Kerala High Court
The Chairman & Managing Director vs Alankar Construction Company on 6 September, 2024
Author: A.Muhamed Mustaque
Bench: A.Muhamed Mustaque
2024:KER:71511
W.A.No.7 of 2023
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE THE ACTING CHIEF JUSTICE MR. A.MUHAMED MUSTAQUE
&
THE HONOURABLE MR. JUSTICE S.MANU
FRIDAY, THE 6TH DAY OF SEPTEMBER 2024 / 15TH BHADRA, 1946
WA NO. 7 OF 2023
AGAINST THE JUDGMENT DATED 26.05.2022 IN WP(C)
NO.19299 OF 2021 OF HIGH COURT OF KERALA
APPELLANTS/RESPONDENTS:
1 KERALA STATE ELECTRICITY BOARD,
VYDUTHI BHAVANAM, PATTOM,
THIRUVANATHAPURAM, PIN - 695004
REPRESENTED BY ITS CHAIRMAN AND MANAGING DIRECTOR
2 THE CHIEF ENGINEER (CIVIL),
DAM SAFETY AND DRIP, PALLOM,
KOTTAYAM, PIN - 686007
BY ADV B.PREMOD, SC, KSEB
RESPONDENT/PETITIONER:
ALANKAR CONSTRUCTION COMPANY,
THOTTATHIL HOUSE, NADAKKAVU P.O,
UDAYAMPEROOR,ERNAKULAM, PIN - 682307,
REPRESENTED BY ITS MANAGING PARTNER T.P.ANTONY
BY ADV C.S.AJITH PRAKASH
THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON
06.09.2024, THE COURT ON THE SAME DAY DELIVERED THE
FOLLOWING:
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W.A.No.7 of 2023
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[CR]
A.MUHAMED MUSTAQUE, Acg.C.J. & S.MANU, J.
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W.A.No.7 of 2023
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Dated this the 06th day of September, 2024
JUDGMENT
S.MANU, J.
Appellants are the respondents in W.P.(C)No.19299 of
2021. The respondent herein approached this Court by
filing the writ petition praying mainly for a direction to the
2nd appellant to calculate, sanction and disburse the
amount as per the Adjudicator's decision with respect to
the disputes notified as per claim (m) and (n) in Ext.P7 and
decided by the Adjudicator by Ext.P12 within a time frame
and for interest on the said amount.
2. The petitioner, a partnership firm engaged in civil
construction works was awarded with a work by the Kerala
State Electricity Board Limited (KSEBL). Name of the work
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is "DRIP-Idukki Hydro Electric Project-Rehabilitation
including remedial measures and basic facilities-
improvement of approach roads to Idukki and Cheruthoni
Dam - (part-II works)". Agreement was executed on
16.6.2016. The agreement contains an adjudication clause.
As per the said clause if the parties to the contract notified
a dispute, same shall be referred to an Adjudicator at the
first instance. Whenever the Adjudicator takes decisions,
either party may refer the decision of the Adjudicator for
arbitration within 28 days of the Adjudicator's decision. If
no reference is made for arbitration within 28 days, the
decision of the Adjudicator will be final and binding.
3. After completing the works on 14.2.2018 the
respondent notified a dispute on 08.01.2019 before the
Adjudicator. The dispute included 25 claims under separate
and distinct heads. The Adjudicator, by Ext.P7, decided
claims under (m) and (n) in favour of the respondent. The
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respondent referred the remaining matters for arbitration
by the Arbitral Tribunal. KSEBL did not choose to approach
the Arbitral Tribunal against the claims decided in favour of
the respondent. Before the Arbitral Tribunal, the 2 nd
appellant filed a defence statement. However, no counter
claim against granting of claims under (m) and (n) in
favour of the respondent was raised. On 06.02.2021, the
Arbitral Tribunal passed an award. The respondent
preferred the writ petition aggrieved by non-quantification
and disbursal of the claims allowed in its favour by the
Adjudicator. The appellants resisted the writ petition.
According to the appellants, the Adjudicator's proceedings
were null and void since the contractors' complaints were
submitted much beyond 14 days' time limit under Clause
24 of the agreement. It was also contended that the
Adjudicator failed to consider claims (m) and (n) in a
proper manner and the decision of the Adjudicator cannot
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be implemented as there is no quantification of the amount
to be paid. Further contention of the appellants is that the
Adjudicator's decision is no more relevant as the Arbitral
Tribunal has passed an award subsequently. According to
the appellants, if the decision rendered by the Adjudicator
in favour of a party is not accepted by other party, the
dispute would not get crystallized and the parties will have
to go by the arbitration clause. Decision rendered by the
Adjudicator is only a procedural order preceding the
arbitration proceedings. The appellants never accepted the
authority of the Adjudicator as well as his decision. The
defence statement preferred before the Arbitral Tribunal
clearly shows that the appellants never accepted the
decision of the Adjudicator. The appellants therefore
contended that the prayer in the writ petition cannot be
allowed and the writ petition is liable to be dismissed.
