SCA/13384/2004 1/98 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 13384 of 2004 with SPECIAL CIVIL APPLICATION NO. 1176 OF 2006 For Approval and Signature: HONOURABLE MR.JUSTICE K.M.MEHTA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO ========================================================= H K DHRUVA - Petitioner(s) Versus UNION OF INDIA - Respondent(s) ========================================================= Appearance : PARTY-IN-PERSON for Petitioner(s) : 1, MR MUKESH A PATEL for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE K.M.MEHTA Date : 27/9/2007 CAV JUDGMENT 1. H.K. Dhruva, petitioner, party-in-person, SCA/13384/2004 2/98 JUDGMENT has filed this petition under Article 227 of the Constitution of India with a prayer that this Court may be pleased to quash and set aside judgement and order dated 19.6.2006 passed by the learned Judge, City Civil Court, Ahmedabad, in Civil Miscellaneous Application No. 109 of 1992 and 150 of 1992 by which the learned Judge has directed the General Manager of railway Administration to appoint Arbitrators to resolve the dispute and differences arose by the Contractor as it was in existence at the time of passing the order by this Court on 31.3.1986 and for that letter of panel and finalisation of suggestion of nominee be done on or before 31.7.1996. He further pressed that thereafter the arbitration work should be completed within a period of four months latest by 30.11.1996. The General Manager is directed not to include any instruction to the Arbitrator regarding the admissibility of any claim or counter-claim but such plea can be raised in written statement before the Arbitrator if find necessary. The petitioner further prayed to allow fully the SCA/13384/2004 3/98 JUDGMENT application of the petitioner in Civil Miscellaneous Application No. 150 of 1992 and to appoint Arbitrator of this Court's choice to resolve the dispute. The petition was filed on 29.12.2004. When the matter was placed for hearing, this Court issued notice. Thereafter, this Court passed various orders from time to time. Thereafter, this matter was heard partly and though the roster was changed but ultimately in view of the order of the Hon'ble the Chief Justice the matter was again placed for hearing before this Court and that is why the matter has been heard by this Court finally. 2. The facts giving rise to this petition are as under: 2.1 Mr. H.K. Dhruva, party-in-person – petitioner, was a Contractor and carried on his business of contracts from his office situated at A/2, Kahan Nagar Flats, 7, Panchnath Plots, Rajkot, at the relevant time. The Railway issued tenders of providing the work of approach road SCA/13384/2004 4/98 JUDGMENT and circulating area in Hapa-Yard, Jamnagar. The petitioner filled up the tenders and as the petitioner's tender was found to be the lowest tender for the said work, the Western Railway Administration accepted the same and thereafter the Railway and the petitioner entered into a Contract Agreement No. 151 dated 15.6.1979. The said contract was executed between the Railway and the petitioner at Rajkot. Clauses 62 and 63 of the said Contract read as under: 2.2 “Clause 62 – All disputes or differences of any kind whatever arising out of or in connection with the contract, whether during the progress of the works or after their completion and whether before or after the determination of the contract shall be referred by the Contractor to the Railway and the Railway shall within a reasonable time after their presentation make and notify decisions thereon in writing. The decisions, directions and certificates with respect SCA/13384/2004 5/98 JUDGMENT to any matters decision of which is specially provided for by these conditions, given and made by the Railway, or by the Engineer on behalf of the Railway, which matters are referred to hereinafter as Excepted Matters shall be final and binding upon the Contractor and shall not be set aside or be attempted to be set aside on account of any informality, omission, delay or error in proceeding in or about the same or on any other ground or for any other reason and shall be without Appeal. 