Reunion Engineering Co. Private ... vs M/S. Nbcc Limited
2012 Latest Caselaw 3275 Del

*        IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                                      Reserved on: 27.04.2012
                                                                  Date of Decision: 16.05.2012

+                                   FAO (OS) No.672 of 2010

REUNION ENGINEERING CO. PRIVATE LTD.         ..... Appellant
             Through: Mr. Arun Francis, Adv.

                                                 versus

M/S. NBCC LIMITED                                                  ..... Respondent
               Through:                      Mr. Arvind Minocha, Adv.

CORAM:
HON‟BLE THE ACTING CHIEF JUSTICE
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MR. JUSTICE RAJIV SHAKDHER

SANJAY KISHAN KAUL, J.

1. The present reference arises out of an order of the Division Bench dated 27.3.2012 requiring the following question to be answered:

"Whether in the absence of an incumbent in the post of the Projects Director, the CMD of NBCC is empowered to exercise the powers of a Projects Director, (including the power to appoint an arbitrator) by taking recourse to the said office order?"

2. The facts giving rise to the dispute are that the respondent was awarded the contract of two hotels in Iraq by the State Organization for Tourism (SOFT), an undertaking of the Government of Iraq. The respondent in turn entered into two separate contracts on 12.3.1983 with the appellant for the electrical portion of the work for the hotel projects. The appellant completed the entire work pertaining to the electrical installation by 1990. In view of certain disputes which arose between the

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parties, the same were sought to be referred to arbitration in view of arbitration clause. There was initially some disputes qua the appointment of the arbitrator but ultimately Shri S.R. Nair was appointed as the sole arbitrator by the Delhi High Court in O.M.P. No. 49 and 50 of 1989. The said arbitrator made and published two awards on 22.10.1994 allowing most of the claims of the appellant while rejecting the counter claims of the respondent. The awards were thereafter filed before this Court and are stated to have been made rule of the Court on 5.8.2005. These in turn gave rise to four appeals.

3. In the course of the arbitration proceedings before Shri S.R. Nair, the respondent had preferred a counter claim No.9 for balance amount of Iraq Dinar 15,000.00 due and payable by the appellant to one M/s. Sulaiman & Co. (for short „M/s. Sulaiman‟) which was engaged by the appellant at the end of the contract for liquidating their branch in Iraq. It is the say of the respondent that since this amount was not paid by the appellant, the respondent as the main contractor became liable for this amount and there was possibility of the claim being laid by M/s. Sulaiman. This counter claim was rejected by the arbitrator on the ground that it was premature.

4. This particular counter claim, thus, became subject matter of a second arbitration. This dispute was referred for arbitration of the sole arbitrator of Shri A.K. Palit, Executive Director, NBCC Ltd. (Retd.) who made and published an award dated 25.3.2004. The appellant filed a petition under Section 34 read with Sections 13 & 16 of the Arbitration & Conciliation Act, 1996 seeking to set aside this award in terms whereof a sum of `1,68,48,585.00 had been awarded to the respondent. A perusal of the award shows that _____________________________________________________________________________________________________

since the dues of M/s. Sulaiman had not been settled, legal proceedings were initiated against the appellant in Iraq which resulted in a Court order adverse to the appellant. This resulted in orders for seizure of the accounts of the respondent amounting to USD 77338.00 and Iraq Dinar 87950.00 but despite the requests of the respondent, the appellant did not settle the issue. M/s. Sulaiman realized the amount from the accounts of the respondent through the said process of seizure and it is this amount which was sought to be claimed by the respondent from the appellant.

5. It may be noticed that one of the issues raised before the arbitrator was qua the appointment of the arbitrator itself and the same issue was sought to be urged in OMP No.227/2004 filed on the Original Side of this Court in the form of objections apart from other issues. The learned single Judge, however, dismissed the objections (OMP No.227/2004) vide order dated 2.8.2010 which has been assailed in the present appeal.

