CS(OS)2143A/02 & OMP 21/04 Page 1 of 20 *IN THE HIGH COURT OF DELHI AT NEW DELHI + CS(OS)2143/2002 & OMP 21/2004 % Date of decision: 13th October, 2009 M/S KARAM CHAND THAPAR .…Petitioner & BROS(CS) LTD Through: Mr. P. Mishra, Sr Advocate with Mr Sandeep Sharma, Advocate Versus NATIONAL HYDROELECTRIC POWER CORP...Respondent & ANOTHER Through: Mr. S.K. Taneja, Sr Advocate with Mr Sachin Datta and Ms Shaila Arora, Advocates. CORAM :- HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW 1. Whether reporters of Local papers may be allowed to see the judgment? No 2. To be referred to the reporter or not? No 3. Whether the judgment should be reported in the Digest? No RAJIV SAHAI ENDLAW, J. 1. CS(OS) 2143A/2002 was registered on the filing of a petition under section 14 of the Arbitration Act 1940 for directing the arbitrator to file the original interim award dated 22nd November, 2002 in this court alongwith the entire arbitration proceedings/record. Vide order dated 3rd January, 2003 the arbitrator was directed to file the award and proceedings in this court. The petitioner even without awaiting the filing of the award by the arbitrator in this court filed IA.No. 5933/2003 under Sections 30 and 33 of the 1940 Act for setting aside the interim award dated 22nd November, 2002. The pleadings in the said application have been completed. OMP 21/2004 was filed under Sections 5,11 and 12 of the 1940 Act for revoking the authority of the arbitrator, so as to CS(OS)2143A/02 & OMP 21/04 Page 2 of 20 prevent him from proceeding further with the arbitration proceedings after the interim award aforesaid and for appointment of an arbitrator in his place. Vide order dated 23rd January, 2004 in the OMP though further proceedings before the arbitrator were allowed to be continued, it was ordered that the arbitrator shall not pass the final award. The said order has remained in force. The counsels have informed that though the arbitrator has concluded the proceedings and even heard arguments, however, the award has not been published owing to the order aforesaid in these proceedings. It was further informed that the arbitrator who is a retired judge of the Allahabad High Court is over 83 years of age. 2. The senior counsel for the petitioner contended that if this court were to allow the OMP, the ground for revocation of authority wherein is the bias of the arbitrator in favour of the respondent, the interim award against which objections have been filed in CS(OS) 2143A/2002 would also become liable to be set aside. 3. In the OMP the grounds taken for revocation of authority of the arbitrator are, the arbitrator acting in a high handed fashion in the matter of hearings preceding the interim award and pronouncing the interim award. It is pleaded that the interim award given by the arbitrator has shaken the faith of the petitioner in the conduct of the arbitration proceedings by the arbitrator; a letter dated 30th December, 2002 is also stated to have been written by the petitioner to the arbitrator in this regard expressing their loss of faith in the arbitrator. The interim award subject matter of challenge in CS(OS) 2143A/2002 is on the arbitrability of the claims of the petitioner against the respondent. The arbitrator has held some of the claims of the petitioner to be not arbitrable. The said interim award is inter alia challenged and it is also a ground in the OMP that the arbitrator CS(OS)2143A/02 & OMP 21/04 Page 3 of 20 rushed into pronouncing on the arbitrability of the claims though the contention of the petitioner before the arbitrator was that the said arbitrability could not be gone into without adducing evidence; the arbitrator is alleged to have disregarded the said submission of the petitioner and rushed into making the interim award. It is also pleaded in the OMP that subsequent claims of the petitioner against the respondent with respect to the same contract were referred to the arbitration of Justice H.C. Goel (Retd) of this court vide order dated 10th April 2003 in Arbitration Application 299/2000 and it is prayed that after revoking the authority of the arbitrator in this case, the disputes subject matter of these cases be also referred to Justice H.C. Goel. During the hearing it was informed that Justice H.C. Goel has since recused himself and petition is pending in this court for appointing a substitute arbitrator. 