1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.266 OF 2008 1. Mr. Raghuvansh Lal Sharma ) proprietor of M/s. R.L. Sharma ) & Co. residing at Putrusmruti, ) 25 th Main, 9 th Cross, J.P. Nagar, ) Phase 1, Bangalore, Karnataka ) ) 2. M/s R.L. Sharma & Co. ) having its Head Office at ) A-1/143, Kirti Nagar, W.H.S., ) New Delhi 110 015 and Regional) Office at 113, 1 st Main Road, ) Seshadripuram, Bangalore ) 560 020 ) ) 3. Saket India Ltd. ) a company incorporated under ) the provisions of the Companies ) Act, 1956 having its Head Office ) at 1/143, Kirti Nagar, W.H.S., ) New Delhi 110 015. ) .... Petitioners. (Orig. Respondents) V/s Hindustran Construction Co. Ltd. ) a public limited company ) incorporated under the provisions) of the Companies Act, 1956 ) having its registered office at ) Hincon House, L.B.S. Marg, ) Vikhroli (West), Mumbai 400083 ) ... Respondent. 2 Mr. Rajeev Kumar with Mr. H. Toor i/b Crawford Bayley & Co. for petitioners. Mr. Aspi Chinoy, Senior Advocate with Mr. K. Setalwad i/b H. Joshi & Co. for respondent. CORAM: V.M. KANADE, J. DATE : 3RD AUGUST, 2009 ORAL JUDGMENT: 1. Petitioners have filed this Petition under sections 27, 30 and 33 of the Arbitration Act, 1940 seeking following reliefs:- “(a) that this Hon’ble Court be pleased to set aside the Impugned Interim Award/Ruling dated 12 th July 2007 made by the Sole Arbitrator in the Arbitration between the Respondents and the Petitioners under Section 27, 30 and/or 33 (inter alia) of the Arbitration Act, 1940; (b) that this Hon’ble Court be pleased to order or direct the Counter Claim of the Petitioners (as Respondent) in the Arbitration between the Respondents (as Claimant) and the Petitioners (as Respondents) before the sole Arbitrator 3 to be taken on record and heard and disposed of along with the Respondents claims.” No ad-interim relief was granted since the Petition was posted for hearing and final disposal at the admission stage. 2. Brief facts which are relevant for the purpose of deciding this Petition are as under:- 3. The Nuclear Power Corporation (For short “NPC”) by its letter of intent dated 21 st July 1988 awarded a contract to respondent for construction of Reactors, Turbines etc for Units 3 and 4 of Rajasthan Automic Power Project. The approximate value of the main contract was Rs 51 crores. NPC, in or about August 1988, issued to respondent a work order to execute the main contract. Respondent awarded sub-contract to one Saket India Pvt. Ltd (For short “SIPL”), predecessor in title of petitioner No.3 to sub-contract the contractual work under the 4 main contract to SIPL. SIPL, under the directions of respondent, commenced to execute the contractual work under the main contract in or about last week of August, 1988. It is the case of petitioners that though the main contract did not permit respondent to give sub-contract, respondent had surreptitiously given the sub-contract to SIPL. On 26/10/1988, respondent entered into an agreement with SIPL. Further contract was entered into between respondent and SIPL dated 21/11/1998 for excavation of pre-splitting of rock. Thereafter, respondent entered into and executed with petitioner No.3 supplementary agreement dated 22/3/1990. Petitioners rescinded the agreements dated 26/10/1988 and 27/7/1990 and preferred claims against respondent to recover monies in respect of sub-contracted work and on 01/02/1992 addressed to respondent a final bill of petitioners in respect of sub-contracted work and the respondent was called upon to pay and clear the same. Respondent also by its letter dated 17/06/1992 called 5 upon petitioners to settle the claim set up by them. Respondent, thereafter, filed arbitration suit bearing Suit No.3368 of 1993 under section 20 of the Arbitration Act. This Court by an order dated 21/3/1996 disposed of the arbitration suit by appointing, with the consent of petitioners and respondent, the Hon’ble Mr. Justice D.R. Dhanuka (Retd.) as sole arbitrator for resolution of disputes. 4. Respondent filed its statement of claim and compilation of documents. Petitioners also filed their statement of defence and compilation of documents. Petitioners also sought to file counter-claim apart from statement of defence. However, an objection was raised by respondent that the counter-claim being beyond the scope of arbitral reference, the arbitrator did not have jurisdiction to decide the counter-claim of petitioners herein. 6 5. The learned arbitrator by an order dated 12/7/2007 upheld the preliminary objection of the respondent and held that the proposed counter-claim of petitioners was beyond the scope of arbitration agreement as also arbitral reference. Being aggrieved by the said order, petitioners have approached this Court by filing this arbitration petition. 