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4. The learned Single Judge after hearing both sides
held that if any of the parties had any grievance against the
decision of the Adjudicator, the remedy was to refer the
matter for arbitration within a period of 28 days. The
learned Single Judge found that the KSEBL did not
challenge the decision of the Adjudicator with respect to
claims (m) and (n) by referring the same for arbitration.
Plea of the appellants that the respondent ought to have
sought the approval of the Arbitrator regarding the claims
decided by the Adjudicator in their favour was rejected by
the learned Judge. Writ Petition was allowed and the
appellants herein were directed to quantify the claims in
terms of money by calling upon the respondent herein or
the authorised representatives and to pay the same within
a period of 60 days from the date of receipt of certified
copy of the judgment, failing which the amount will carry
interest at the rate of 7.5%.
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5. Before us, the learned Standing Counsel for the
KSEBL Sri.B.Premod forcefully contended that the judgment
of the learned Single Judge is erroneous and the decision of
the Adjudicator sought to be enforced by the respondent is
void and not binding on the appellants. He reiterated the
contentions we have noted in the previous paragraphs. The
learned counsel for the respondent Sri.C.S.Ajith Prakash
opposed the submissions of the learned Standing Counsel
and contended that the judgment rendered by the learned
Single Judge is perfectly right. He submitted that the
appellants are bound to honour the decision of the
Adjudicator and reiterated the contentions raised in the writ
petition.
6. Bone of contention is regarding the effect of the
clauses in the agreement regarding disputes, especially
about Clause 25. The said Clause is therefore extracted
hereunder:-
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"25. Procedure for Disputes
25.1 The Adjudicator shall give a decision in writing
within 28 days of receipt of a notification of a dispute.
25.2 The Adjudicator shall be paid daily at the rate
specified in the Contract Data together with
reimbursable expenses of the types specified in the
Contract Data and the cost shall be divided equally
between the Employer and the Contractor, whatever
decision is reached by the Adjudicator. Either party
may refer a decision of the Adjudicator to an
Arbitrator within 28 days of the Adjudicator's
written decision. If neither party refers the
dispute to arbitration within the above 28 days,
the Adjudicator's decision will be final and
binding.
25.3 The arbitration shall be conducted in accordance
with the arbitration procedure stated in the Special
Conditions of Contract."
7. The highlighted component of Clause 25.2 gives
no room for any doubt and dispute in our view. The same
is crystal clear. If the decision of the Adjudicator is not
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acceptable to either party, the party may refer the decision
to an Arbitrator within 28 days of the Adjudicator's
decision. The decision of the Adjudicator will become final
and binding if neither party refers the dispute to arbitration
within 28 days. It is indisputable that two of the claims of
the respondent were decided in its favour by the
Adjudicator. The appellants did not approach the Arbitrator
within 28 days as stipulated in Clause 25.2. Therefore, the
decision of the Adjudicator regarding claims (m) and (n)
became final and binding on the parties. We do not find
anything in the relevant clauses, supporting the argument
of the appellants that the decision of the Adjudicator
required affirmation by the Arbitrator. So also the
provisions of the Clause do not give any room for disputing
the decision of the Adjudicator after expiry of 28 days.
There is no provision in the agreement enabling any party
to reject the decisions of the Adjudicator unilaterally. Even
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if the appellants had a contention that reference for
adjudication was beyond the time limit under Clause 24,
the remedy of the appellants was to refer the matter for
arbitration and challenge the decision of the Adjudicator on
that ground. Having not chosen to refer the decision of the
Adjudicator for arbitration, it is not open to the appellants
to depict it as void and refuse to honour the same.
Contention of the KSEBL that they confronted the decision
of the Adjudicator in the statement filed before the Arbitral
Tribunal is short of any merits. It was incumbent upon the
KSEBL to challenge the decision independently or to raise a
counter claim.
8. When the parties mutually agree to refer disputes
that may arise between them for decision by a referee,
decision by the referee shall bind the parties. Relying on
the principles of "vicarious admission" ingrained in Section
20 of the Evidence Act, the Apex Court in Hirachand
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Kothari (Dead) by Lrs v. State of Rajasthan and
another [1985 (Supp) SCC 17] held as follows:-
"7. Section 20 of the Evidence Act reads as follows:
20. Admissions by persons expressly referred to by
party to suit-Statements made by persons to
whom a party to the suit has expressly referred for
information in reference to a matter in dispute are
admissions.
Section 20 is the second exception to the general rule
laid down in Section 18. It deals with one class of
vicarious admissions that demand of persons other than
the parties. Where a party refers to a third person for
some information or an opinion on a matter in dispute,
the statements made by the third person are receivable
as admissions against the person referring. The reason
is that when a party refers to another person for a
statement of his views, the party approves of his
utterance in anticipation and adopts that as his own.