4. The petitioner has also filed I.A.No. 3193/2004 in the OMP stating that it has come to know that the arbitrator whose authority is sought to be revoked is the panel arbitrator of the respondent and has been doing a number of arbitrations for the respondent and has in all arbitrations to which the respondent is a party given an award in favour of the respondent; it is further alleged in this application that to the knowledge of the petitioner the arbitrator is paid a monthly salary as fee by the respondent for doing the arbitration matters; information was sought from the respondent in this regard; the petitioner also filed copies of arbitral awards in other arbitration proceedings in which the respondent was party and in which the awards were published in favour of the respondent by the same arbitrator. 5. The respondent in pursuance to the directions of this court on 25th August, 2004 in the OMP filed an affidavit verified on 9th CS(OS)2143A/02 & OMP 21/04 Page 4 of 20 October, 2004 of its Deputy Manager (Civil) and in which it is stated that the arbitrator is on the panel of arbitrators of the respondent; that the arbitration with the petitioner is the only ongoing arbitration of the respondent before the same arbitrator; that the other arbitration proceedings of the respondent were before other arbitrators; that the same arbitrator has acted as the arbitrator in only ten arbitrations of the respondent; that the awards passed by the same arbitrator in none of those arbitrations has been set aside by any court; it was denied that any monthly salary / fee was paid by the respondent to the arbitrator and it was stated that the arbitrator’s fee was shared by both parties to the arbitration in all the cases and no extra remuneration had at any time been given by the respondent to the said arbitrator. In fact, allegations of abuse of process of this court are made against the petitioner. It is contended that the petitioner surreptitiously, while seeking the order for filing of interim award in this court also sought the order of calling for arbitral record in this court and which resulted in scuttling the further arbitration proceedings before the arbitrator, of stay whereof there was no order also from this court. 6. To complete the narrative of facts, in the interim award dated 22nd November, 2002 under challenge, the arbitrator has held the 1940 Act to be applicable to the arbitration proceedings and negated the contention of the petitioner of the applicability of the 1996 Act. The senior counsel for the petitioner has not challenged the said part of the interim award. 7. The arbitrator has by the interim award dated 22nd November, 2002 adjudicated the plea of the respondent of the claims of the petitioner being not arbitrable. The petitioner had made seven claims against the respondent. The arbitrator has held claims CS(OS)2143A/02 & OMP 21/04 Page 5 of 20 1, 3, 6 and 7 to be arbitrable and held claims 2, 4 and 5 to be not arbitrable. 8. The arbitrator in deciding the arbitrability has relied upon General Manager, Northern Railway Vs Sarvesh Chopra (2002) 4 SCC 45. According to the arbitrator, the Supreme Court in the said judgment has carved out two exceptions to the arbitrability i.e., those claims which as per the terms and conditions of the contract are simply not entertainable and secondly those which under the terms and conditions of the contract are liable to be adjudicated upon by an authority, in Sarvesh Chopra of the Railways and in the present case of the respondent; whose decision the parties have agreed to treat as final and binding and hence not arbitrable. The arbitrator has held claims 2, 4 and 5 to be not entertainable, i.e., with respect whereto the contract provides that no claim shall be entertained, even though no `in house’ mechanism for settling such claims is provided in the contract. 9. The senior counsel for the petitioner has contended that when the same person is repeatedly appointed as the arbitrator by a party, it creates an apprehension as to the impartiality of that arbitrator. Reliance is placed on Nandyal Cooperative Spinning Mills Vs K.V.Mohan Rao (1993) 2 SCC 654. He has further contended that the plea of bias can never be conclusively proved/made out and the court can act only on the basis of circumstances. Reliance is placed on Amarchand Lalitkumar Vs Shree Ambica Jute Mills Ltd AIR 1966 SC 1036 laying down the criteria and the approach of the court in exercising the power to revoke the authority of the arbitrator. It is contended that repeated appointment by the respondent of the same arbitrator is a disqualification and raises a justifiable doubt to the petitioner as to CS(OS)2143A/02 & OMP 21/04 Page 6 of 20 why the respondent is relying upon one person only as the arbitrator. Reference is made to Roshan Lal Sethi Vs The Chief Secretary AIR 1971 J&K 91 to contend that authority of