2.3 Clause 63 - If the Contractor be dissatisfied with the decision of the Railway, on any matter in question, dispute or difference, on any account or as to the withholding by the Railway of any certificates to which the Contractor may claim to be entitled to or if the Railway fails to make a decision within a reasonable time, then and in any such SCA/13384/2004 6/98 JUDGMENT case but except in any of the Excepted matters referred to in clause 62 of these conditions the Contractor may within 10 days of the receipt of the communication of such decision or after the expiry of the reasonable time as the case may be, demand in writing that such matter in question, dispute or difference be referred to arbitration. Such demand for arbitration shall be delivered to the Railway by the Contractor and shall specify the matters which are in question, dispute or difference and only such dispute or difference of which the the demand has been made and no other shall be referred to arbitration. “ 2.4 The terms and conditions of clause 62 of the Contract provide that all disputes or differences shall be referred by the Contractor to the Railway and the Railway shall make and notify decisions thereon within a reasonable time. Clause 63(1) provides that if Contractor is SCA/13384/2004 7/98 JUDGMENT not satisfied with decisions notified by Railway, he may demand that such matter in question, dispute or difference be referred to arbitration, specifying the matters which are in question, dispute or difference. “And only such dispute or difference of which the demand has been made, and no other shall be referred to arbitration”. 2.5 Clause No. 63(3)(a) and (b) provides machinery for appointing Arbitrators to whom such “matters in question, dispute or difference to be arbitrated upon shall be referred for decision.” It provides that for claims of Rs. 3 lacs and below, the General Manager or his nominee shall be appointed as Arbitrator, and for claims exceeding Rs. 3 lacs, two gazetted Railway Officers shall be appointed by the General Manager. It also provided for supplying the vacancies, where needed. 2.6 As above, the agreement stipulates and lays down clearly that when a demand is made by SCA/13384/2004 8/98 JUDGMENT the Contractor to refer to arbitration his disputes etc., the Railway General Manager has to appoint Arbitrators for resolving the same. For this, while so appointing the Arbitrators, he has to tell them what these “disputes” i.e. the “terms of reference” are in clear terms. 2.7 Obviously, being an agreement, it requires both sides to faithfully fulfill their reciprocal promises so as to enable the Arbitrators to finally settle parties's disputes referred to arbitration as above. 2.8 The petitioner submitted that like other Agreements, once there is a “vital breach” by one party, the “agreement” becomes inoperative, and Sections 8 and 9, Arbitration Act, 1940, step in. Though, as in other Contracts, the innocent party has the option of reviving this “inoperative” agreement even after going to the Court. 2.9 When disputes arose over unpaid dues of the petitioner-contractor, he demanded same to be SCA/13384/2004 9/98 JUDGMENT referred to arbitration in terms of parties' arbitration-agreement. This was after he raised all his five claims of Rs. 7,65,929.00 (inclusive of a claim of `pre-reference' interest) and 24% running interest thereon. FIRST REFUSAL: (C.M.A. No. 126 of 1983) 2.10 In view of the aforesaid position, the Arbitrator is requested to include all application together. However, the Railway refused the same. The Contractor thereafter addressed notice under Section 8 of the Arbitration Act, (hereinafter referred to as “the Act”) dated 22.12.1982. As the Railway failed and neglected to comply with the said notice the petitioner was constrained to file C.M.A. No. 126 of 1983 under Sections 8 and 9 of the Arbitration Act, 1940 (hereinafter referred to as “the Act), in the City Civil Court, Ahmedabad, for appointment of an Arbitrator for resolving parties' disputes. SCA/13384/2004 10/98 JUDGMENT 2.11 The learned Judge, City Civil Court, Ahmedabad, by his judgement and order dated 28.12.1983 allowed the application and directed the Railway General Manager to appoint Arbitrator for resolving Contractor's disputes if the parties agree to the same. Second Refusal (C.M.A. No. 532 of 1986) 3. As the Railway General Manager failed and neglected to act as per the aforesaid order dated 28.12.1983. Party in persion – petitioner appointed Shri R.K. Malhotra and Shri U.V. Acharya as Joint Arbitrators by letter dated 24.3.1984. However, the Railway General Manager did not act faithfully and correctly but on the contrary tried to frustrate the said order in the following aspects. 3.1 In terms of reference by the party, the Railway in paragraph No. 2, listed petitioner's five claims of Rs. 7,65,929/- but did not include the vital claim of “24% of running interest” SCA/13384/2004 11/98 JUDGMENT thereon, though the petitioner had raised it with his five claims. Though barred, he included counterclaim of Railway therein. Not only this, he asked the Joint Arbitrators to give reasoning leading to the award against terms of clause 63 unilaterally. The Railway therefore addressed a letter dated 24.3.1984 in this regard. 