The principle is the same as that of reference to
arbitration. The reference may be by express words or
by conduct, but in any case there must be a clear
admission to refer and such admissions are generally
conclusive."
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9. The same principle has been dealt with in the
commentary to Evidence Act by Ratanlal and Dhirajlal as
follows:-
"An admission by a person referred to by the party
comes very near to the case of arbitration (STEPHEN
DIG. 7th Edn., Note to Art. 19, p. 1789). If a reference is
made over a disputed matter to a third person, not in
the nature of a submission to arbitration, but rather as
an aid to the settlement of the differences existing
between the parties and to enable the parties
themselves to effect a settlement on the information, in
such cases the party is bound by the declaration of the
person referred to in the same manner and to the same
extent as if it was made by himself. A referee is deemed
to be an arbitrator and his decision is an award. It may
be noted here that under the Arbitration Act the parties
to a dispute in a court of law may request the court to
refer the dispute to an arbitrator. Apart from that, there
may be a provision in the contract between two parties,
to refer if any dispute arises, to arbitration. In such
cases the arbitrator, after going through the evidence
that may be placed before him, comes to a finding, If
that happens in the proceedings before the court, the
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parties will have an opportunity to raise objections
which have to be considered by the court, which will
pass a decree either in terms or in modification of
certain findings of the award. All that procedure will not
be available if a reference is made to a third party for
his opinion under this section. So it would not be proper
to call the statement of the referee as an award."
10. In Halsbury's Laws of England (4th Edition, Vol.17,
Para 74) the selfsame rule has been expressed as extracted
hereunder :
"74. Admissions by referees-
When a party agrees to be bound by what a
third person says, or refers an opposite party to a
third person for information or an opinion on a
given subject, the third person's reply is
admissible against the party so agreeing or
referring; and if the reference has been made by
agreement it will be conclusive."
11. Thus, when parties agree by a contract to refer
disputes that may arise between them for
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opinion/resolution/adjudication by a third party who may be
described as a referee/adjudicator, the opinion rendered
or decision taken by the referee/adjudicator shall be
binding on the parties in view of the principle of "vicarious
admission". It is not open to the parties to dishonour such
a decision. Challenge to such decisions can be made as
provided for in the contract and not otherwise. Purpose of
incorporating dispute resolution clauses in contracts is to
have a reciprocally agreed built-in mechanism for easy and
swift resolution of disputes and the aforesaid cannot be
permitted to be subjugated by any sides under normal
circumstances.
12. We are of the view that the above said principles
squarely apply to the facts of this case. Appellants and the
respondent agreed to the dispute resolution mechanism as
provided under Clause 25. Neither party can be permitted
to wriggle out of the same. The decision of the Adjudicator
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regarding claims (m) and (n) binds the appellants as they
did not chose to contest it by invoking the provision of the
contract, i.e. by resorting to arbitration.
Hence, we uphold the judgment of the learned Single
Judge. Writ appeal is dismissed.
Sd/-
A.MUHAMED MUSTAQUE,
ACTING CHIEF JUSTICE
Sd/-
S.MANU,
JUDGE
skj
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APPELLANTS' ANNEXURES
Annexure A1 THE TRUE COPY OF THE AGREEMENT NO.
07/CE(C) DSDRIPMLM/2016-17 DATED
16.06.2016
Annexure A2 THE TRUE COPY OF THE SUPPLEMENTAL
AGREEMENT EXECUTED BY THE WRIT
PETITIONER/RESPONDENT DATED 12-12-2017
Annexure A3 THE TRUE COPY OF THE SUPPLEMENTAL
AGREEMENT EXECUTED BY THE WRIT
PETITIONER/RESPONDENT DATED 30-6-2018
Annexure A4 THE TRUE COPY OF THE LETTER ISSUED TO
THE RESPONDENT DATED 29-06-2019
Annexure A5 THE TRUE COPY OF THE LETTER OF
APPOINTMENT THE ARBITRATOR SRI. M.V
GEORGE DATED 11-07-2019
Annexure A6 THE TRUE COPY OF THE LETTER ISSUED TO
THE RESPONDENT DATED 1 1 -07-2019
Annexure A7 THE APPELLANT BOARDS DECISION TO OPT
FOR ARBITRATION AND APPOINTMENT OF
ARBITRATOR
Annexure A8 THE TRUE COPY OF THE SUPPLEMENTARY
AWARD PASSED BY THE ARBITRAL TRIBUNAL
ON 30-03-2021
Annexure A9 THE TRUE COPY OF THE LETTER
DATED 6-09-2021
Annexure A10 THE TRUE COPY OF THE MINUTES OF THE
MEETING CONVENED BY THE CHIEF ENGINEER
ON 27-05-2017
