IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.T.SANKARAN THURSDAY, THE 20TH MAY 2010 / 30TH VAISAKHA 1932 AR.No. 35 of 2009 APPLICANT ----------------------------- T.J.AUGUSTHY, S/O.JOSEPH, THEKKANATH HOUSE, PAZHANGANAD, KIZHAKKAMBALAM P.O., ERNAKULAM DISTRICT. BY ADV. SRI.SAJI MATHEW SRI.DENU JOSEPH RESPONDENTS: --------------- 1. THE CHAIRMAN, COCHIN PORT TRUST, COCHIN-9. 2. CHIEF ENGINEER, COCHIN PORT TRUST, COCHIN-9. ADV. SRI.B.S.KRISHNAN, SENIOR ADVOCATE SRI.K.ANAND (A.201) SMT.LATHA KRISHNAN THIS ARBITRATION REQUEST HAVING BEEN FINALLY HEARD ON 20/05/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K.T.SANKARAN, J. ------------------------------------------------------ ARB. REQUEST NO. 35 OF 2009 ------------------------------------------------------ Dated this the 20th day of May, 2010 O R D E R When the Arbitration Request came up for admission, the learned Judge who heard the matter passed the following order on 10.12.2009: “Learned counsel for parties, having regard to the issues and the amount involved, would make an endeavour to have this matter settled even without request for arbitration. Post in the 3rd week of January, 2010.” The matter was not settled. 2. The applicant was appointed as a contractor for the work of “raising VTMS Project site at Puthuvypeen” as per Annexure A1 agreement dated 21.4.2008, for an amount of Rs.18,84,146/-. The estimated cost of the work was Rs.24.02 lakhs. The work was not completed within time. Extension of time was requested for. Time was extended. The work was completed on 20.8.2008. As per ARB. REQUEST NO.35 OF 2009 :: 2 :: Annexure A4 dated 6.10.2008, extension of time for completion of the work was granted up to 20.8.2008 and the contract period was extended up to 19.12.2008. However, this was done with a rider of reserving the right of Cochin Port Trust to claim compensation for the delayed performance of the contract. It would appear that the Chief Engineer took a decision as per the order dated 27.6.2008 to deduct Rs.1,88,415/-, the amount being 10% of the contract amount, from the amount payable to the contractor, as compensation to the Cochin Port Trust on account of the delayed execution of the work. (The order passed by the Chief Engineer is not produced. The applicant stated in the Arbitration Request that on receiving Annexure A2 dated 23.5.2008, he submitted Annexure A3 reply dated 2.7.2008. This does not appear to be correct. The reference in Annexure A3 is T-10/R-C/2007-C dated 27.6.2008. That is not Annexure A2. In Annexure A3, the prayer is to set aside the order dated 27.6.2008.) The applicant filed Annexure A6 appeal dated 27.5.2009 against the decision of the Chief Engineer. The appeal was to be disposed of within thirty days by the Chairman. The Chairman did not do so. Therefore, the applicant sent Annexure A7 notice dated 8.7.2009 to the Chairman requesting to appoint an independent Arbitrator to adjudicate the dispute listed in Annexure A7 within fifteen days from ARB. REQUEST NO.35 OF 2009 :: 3 :: the date of receipt of the notice. It is stated that no reply was sent by the Chairman to Annexure A7. The applicant, therefore, filed the Arbitration Request. The prayer in the Arbitration Request is to appoint an independent Arbitrator for resolution of the disputes and differences as specified in Annexures A6 and A7. 3. The applicant has produced a copy of clause 25 of the general conditions of contract for civil works in Cochin Port Trust (Annexure A9). It is submitted that going by Annexure A9, the dispute has to be referred to arbitration. 4. A counter affidavit is filed by the second respondent, the Chief Engineer. In paragraph 5 of the counter affidavit, it is stated as follows: “5. It is submitted that applicant did not submit the final bill and it is not paid. Since this respondent suffered loss due to the fact that the work was not completed in time, Annexure 5 was issued levying an amount of Rs.1,80,415/- as compensation. It is submitted that against Annexure V the applicant filed an appeal. Even though the petitioner was requested to appear before the Chairman for personal hearing, the ARB. REQUEST NO.35 OF 2009 :: 4 :: petitioner appeared and informed that he had already moved Hon'ble High Court and therefore the conditions stipulated in Cl.25 of the general conditions of the contract will not be of any help to the applicant. Copy of the letter dated 12.1.2010 issued to the petitioner requesting him to appear before the Chairman for personal hearing. A reading of Cl.25 of the general conditions of the contract will clearly show that the above claim of the applicant will not fall within the conditions contained in Cl.25 of the general conditions of the contract. It is respectfully submitted that Cl.25(2) clearly states that the party invoking arbitration shall gave list of disputes with amounts claimed in respect of each such dispute along with notice for appointment of arbitrator