3.2 In view of the aforesaid letter of the Railway, the petitioner presumed this to be genuine and bona fide mistakes of the Railway, the petitioner himself corrected these mistakes by his two letters dated 2.4.1984 addressed to the Railway as well as the Arbitrators. The petitioner also included the left out running interest claim in his Statement of Claims dated 2.4.1984. Anyhow, the Railway General Manager refused to rectify the said defective letter of 24.3.1984 vide his reply dated 11/13-4.1984. The Railway refused to include the petitioner's claim in its written statement dated 1.2.1985. 3.3 Meanwhile Shri R.K. Malhotra declined to SCA/13384/2004 12/98 JUDGMENT act as arbitrator by his letter dated 29.4.1985 addressed to the Railway General Manager and left without in any way informing the petitioner about it. He had also clarified in his letter that they had not entered on the reference at all. Thus, for more than one year, the Joint Arbitrators did not initiate arbitration proceedings and ultimately refused to act without informing the petitioner contractor. C.M.A. No. 532/1986 3.4 Thereafter Shri G.S. Koppikar was appointed as Umpire. As he refused to act and Railway refused to agree, the petitioner filed his second C.M.A. No. 532 of 1986 under Section 3, First Schedule, Paragraphs 3, 4 and 5 of the Arbitration Act, 1940, in the City Civil Court, Ahmedabad. 3.5 The learned City Civil Court, Ahmedabad, by his order dated 7.10.1987 directed the Railway General Manager to appoint another Joint Arbitrator to work with Shri U.V. Acharya for SCA/13384/2004 13/98 JUDGMENT resolving parties' disputes. Third Refusal (C.M.A. No. 150 of 1992) 4. Though in light of the aforesaid order the Railway did not appoint the Arbitrator, ultimately Railway resorted to its policy of curbing arbitration at all costs. 4.1 As the Railway failed and neglected to appoint Arbitrator, the petitioner addressed a letter to the then Railway Minister Shir Fernandes by letter dated 12.4.1990 at New Delhi. Thus the Railway delayed the panel by some 2 ½ years and more. 4.2 After the aforesaid formalities are over, the Railway General Manager finally appointed Sri G.P. Garg, Chief Engineer, Western Railway, as joint Arbitrator by letter dated 29.1.1991 some six years after Shri Malhotra left. In the said letter the Railway General Manager directed the Arbitrators not to pay any claim of interest in SCA/13384/2004 14/98 JUDGMENT terms of clause 16(3) read with Supreme Court judgement in the case of Executive Engineer, Irrigation, Galimala Vs. Abnaduta Jena reported in AIR 1988 SC 1520. 4.3 The petitioner refused to accept it by letter dated 21.2.1991 sending copies to the appointees also. Anyhow the Railway refused to correct any of the illegalities. 4.4 It is the case of the petitioner that in spite of petitioner's objection the appointees fixed hearing on railway General Manager's instructions on (i) 15.7.1991; (ii) 5.8.1991 and (iii) 23.10.1991. The petitioner clarified his position by letter dated 3.7.1991, 30.7.1991 and 16.10.1991 mainly on the ground that letter of appointment dated 29.1.1991 being invalid and vitiated, the appointments were infurctuous and not binding on him. 4.5 During all these periods the petitioner went on persuading the Railway to be reasonable SCA/13384/2004 15/98 JUDGMENT and amicable and to refer his running interest claim to arbitration. 4.6 It is the case of the petitioner that during those periods, some five meetings were held between the parties from 29.1.1991 to 31.3.1992. However, the Railway refused to refer the said claim nor did it remove the other defects from its letters of appointments, with the result that the petitioner was ultimately forced to file his third successive C.M.A. No. 150 of 1992 in the Trial Court for revocation of the authority of the General Manager and for appointing Arbitrators of the Court's choice. C.M.A. No. 150 of 1992 – Judgement dated 19.6.1996 5.1 The learned Judge, City Civil Court, Ahmedabad, heard both C.M.A. Nos. 150 of 1992 and 109 of 1992 jointly and by common judgement and order dated 19.6.1996 allowed the same, rejecting all the contentions of the Railway against it. SCA/13384/2004 16/98 JUDGMENT The learned judge, after considering the facts and circumstances of the case, has arrived at its finding of facts and law. Railway supports the judgement while the petitioner supports it fully except the order on the last page i.e. its operative part only which the petitioner seeks to challenge before this Court. The learned Judge by his aforesaid judgement and order has held in para 30 page 15 that “so looking to both the sides' contentions and arguments, it is clear that the claim of running interest as claimed by the applicant in both the proceedings were not included in terms of reference by the General Manager”. The learned Judge further held in para 31 on page 18 that “it is the main contention of the applicant that the counterclaim raised by the General Manager cannot be included in terms of reference...... I totally agree with Mr. Dhruva and decide that the said counterclaim can be claimed independently.... and not in terms of reference, and terms of reference be corrected by the General Manager accordingly”. Further in paragraph 34 on pages 21-22 the learned Judge SCA/13384/2004 17/98 JUDGMENT held that “similarly in C.M.A. No. 150 of 1992 there is a delay. In that case, delay has occurred for non-inclusion of such claim by the Railway Administration and appointment of Arbitrators of such person who do outright work for Railway Administration and against the Contractor. In that case, the Railway Administration should have acted spotingly and one of the Arbitrators of Contractor's choice should have been appointed”. 