M/S. Veenu Construtions vs M/S. Aruna Cooperative Group ...
2009 Latest Caselaw 4673 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+      CS(OS) No. 1259/1992 & I.A. 11928/1994

M/S. VEENU CONSTRUTIONS                     ..... Petitioner
                  Through:                  Mr. B.K. Dewan, Advocate


                      versus

M/S. ARUNA COOPERATIVE
GROUP HOUSING SOCIETY LIMITED.
& ANR.                     ..... Respondents
                 Through: Mr. L.D. Adlakha, Advocate

%                                 Date of Decision : NOVEMBER 17, 2009

CORAM:
HON'BLE MR. JUSTICE MANMOHAN

1. Whether the Reporters of local papers 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

MANMOHAN, J (ORAL)

1. Present petition had been filed in the year 1992 under Sections 8,

9 and 20 of Arbitration Act, 1940 (hereinafter referred to as "Act,

1940") for appointment of an arbitrator to adjudicate upon the disputes

between the petitioner and the respondent-Cooperative Society.

2. Mr. B.K. Dewan, learned counsel for petitioner-contractor stated

that petitioner-contractor was awarded a contract by respondent no. 1

for carrying out balance construction work of 70 flats at Plot No. 33,

Parparganj, Delhi on labour rate basis vide letter dated 26th April, 1990.

He further stated that the tender floated by respondent-Cooperative

Society contained an arbitration clause, namely, Clause 37 and the said

Clause would apply in view of the acceptance letter dated 26th April,

1990 even though no formal agreement had been executed between the

parties.

3. Mr. Dewan submitted that in pursuance to the said acceptance

letter, petitioner-contractor had not only executed the work partially but

had also submitted its fifth running bill on 5th October, 1991 which was

certified by the Architect, namely, the respondent no. 2. However,

according to Mr. Dewan, as the petitioner-contractor was not paid any

amount after submission of sixth running bill on 05th February, 1992,

petitioner-contractor filed the present petition in April, 1992.

4. Mr. Dewan emphasised that even though a formal contract had

not been executed between the parties, petitioner-contractor would be

entitled in law to rely upon Clause 37 of the tender document inasmuch

as respondent-Cooperative Society had accepted petitioner-contractor's

offer vide letter dated 26th April, 1990 and petitioner-contractor had

implemented part of the contract. Mr. Dewan also placed reliance upon

Clause 15 of Special Conditions (hereinafter referred to as "SC") of the

tender document forming part of the Schedule of Quantities wherein it

had been stated that irrespective of the fact whether a formal contract

had been executed or not, written acceptance by respondent-

Cooperative Society shall constitute a binding agreement between the

parties. Accordingly, he submitted that the present petition needs to be

allowed and disputes between the parties needs to be referred to an

arbitrator.

5. On the other hand, Mr. L.D. Adlakha, learned counsel for

respondent-Cooperative Society submitted that there was no arbitration

agreement between the parties as the contract had not been executed in

writing even though the last paragraph in the respondent-Cooperative

Society's letter dated 26th April, 1990 specially stipulated so.

6. Mr. Adlakha relied upon a judgment passed by this Court in

Union of India Vs. Mohan Meakin Breweries Ltd. reported in AIR

1988 NOC 33 (Delhi) wherein this Court had held as under:-

"Where a voluntary offer made by a breweries company to the Union of India for supply of certain quantity of rum to the Army as a gesture of good will and not pursuant to any tender enquiry, which was accepted by the Government and subsequently by another letter, a condition was put forth by the Company that if there was delay in tendering or supplying rum then the company would not be liable to pay any liquidated damages or penalty, and the Government issued Acceptance of Tender purporting to accept offer of company to supply rum, which contained among other clauses, a clause of arbitration and also a clause providing for damages to which company was liable for liquidated damages for late supply and the company never signed nor sent to the Government the acknowledgement of receipt of such Acceptance of Tender, it was held that there was no arbitration agreement between the parties or there was no concluded contract. The Acceptance of Tender offered by the Government in law amounted to a counter-offer, which was not accepted by the Company as it was not signed by it. In such a case, the fact that the Company paid the security amount as provided in Acceptance of Tender would not amount to implied acceptance of all terms and conditions of Acceptance of Tender on the other hand, the implication of not signing the acknowledgement attached to the Acceptance of Tender was that the company refused to accept all the terms contained therein. Thus the acceptance of the term with regard to security deposit did not mean that the Company had agreed or accepted that there should be an arbitration agreement between the parties, and consequently an award passed by the arbitrator in pursuance of such arbitration clauses would be liable to be set aside.

