Eastern Coalfields Limited vs M/S Satish Constructions
2022 Latest Caselaw 5063 Jhar

IN THE HIGH COURT OF JHARKHAND AT RANCHI
                      Arbitration Appeal No. 05 of 2011
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1. Eastern Coalfields Limited, Burdwan, West Bengal

2. The General Manager, Mugma Area, Eastern Coalfield Limited, Dhanbad .... .... .... Appellants Versus M/s Satish Constructions .... .... .... Respondent

CORAM: HON'BLE MR. JUSTICE GAUTAM KUMAR CHOUDHARY

For the Appellants : Mr. P.P.N. Roy, Sr. Advocate & Rajesh Lala & Kumar Nishant, Advocates For the Respondent : M/s Pandey Neeraj Rai & Parth Jalan, Advocates

C.A.V. ON 20.10.2022 PRONOUNCED ON 14 /12/ 2022

This appeal is filed under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter called Act, 1996) against the judgment dated 07.01.2011 passed by Sub Judge-I, Dhanbad in Misc. (Arbitration) Case No.26 of 2005 under Section 34 of Arbitration and Conciliation Act, 1996 for setting aside ex-parte award dated 20.06.2005 passed by the learned sole Arbitrator.

2. The brief facts leading to the present appeal is that the respondent/contractor was awarded a contract for construction of side support wall and roof support with pre-cast RCC slab and R.S. Joist beneath within 45 meter of railway acquired land for grand chord line at 5 Km incline of Kumardhubi Colliery by work order dated 15.10.1998 for a total work value of Rs 28,34,986.25.

3. As per the work order, the date of commencement of work was 17.08.1998 and the date of completion as per work order was 31.3.1999. Two extensions were granted up to 31.03.2000.

4. Dispute arose between the parties as the work could not be completed within stipulated time. The claimant demanded payment for the work done and also refund of security on the plea of non-settlement of said claim.

5. The respondent moved the Court under Section 11(6) of Arbitration and Conciliation Act, 1996 in Arbitration Appeal No.42 of 2003, in which Justice Satyeshwar Roy, Former Judge of Patna High Court was appointed as sole Arbitrator to give award within a period of four months from the date of entering into the said reference.

6. Finally, ex-parte arbitral award was made on 20.06.2005 for a sum of Rs.14,76,312/- with interest @ 18% from the date of passing of the said award till the time of its payment and with further direction for payment of sum of Rs.1,50,858/- without any interest and arbitration cost of Rs.30,000/-.

7. The summary of Award is as under:

 Serial No.            Nature of claim               Claimed        Awarded
                                                     amount         amount

 Item no.1 Security deposit                        Rs.56,700      Rs.56,700
 Item no.2      Amount deducted for R. Bill        Rs.101,300     Rs.94,158
 Item no.3. Balance payment of executed Rs.2,00,000               Rs.196, 662
                work
 Item no.4. Loss       of   establishment      for Rs.2,83,500    Rs.2,66,000
                expenditure from 31.3.99 to
                June 2000

Item no.6. The idle labour due to non- Rs.17,00,985 Rs.4,60,035 supply of R.S Joist Interest No interest on Item no.1 & 2 Rs. 1,50,858 On item nos 3,4 and 6 Rs. 9,22,697 @ 12% from June 99 to May Rs. 5,53,615

Total Rs.14,76,312 with interest @ 18% p.a from the date of award to the date of payment

8. Being aggrieved by the said award, the appellants preferred appeal under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside of ex-parte award dated 20.06.2005.

9. The Award was challenged before the learned Court below on grounds inter-alia that on 28.04.2005, notices were issued to both the parties by the arbitrator, but as per the appellants' contention, no registered notice was received or served upon them. On 12.05.2005, the appellant was directed to file written statement, but the copy of said order was also not received as they had no knowledge about it. Finally, ex-parte arbitral award was made on 20.06.2005 for a sum of Rs.14,76,312/- with interest @ 18% from the date of passing of the said award till the date of payment. The appellant came to know about this award only when they received copy of it sent to them by courier post.

10. The learned court below formulated the following points for determination:

I. Whether proper notice has been served on the applicant for the arbitral proceeding by the learned arbitrator?

II. Whether the claim of the claimant is barred by time? III. Whether the arbitral award is in conflict with the terms and conditions of the contract and against the public policy of India? IV. Whether the award in question is fit to be set aside under section34 of the Act?