5.2 The learned Judge further observed that “so the delay occurred in that case also contributes negligence or carelessness on the part of the Railway Administration and also on the part of the contractor who have not agreed many times for the names suggested”. It is further observed that “the delay occurred in finalizing the dispute of the Contractor, itself is a ground which induces me to revoke the authority of the Railway Administration to appoint Arbitrators. The learned Judge has further observed that the said delay also SCA/13384/2004 18/98 JUDGMENT restricts me not to act in this fashion but it will further cause delay by way of appeals and revision etc., above my order. So, relying on the sound intelligence of Railway Administration and General Manager, I am of the opinion that one more opportunity should be given to Railway Administration to appoint the Arbitrators as per terms of agreement and dispute raised by the Contractor be referred to Arbitrator. I hope the Railway Administration will work and act spotingly and in right earnest spirit in finalizing the dispute of the Contractor which has remained unattended or unsettled for a period of more than 12 years. If such an award is passed before 12 years, I hope the Contractor would have doubled or made four times the amount by this time. 5.3 The learned Judge further observed that with these remarks, though there is a delay, I am of the view that the revocation of the authority of the Railway Administration or General Manager is not necessary to be made at this stage. SCA/13384/2004 19/98 JUDGMENT 5.4 In para 35 on pages 22-23 the learned Judge has further observed that “I must mention at this stage that many authorities were cited by Mr. Dhruva for revocation of the authorities of the Railway Administration. Just my attention was drawn to the case reported in 1993(1) ALR page 469 (viz. Nandyal Co-op. Spinning Mills Vs. K.V. Mohan Rao), AIR 1994 SC page 2381 (viz. G.R. Reddy & Co. Vs. CE, Madras, MES) and other ruling cited. The learned Judge has further held that “I have no two opinion about the principle laid down in the said judgement cited by Mr. Dhruv and I am bound to follow the said principles. In ths particular case, I am of the view that the disputes and claims of the Contractor be quickly settled by the Railway Administration then at the lapse of 13 or 14 years, the Contractor will get the fruits of his claim. With this noble idea, I am not passing the order to revoke the said authority of the Railway Administration. With this remark, I pass the following final order and reply the points raised by me accordingly. SCA/13384/2004 20/98 JUDGMENT 5.5 “Order – The General Manager of Railway administration should appoint the Arbitrators to resolve the disputes and differences arose by the Contractor.....” 6. Being aggrieved by and dissatisfied with the said order, the petitioner has originally filed Civil Revision Application under Section 155 of the CPC but now converted into Special Civil Application and the petitioner has raised the following contentions before this Court: PETITIONER'S SUBMISSIONS: 6.1 The petitioner states that Railway General Manager refused to refer Contractor's running interest claim from 1982 to 1996 (date of trial Court Judgement) in spite of repeated Court-Orders, contending before the trial Court that as Clause 16 of the Contract barred payment of interest, the Railway General Manager had powers to refuse to refer the same. This, in SCA/13384/2004 21/98 JUDGMENT spite of the fact that he did refer claim of pre- reference interest in the same defective letters of appointment dated 24.3.1984 and 29.1.1991. 