Moreover, in the Acceptance of Tender, in Cl. 11, it was stated that arbitration would be as per Cl. 25of the Appendix to the letter dated 9th July, 1971 and there was no Cl. 25 existing in the appendix to the letter dated 9th July, 1971 containing an arbitration agreement. In such a case, it cannot be contended that reference to said Cl. 25 was a mistake and it should have been Cl. 23 because this alleged mistake was not corrected at any point of time by issuing an amendment to the Acceptance of Tender in the name of the President of India. Thus, construing the Acceptance of Tender literally, it means that there was no arbitration agreement between the parties because Cl. 25 of the appendix did not contain an arbitration clause. AIR 1957 Madh Bha 190 Disting."

(emphasis supplied)

7. Mr. Adlakha also relied upon a judgment of this Court passed in

the case of Pyrites, Phosphate and Chemicals Vs. Excel Shipping

Enterprises & Ors. reported in 2001 (4) RAJ 660 (Delhi) wherein this

Court had held as under :-

"8. Learned counsel for the petitioner urged that the two persons, namely Shri A.P. Srivastava and the other person are also employees of the petitioner company and it could well be taken that they signed for and on behalf of the petitioner but the difference of signing a person as a witness and for and on behalf of the company is like the difference of the cheese and the chalk. They had not signed on basis of any resolution of the petitioner company so as to permit the court to held that they had signed on behalf of the petitioner company. They had signed as witnesses and their status would remain to be that of a witness rather than a party. Merely because they were employees of the petitioner would not given them the status to say that they signed for and on behalf of the petitioner."

(emphasis supplied)

8. Mr. Adlakha submitted that this Court in another petition filed by

petitioner-contractor had refused to refer the matter to arbitration after

finding that there was no arbitration clause between the parties. In this

connection, he referred to a judgment of Veenu Constructions Vs. Link

House Co-operative Group Housing Society Ltd. & Anr. reported in

131 (2006) DLT 69 wherein it had been held as under :-

"5. The document which has been relied upon by the petitioner as constituting the „arbitration agreement‟ is signed by one Harsh Narang and is dated 8th November, 2002. It is addressed to none in particular but to the public at large. Who is this Harsh Narang? What is his status in Modern (India) Architects is not discernible from the document. The document merely states that there was an arbitration clause in the previous contract and states so on 8th November, 2002. The previous contract has not been placed on record nor the contract entered into with the present petitioner making the previous contract applicable to the present contract. This document at best can be taken to be an assertion from Harsh Narang of Modern (India) Architects that there existed an arbitration clause in the previous contract. Such an assertion is meaningless and is of no evidentiary value without the previous and the subsequent contracts having been brought on record. What is also significant about the document is that the petitioner is seeking to appoint Modern (India) Architects as the Arbitrator and it is one Harsh Narang of this Modern (India) Architects who is asserting that there existed an arbitration clause. The said Modern (India) Architects cannot be by their own letter derive a right to act as an Arbitrator. It is a self-serving document and cannot be accepted."

(emphasis supplied)

9. Mr. Adlakha also relied upon a Division Bench's judgment of

this Court passed in Shri Patanjal and Another Vs. M/s. Rawalpindi

Theatres Private Ltd., Delhi reported in AIR 1970 Delhi 19 wherein

this Court had held as under :-

"8. The Arbitration Act of 1940 being a consolidating and amending Act on the law relating to arbitration, we have to look to the provisions of that Act for discerning the legal position. "Arbitration agreement" in this Act means a written agreement to submit present or future difference to arbitration, whether an arbitrator is named therein or not and "reference" as defined therein means a reference to arbitration. Capacity to make an arbitration agreement seems to me to be co-extensive with the capacity to contract under the law. In order to constitute a valid arbitration agreement, among other things, there should be a valid agreement, the terms of which are reduced to writing and the