arbitrator can be revoked on mere likelihood of bias. It is contended that the arbitrator in the present case has prejudged the matter. The judgments in International Airports Authority of india Vs K.D. Bali AIR 1988 SC 1099 and in Ranjit Thakur Vs Union of india AIR 1987 SC 2386 on, what is bias, have also been cited. It is urged that the arbitrator sought to be removed is a “stock arbitrator” of the respondent and the awards made by him in cases involving the respondent, and in which other parties were large construction companies, are under challenge. In response to another objection of the respondent of the challenge to the order dated 22nd November, 2002 (interim award) being not maintainable at this stage, reliance is placed on Satwant Singh Sodhi Vs State of Punjab (1999) 3 SCC 487 and National Thermal Power Corporation Vs Siemens Atiengesellschaft 2005 2 ARBLR 172 Delhi to contend that where the award is final and will have force without the delivery of the final award, it is final for the objections to be preferred with respect thereto and to draw a distinction between the interim award and a final award. 10. The senior counsel for the petitioner while addressing on the objections to the interim award drew attention to the arbitration clause contained in clause 55.1 of the General Conditions of the contract and which is as under: “55.1. Except as otherwise provided, in clause 53 hereinbefore, all questions, disputes or differences in respect of which the decision has not been final and conclusive arising between the contractor and the corporation, in relation to or in CS(OS)2143A/02 & OMP 21/04 Page 7 of 20 connection with the contract shall be referred for arbitration in manner provided as under : ………..” Clause 53 is as under: “Clause 53. Finality Clause it shall be accepted as an inseparable part of the contract that in matters regarding materials, workmanship, removal of improper work, interpretation of the contract drawings and contract specifications, mode of procedure and the carrying out of the work as stipulated in the clause numbers 7, 8, 10, 13,17,18,21,23,24,29,32,34,37,38,40,41 and 44 the decision of the Engineer-in-charge which shall be given in writing, shall be final and binding on the contractor.” 11. The claim No.2 of the petitioner which the arbitrator has held to be not arbitrable was an account of use of higher size diameter of steel in casting precast concrete lagging, than 6 mm diameter steel bars as provided for in the drawings. It was inter alia the case of the petitioner that the drawings in which the diameter of steel bars was shown as 6 mm and on the basis whereof the costs had been calculated by the respondent were supplied to the petitioner late but even prior thereto the petitioner under supervision of / instruction of the official of the respondent had been made to use the steel bars of a higher diameter resulting in additional costs to the petitioner. The arbitrator has held the said claim to be not arbitrable on the basis of clause 21.2 of the agreement providing that the contractor shall not be entitled to any additional payment over and above the unit price contracted for various items of work, on account of variation in dimension of structure, layout, design and details of work during the execution of the work. CS(OS)2143A/02 & OMP 21/04 Page 8 of 20 12. The arbitrator on an interpretation of Sarvesh Chopra (supra) to the effect that the claims, which under the terms of the contract were not entertainable or allowable were not arbitrable, held the claim of the petitioner on account of use of higher diameter steel bars not arbitrable. 13. The senior counsel for the petitioner has also contended that the respondent, in its pleadings before the arbitrator did not controvert that the drawings were given by the respondent to the petitioner after the work using the aforesaid diameters steel bars had been carried out; that the petitioner till the delivery of the said drawings could not know the diameter of steel bar of which price had been provided; that the officials of the respondent had for geological reasons advised the petitioner to use the steel bars of a higher diameter; that the bar in clause 21.2 (supra) is only of quoted items and would not apply to the items which the petitioner during the execution of the work is directed to use. It is argued that the 10 MM steel diameter of steel in claim No.1 is not provided in the contract but only in the drawings. It is further contended that under sub-clause (6) of the Arbitration clause 55, where the claims are of over Rs 1 lac, the arbitrator is required to give reasons. It is contended that the arbitrator has while holding claim No.2 to be not arbitrable neither given any reason nor discussed the pleas of the petitioner. 