OMP No. 337/2005 Page 1 of 37 * IN THE HIGH COURT OF DELHI AT NEW DELHI + OMP NO. 337/2005 Date of Decision: January 18, 2010 UNION OF INDIA …..Petitioner Through: Mr. Rao Vijay Pal, Advocate. VERSUS M/S. GOEL CONSTRUCTION CO.& ANR. …..Respondents Through: Mr. R.Rajappan, Advocate. % CORAM: HON'BLE MS. JUSTICE ARUNA SURESH (1) Whether reporters of local paper may be allowed to see the judgment? (2) To be referred to the reporter or not? Yes (3) Whether the judgment should be reported in the Digest ? Yes J U D G M E N T ARUNA SURESH, J. 1. Parties to the petition executed a contract on 20th February, 1997, being Agreement No.01/EE/Pa.W.D.- IV/97-98 for construction of two MP flats at South Avenue, for a total cost of Rs.9,46,004/-. Respondent was to commence the work on 21st April, 1997 and the work was required to be completed by 20th October, 1997. OMP No. 337/2005 Page 2 of 37 However, respondent actually completed the work on 6th January, 2000 and the department executed the completion certificate on 7th March, 2000. In the meantime, petitioner department issued eight running bills, which were accepted by respondent No.1. On 6th January, 2000, respondent was intimated about readiness of final bill, which was finalized on 5th July, 2000. The claimant/respondent did not accept the final bill. 2. A dispute arose between the parties regarding the amount raised in the final bill on 6th January, 2000. Respondent sent a letter dated 27th October, 2000, to the Chief Engineer for invocation of the arbitration clause to settle the disputes between the parties. Since the Chief Engineer declined to appoint an Arbitrator, respondent No.1 filed a petition under Section 11 of the Arbitration and Conciliation Act (hereinafter referred to as the „Act‟), bearing Petition No.240/2000 before this Court. The said petition was allowed by this Court vide its order dated 21st March, 2003 and Sh.R.J.Bakhru, (respondent No. 2) was appointed as the Sole Arbitrator, who published his OMP No. 337/2005 Page 3 of 37 award on 8th February, 2005. Petitioner received a copy of the award on 14th February, 2005. 3. Petitioner department, being aggrieved by the award, filed the instant petition under Section 34 of the Act raising objections against the award dated 8th February, 2005, initially before the District Judge. The District Judge vide his order dated 9th August, 2005, was of the view that, the objection petition should have been filed before the court, which had appointed the Arbitrator and therefore, returned the petition to be filed before this Court. The petition was re-filed in this Court on 1st September, 2005. The grounds on which the impugned award has been challenged are:- (1) Arbitrator did not consider Clause 9 of the agreement while passing the impugned award as he failed to appreciate that claimant was required to submit the final bill within three months of physical completion of the work, or within one month of the date of final certificate of completion furnished by the Engineer-in-Charge. OMP No. 337/2005 Page 4 of 37 The claimant did not submit the final bill, as stipulated. (2) Arbitrator misconducted himself when he entertained the time barred claim of the respondent as per Clause 25 of the agreement. The Arbitrator, while deciding this objection, took extraneous considerations for rejecting this objection by holding that the claim was within the period prescribed in Clause 25 of the agreement. (3) The Arbitrator failed to consider that it was after lapse of 2 ½ months from passing of the final bill, the claimant invoked the arbitration clause. (4) The Arbitrator exceeded his jurisdiction by awarding Claim No. 1 because, there was no digging work at the site, as the digging work was part of demolition of foundation wall and no separate or extra digging was done for the foundation wall and therefore, the question of removal of the earth from the digging work for OMP No. 337/2005 Page 5 of 37 foundation wall did not arise. There was no proof of transportation, quantity or measurement before the Arbitrator, on the basis of which, he awarded Claim No. 1. (5) The Arbitrator exceeded his jurisdiction while awarding Claim No.3 for short payment for extra items, as he did not adopt the rate analysis by both the parties and did not give any reason for awarding this claim. The award, being non- speaking award, is in contravention of Section 31 of the Act. (6) The Arbitrator misconducted himself and travelled beyond the terms and conditions of the agreement by awarding Claim No.6 regarding escalation of labour and machinery charges, as he failed to consider and appreciate that Clause 10CC of the agreement was not applicable but Clause 10C was applicable, specially when the delay in completion of the work was entirely attributable to the claimant. OMP No. 337/2005 Page 6 of 37 (7) The Arbitrator acted beyond jurisdiction while awarding Claim No. 7 without any material on record to show that the establishment was engaged and lying idle at site during the alleged period. There was no requirement of keeping the alleged machinery and workers at the site, as the respondent knew that during the piling work, he was not required to keep anything at the site. There was no evidence before the Arbitrator to award Claim No. 7. (8) The interest awarded by the Arbitrator is much higher than the prevailing rates and is, therefore, liable to be rejected. Respondent has controverted the abovesaid challenges to the award made by the petitioner in his reply to the petition. 