1 AC No.23/2012 HIGH COURT OF MADHYA PRADESH BENCH AT GWALIOR SB: JUSTICE SUJOY PAUL Arbitration Case No.23/2012 Shri Brajesh Sharma vs. [ENTITY] Shri [ENTITY], Advocate for the applicant. Shri [ENTITY], Advocate for the respondent. ORDER
(20/08/2014) In this application filed under [SECTION] of the [ACT] (for brevity, the 'Act'), the applicant has prayed for appointment of sole arbitrator to decide the dispute between the parties.
2. The facts narrated by the applicant are that respondent [ENTITY] is engaged in the business of civil construction work and has been allotted different construction work in different parts of State of Madhya Pradesh. On 27.1.2009, the General Manager of M.P. Rural Road Development Authority (RRDA), Project Implementation Unit-1, Khandwa allotted a work for construction/upgradation of rural road under "Pradhan Mantri Gram Sadak Yojna" including maintenance for five years after construction.
3. The respondent used to perform its civil construction work by subcontracting the same to different specialized agencies/contractors. For this purpose, an agreement was entered into between the applicant and respondent on 14.9.2009 (Annexure P/1). As per the agreement, the applicant was required to undertake the aforesaid work on behalf of the respondent. The applicant was also allotted the work of the road (area from Kalmukhi to Matpur) for an approximately length of 6.70 Kms. for an approximate contract amount of Rs. 210.00 Lacs by the respondent.
4. Shri [ENTITY], learned counsel for the applicant relied on [SECTION] and [SECTION] of the agreement dated 14.9.2009 (Annexure P-1). He submits that a dispute arose and, therefore, the applicant preferred representation, notice etc. to the respondent for appointment of sole arbitrator. The party No.1 of agreement (respondent herein) was required to appoint the arbitrator as per clause 12 of Annexure P-1. As per clause [SECTION], Shri [ENTITY] submits that the disputes are subject to exclusive jurisdiction of Courts at Gwalior and place of arbitration is also Gwalior. He submits that necessary formalities as per the agreement for appointment of arbitrator have been completed by the applicant and, therefore, an arbitrator be appointed. He further submits that the applicant is not the signatory of general conditions of contract (Annexure R/1) nor he is bound by this. Thus, any clause of that contract entered into between RRDA and [ENTITY] cannot have any adverse impact for the purpose of relief of appointment of arbitrator. He further submits that the object and scheme of [PRECEDENT]) (hereinafter called as "Adhiniyam"), makes it clear that the Tribunal has no jurisdiction in the matter of present dispute.
5. Shri [ENTITY], learned counsel for the respondent, on the other hand, submits that the present application is not maintainable. As per clause 7.1 of general conditions of contract (Annexure R-1), the subcontracting is permissible only with the prior approval of the principal employer, i.e., MPRRDA. It is permissible only up to value of 25 per cent of the total work and not beyond it. In the present case, the agreement, Annexure P/1, is entered into without prior approval of the employer in writing. It is beyond 25 per cent of the contract price and, therefore, the said agreement, Annexure P-1, is a void document. It is further argued that the applicant in fact has not made any request for appointment of arbitrator and, therefore, there exists no dispute between the parties. The factum of issuance and receiving of notice dated 18.9.2012 (Annexure P/2) and another document of same date (filed with list of documents) by the applicant is disputed by the other side. In addition, by filing additional reply the respondents have stated that as per [SECTION] of [ACT], the document dated 14.9.2009 (Annexure P/1) is chargeable with duty as per Schedule I-A in Madhya Pradesh. No stamp duty is admittedly paid on aforesaid document and, therefore, same is inadmissible as per [SECTION] of the [ACT]. It is further submitted that there is no valid reason for this court to entertain the present application. Lastly, it is submitted that the applicant has not impleaded the firm as per [SECTION] [ACT] and has chosen to file application by name and, therefore, the application must fail. He relied on [PRECEDENT].