6. Mr. Rajeev Kumar, the learned Counsel appearing on behalf of petitioners, firstly, invited my attention to para 17 of the arbitration suit No.3368 of 1993 filed by respondent herein. He submitted that in para 17, plaintiffs enumerated disputes and differences then arising between the parties and in clause (iii) of the said paragraph, it was stated as under:- “(iii) Whether the 1 st Defendant’s claim is at all maintainable?” It is pointed out that, in the said paragraph, further averment 7 was made to the following effect:- “The Plaintiffs say that these disputes would be covered under the said Agreement dated 30 th May, 1991 and the said Agreement applies to the said disputes.” He, therefore, submitted that the respondent was very well aware of the claim of plaintiffs. He submitted that, in reply to the said paragraph, following averment was made in the written statement filed by petitioners herein:- “17. With reference to paragraph 15 of the Plaint, I deny that the Plaintiffs are entitled to refer the dispute to the sole arbitration of their Managing Director. I say that the large amount mentioned in the Final Bill sent alongwith the letter dated 1 st February 1992 is due and payable by the Plaintiffs to Defendant No.1.” He also invited my attention to para 15 of the rejoinder filed by 8 the respondent wherein it was mentioned as under:- “15. With reference to paragraph 19 of the affidavit in reply I repeat and reiterate what is stated in paragraph 17 and I deny all and singular the statements as are contrary thereto and/or inconsistent therewith. I deny that the said agreement only provides for reference of the Plaintiffs’ claim and not the claim which the Defendant No.1 had against the Plaintiffs. I say that the disputes and differences as set out in paragraph 17 of the plaint does take into consideration the Defendants’ claim and a question to that effect has been framed by the plaintiffs in the above suit as to whether the first Defendant’s claim is at all maintainable...........” The learned Counsel appearing on behalf of petitioners also invited my attention to prayer clauses in the suit. Prayer clauses (a) and (b) in the suit read as under:- “(a) that this Hon’ble Court be pleased to order that the arbitration agreement contained in the Minutes 9 dated 30 th May, 1991 be taken on file by this Hon’ble Court; (b) that this Hon’ble Court be pleased to order and direct that in accordance with the said arbitration agreement, all the disputes between the parties including those mentioned hereinabove be referred to the sole arbitration of the Managing Director of the Plaintiffs or of such other fit and proper person as this Hon’ble Court deems fit;” He submitted that prayer clause (b), therefore, clearly and unequivocally mentions that disputes in respect of petitioners’ claim were also included and were to be referred to the arbitration. He submitted that the suit was allowed in terms of prayer clauses (a) and (b) and, by consent of parties, the following order was passed on 21 st March, 2006:- “CORAM: D.K. DESHMUKH, J. DATED : 21st March, 2006 P.C.”- By consent of parties, the suit is decreed in 10 terms of prayer clause (a) and (b). By consent of parties, Hon’ble Mr. Justice D.R. Dhanuka (Retd.) is appointed as Arbitrator. No order as to costs.” The learned Counsel appearing on behalf of petitioners secondly submitted that, therefore, the learned arbitrator has misdirected himself by narrowly interpreting the scope of the order dated 21/03/2006 made in arbitration suit No.3368 of 1993. He thirdly submitted that the learned arbitrator erred in holding that the proposed counter-claim of petitioners is beyond the scope of arbitration agreement contained in minutes of the meeting dated 30/5/1991. He further submitted that the words “any disputes with regard to HCC’s claims against M/s R.L. Sharma & Co. and/or SIL” would include the counter-claim regarding or in respect to respondent’s claim against petitioners. He submitted that the words/expressions “any dispute with regard to” are expansive and wide in ambit and nature. He further submitted that the arbitration agreement in the minutes of the meeting 11 dated 30/5/1991 should be construed in the light of or pursuant to the provisions of arbitration clause in the arbitration agreement dated 27/7/1990 which reads as under:- “6. Any disputes or differences arising out of or relating to this Agreement shall be referred to arbitration of three arbitrators – one to be appointed by each party. The three arbitrators, before entering on the reference, shall appoint an Umpire. The arbitration shall be held in accordance with the provisions of the Indian Arbitration Act, 1940, as amended up-to-date. The venue of arbitration will be in Bombay. In support of the said submissions, he relied upon the following judgments:- Sr No. Name of the parties CITATIONS 1 Indian Oil Corporation Ltd. Vs. Amritsar Gas Service and others. (1991) 1 SCC 533 2 V.H. Patel & Company and others Vs. Hirubhai Himabhai Patel and Others (2000) 4 SCC 368 12 3 Hemraj Gyaniram Patle & others Vs. Yamunabai Wd/o Fanda Pardhi & others. 