4. Before I deal with the objections raised by the petitioner, I feel the necessity of reproducing Section 34 of the Act, so far as is relevant to the present petition. The same reads as follows:- OMP No. 337/2005 Page 7 of 37 “34. Application for setting aside arbitral award (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the court only if,- (a) the party making the application furnishes proof that,- (i) a party was under some incapacity; or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or OMP No. 337/2005 Page 8 of 37 (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the court finds that- (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation: Without prejudice to the generality of sub-clause (ii) of clause (b), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81. (3) …………………………….: (4) …………………………….:” 5. A bare reading of this Section makes it clear that provisions contained in Section 34 of the Act are mandatory in nature and none of the parties can derogate from the same. The scheme of the provision is to limit the judicial intervention in the arbitration proceedings and therefore, these provisions have to be OMP No. 337/2005 Page 9 of 37 read with basic provisions contained in Section 5 of the Act restricting the area of judicial intervention and confining the intervention only to those, which are specifically provided in part I. Sub-section (2) of Section 34 of the Act lists various grounds on which an arbitral award may be set aside. Sub-clause (a) of sub-section (2) gives list of five grounds and sub-clause (b) lists two additional grounds upon which an award may be set aside. 6. Thus, it is clear that by way of this new Act, the supervisory role of the courts in arbitration has been minimized and vast powers have been given to the parties and Arbitrators without much intervention by the court. Arbitrators are chosen by the parties and decisions made by them are binding on the parties. 7. From perusal of the Statement of Objects and Reasons contained in the Arbitration and Conciliation Bill, 1995, it is clear that the emphasis was on the objective of minimization of the interference of the courts in arbitration process besides for making comprehensive procedure for arbitral process; to provide that the Arbitral OMP No. 337/2005 Page 10 of 37 Tribunal gives reasons for its award to ensure that the Arbitral Tribunal remains within its limits of jurisdiction, to permit an Arbitral Tribunal to use every method of alternative dispute resolution mechanism during the course of arbitral proceedings for settlement of disputes and to make the provision that the arbitral award is to be enforced as a court decree and to give similar status to the settlement arrived at, during the course of arbitral proceedings. 8. Section 5 of the Act makes it explicitly clear that notwithstanding anything contained in any other law for the time being in force, in the matters governed by part I of the Act, no judicial authority can intervene except where so provided in this part. The provisions contained in this Section are mandatory in nature. 9. It is no longer res integra that, where parties have chosen a Forum to refer their disputes to be adjudicated upon under the Act by appointing their Arbitrator, may be through the process of law, the Court, while exercising its powers cannot substitute its opinion with that of the Arbitrator. If the clauses in the OMP No. 337/2005 Page 11 of 37 agreement/contract are open to two plausible interpretations, it is legitimate for the Arbitrator to accept one or the other available interpretation and even if the Court may think that the other view is preferable, the Court cannot and should not interfere with the interpretation of the Arbitrator (reliance is placed on Food Corporation of India Vs. Joginderpal Mohinderpal & Anr., MANU/SC/0427/1989). 10. In Delhi Development Authority Vs. Anand & Associates, 2008 (1) ARLB 490 (Delhi), this Court observed that a Court hearing the objections against an arbitral award, does not sit in appeal over the same nor it can reappraise the evidence adduced before the Arbitrator to substitute the findings recorded by the Arbitrator by those arrived at by the Court. 11. Keeping in mind the above said proposition of law, this Court, while dealing with the objections raised by the objector in this petition, would not interfere in the fact findings of the Arbitrator regarding claims made by the respondent in his petition filed before the Arbitrator and would restrict itself only to the objections, which fell OMP No. 337/2005 Page 12 of 37 within the ambit of Section 34 sub-section (2) of the Act. It is made clear that petitioner/objector has not challenged the impugned award on any of the additional grounds incorporated in sub-section (3) of the Act. 12. Counsel for the petitioner Mr. Rao Vijay Pal has submitted that the intimation of the final bill being ready for payment was given to the respondent on 6th January, 2000. However, respondent invoked the arbitration vide letter dated 27th October, 2000. Therefore, the claims of the respondent are barred under Clause 25 of the agreement, as respondent failed to invoke the arbitration within 120 days of receiving the intimation that final bill was readied for payment and therefore, by implication of the said clause, the claims of the respondent were deemed to have been waived after expiry of 120 days and the petitioner was discharged and released of all the liabilities under the agreement. The Arbitrator failed to appreciate that the respondent was not entitled to invoke Clause 25 of the contract for appointment of an Arbitrator. In support of his submissions he has relied OMP No. 337/2005 Page 13 of 37 upon Wild Life Institute of India, Dehradun Vs. Vijay Kumar Garg, (1997) 10 SCC 528. 