parties thereto should be ad idem; in other words, the agreement of the parties should be established so that they can be held to be bound by it, though the written instrument or instruments, if there are more than one containing the terms of agreement, need not necessarily be signed by the parties bound by it. It is lawful to establish oral acceptance of the terms by the parties to the agreement, though the terms agreed must be reduced to writing. The subject-matter of the reference and the authority of the arbitrator in the reference arising out of an agreement between the parties has, therefore, to be traced to the agreement of reference only. From the legal position just stated, it follows that third persons who are not parties to the arbitration agreement or to the contract containing an arbitration clause and not claiming under such parties, are not bound by such agreement. And not being bound, they would, as a general rule, be disentitled to enforce the agreement.

The language of Section 20 of the Arbitration Act seems also to support this view. This section empowers the parties to an arbitration agreement, when differences have arisen, which are covered by it, to apply to a Court having jurisdiction praying that the agreement be filed in Court. Indeed, it is also the general fundamental rule that only a person who is a party to a contract can sue on it. The existence of statutory or equitable exceptions to this rule do not impinge upon its general fundamental character, of course, if the subject matter of the arbitration agreement is capable of assignment then the assignee would step into the shoes of his assignor and be both bound by it and entitled to enforce it, but for this purpose one has to look to the law relating to assignment of contractual rights and obligations and also to see whether in a given case, the assignee has exercised his right as such."

(emphasis supplied)

10. Mr. Adlakha also submitted that petitioner-contractor had not

placed on record the registered partnership deed and consequently, the

present petition was not maintainable in view of the bar contained in

Section 69(2) of the Indian Partnership Act, 1932 which reads as

under:-

"69. Effect of non-registration

xxxx xxxx xxxx xxxx

2) No suit to enforce a right arising from a contract shall be instituted in any court by or on behalf of a firm against any third party unless the firm is registered and the person suing are or have been shown in the Register of firm as partners in the firm."

11. Having heard the parties, I am of the view that the arbitration

agreement under the Act, 1940 means a written agreement to submit

present and future differences to arbitration, whether arbitrator is named

therein or not. The Supreme in Union of India Vs. A.L. Rallia Ram

reported in AIR 1963 SC 1685 (V 50 C 250) had held as under:

"10. The authority of an arbitrator depends upon the authority conferred by the parties by agreement to refer their differences to arbitration. By Section 2 (a) of the Arbitration Act 1940 "arbitration agreement" means "a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not." A writing incorporating a valid agreement to submit differences to arbitration is therefore requisite: it is however not a condition of an effective arbitration agreement that it must be incorporated in a formal agreement executed by both the parties thereto, nor is it required to be signed by the parties. There must be an agreement to submit present or future differences to arbitration, this agreement must be in writing, and must be accepted by the parties. Clause 13 in Form F.D. (M) 70 fulfils all these requirements. But the Dominion of India being a party to the arbitration agreement, to be binding the agreement had also to conform to the requirements of Section 175(3) of the Government of India Act, 1935, for an arbitration agreement is a contract within the meaning of the Government of India Act and it must, to bind the Dominion of India, be made in the form prescribed by that section. The question which then falls to be determined is whether the letter accepting the tender of the respondent conformed to the requirements of Section 175 (3) of the Government of India.

11. Section 175 (3) does not in terms require that a formal document executed on behalf of the Dominion of India, and the other contracting party, alone is effective. In the absence of any direction by the Governor-General under Section 175 (3) of the Government of India Act prescribing the manner, a valid contract may result from correspondence if the requisite conditions are fulfilled. The contracts for sale of "War disposal" goods were not directed by the Governor-General to be made by a formal document executed on behalf of the party. It is true that Section 175 (3) uses the express "executed" but that does not by itself contemplate execution of a formal contract by the contracting parties. A tender for purchase of goods in pursuance of an invitation issued by or on behalf of the Governor-General of India and acceptance in writing which is expressed to be made in the name of the Governor-General and is executed on his behalf by a person authorised in that behalf would conform to the requirements of Section 175 (3)."

(emphasis supplied)

12. In the present case, I find that respondent-Cooperative Society

had floated an advertisement dated 23rd March, 1990 inviting offers

from contractors for completion of construction of 70 residential flats.