6.2 Petitioner further submits that the petitioner craves leave to mainly rely on the impugned judgement itself so far as the appointment of Arbitrator consequent upon the Arbitration Act. 6.3 The petitioner submits that so far as the judgement of the learned trial Judge is concerned, neither there is any error of facts nor of law, is committed. here. Both sides accept this fully. The Court has given directives to Railway (i) to refer all the claims, including running interest, to arbitration; (ii) to delete Railway's counter claim from terms of reference. (iii) not to issue any unilateral instructions to the Arbitrators' appointed (on interest etc.) vindicating petitioner's stand. The said findings are in favour of the petitioner which the petitioner contended before the learned trial SCA/13384/2004 22/98 JUDGMENT Judge. However the petitioner has stated that in spite of the aforesaid order passed by the trial Court, after referring to the judgement of the Hon'ble Apex Court which is binding on him, wherein in para 35 the learned Judge has relied on the judgement of the Hon'ble Apex Court which was cited by the petitioner. However, after following the said judgement, the learned Judge has observed that he has no two opinions about the principle laid down therein and that he was bound to follow the said principles. As such he had no option but to act in terms of these principles for revoking the authority of Railway General Manager. However, in spite of the aforesaid observation, the learned Judge refused to revoke, giving reasons in para 34 of the judgement, as stated above: THE PETITIONER MADE THE FOLLOWING SUBMISSIONS: 6.4 The petitioner therefore submitted that the learned Judge has clearly erred in passing this part of the order and the learned Judge has SCA/13384/2004 23/98 JUDGMENT passed this order without jurisdiction. The learned Judge at one breath states that he is bound to revoke the authority of railway, he should not have committed this dereliction of duty and further instructions which have been referred to in para 34 of the order which I have referred to earlier. 6.5 The petitioner, therefore, submitted that the aforesaid directions still work with a great injustice to the petitioner and prayed that justice would be served only if railway officers are not appointed as Arbitrators because according to him a very hostile and bitter atmosphere prevails against the petitioner in the railway office. His recent visits to Headquarter Office, Bombay during December, 1994 has made this very clear and as such he has prayed that this Court may be pleased to quash and set aside the directions given by the trial Court and no Railway Officer be appointed as Arbitrator. The aforesaid aspect has been stated by the applicant by his application dated 26.12.1994 before the SCA/13384/2004 24/98 JUDGMENT learned Judge. 6.6 Before the learned trial Judge the petitioner cited several authorities and the ratio and the principles of the authorities cited by the petitioner clearly stipulate that once the Railway General Manager refused to act to refer Contractor's claims to proper arbitration, and continued to refuse to fulfill faithfully his part of the arbitration-agreement, he had forfeited his authority to appoint Arbitrators in terms of the arbitration agreement, which had ceased to exist and become inoperative on his final refusal. 6.7 The petitioner further submitted that in view of the authorities cited by the petitioner before the learned trial Judge for which I will make a reference afterwards, he submitted that the Court should have appointed the Arbitrator without fail and once again giving one more chance to Railway, it directed the Railway General Manager to appoint Arbitrators. The said SCA/13384/2004 25/98 JUDGMENT judgements of the Hon'ble Supreme Court have been cited before the trial Court. 6.8 The petitioner has therefore submitted that the learned trial Judge has directed the Railway to appoint Arbitrators. The said direction is without jurisdiction because the Railway General Manager has forfeited his authority under Section 8 of the Arbitration Act. The petitioner submitted that the learned Judge ought not to have passed his order because under Section 8 the Court has power to appoint the Arbitrators. When the Court directed the Railway to appoint Arbitrators but earlier Railway failed and neglected to appoint Arbitrators for a long time, the learned Judge has completely misinterpreted provisions of Section 8 of the Arbitration Act and other authorities cited before him. The effect of the directions given by the learned Judge is that dead and non-existent arbitration agreement is revived and the Contractor is thus being compelled to enter into a contract against his strong refusals. SCA/13384/2004 26/98 JUDGMENT 6.9 The petitioner craves leave to refer to and rely on the judgement of the Civil Revision Application No. 669 of 1990 in the matter of H.K. Dhruva Vs. Union of India which was decided by this Court on 2.3.2001. In that matter this Court (Coram: K.M. Mehta, J) in para 11 of the judgement was pleased to pass the following order: 6.10 “In the facts and circumstances of the case and in view of he foregoing discussions made hereinabove, this Civil Revision Application deserves to