6. In the course of hearing of the appeal before the Division Bench learned counsel for the appellant sought to make a three-fold submissions:

i. the appointment of the Sole Arbitrator was without any jurisdiction;

ii. the claim was barred by the principle of res judicata; and iii. the findings given by the Sole Arbitrator are perverse and contrary to the record.

7. Learned counsel for the appellant thereafter proceeded to address his submissions on the issue by relying on the arbitration clause, which reads as under:

"Arbitration

36.Except where otherwise provided for in the Contract, all _____________________________________________________________________________________________________

questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship of materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the Contract, designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works, or execution or failure to execute the same whether arising during the progress of the work or after the completion of abandonment thereof shall be referred to the sole arbitration of the Projects Director, National Buildings Construction Corporation Limited or any person appointed by him. There will be no objection if the arbitrator so appointed is an employee of National Buildings Construction Corporation Limited and that he had to deal with the matters to which the Contract relates and that in the course of his duties as such he had expressed views on all or any of the matters in dispute or difference. The arbitration to whom the matter is originally referred being transferred or vacating this office or being unable to act for any reason, the Projects Director shall appoint another person to act as arbitrator in accordance with the terms of contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this Contract that no person other than a person appointed by the Projects Director, as aforesaid, should act as Arbitrator and if for any reason, that is not possible, the matter is not to be referred to Arbitration at all. In all cases, where the amount of the claim in dispute is ID 2500 (Iraqi Dinnars two thousand five hundred only) and above, the Arbitration shall give reasons for the award.

                 ...     ...      ...      ...      ...      ...      ...     ...      ..."
                                                              (emphasis supplied)

8. The plea advanced on behalf of the appellant was that the agreement between the parties in terms of the arbitration clause envisaged an arbitration either before the Projects Director, NBCC or before a person appointed by him. The appointment of Shri A.K. Palit as an arbitrator by the Chairman-cum-Managing Director (for short „CMD‟) was, however, in dispute. It is also not _____________________________________________________________________________________________________

in dispute that at the relevant stage of time there was no officer holding the post of Projects Director, NBCC.

9. The plea advanced on behalf of the appellant, thus, was that the absence of any person holding the post of the Projects Director, NBCC would trigger of the second part of the arbitration clause, i.e., there would be no agreement to refer the dispute to the arbitration and, thus, it was not permissible for the CMD to appoint an arbitrator.

10. On the other hand, the respondent took shelter under the Office Order bearing No.1686/1999 (for short „Office Order‟), which reads as under:

"NATIONAL BUILDING CONSTRUCTION CORPORATION LIMITED (A Govt. of India Enterprise) TEAM IN PURSUIT OF EXCELLENCE NBCC House Lodhi Road New Delhi - 110003.

OFFICE ORDER NO.1686/90

In supersession of all previous office orders issued on this subject, the Chairman-cum-Managing Director is pleased to decide and direct that all the powers that were vested in the Projects Director (Overseas Projects) shall henceforth be exercised by the CMD himself, provided, however, the Chief Project Manager posted at the foreign projects will continue to exercise the powers separately delegated to them.

Sd/-

(K.R. Sundaram) Chief Manager (Personnel)"

11. The respondent, thus, pleaded that the powers of the Projects Director were to be exercised by the CMD himself and, thus, the authority under Clause 36 conferred on the Projects Director stood _____________________________________________________________________________________________________

vested in the CMD and the letter of appointment of the sole arbitrator dated 6.8.2001 was issued in pursuance of this authority.

12. The aforesaid Office Order had been dealt with in a Division Bench judgement of this Court in A.M. Rasool Construction & Engineering Services Pvt. Ltd. V. National Buildings Construction Corporation Ltd., 71 (1998) DLT 298 (DB). The question posed to be decided in that case had been set out in para 1 itself and reads as under:

"Only a short point is involved in this appeal and that is whether in the absence of Project Director, who is to act as an Arbitrator or to appoint somebody else as Arbitrator, the Chairman-cum-Managing Director can appoint another person to be the Arbitrator?"