13. Counsel for the respondent Mr.R.Rajappan has submitted that the Arbitrator has given his findings on this objection, as it was also raised by the petitioner before him in its reply, that there is no concept of misconduct of Arbitrator under Section 34 of the Act and the terms and conditions of Clause 25 of the agreement were duly complied with by the respondent and observed by the Arbitrator in the award. According to him, the bill was finalized on 5th July, 2000 and the arbitration clause was invoked on 27th October, 2000. He further submitted that by virtue of Sections 55 and 73 of the Indian Contract Act, limiting the legal right of speculation of contract is void ab initio. As admitted by the petitioner, actual date of completion of work was 7th March, 2000, because the date of intimation of the final bill to be 6th January, 2000, was not possible as final bill could not have been readied before the date of the completion of work. 14. Clause 25 of the agreement reads as under:- OMP No. 337/2005 Page 14 of 37 “CLAUSE 25 Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, design drawings and instructions here-in before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever, in any way arising out of or relating to the contract, designs drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the cancellation, termination, completion or abandonment thereof shall be dealt with as mentioned hereinafter:- i) If the contractor considers any work demanded of him to be outside the requirements of the contract, or disputes any drawings, record or decision given in writing by the Engineer-in-Charge on any matter in connection with or arising out of the contract or carrying out of the work, to be unacceptable, he shall promptly within 15 days request the Superintending Engineer in writing for written instruction or decision. Thereupon, the Superintending Engineer shall give his written instructions or decision within a period of one month from the receipt of the contractor‟s letter. If the Superintending Engineer fails to give his instructions or decision in writing within the aforesaid period or if the contractor is dissatisfied with the OMP No. 337/2005 Page 15 of 37 instructions or decision of the Superintending Engineer, the contractor may, within 15 days of the receipt of Superintending Engineer‟s decision, appeal to the Chief Engineer who shall afford an opportunity to the contractor to be heard, if the latter so desires, and to offer evidence in support of his appeal. The Chief Engineer shall give his decision within 30 days of receipt of contractor‟s appeal. If the contractor is dissatisfied with this decision, the contractor shall within a period of 30 days from receipt of the decision, give notice to the Chief Engineer for appointment of arbitrator failing which the said decision shall be final binding and conclusive and not referable to adjudication by the arbitrator. ii) Except where the decision has become final, binding and conclusive in terms of Sub Para(i) above disputes or difference shall be referred for adjudication through arbitration by a sole arbitrator appointed by the Chief Engineer, CPWD, in charge of the work or if there be no Chief Engineer, the administrative head of the said CPWD. If the arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office due to any reason whatsoever another sole arbitrator shall be appointed in the manner aforesaid. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is a term of this contract that the party invoking arbitration shall give a list of disputes with amounts claimed in respect of each such dispute alongwith OMP No. 337/2005 Page 16 of 37 the notice for appointment of arbitrator and giving reference to the rejection by the Chief Engineer of the appeal. It is also a term of this contract that no person other than a person appointed by such Chief Engineer CPWD or the administrative head of the CPWD, as aforesaid should act as arbitrator and if for any reason that is not possible, the matter shall not be referred to arbitration at all. It is also a term of the contract that if the contractor does not make any demand for appointment of arbitrator in respect of any claims in writing as aforesaid within 120 days of receiving the intimation from the Engineer-in-charge that the final bill is ready for payment, the claim of the contractor shall be deemed to have been waived and absolutely barred and the Government shall be discharged and released of all liabilities under the contract in respect of these claims. The arbitration shall be concluded in accordance with the provisions of the Indian Arbitration Act, 1940, or any statutory modifications or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause. The arbitrator may from time to time with