1998(1) Bom.C.R.134 4 K.V. George Vs. The Secretary to Govt., Water and Power Dept. Trivandrum and another. AIR 1990 SC 53 5 Central India Builders Vs. Food Corporation of India. 2003(6) Bom.C.R.264 6 State of Orissa and another Vs. M/s Civien Construction Co and another. AIR 1983 ORISSA 48 7 Food Corporation of India Vs. P.L.Juneja. AIR 1981 DELHI 43 8 Nandram Hanutram Vs. Raghunath and sons Ltd. AIR 1954 Cal 245 9 Banwari Lal Kotiya Vs. P.C. Aggarwal (1985) 3 SCC 255 10. Olympus Superstructures Pvt. Ltd. Vs. Meena Vijay Khetan and Others. (1999) 5 SCC 651 11. VISA International Ltd. Vs. Continental Resources (USA) Ltd. AIR 2009 SC 1366 12. AM Rasool Constn. & Engineering Services (P) Ltd. 2002 VIIIAD (Delhi) 297 13. Union of India Vs. G.S. Atwal & Co. (Asansole) (1996) 3 SCC 568 14. U.P. Rajkiya Nirman Nigam Ltd. Vs. Indure Pvt. Ltd and others. (1996) 2 SCC 667 15. Jawahar Lal Burman Vs. Union of India (UOI). AIR 1962 SC 378 16. Shiva Jute Baling Limited Vs. Hindley and Company Limited AIR 1959 SC 1357 17. McDermott International Inc. Vs. Burn Standard Co. Ltd and others. (2006) 11 SCC 181 13 18. Orissa High Court Judgment in Chairman-cum-Managing Director, New India Assurance Company Ltd and Anr. Vs. Rabi Narayan Chhotrai MANU/OR/0011/1997 19. Renusagar Power Co. Ltd. Vs. General Electric Company and Anr. AIR 1985 SC 1156. 7. Mr. Aspi Chinoy, learned Senior Counsel appearing on behalf of the respondent firstly submitted that prayer clause (a) in the Arbitration proceeding was misconceived and no relief could be granted in terms of the said prayer. He further submitted that even prayer clause (b) also was not properly worded. He submitted that the petitioners had not filed any petition under Section 33 for determination of the terms of reference as contemplated challenging the existence or validity of an arbitration agreement or an award or to have the effect of either determined by the court and that they had filed the present petition after the order was passed by the arbitrator and that the question of counter-claim raised by petitioners was 14 beyond the terms of reference and therefore, the Petition is not maintainable. He then submitted that the scope of the power of the court under Section 20 of the Arbitration Act, 1940 was very limited and that once the court took a decision under subsection (4) of the said Act, the court only had to perform the ministerial function of making a reference of the dispute to an arbitrator in terms of the arbitration clause. He submitted that the court did not have the power either to add anything or to subtract anything from the arbitration clause. He submitted that the arbitration clause referred to in the minutes of the meeting dated 30.5.91 reads as under :- “If there arises any dispute with regard to HCC’s claim against M/s. R.L. Sharma & Co. and/or SIL, such dispute shall be referred to the sole arbitration of the Managing Director of H.C.C whose decision shall be final and binding on both the parties.” 15 He submitted that therefore, once the court had come to a conclusion that there existed an arbitration agreement, the reference could only be made in terms of the said agreement and the arbitrator had to give meaning to the words used in the said clause. He submitted that the court making a reference of a dispute to the arbitrator could not expand the scope of the reference. He submitted that as on the date of the recording of the minutes of the meeting dated 30.5.91, there was no counter claim raised by petitioners and therefore, it was expressly agreed between the parties that what was to be referred to the arbitrator was HCC’s claims. He submitted that before the arbitration clause was finalised, the circumstances under which the clause was framed were also mentioned in the said minutes of the meeting. He submitted that it was agreed that the claim consisted of two circumstances (a) and (b) which have been mentioned in the minutes of meeting which read as under :- 16 “(a) details of expenses incurred against various advances received by