6. No other point is pressed by learned counsel for the parties.
7. On the basis of aforesaid contentions, following issues emerge for decision:-
(i) Is there a valid arbitration agreement between the parties ?
(ii) Whether the applicant should be relegated to avail the remedy under the Adhiniyam of 1983 ?
(iii) Whether the present application must fail because it is not filed in the name of the firm ?
(iv) Whether in absence of payment of stamp duty on the agreement, Annexure P-1, present application is barred ?
(v) Whether the applicant has fulfilled the formalities as per Annexure P-1 for seeking direction for appointment of arbitrator ?
8. Before dealing with rival contentions, I deem it proper to quote [SECTION] and [SECTION] of the agreement, Annexure P-1. It read as under:-
"12.That, in case any dispute arising out of or from this agreement or regarding interpretation, validity and or scope of any clause of this agreement or regarding the validity of this agreement shall be referred to the sole arbitrator under [ACT]. Party No.1 shall appoint the arbitrator.
[SECTION]. That, all disputes shall be subject to the exclusive jurisdiction of courts at Gwalior. Place of arbitration shall be exclusively at Gwalior."
Issue No.(i) :
9. It is mainly based on clause 7.1 of General Conditions of Contract. It reads as under:-
"7.1 The contractor may sub-contract part of the construction work with the approval of the employer in writing, upto 25 percent of the contract price but will not assign the contract. Subcontracting shall not alter the contractor's obligation."
10. Shri [ENTITY], Advocate for the applicant, relied on the judgments of Supreme Court, reported in (2010) 5 SCC 306 ([ENTITY] Energy Ltd. vs. [ENTITY] (I) Ltd. and another) to submit that when factum of signing of arbitration agreement, Annexure P-1, is not in dispute between the parties, this Court is not obliged to examine anything further. Only thing which needs to be examined is whether there exists an arbitration agreement and whether party seeking appointment of arbitrator is a party to such agreement. Any wider examination in the present summary proceedings is not warranted. He also relied on [PRECEDENT] to submit that the only thing needs to be examined whether the party making the application has approached the appropriate High Court and whether the claim is dead (long barred) claim or a live claim ?
11. Before dealing with the rival contentions on this issue, it is apt to remember that the applicant and respondent are signatory to the agreement, Annexure P-1. Another agreement, Annexure R-1, is entered into between the respondent herein and MPRRDA. The present applicant is not party to the agreement, Annexure R-1. No doubt, when an objection is raised about existence of a "valid arbitration agreement", the court is required to deal with this aspect. It is necessary because it goes to the root of the matter and existence of an arbitration agreement is a jurisdictional fact, which will have to be addressed while making an order on a petition under [SECTION] of the Act. This view is taken by Supreme Court in [PRECEDENT]. The issues which need to be taken care of by the Chief Justice/his designates are summarised by Supreme Court in catena of judgments including [PRECEDENT]. This is followed by the Apex Court in [PRECEDENT]. The Apex Court opined that the first category of issues which needs to be decided by Chief Justice or his designates are as under:-
"(a) Whether the party making the application has approached the appropriate High Court.
(b) Whether there is an arbitration agreement and whether the party who has applied under [SECTION] of the Act, is a party to such an agreement."
The second category of issues which the Chief Justice/his designate may chose to decide (or leave them to the decision of the Arbitral Tribunal) are :
"(a) Whether the claim is a dead (long-barred) claim or a live claim.
(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection."
The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are :
"(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of departmental authority and excepted or excluded from arbitration).
(ii Merits or any claim involved in the arbitration."
A minute reading of para 28 of the judgment of Reva Electric Car (supra) shows that when the very existence of arbitration agreement is questioned by any party, the said aspect has to be addressed by the High Court. The similar view is taken in [PRECEDENT]. In para 17, the Apex Court opined that where sufficient circumstances exist to doubt the genuineness of the agreement or where it is contended that contract was forged/fabricated, the Chief Justice or his designate may examine the said aspect.