13. The same Office Order relied upon by the respondent in these proceedings was reproduced in para 11 of the afore-mentioned judgement and was, thus, squarely in issue. The findings arrived qua this Office Order are in favour of the contractor and against the NBCC and it is in view thereof that learned counsel for the appellant pleaded that the issue was no more res integra and both the sole arbitrator and the learned single Judge fell into an error and not applied the ratio of the judgement of the Division Bench of this Court.

14. The aforesaid plea was sought to be negated by learned counsel for the respondent on the ground that the Division Bench in the aforesaid matter took note of an alleged anomaly while issuing the Office Order where the Office of the Projects Director was referred to as the Projects Director (Overseas Projects), which gave rise to an impression as if there were two Offices of the Projects Director, which was not so as recorded in the impugned award. It is in that context, it is pleaded that an observation has _____________________________________________________________________________________________________

been made in para 12 of the aforesaid judgement that the agreement between the parties contemplates arbitration by the Projects Director and not by the Projects Director (Overseas Projects). However, in the proceedings held before the arbitrator this aspect has been explained that there were no two offices of the Projects Director, but only one Office of the Projects Director, who was looking after even the Overseas projects. Learned counsel for the respondent also sought to rely upon the judgement of the Supreme Court in The Union of India v. M/s. D.N. Revri & Co. & Ors., (1976) 4 SCC 147 and a Division Bench judgement of this Court in Mrs. Sushila Seth & Ors. V. The State of Madhya Pradesh, AIR 1980 Delhi 244.

15. The Division Bench was of the view that taking into consideration the views expressed in A.M. Rasool Construction & Engineering Services Pvt. Ltd.‟s case (supra) qua the same Office Order as also the judgements referred to hereinabove, the matter needed a re- look on the aforesaid issue and, thus, framed the question set out at the inception. It is in these circumstances that the matter was referred to the Larger Bench which has proceeded to hear the parties.

16. A further aspect which has been brought to our notice is that in terms of the minutes of the 124th meeting of the Board of Directors (for short „Board‟) of the respondent held on 21.3.1977 & 23.3.1977 it had been resolved that the Chief Projects Manager for the new works in Libya should be re-designated as Projects Director. This was consequent to the increase in the duties and responsibilities attached to the Chief Projects Manager in Libya. The re-designated post of the Projects Director carried a revised pay-scale. The Board also resolved that the CMD was authorized _____________________________________________________________________________________________________

to depute to Iraq and to any other place outside Iraq such officers (including himself) and staff/workers as are considered necessary by him for the beneficial execution of the works in Iraq.

17. Now turning to the judgements relied upon by learned counsel for the respondent. In the Union of India v. M/s. D.N. Revri & Co. & Ors‟., case (supra) the arbitration clause in an agreement between the Union of India and supplier of sugar provided for a single arbitrator to be nominated by "the" Secretary to the Government of India in the Ministry of Food and Agriculture. To be noted the emphasis was on the article „the‟. The Ministry came to be bifurcated into the Ministry of Food and the Ministry of Agriculture after the disputes had arisen and before the appointment of the Arbitrator. However, later on, both the Ministries were amalgamated as before, with the difference, that there was one Secretary for Food and one for Agriculture. The Secretary for Food who was concerned with the subject matter of the contract, appointed the Sole Arbitrator. One of the objections raised was that the appointment of the Arbitrator was not valid since he was not "the Secretary" mentioned in the clause after bifurcation of the Ministry. The Supreme Court held that a contract is a commercial document between the parties and must be interpreted in such a manner as to give efficacy to the contract rather than to invalidate it and, thus, it would not be right to apply strict rules of construction, which are applicable to a conveyance and other formal documents. The meaning of such a contract must be gathered by adopting a prudent approach. On the facts, it was found that there was no uncertainty or vagueness; in the fact there were two Secretaries in the Ministry of Food and Agriculture, and the Secretary concerned with the subject matter of the contract _____________________________________________________________________________________________________

was "the Secretary" under the arbitration clause.