Mr. Sharma from H.C.C from time to time, and (b) details of reconciliation for material received by Mr.Sharma from Government as well as from H.C.C.” In support of the said submission in respect of the power of the court under Section 20 of the Arbitration Act, 1940, he relied on the three judgments of the Apex Court. The first judgment which he relied upon is in M/s.Dhanrajamal Gobindram vs. M/s.Shamji Kalidas and Co. reported in 1961 LXIV Bombay Law Reporter 169. He then relied on the judgment of the Apex Court in M/s.Prabhat General Agencies etc., vs. Union of India and another reported in AIR 1971 SC 2298. He also relied on the judgments of the Apex Court in Prabartak Commercial Corporation Ltd. vs. Chief Administrator, Dandakaranya Project and Another, reported in (1991) 1 SCC 498 and in Food Corporation of India vs. Surendra, Devendra & Mahendra Transport Co. reported in (2003)4 SCC 80. He also submitted 17 that in para 17 of the Arbitration Suit No.3368/93, sub-clause (iii) only referred to the maintainability of the defendant’s claim and prayer clause (b) clearly referred to reference in accordance with the arbitration agreement. He submitted that the word “including those mentioned hereinabove” could not be beyond the terms of the arbitration clause and the court, therefore, even otherwise, would not have a power to go beyond the arbitration clause and make a reference of a dispute beyond the scope of the arbitration clause. He submitted that all the judgments on which reliance was placed by the Counsel for the petitioners did not contain a case where the reference was restricted to the claim of one of the parties and, therefore, he submitted that the ratio of the said judgment would not apply to the facts of the present case. 8. Heard the learned Counsel appearing on behalf of petitioners and the learned Counsel appearing on behalf of respondents. 18 9. Following questions fall for determination of this Court. (1)Whether the Petition in the present form is maintainable under sections 27, 30 and 33 of the Arbitration Act, 1940? (2)What is the scope of the power which is to be exercised by this Court under section 20 of the sad Act? (3)What is the scope of power of this Court under section 33 of the Arbitration Act? 10. So far as prayer clause (a) of the Petition is concerned, the said prayer cannot be granted since the relief claimed is on he basis that an interim award has been passed by the learned arbitrator. It is an admitted position that what has 19 been decided by the learned arbitrator is the preliminary point which has been taken by the respondent herein regarding maintainability of the counter-claim before the arbitrator and for taking the counter-claim on record. As such, it is not an interim award passed by the learned arbitrator. Prayer clause (a), therefore, cannot be granted in view of provisions of section 33. 11. So far as prayer clause (b) of the Petition is concerned, though the prayer clause is to the effect that a direction should be given to the learned arbitrator to take the counter-claim on record, in effect, in my view, what petitioners are seeking is determination of terms of reference by this Court under section 33 of the said Arbitration Act. Therefore, though, in view of the prayer clause which is worded by petitioners, the petition may not be said to be maintainable, in fact, since the relief sought by petitioners is for a declaration in respect of existence of the arbitration agreement and its interpretation, in 20 my view, to that extent, the said petition would be maintainable. It is a well settled position is law that while exercising jurisdiction of this Court under section 33 of the Arbitration Act, the Court has to take into consideration three aspects viz. existence, validity and effect of the arbitration agreement. In view of this well settled position in law, the Petition which raises issues regarding existence, validity or effect of an arbitration agreement, such petition under section 33 would be maintainable. The question No.1 is, therefore, answered accordingly. 12. So far as question No.2 above is concerned regarding scope and power of the Court under section 20 of the Arbitration Act, the learned Counsel Mr. Rajeev Kumar appearing on behalf of petitioners strenuously urged that the Court has power and authority to also take into consideration the circumstances under which the arbitration agreement was 21 entered into and for the purpose of fruitful determination of the actual disputes between parties, the court while referring the matter to arbitrator, can determine the disputes which are to be referred to the arbitrator. This was in response to the submissions made by Mr. Chinoy, the learned Senior Counsel appearing on behalf of respondent. 