12. In the present case, the genuineness and existence of the agreement dated 14.9.2009, Annexure P-1, is not in question. In other words, it is not the case of the respondent that the agreement dated 14.9.2009 is fake or fabricated document. The bone of contention of the respondent is based on clause 7.1 of General Conditions of Contract (entered into between RRDA and [ENTITY]).
13. The contention of Shri [ENTITY] is that since the agreement, Annexure P-1, is entered into between the applicant and respondent herein without approval of the employer and the contract price is beyond 25%, such agreement is a void document. Heavy reliance was placed in this regard on the judgment of Supreme Court in ITC Ltd. (supra).
14. In ITC Ltd. (supra), the Apex Court was dealing with [SECTION] of the [ACT]. Shri [ENTITY] relied on this judgment to contend that the contract is void ab initio on the ground of mistake. He mainly relied on para 18 of this judgment.
[SECTION]. A minute reading of this judgment shows that while examining the scope of [SECTION] of [ACT], the Apex Court opined that in appropriate cases having regard to the nature of dispute raised in the pleadings of the suit, the compass and scope of arbitration clause in the [ACT], the surrounding facts and circumstances of the case and by taking into account the object and spirit of [ACT], the court may be justified in deciding the validity, existence or legality of the challenged contract containing the arbitration agreement. In the same judgment, the Apex Court opined that as per [SECTION] of [ACT], where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Since the present applicant is not signatory to the earlier agreement entered into between the respondent herein and RRDA, the present applicant is an innocent party. He cannot be said to be under a mistake for entering into the agreement without prior approval of the employer or for a price which is beyond 25% as per clause 7.1. The aspect whether a contract would be void at law in such circumstances, is dealt with by Lord [ENTITY] in [PRECEDENT]. He opined as under:-
"Once a contract has been made, that is to say, once the parties, wherever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the subject matter, then the contract is good unless and until it is set aside for failure of some condition on wich the existence of the contract depends, or for fraud, or on some equitable ground. Neither party can rely upon his own mistake to say that it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake."
(Emphasis Supplied) In the same judgment, the Apex Court opined that "mistake will not affect assent unless it is the mistake of both the parties". On the basis of "Solle" (supra), which is followed in ITC Ltd. (supra), it is clear that the respondent cannot rely upon his own mistake to say that the agreement, Annexure P-1, was a nullity from inception because prior approval of the employer is not taken. In no uncertain terms it was made clear by Lord [ENTITY] that even if the mistake is very fundamental in nature, the party who has knowingly committed such mistake cannot take its benefit. In other words, the respondent cannot rely upon his own mistake and submit that the agreement, Annexure P-1, is a nullity/void ab initio and, therefore, cannot be acted upon.
16. In nutshell, since the existence and genuineness of Annexure P-1 is not in question and present applicant was not a party to separate agreement, Annexure R-1, I am unable to hold that there was no valid arbitration agreement between the parties.
Apart from this, in [ENTITY] Energy Ltd. (supra), the agreement was entered into between [ENTITY] and [ENTITY]. [ENTITY] Energy Ltd. resisted the petition filed under [SECTION] of the Act by [ENTITY] Ltd. on the ground that it was not a party to the relevant agreement entered into between [ENTITY] and [ENTITY]. The Apex Court after considering various judgments on the point allowed the appeal of [ENTITY] and set aside the order of High Court appointing an arbitrator in regard to the claims of the [ENTITY] against [ENTITY] and dismissed the application under [SECTION] of the Act filed by [ENTITY] insofar as [ENTITY] is concerned. The appointment of arbitrator insofar as [ENTITY] is concerned, was not disturbed. In the present case, [SECTION] and [SECTION] of the agreement, Annexure P-1, makes it clear that the sole arbitrator needs to be appointed under the Act. The applicant and respondent are signatory to this agreement and, therefore, in my view, it is a valid arbitration agreement, pursuant to which a direction to appoint sole arbitrator can be given.
