensure that the arbitral

award, proceedings conducted therein and other

relevant documents filed by the parties are

returned back to them within one week so as to

enable them to file the same along with the

objection petition in the competent court of

jurisdiction.

41. Petition stands disposed of accordingly.

ARUNA SURESH (JUDGE) December 10, 2008 vk