13 Mr. Chinoy, the learned Senior Counsel appearing on behalf of respondent further submitted that while exercising jurisdiction under section 20 of the Arbitration Act, Court is supposed to carry out two-fold functions; one under sub-section (4) of section 20 and other of referring the matter to an arbitrator. He submitted that so far as function under sub- section (4) of section 20 is concerned, the Court has to arrive at a conclusion after judicial adjudication of the existence of an arbitration agreement on the basis of correspondence, contract 22 and intention of parties. He submitted that, however, after the Court determines this aspect under sub-section (4), thereafter, the function of referring the matter to an arbitrator would be the ministerial function restricted to arbitration clause and, as such, the Court is not empowered to add or subtract anything to the arbitration agreement. It was further submitted that if any particular clause was expressly excluded from the arbitration agreement, such a clause could not be referred to the arbitration by the reference court under section 20 and even if such a reference is made, it would be beyond the scope of adjudication by the arbitrator. In support of the said submission, he relied upon the following judgments of the Apex Court. Sr.No. Name of Parties CITATIONS 1 M/s Dhanrajmal Gobindram Vs. M/s. Shamji Kalidas and Co. LXIV BLR 169 2 M/s. Prabhat General Agencies etc. Vs. Union of India and another AIR 1971 SC 2298 23 3 Prabartak Commercial Corporation Ltd. Vs. Chief Administrator, Dandakaranya Project and another (1991) 1 SCC 498 4 Food Corporation of India Vs. Surendra, Devendra & Mahendra Transport Co. (2003) 4 SCC 80 14. Mr. Rajeev Kumar, the learned Counsel appearing on behalf of petitioners tried to distinguish these judgment firstly on the ground that the aforesaid judgments do not apply to the facts of the present case and that the issue involved in these judgment was different. He submitted that in M/s Dhanrajamal Gobindram (supra) the issue was pertaining to bye-laws of East India Cotton Association Ltd., Bombay and, more particularly, the observations made by the Apex Court in respect of section 20 sub-clause (4) were incidental and not in respect of the issue in the said case and that this judgment did not decide the said issue and it was kept open by the Supreme Court. It is submitted that in M/s Prabhat General Agencies (supra), the issue was in respect of section 8 sub-clause (1)(b) regarding 24 intention of parties not to supply vacancy and, incidentally, in para 4, a reference was made to section 20 of the said Act. He submitted that in Prabartak Commercial Corporation Ltd. (supra) also the issue was under section 30 of the said Act. Lastly, he submitted as far as the judgment in Food Corporation of India (supra) is concerned, there, a particular clause in the agreement had been expressly excluded and the reference was made in respect of the said clause which was held to be illegal by the Apex Court. He submitted that, therefore, even in this case, provisions of section 20 were not considered. He further relied upon the following judgments of the Apex Court:- Sr. No Name of Parties CITATIONS 1. General Manager Northern Railway and Anr. Vs. Sarvesh Chopra. AIR 2002 SC 1272 2. Union of India (UOI) and Anr. Vs. Raunaq International Ltd. 2008(4) ALT47(SC) 3. Bharat Sanchar Nigam Ltd. Vs. Motorola India Pvt. Ltd. 2008 (12) SCALE 720 25 15. In my view, there is much substance in the submissions made by Mr. Chinoy, the learned Senior Counsel appearing on behalf of respondent. It is no doubt true that the main issue involved in the judgments on which reliance has been placed by him was different. However, the Apex Court, in these judgments, has taken into consideration the scope and power which is to be exercised by the Court in a Petition which is filed under section 20 of the Arbitration Act. Under the scheme of the old Act in the event of any difference or dispute between parties in respect of (i) appointment of an arbitrator, (ii) filling up of vacancy and (iii) in respect of existence of arbitration agreement, either party was entitled to file Petition under section 20 of the said Act. Section 20 of the Act reads as under:- “20. Application to file in Court arbitration agreement.- (1) Where any persons have entered into an arbitration 26 agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court. (2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties, or, if otherwise, between the applicant