The said advertisement reads as under :-

TENDER NOTICE

ARUNA CO-OPERATIVE GROUP HOUSING SOCIETY LIMITED LINK HOUSE, BAHADUR SHAH ZAFAR MARG, NEW DELHI-110002

SEALED TENDERS ARE INVITED FROM REPUTED AND EXPERIENCED CONTRACTORS WHO HAVE SUCCESSFULLY COMPLETED AT LEAST ONE WORK COSTING NOT LESS THAN 20 LACS (TWENTY LACS) FOR THE CONSTRUCTION OF REMAINING WORKS OF 70 RESIDENTIAL FLATS ON PLOT NO. 33, PATPAR GANJ (MANDAWALI FAZALPUR) SHAHDARA, DELHI. TENDER DOCUMENTS CAN BE OBTAINED FROM THE SECRETARY OF THE SOCIETY AT THE ABOVE ADDRESS FROM 3 P.M. TO 5 P.M. DAILY TILL APRIL 5, 1990. SEALED TENDERS TOGETHER

WITH AN EARNEST MONEY OF RS. 30,000/- IN THE FORM OF A DEMAND DRAFT/PAY ORDER WILL BE RECEIVED FROM 11 A.M. TO 2 P.M.

UPTO APRIL 7, 1990 BY THE SECRETARY AT ABOVE ADDRESS. TENDERS WILL BE OPENED ON APRIL 7, 1990 AT 3.30 P.M IN THE OFFICE OF SECRETARY OF THE SOCIETY AT THE ABOVE ADDRESS. ALL MATERIALS WILL BE SUPPLIED BY THE SOCIETY. COST OF THE TENDER IS RS.

150/- (NON REFUNDABLE).

(emphasis supplied)

13. Admittedly, Clause 37 of the tender document floated by

respondent-Cooperative Society contains an arbitration clause. The

said Clause reads as under :-

"(37) Settlement of Dispute - Arbitration :

All disputes and differences of any kind whatever arising out of or in connection with the contract or the carrying out of the works (whether during the progress of the works or after their completion, and whether before or after the determination, abandonment or breach of the contract) shall be referred to and settled by the Architects who shall state their decision in writing. Such decision may be in the form of a final certificate or otherwise. The decision of the Architects with respect to any of the excepted matters shall be final and without appeal as stated in Clause No. 35. But if either the Employer or the Contractor be dissatisfied with the decision of the Architects or any matter, question or the dispute of any kind (except any of the excepted matters) or as to the withholding by the Architects of any Certificate to which the contractor may claim to be entitled, then and in any such case either party (the Employer or the Contractor) may within 28 days after receiving notice to such decision give a written notice to the other party through the Architects requiring that such matters in dispute be arbitrated upon. Such written notice shall specify the matters which are in dispute and such dispute or difference of which such written notice has been given and no other shall be and is hereby referred to the arbitration and final decision of a single Arbitrator being a Fellow of the Indian Institution of Engineers to be agreed upon the appointed by both parties or in case of disagreement as to the appointment of single

Arbitrator of two Arbitrators being both Fellow of the Indian Institution of Engineers, one to be appointed by each party, which Arbitrators shall before taking upon themselves the burden or Reference appoint an Umpire.

The Arbitrator, the Arbitrators, or the Umpire shall have power to open up, review and revise certificate, opinion, decision, requisition or notice, save in regard to the expected matters referred to in Clause No. 35 and to determine all matters in dispute which shall be submitted to him or them and of which notice shall have been given as aforesaid.

Upon every or any such reference the cost of the incidental to the reference and award respectively shall be in the discretion of the Arbitrator, or Arbitrators, or the Umpire who may determine the amount thereof, or direct the same to be taxed as between Attorney and Client or as between party and party by whom and to whom and in what manner the same shall be borne and paid. This submission shall be deemed to be submitted to Arbitration within the meaning of the Indian Arbitration Act, 1940, or any Statutory modification thereof. The award of the Arbitrator, Arbitrators or the Umpire shall be final and binding on the parties. Such reference except as on the withholding by the consultant of any certificate under Clause No. 32 to which the contractor claims to be entitled shall not be opened or entered upon until after the completion or alleged completion of the works or until after the practical cessation of the works arising from any cause unless with the written consent of the Employer and the Contractor. Provided always that the Employer shall not withhold the payment of the Interim Certificate nor the Contractor except with the consent in writing of the consultant in any way delay the carrying out of the works by reason of any such matter, question or dispute being referred to Arbitration but shall proceed with the work with all due diligence and shall until the decision of the Arbitrator or Arbitrators or the Umpire be given abide by the decision of the Arbitrators/and no Award of the Arbitrator or the Arbitrators or the Umpire shall relieve the Contractor of the obligations to adhere strictly to the instructions with regard to the actual carrying out of the works. The Employer and the Contractor hereby also agree that Arbitration under this Clause shall be condition precedent to any right of action under the Contract."