11. On point no.1 the learned court below, accepted that the notice was duly served on the basis of the reason assigned by the arbitrator in para 3 of the award, wherein it has been stated that notices were issued to both sides by registered post on 28.4.2005 fixing the date of sitting on 12.5.2005. The minutes of proceeding dated 12.5.2005 was delivered to the office of E.C.L.

12. The claim was held to be not time barred as the work had been extended by letter dated 24.2.2001 by the ECL till 31 March 2001. The learned arbitrator relied on a letter dated 24.2.2001 the claimant was requested to complete the job by 31 March 2001. The claimant preferred the application for appointment of arbitrator in the year 2003 within the term of three years from the date when the cause of action arose.

13. The learned court below affirmed the award of the principal amount as well as interest.

APPELLANT'S ARGUMENT

14. The appointment of Arbitrator under Section 11(6) of the Arbitration and Conciliation Act was beyond the mandate of law for the reason that there was no arbitration agreement for appointment of Arbitrator. The respondent resorted to interpolation in general terms and conditions which will be apparent from their supplementary affidavit dated 05.08.2020. The general terms and conditions, pagination and the said clause for arbitration has been inserted in between 31-33 and in between 53 & 55 of the agreement without any page No. and the content of general terms and conditions. As a matter of fact, in the typed copy of the general terms and conditions which is at page 55 & 56, it will be evident that terms of arbitration has been struck off and was not applicable. Further, general terms and conditions have not been signed by any officer or representative of Eastern Coal Field Limited. Appointment of Arbitrator was beyond the prescribed period of limitation of

three years. The arbitrator has to be appointed within the period of limitation of three years under Article 137 of the Limitation Act. Reliance has been placed on (2012) 5 SCC 420 (Minerals and Metals Trading Corporation of India Ltd. Vs. Ocean Knight Maritime Company Ltd. & Ors.).

15. It is submitted that the award can be interfered on the point of public policy as held by the Hon'ble Supreme Court in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 wherein it has been held , "The decision of the Tribunal must be within the bounds of its jurisdiction conferred under the Act or the contract. In exercising jurisdiction, the Arbitral Tribunal cannot act in breach of some provision of substantive law or the provisions of the Act". Associate Builders v. DDA, (2015) 3 SCC 49

16. It is important to note that the 1996 Act was enacted to replace the 1940 Arbitration Act in order to provide for an arbitral procedure which is fair, efficient and capable of meeting the needs of arbitration; also to provide that the tribunal gives reasons for an arbitral award; to ensure that the tribunal remains within the limits of its jurisdiction; and to minimise the supervisory roles of courts in the arbitral process.

17. It will be seen that none of the grounds contained in sub-section (2)(a) of Section 34 deal with the merits of the decision rendered by an arbitral award. It is only when we come to the award being in conflict with the public policy of India that the merits of an arbitral award are to be looked into under certain specified circumstances.

16. The Award is fit to be set aside, as there was violation of right of being heard which is a fundamental tenet of principle of natural justice. Learned Court below erred in having failed to take into consideration the fact that the ex-parte award was passed by the Hon'ble sole Arbitrator without service of notice on the appellants and without giving sufficient opportunity to file the written statement. The central dispatch and receipt register had been filed to show that notice of the arbitrator had never been received. Not giving sufficient opportunity for hearing was a clear violation of Section 18 of the Arbitration Act, which provides that parties shall be treated with equality and each party shall be given a full opportunity to present his case. The records that is order sheet/ claim application were earlier called for with supporting documents from the arbitral tribunal, but the same was not produced causing serious prejudice to the appellant company.

17. The list of dates in this regard has been cited to show that the hearing

had been concluded in one day and the award delivered without hearing the appellant.

28.04.2005 Registered notices were issued to the parties by the Hon'ble Arbitrator but no step was taken for substituted service and other modes on notice to the appellant-company. The arbitrator did not even await the statutory period of one month under Order V Rule 9 (proviso) of C.P.C. for declaring the notice to be validly served.