14. Claim No.4 of the petitioner was for extra expenses incurred due to disproportionate increase in minimum wages not compensated by the escalation formula. The arbitrator has held the said claim also to be not arbitrable for the reason of clause 29.13 of the contract prohibiting any claim on account of the contractor being CS(OS)2143A/02 & OMP 21/04 Page 9 of 20 required to perform his obligation under the contract. Clause 29.5 provides for the contractor being liable to pay minimum wages. 15. The senior counsel for the petitioner has contended that there was a delay of three years and three months and for which period the contract time was extended by the respondent without demur. Pleadings in OMP are relied on to demonstrate that the delay was attributable to the respondent. It is further urged that the respondent had allowed the petitioner to continue with the works even after the expiry of the time and thus the clause 29.13 applicable during the term of the contract would not come into play. Reliance is placed on para 16 of Sarvesh Chopra (supra) to contend that whether a particular matter is excepted or not is to be decided after considering the relevant material – it is urged that the arbitrator in the present case has decided without considering any material or without giving any opportunity to the petitioner to lead evidence. Reliance is also placed on the pleadings in the objections to the award to contend that there is no express/specific denial by the respondent to the factual pleas in the objections also. The senior counsel for the petitioner also relies upon Paragon Constructions (India) Pvt Ltd Vs UOI 2008 II AD (Delhi) 502 where a Single Judge of this court has held that claims for prolongation of the contract cannot be blocked by a no claim clause inasmuch as such claims are by way of damages under Section 73 of the Contract Act. I may however notice that in the said judgment the arbitrability was not in question. Reliance is also placed on K.R. Raveendranathan Vs State of Kerala (1998) 9 SCC 410. However, in that case the Supreme Court only held that the court could not take upon itself the burden of saying whether the claim was contrary to the contract or not. The said two judgments are thus not found applicable. The CS(OS)2143A/02 & OMP 21/04 Page 10 of 20 senior counsel for the petitioner next contended that the clause 29.13 aforesaid bars a claim only during the term of the contract but not for a period beyond the terms of the contract. 16. Though no express arguments with respects to the claim No. 5 are addressed, the pleas in the objections with respect thereto are the same as with respect to the claim No.4 aforesaid. 17. Per contra, the senior counsel for the respondent has contended that the petitioner had in the present case instituted a suit under Section 20 of the Arbitration Act, 1940 for appointment of arbitrator being suit No. 1526A/1995; that the respondent had at that stage only taken the plea of the claims of the petitioner being not arbtirable; that the said suit was disposed of vide order dated 10th April, 2001 leaving the question of arbitrability also to be decided by the arbitrator. It is further contended that it is not as if the arbitrator is the nominee of the respondent; in the order dated 10th April, 2001 aforesaid it was provided that the respondent shall send a panel of three names of retired judges of the High Court to the petitioner and the petitioner out of the said panel will select one to be appointed as the sole arbitrator in terms of the arbitration agreement between the parties; it is contended that it is the petitioner which has chosen the name of the arbitrator sought to be removed, to be the sole arbitrator pursuant to the order aforesaid. The respondent has also controverted the plea of the petitioner of the arbitrator having not given appropriate opportunity to the petitioner to address on arbitrability. It is contended that this court in order dated 10th April, 2001, with the consent of the parties, directed that the arbitrator will “first decide” the objection regarding arbitrability of the disputes and thereafter proceed to decide the disputes in accordance with law. It is thus contended that no bias, CS(OS)2143A/02 & OMP 21/04 Page 11 of 20 irregularity or misconduct can be attributed to the arbitrator in first deciding the aspect of the arbitrability. It is further urged that the record of the arbitrator shows that the arbitrator heard the counsel for the parties on five dates