the consent of the parties enlarge the time for making and publishing the award. It is also a term of this contract that the arbitrator shall adjudicate on only such disputes as are referred to him by the OMP No. 337/2005 Page 17 of 37 appointing authority and give separate award against each dispute and claim referred to him and in all cases where the total amount of the claims by any party exceeds Rs.1,00,000/- the arbitrator shall give reasons for the award. It is also a term of the contract that if any fees are payable to the arbitrator these shall be paid equally by both the parties. It is also a term of the contract that the arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties calling them to submit their statement of claims and counter statement of claims. The venue of the arbitration shall be such place as may be fixed by the arbitrator in his sole discretion. The fees, if any, of the arbitrator shall, if required to be paid before the award is made and published, be paid half and half by each of the parties. The cost of the reference and of the award (including the fees, if any, of the arbitrator) shall be in the discretion of the arbitrator who may direct to any by whom and in what manner, such costs or any part thereof shall be paid and fix or settle the amount of costs to be so paid.” 15. It is a common case of the parties that though the work was required to be completed by 20th October, 1997, but, it was physically completed on 6th January, 2000. However, petitioner finally inspected the premises and issued the completion certificate on 7th March, 2000. OMP No. 337/2005 Page 18 of 37 The final bill though stated to have been readied and intimated to the respondent on 6th January, 2000, was in fact finalized on 5th July, 2000. While following the procedure laid down in Clause 25 of the agreement, petitioner intimated to the Executive Engineer his claims vide letter dated 15th July, 2000 with a copy to the Superintending Engineer and the Chief Engineer. He sought an amicable settlement of the disputes or its reference to the Arbitrator. This was pursued by the respondent vide letter dated 27th October, 2000, addressed to the Chief Engineer with a copy to the Executive Engineer. However, the claims of the respondent were rejected by the Executive Engineer on 26th March, 2001 and the same were referred to the Superintending Engineer on 3rd April, 2001. On persuasion of the respondent to expedite the settlement of his claims, Executive Engineer rejected his claims vide letter dated 26th June, 2001. It was thereafter that respondent filed a petition bearing AA No.240/2000, and the Arbitrator was accordingly appointed. Arbitrator was within his rights to interpret Clause 25 of the agreement. OMP No. 337/2005 Page 19 of 37 It was on analysis of the documentary and other evidence available with him on record, the Arbitrator concluded that respondent/claimant had intimated its claims, after final bill, for an amicable settlement within time of 120 days stipulated under Clause 25 of the agreement and rejected the objections of the petitioner. 16. In Clause 25 of the agreement, the words „arising out of‟ or „in relation to‟ have to be interpreted as sufficiently wide to comprehend the matters in respect whereof the decision of the Engineer-in-Charge of the petitioner has been agreed to be final and binding on the parties. 17. In the facts and circumstances of the present case, it is obvious that reference to arbitration in pursuance to the said clause between the parties was in connection with or relating to all the claims of the respondent against the petitioner. The question of interpretation of terms of the contract is a question of law and reference in respect thereof having been made to the Arbitrator, even if the Arbitrator allegedly mis- conducted or mis-interpreted the terms of the contract, it OMP No. 337/2005 Page 20 of 37 cannot be considered as an error of law on the face of the award and the award cannot be set aside on this ground. It was for the Arbitrator to interpret the provisions of the contract including Clause 25. Since he had the jurisdiction to do so and specially on an objection thereof being raised by the petitioner, the Arbitrator had interpreted the clause of the agreement in a particular manner and had taken a decision on such interpretation, based on appreciation of evidence and application of law, his conclusions cannot be termed to be „erroneous legal proposition‟ or based on erroneous application of law. Hence, none of the objections raised by the petitioner regarding interpretation of Clause 25 of the agreement and its invocation by the respondent can be sustained by this Court. Findings of the Arbitrator cannot be faulted on the grounds raised by the petitioner. The view taken by the Arbitrator is plausible and a possible view. Hence, no different view can be taken. Therefore, observations of the court in Wild Life Institute of India’s case (supra) were per curiam and have no bearing on the facts and circumstances of this case. In this case, the contractor OMP No. 337/2005 Page 21 of 37 did not receive any amount under the final bill but on coming to know of the bill having been finalized by the department, he immediately lodged his dispute with the Engineer-in-Charge of the petitioner. 18. The second limb of arguments of learned counsel for