12.05.2005 First sitting before Arbitrator, a claim application filed by M/s Satish Construction.

30.05.2005 The matter heard ex-parte. There is only one date of hearing of the claimant.

20.06.2005 Ex-parte award made.

18. Award was beyond the point of reference for which Arbitrator was appointed. The Arbitrator was appointed by the order of this Court dated 30.03.2005 passed in A.A. No.42 of 2003 on 30th March, 2005. From para 2 of the order, it will be manifest that respondent had brought the claim for the brick work completed which was delayed for not providing Girders (R.S. Joist). Para 2 & 3 of the judgment reads as under:-

(i) Respondent No.1 Eastern Coalfield Limited (in short ECL) invited tenders for execution of construction work and the petitioner participated in the said tender. Finally, the work was allotted to the petitioner. The petitioner alleged to have completed 95% of the brick work but the work was hampered for want of Girders (R.S. Joist) which was to be supplied by the respondents free of cost. The petitioner submitted bills but the respondents failed to release the amount to the petitioner.

(ii)The respondents, in their counter affidavit, denied and disputed the claim of the petitioner and stated that the petitioner has failed to perform the said work within the stipulated time. It is further stated that as per last joint measurement the petitioner submitted running bills and has been paid the total amount.

Learned Arbitrator went much beyond the point of reference. The work order was total value of Rs.28,34,986.25 out of which he had been paid Rs.21,37,085.09. The Arbitrator however, awarded a sum of Rs.14,76,312.00 with interest @ 18% per annum including the security deposit of Rs.56,700/- without any interest under different heads.

19. The claim was also time barred. The second extension of time was upto 31st March 2000, whereas the application for appointment of arbitrator was filed on 13.10.2003. The cause of action arises when it first becomes due and payable. Mere demand does not extend the limitation unless there is admission of liability by the other side. As per the work order dated 15.10.1998, the time of completion was 31st March, 1999 in which two extensions were allowed upto 31st March, 2000. Thus, the claim had become time barred when the application was moved for appointment of Arbitrator.

20. The respondent filed an application before the Manager, Kumardubhi Colliery of ECL for payment of the amount vide letter dated 07.08.2000 whereas the Arbitration Application No.42 of 2003 had deliberately been filed before this Court on 13.10.2003 for appointment of Arbitrator which was not maintainable being barred by limitation. The period of limitation has been held by Hon'ble Supreme Court in (2012) 5 SCC 420 will apply as per Article 137 of the Arbitration Act in 2012. The appointment of Arbitrator was also time barred.

RESPONDENT'S ARGUMENT

21. It is submitted by the learned counsel for the respondent that the arbitrator was appointed by this court and the appellants submitted to the authority of the arbitrator without challenging the appointment of arbitrator in any forum. The appellant was a party in Arbitration Appeal no.42 of 2003 in which the arbitrator was appointed. While appointing the arbitrator clause 9 of the agreement was noted, which provided that all disputes and differences whatsoever arising between the parties or relating to construction meaning and effect of the contract shall be settled by the sole arbitrator appointed by the Chief Managing Director of the ECL. Since the party made several request and the arbitrator was not appointed therefore the Court appointed Arbitrator in exercise of its power under Section 11(6) of the Act, the award of arbitrator had therefore attained finality and it cannot be challenged at this stage after submitting to the authority. Whether there was an arbitration clause or not, would have been raised at the time of appointment of arbitrator and not thereafter. Reliance has been placed on (2020) 18 SCC 277, (2002) 3 SCC 572-wherein it has been held that if a party chooses not to object to the jurisdiction of the arbitral tribunal, there will be deemed waiver under section

4.

22. On the point of limitation it is argued that the period of limitation stood extended in view of the communications and also the extension of time granted for completing the work. It has been held in (2007) 7 SCC 309 that in interpreting a provision dealing with limitation, a liberal view should be taken.

23. On the point of reference it is argued that the mandate of the arbitrator was with regard to the entire dispute and not only with respect to the bill so submitted as claimed by the Appellant. It is argued that it is for the Arbitrator to determine the boundaries of his jurisdiction. Reliance has been placed on (2012)12 SCC 581

24. It has been admitted by the respondent in the written notes of argument that entire order sheet of the Arbitral Proceeding could not be traced due to the death of the learned Arbitrator. It has however been argued that there is a presumption under Section 114 (e) of the Indian Evidence Act that official acts have been regularly performed.

25. The Court while exercising jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 cannot look into the merit of the cases. Reliance has been placed on (2015) 5 SCC 698.

ANALYSIS

26. The arbitrator was appointed by the Co-ordinate Bench of this Court vide order dated 30th March 2005 passed in A.A No.42 of 2003 by which the learned arbitrator was requested to enter into the reference and give his award within a period of four months from the date of entering into reference.