18. In Mrs. Sushila Seth & Ors‟. case (supra) the arbitration clause in the contract provided for decision of disputes by the Chief Engineer "for the time being". The words "for the time being" were construed to mean at the relevant time, which in turn depended on the context of the facts and object of the arbitration. A designated authority was provided to decide the disputes and, thus, no other meaning ought to be given to the expression "for the time being" except that it refers to the Chief Engineer who holds the Office of the Chief Engineer at the time the dispute(s) arose and necessity for arbitration arises.

19. If we apply the aforesaid principles to the factual matrix of the present case, it is not in dispute that there is not a named person who has to act as an arbitrator or to appoint an arbitrator. Thus, there is no persona designata but there is only designation of an authority, who was to arbitrate itself or to refer the disputes to arbitration of a person to be so appointed. Thus, any person holding that particular post of the Projects Director would be the designated authority required to arbitrate or appoint an arbitrator in terms of Clause 36.

20. It, thus, appears that though the Office Order was the same as was referred to in A.M. Rasool Construction & Engineering Services Pvt. Ltd.‟s case (supra), the complete facts had not been brought to the notice of the arbitrator or the appellate court. The resolutions of the Board of the respondent show that there was only one Projects Director. There were no two posts of the Projects Director (Overseas Projects) and the Projects Director. In fact, there was a post of the Chief Projects Manager which was upgraded and re-designated as the Projects Director. It was this _____________________________________________________________________________________________________

perceived anomaly which persuaded the Division Bench in A.M. Rasool Construction & Engineering Services Pvt. Ltd.‟s case (supra) to form an opinion against the respondent while actually the anomaly did not exist. Fortunately, in the proceedings held before the arbitrator in respect of which the present appeal arises this aspect was explained, i.e., there were no two offices but only one Office of the Projects Director who was looking after even the Overseas Projects.

21. Now turning to the Office Order No.1686/1999 it is to be observed that the CMD has decided and directed that all the powers that were vested in the Projects Director (Overseas Projects) shall henceforth be exercised by the CMD himself. This was so as there was no person occupying this post. The Chief Projects Manager posted at the foreign projects was to exercise the powers separately delegated to them. Further the Board had resolved vide the same 124th meeting referred to aforesaid to authorize the CMD to depute any person including himself for the projects at Iraq and to any other place outside Iraq as are considered necessary by him for the beneficial execution of works in Iraq. There was, thus, an absolute power conferred on the CMD and the CMD issued the Office Order in pursuance of such powers conferred on him by the resolution of the Board of the respondent.

22. We are unable to persuade ourselves to agree with the submissions of learned counsel for the appellant that because no particular individual is occupying the post of the Projects Director and all such powers as are exercisable by a Projects Director are being exercised by the CMD, the second part of Clause 36 gets triggered of, i.e., that there is no arbitration agreement between the parties. The CMD who is exercising the powers of the Projects Director _____________________________________________________________________________________________________

apart from other powers vested in him would in pursuance of Office Order No.1686/1990 be a person who is occupying the post of the Projects Director. We may note that it was nobody‟s case that the post of the Projects Director stood abolished but at the relevant stage of time no individual was occupying the post and all the powers of this particular officer were being exercised by the CMD under the Office Order.

23. We are, thus, of the unequivocal view that in view of the Office Order No.1686/1990, the CMD of the respondent was empowered to exercise all powers of the Projects Director including the power to appoint an arbitrator and, thus, the appointment of Shri A.K. Palit by the CMD vide letter dated 6.8.2001 was not defective in any manner. The views expressed in A.M. Rasool Construction & Engineering Services Pvt. Ltd.‟s case (supra) would, thus, not hold good.

24. The reference is answered accordingly.

25. The file be now placed before the Division Bench for further proceedings on 13.7.2012.

SANJAY KISHAN KAUL, J.

                                                      ACTING CHIEF JUSTICE



MAY 16, 2012                                          RAJIV SHAKDHER, J.
b'nesh

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