Thus, issue No. (i) is decided in favour of the applicant. Issue No.(ii) :
17. [SECTION] of the agreement, Annexure P-1, makes it clear that the parties have decided to refer their dispute to the sole arbitrator under the Act. Apart from this, the preamble of [ENTITY] makes it clear that it was enacted to arbitrate the disputes to which the State Government or a Public Undertaking is a party. It reads as under:-
"An Act to provide for the establishment of a tribunal to arbitrate in disputes to which the State Government of a Public Undertaking, wholly or substantially owned or controlled by the State Government, is a party, and for matters incidental thereto or connected therewith."
18. [SECTION] of the [ENTITY], which defines "works- contract", reads as under:-
" 2(i) "works-contract" means an agreement in writing for the execution of any work relating to construction, repair or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory, work-shop, powerhouse, transformers or such other works of the State Government or Public Undertaking as the State Government may by notification, specify in this behalf at any of its stages, entered into by the State Government or by an official of the State Government or Public Undertaking or its official for and on behalf of such Public Undertaking and includes an agreement for the supply of goods or material and all other matters relating to the execution of any of the said works."
(Emphasis Supplied)
19. A conjoint reading of the preamble of the Act with definition of "works-contract" makes it crystal clear that the Adhiniyam could be made applicable only when either party is State Government or Public Undertaking or its official. In the present case, admittedly, neither the applicant nor respondent herein is State Government or its Undertaking. This is trite in law that preamble of a Statute is although not an enacting part, the preamble is expected to express the scope, object and purpose of the Act more comprehensively than the long title. It may recite the ground and cause of making the Statute, the evil sought to be remedied. (See, [PRECEDENT]).
On the basis of aforesaid, the applicant cannot be relegated to avail the remedy under the Adhiniyam.
Issue No.(iii) :
20. This issue is based on the contention raised that as per [SECTION], [ACT], the firm has not filed the present application. I do not see any merit in this contention. The Act intends to provide a speedy method of resolution of dispute between the parties. This method must be free from hyper-technicalities and unnecessary procedural rigmarole. A summary and simplified procedure is sought to be introduced by way of Act of 1996. [SECTION] of the Act also shows the intention of the law makers that strict principles of [ACT] would not be applicable. For this reason, I am unable to persuade myself with the contention of Shri [ENTITY] that the application must fail because it is not filed on behalf of the firm.
Issue No.(iv) :
21. This objection raised by the respondent is also devoid of merits. Even if the agreement, Annexure P-1, is not properly stamped, [SECTION] and [SECTION] will not vanish in thin air. [SECTION] does not preclude this Court to take into account the agreement for the purpose of exercising power under [SECTION] of the Act. This objection being meritless, is rejected.
Issue No.(v) :
22. The applicant has stated that the notice, Annexure P-2, dated 18.9.2012 and another communication of same date demanding appointment of sole arbitrator were sent in single envelope. It is denied on the ground that the notice dated 18.9.2012 requesting appointment of arbitrator is not served upon the respondent. However, the specific averment of the applicant made in rejoinder that both the documents dated 18.9.2012 were sent together in single envelope, is not specifically denied. In the present summary proceedings this Court is not obliged to examine this aspect by applying strict principles of [ACT]. On the basis of the averments of the parties, I am satisfied that both the documents dated 18.9.2012 are served on the respondent.
23. As analyzed above, it is clear that the ingredients for issuing a direction for appointment of arbitrator are satisfied in the present case.
Thus, I deem it proper to appoint a Sole Arbitrator. Accordingly, Hon'ble Shri Justice [ENTITY], former High Court Judge [R/o C-10, Kailash Nagar, New Collectorate Road, Gwalior (MP), Mobile No.09425526855], is hereby appointed as a Sole Arbitrator in the present matter. Parties are directed to approach Hon. Shri Justice [ENTITY] in this regard. Registry is directed to send a copy of this order to Hon.Shri Justice [ENTITY]. Needless to mention that the learned arbitrator will be free to decide his fees.
24. Application is allowed. No costs.
([ENTITY]) Judge (Yog)