27. The plea of the appellant that there was no arbitral clause in the agreement and therefore the very appointment of arbitrator was beyond the terms of agreement cannot be accepted. The appellant was party in arbitration appeal no.42 of 2003 on which the arbitrator was appointed. While appointing the arbitrator clause 9 of the agreement was noted which provided that all disputes and differences whatsoever, arising between the parties out of or relating to construction meaning and effect of the contract shall be settled by the sole arbitrator appointed by the Chief Managing Director of ECL. Since the party made several request and the arbitrator was not appointed therefore the court in exercise of its power under section 11(6) of the Arbitration and Conciliation Act appointed the Arbitrator. The appellant had an opportunity to raise objection under Section 12 of the Arbitration and Conciliation Act, before the Arbitrator, but it was never objected to at that stage. The order of appointment of Arbitrator was never challenged. The challenge to the Award

under this ground is therefore not sustainable, and is accordingly rejected.

28. However, the award made by the sole arbitrator suffers from some very basic infirmities which will come under the meaning of misconduct of the arbitral proceeding.

29. As per the Award, the learned arbitrator issued registered notice on 28.4.2005 and without awaiting the acknowledgement or even for a month so that the notices could have been declared to be validly served, fixed the next date on 12.5.2005 for sitting. After only one day of sitting the award was made on 20.6.2005. There is no evidence in support of issuance or service of notice.

30. Appellant was not given sufficient opportunity for filing of the written statement or adducing his evidence. It is argued on behalf of the respondent that the arbitrator was appointed by this court in the arbitration appeal in which the appellant had also appeared and therefore the appellant was supposed to have full knowledge about the reference to the arbitrator. To know about the reference to arbitrator is one thing, and the award being passed without service of notice, about the date of hearing or sufficient time for filing even the written statement, is another matter altogether. There is nothing on record to show that notices were served on the opposite party, yet the learned arbitrator proceeded ex parte.

31. It is apparent form the order passed in this case on 15.10.2020 that despite all efforts made, the file of the arbitration proceeding could not be traced form the office the learned Arbitrator (since dead). The respondent in the written notes of argument has admitted that the record of the proceeding could not be traced due to the death of the Arbitrator. This does not help the claimant/respondent. The list of dates eloquently and emphatically states that the arbitral proceeding commenced on 12.05.2005 and was heard ex-parte on 30.5.2005 and on one date the hearing was completely.

32. There was not even an adjournment awaiting the appearance of the appellant and any presumption under Section 114 (e) cannot be drawn to legalize a patent procedural illegality. The term presumption is a principle of law directing that if a party proves certain facts-- called the basic, foundational, or underlying facts--the fact-finder must also accept an additional fact as proven unless sufficient evidence is introduced tending to rebut the presumed fact. A presumption is not evidence, but operates as substitute for evidence. An inference is nothing but a logical process which enables deducing a fact from certain other facts by reason of their correlation.

An inference is the conclusion drawn from the facts and circumstances, whether admitted or established, which by reason of human experience and general knowledge, would naturally lead to it. The court is not bound to draw any presumption of fact and it is within its discretion to draw presumption or not. Here the list of dates is emphatic evidence to show that the no reasonable opportunity was given to the appellant to present its case and therefore this provision cannot be invoked.

33. The fact of the matter is that the manner in which the learned arbitrator proceeded hurriedly gives credence to the plea of the appellant that the arbitrator proceeded with a biased mind. In the absence of any written statement or evidence on behalf of the appellant the learned arbitrator awarded the amount only on the basis of the statements of claims and evidence led on behalf of the claimant. There is not a chit paper on record of the case to suggest that the notice for hearing was served on the appellant by any mode. Under Section 19 of the Arbitration Act, Code of Civil Procedure does not apply, but that does not exclude the principles of natural justice and the principles of evidence, which is to be followed by all adjudicatory authorities, whether it is the mainstream mode of adjudication or it is alternative mode of adjudication.

34. Hon'ble Supreme Court set aside the award in 2021 SCC On Line 1082 Narinder Singh and Ors. Vs. UOI as the mandate of Section 18 of the Arbitration Act and the principles of natural justice were not followed. In this case arbitration proceeding was carried ex parte and the respondent was also deprived of reasonable and fair opportunity to cross-examine Paramdeep Singh (PW-1). It was held that as the evidence of the respondent by the way of affidavit was not taken on record, their contentions and evidence were not considered and thus debilitated the respondent from stating their case. Given the aforesaid factual position, there was violation of principles of natural justice and lack of full opportunity as envisaged by Section 18 of the Act, thereby, impeding a fair and just decision. Consequently, the award suffers and is liable to be set aside in terms of clause (iii) to Section 34(2)(a) as well as clause (ii) to Section 34(2)(b) of the Act.