of which three were taken by the counsel for the petitioner, qua arbitrability. It is also contended that in fact it is the petitioner which after the interim award dated 22nd November, 2002 aforesaid, on 5th December, 2002 took time to file evidence but thereafter changed its advocate and then wrote letter dated 30th December, 2002 for the first time alleging bias against the arbitrator. It is contended that the order was surreptitiously obtained from this court calling for the arbitral record also and not merely the interim award and which resulted in further proceedings before the arbitrator being held up. It is urged that the petitioner, at the time of hearing on arbitrability before the arbitrator, did not take a stand that the arbitrator should record the evidence first before adjudicating on arbitrability. It is also argued that in fact there is no interim award and only an order and objections at this stage do not lie. On query as to what is the remedy of the petitioner, being aggrieved by the interim award/order, the senior counsel for the respondent contends that earlier there was a practice of preferring petitions under Article 227 of the Constitution of India before this court challenging the finding of the arbitrator on arbitrability. 18. The senior counsel for the respondent has further urged that the petitioner has not filed affidavit of its counsel who had appeared before the arbitrator or of any other official of the petitioner appearing before the arbitrator to the effect that any request was made to the arbitrator for adjudicating the arbitrability after recording evidence. The senior counsel for the respondent relies on CS(OS)2143A/02 & OMP 21/04 Page 12 of 20 judgment of the Single Judge of this court in G Vijayaraghavan Vs M.D., Central Warehousing Corporation 2003 (3) Arb LR 35 in which Nandyal (supra) was also considered. Reference is also made to M/s Setech Electronics Ltd Vs K.N. Memani 77 (1999) DLT 759 where another Single Judge of this court on the allegations in that case, held no case of bias or revocation of authority of arbitrator to be made out. 19. Reliance is placed on M/s Uttam Singh Duggal & Co. Pvt Ltd Vs M/s Hindustan Steel Ltd AIR 1982 MP 206 where the Division Bench held an order of the arbitrator on a preliminary issue relating to jurisdiction to be not an interim award and no appeal there against being maintainable. On the same aspect reliance is also placed on Union of India Vs M/s East Coast Boat Builders & Engineers AIR 1999 Delhi 44 though under the 1996 Act. 20. On the merits of the award, besides Sarvesh Chopra (supra) forming the fulcrum of the interim award under challenge, reliance is also placed also on Rajasthan State Mines and Minerals Ltd Vs Eastern Engineering Enterprises (1999) 9 SCC 283 where also the Supreme Court held that an award made by the arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would suffer from a jurisdictional error; that an arbitrator cannot award an amount which is ruled out or prohibited by the terms of the agreement; because of a specific bar stipulated by the parties in the agreement that claim could not be raised – even if it is raised and referred to arbitration because of a wider arbitration clause such claim amount cannot be awarded as the agreement is binding on the arbitrator and the arbitrator has to adjudicate as per the agreement. CS(OS)2143A/02 & OMP 21/04 Page 13 of 20 21. On merits it is also urged that the Manager (Civil) of the respondent who is stated to be the Engineer in Charge had vide letter dated 27th June, 1992 held the claim No. 2 of the petitioner to be untenable. Vis-à-vis the claims 4 and 5 it is stated that clause No. 29.13 is applicable not only during the term of the agreement only but till the completion of the works and no claim for enhancement in minimum wages even after the expiry of term of the contract can be made in terms thereof also. The senior counsel for the respondent contended that in the present case all the three claims held by the arbitrator to be non-arbitrable were raised before the Engineer in charge also and were negated after hearing; it is contended that the same is borne out from the correspondence. However, the senior counsel admits that the arbitrator has not dealt with the said aspect in the award. 22. The senior counsel for the petitioner in rejoinder has urged that the findings of the arbitrator on claim No.1 and on claims 4 and 5 are inconsistent. It is contended that claim No.1 has been held to be arbitrable notwithstanding there being no basis therefor in the agreement or for any in house determination for such a dispute. On the