14. Moreover, Clause 15 of SC reads as under:-

"15. Within seven days of receipt of intimation from the Architects of the acceptance of their tender, the successful tenderer shall be bound to implement the contract by signing

an agreement in accordance with the draft agreement but the written acceptance by the Employer shall constitute a binding agreement between ARUNA CO-OPERATIVE HOUSING SOCIETY LTD.; and the contractor whether such formal contract is subsequently entered or not."

(emphasis supplied)

15. Upon petitioner-contractor's tender offer being accepted,

respondent-Cooperative Society wrote a letter dated 26th April, 1990

clearly stating that the tender had been accepted. The said acceptance

letter dated 26th April, 1990 reads as under :-

      No. ACGHSL/29/90-91                     Dated April 26, 1990
      M/s. Veenu Construction,
      133-D, Pocket-A,
      Mayur Vihar Phase-II,
      DELHI - 110 091

Sub.: Construction of Balance work of 70 Flats at Plot No. 33, Patpar Ganj, Delhi.

Dear Sir,

Please refer to the discussion/negotiations held on April 17, 1990 by the members of the Executive Committee of the Society with your Sh. A.K. Srivastava & your subsequent letter No. VC/02/ACGHS/90 dated 20.04.1990 in connection with the above work.

We are pleased to inform you that the Society has accepted your tender for the above job subject to the following conditions:-

a) That you will at your cost make your own arrangement of water for the construction work with a tube well/bore etc. at the Site.

b) That you will arrange for the electrical connection from appropriate authorities in our name at the Site at your cost. The Society will pay you @2% (Two percent) of the total value of your contract for this service. The running electricity bills will be paid by the Society.

c) That you will appoint at your cost one watchman at the Site for watch & ward of your material.

d) That the work at the site will not be delayed by you due to delay in making payment to you by the Society. However, the Society will pay you interest @18% on delayed payments.

e) That your rates shall remain firm till December 31, 1990 & you will not be paid any enhancement during the above mentioned period due to any escalation or increase in labour wages.

f) That you will assist the Society for unloading of the materials at the Site without any cost.

You are now requested to contact our Architects, M/s. I.C. Mahajan & Associates, B-358, New Friends Colony, New Delhi - 110 065 for further instruction in the matters & for completion of formalities for singing of the agreements & for starting of the work at the Site immediately.

Yours faithfully, for Aruna Co-op. Group Hsg. Society Ltd.

sd/-

(NARENDER SINGH) HONORARY SECRETARY

(emphasis supplied)

16. The only defence put forward by respondent-Cooperative Society

for resisting reference to arbitration before me was that a formal written

contract had not been executed between the parties.

17. In my opinion, the tender document containing an Arbitration

Clause, namely, Clause 37 constituted an invitation to invite offers and

petitioner-contractor's offer constituted an offer which had been

accepted by the respondent-Cooperative Society vide its letter dated

26th April, 1990. Consequently, in my view a binding written contract

containing an arbitration clause came into existence between the

petitioner and the respondent-Cooperative Society on 26th April, 1990.

In any event, Clause 15 of SC clarifies beyond doubt that respondent-

Cooperative Society's written acceptance and offer constituted a

binding written contract.

18. Non-execution of a formal contract is neither mandatory in law

nor was it so stipulated by the parties. Consequently, in my opinion,

Mr. Adlakha's repeated emphasis that there was no arbitration clause

executed between the parties is contrary to the written acceptance dated

26th April, 1990 as well as to the conduct of the parties.