35. The case at hand presents even a grimmer picture, where the very basic tenets of principles of natural justice was thrown to wind. The manner in which the arbitral proceeding in this case was held, without service of notice to the appellant, without any record to show that the notice was ever

dispatched by registered post or it was received by the appellant, concluding the arbitration proceeding in one sitting, are examples of blatant example of misconduct, which goes to the root of the matter. The present award is liable to be set aside on this score alone.

36. The second question is if the Arbitrator had overstepped the point of reference, to show misconduct?

37. What are the bounds within which the Arbitrator has to adjudicate the claim has been succinctly laid down in Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 wherein it has been held that Arbitration being a matter of contract, the parties are entitled to fix boundaries as to confer and limit the jurisdiction and legal authority of the arbitrator. An arbitration agreement can be comprehensive and broad to include any dispute or could be confined to specific disputes. The issue of scope of arbitrator's jurisdiction invariably arises when the disputes that are arbitrable are enumerated or the arbitration agreement provides for exclusions as in case of "excepted matters". The arbitration agreement may be valid, but the Arbitral Tribunal in view of the will of the parties expressed in the arbitration agreement, may not have jurisdiction to adjudicate the dispute. The will of the parties as to the scope of arbitration is a subjective act and personal to the parties.

38. Here in the present case the Arbitrator has been appointed by the Court under Section 11 (6) of the Arbitration and Conciliation Act, therefore the term of reference is set out on the basis of the order appointing the Arbitrator. The order of appointment of the Arbitrator refers to the petitioner alleged to have completed 95% of the brick work but the work was hampered for want of Girders (R.S. Joist) which was to be supplied by the respondents free of cost. The petitioner submitted bills but the respondents failed to release the amount of the petitioner. The work order was for total value of Rs 28,34,986.25 out of which Rs 21,37,085.09 had been paid and the balance and security deposit was withheld for the delay in completion of work. The claimant attributed the delay to the appellant Company in supply of the girders (R.S joist) which was to be supplied by the respondents free of cost, consequently although the claimant had completed 95% of the brick work but the work was hampered for want of non-supply of the joist by the appellant Company.

39. The matter under reference before the arbitrator was for the release of the amount for the work completed by the claimant. The, award made under

heads like, (i) Item no. 4 loss of establishment for expenditure from 31.3.99 to June 2000 , the (ii) Item no. 6 idle labour due to non-supply of R.S Joist were beyond the terms of reference. It is interesting to note that the award under these heads were made on the basis of photo copies of cash receipts and photocopies of muster rolls produced on the one day hearing, without marking them as exhibits or even annexing them with the award. It is true that the Indian Evidence Act does not apply to arbitral proceeding, but that does not mean that fundamental principle of evidence has no application. Further, the very award under these heads was not only beyond the point of reference, but also was without any evidence to make it perverse. It has been held in State of Rajasthan v. Ferro Concrete Construction (P) Ltd., (2009) 12 SCC 1 :

55. While the quantum of evidence required to accept a claim may be a matter within the exclusive jurisdiction of the arbitrator to decide, if there was no evidence at all and if the arbitrator makes an award of the amount claimed in the claim statement, merely on the basis of the claim statement without anything more, it has to be held that the award on that account would be invalid. Suffice it to say that the entire award under this head is wholly illegal and beyond the jurisdiction of the arbitrator, and wholly unsustainable.

40. The arbitral award is therefore liable to be set aside under Section 34(2)(a)(iii) and Section 34(b)(ii) for not giving proper notice of the arbitral proceeding to the appellant as a result he had no opportunity to present his case and being in contravention of public policy as being awarded without any evidence on record.

Under the aforesaid facts and circumstance of the case, this Court is of the view that Award of the Arbitrator and the Judgment of the learned Lower Court affirming the same is not sustainable and is accordingly set aside. Appeal is allowed.

The interlocutory application, if any, stands disposed of.

(Gautam Kumar Choudhary, J.) Jharkhand High Court, Ranchi Dated the 14th December, 2022 AFR / Anit