19. As far as Mohan Meakin Breweries Ltd.'s judgment (supra) is

concerned, I am of the view the same is distinguishable on facts as in

the said case the contractor had given a voluntary offer and not pursuant

to any tender. Further in the said case, there was no arbitration clause

in the appendix to the alleged acceptance letter.

20. The judgment in Pyrites, Phosphate and Chemical's case (supra)

is under the Arbitration and Conciliation Act, 1996 and not under the

Act, 1940 with which I am concerned with. The Judgment in Veenu

Construction's case (supra) also offers no assistance to the respondent-

Cooperative Society as in the said case, the Court had found that there

was no understanding/agreement executed between the parties. The

judgment in Shri Patanjal and Another (supra) only stipulates that

third persons who are not parties to arbitration agreement are not bound

by such an agreement.

21. Accordingly, in view of the written acceptance dated 26th April,

1990 and the conduct of respondent-Cooperative Society in allowing

the petitioner-contractor to execute the contract and paying him under

the said contract, it is apparent that the parties were ad idem on the

terms of the agreement including the arbitration clause.

22. As far as the plea of Section 69(2) of Indian Partnership Act,

1932 is concerned, I am of the opinion that the said provision does not

bar enforcement of a statutory right or a common law right. The

Supreme Court in Haldiram Bhujiawala & Anr. Vs. Anand Kumar

Deepak Kumar & Anr. reported in (2000) 3 SCC 250 had held as

under:-

"9. The question whether Section 69(2) is a bar to a suit filed by an unregistered firm even if a statutory right is being enforced or even if only a common law right is being enforced came up directly for consideration in this Court in Raptakas Brett Co. Ltd. v. Ganesh Property. In that case, Majmudar, J. speaking for the Bench clearly expressed the view that Section 69(2) cannot bar the enforcement by way of a suit by an unregistered firm in respect of a statutory right or a common law right. On the facts of that case, it was held that the right to evict a tenant upon expiry of the lease was not a right "arising from a contract" but was a common law right or a statutory right under the Transfer of Property Act. The fact that the plaint in that case referred to a lease and to its expiry, made no difference. Hence, the said suit was held not barred. It appears to us that in that case the reference to the lease in the plaint was obviously treated as a historical fact. That case is therefore directly in point. Following the said judgment, it must be held in the present case too that a suit is not barred by Section 69(2) if a statutory right or a common law right is being enforced.

(emphasis supplied)

23. I further find that in the written statement/reply filed by the

respondent Cooperative Society, no preliminary objection has been

taken with regard to Section 69(2) of Indian Partnership Act, 1932. I

also find that even though petitioner-contractor in its affidavit filed by

way of evidence had explicitly stated that petitioner-contractor was a

registered partnership firm and he was a partner of the firm,

respondent-Cooperative Society had not cross-examined the petitioner-

contractor on this aspect at all.

24. In any event, since the present proceedings is for the

enforcement of its statutory right, the bar under Section 69(2) of Indian

Partnership Act, 1932 would not apply.

25. Accordingly, present petition is allowed. Mr. B.B. Chaudhary,

retired Additional District & Sessions Judge, R/o. 4/17, Type-VI, Delhi

Administration Flats, Rajpur Road, Delhi, Mobile No.9910384611 is

appointed as a sole Arbitrator to adjudicate upon all disputes between

the parties. Learned Arbitrator would be entitled to fix his own fee

schedule, subject to a ceiling of Rs. 75,000/-, which shall be equally

borne by both the parties. The learned Arbitrator is requested to

expeditiously decide the disputes between the parties.

26. Registry is directed to communicate a copy of this order to the

learned Arbitrator.

27. Before I part with this matter, I must observe that arbitration

proceedings which are supposed to offer a quick and speedy alternative

dispute resolution mechanism had been stalled by the respondent-

Cooperative Society for the last seventeen years. I am of the view that

the stand taken by the respondent-Cooperative Society in the present

proceedings was not only frivolous and contrary to settled legal position

but also a gross abuse of process of law. Consequently, I direct the

respondent-Cooperative Society to pay costs of Rs.1,00,000/- to the

petitioner-contractor within four weeks from today.

28. With the aforesaid directions, present petition and application

stand disposed of.

MANMOHAN, J.

NOVEMBER 17, 2009 rn