and giving reference to the rejection by the Chairman of the appeal. Annexure 6 is the appeal filed by the applicant. A reading of Annexure 6 will clearly show that the applicant has not complied with Cl.25(2) of the general conditions of contract. Cl.25(2) further states that “it is also term of this contract that no person other than a person appointed by the Board as aforesaid should act as arbitrator and if for any reasons is not possible, the matter shall not be referred to arbitration at all.” 5. Annexure A9 provides for referring the dispute for adjudication through Arbitration by a sole arbitrator appointed by the ARB. REQUEST NO.35 OF 2009 :: 5 :: Board. The following clauses in Annexure A9 are also relevant. They are: “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 along with the notice for appointment of arbitrator and giving reference to the rejection by the Chairman of the appeal. It is also a term of this contract that no person other than a person appointed by the board 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 this 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 board shall be discharged and released of all liabilities under the contract in respect of these claims. The Arbitration shall be conducted in accordance with the provisions of the arbitration and conciliation Act, ARB. REQUEST NO.35 OF 2009 :: 6 :: 1996 (26 of 1996) 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.” 6. The learned counsel for the respondents submitted that Annexure A9 provides for the procedure for appointment of the arbitrator and the manner of appointing the arbitrator. Only after the appeal is disposed of by the Chairman, the contractor could invoke the arbitration clause. An independent arbitrator cannot be appointed and the arbitrator should be appointed in terms of clause 25. It is also contended that since the Chairman has not taken any decision in the matter, the Arbitration Request is premature. 7. I am not inclined to accept the contention raised by the respondents that the Arbitration Request cannot be entertained for appointing an arbitrator or taking such measures as provided in Section 11 of the Arbitration and Conciliation Act. In 2005 (1) KLT 763 (National Thermal Power Corporation Ltd. v. Raghul Constructions (P) Ltd.) a Division Bench of this Court held as follows: ARB. REQUEST NO.35 OF 2009 :: 7 :: “7. S.11(6) deals with cases where there is an appointment procedure agreed to between the parties. If a party fails to act as required under that procedure, party may request the Chief Justice or any person or institution designated by him to take necessary measure for securing the appointment. So also, under sub-s.(4) of S.11, if two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, then also the Chief Justice upon the request of a party or any person designated by him can make appointment. In sub-s.(5) of S.11, the wording used is appointment by the Chief Justice. However, by sub-s.(6) of S.11, the Chief Justice has to take necessary measure for securing the appointment. If the party fails to act as required under that procedure and if any party requests the Chief Justice or any person or institution designated by him to take the necessary measure, the Chief Justice or any person or institution has to take necessary measures for securing appointment. So also the parties or the two appointed arbitrators fail to reach an agreement expected of them under that procedure, a party may request the Chief Justice to take necessary measures for securing appointment. The expression “necessary measures” and the expression “securing appointment” are absent in a case where there is no agreed procedure. In a case where there is no agreed procedure the Chief Justice ARB. REQUEST NO.35 OF 2009 :: 8 :: can make an appointment. In a case where there is agreed procedure the Chief Justice or the person or institution designated by him has to take necessary measures so as to secure appointment as per the agreed procedure. In our view, endeavour must be to give effect to that procedure and not to annihilate it. Only in cases where that endeavour to secure the appointment does not succeed, the Chief Justice or the person designated would go for an independent arbitrator. 8. Arbitration agreement itself is a contract and parties enter into solemn agreement agreeing on a procedure for appointing an arbitrator. The mere fact that a party has failed to follow that agreed procedure does not mean that the Chief Justice or the designated person shall not take any measure to give effect to the agreed procedure...” In view of the decision of the Division Bench, I am of the view that the Court is not powerless in dealing with the matter, if no arbitrator is appointed by the Board. 8. The next question to be considered is whether the Arbitration Request is to be allowed at this stage when the Chairman ARB. REQUEST NO.35 OF 2009 :: 9 :: has issued notice to the applicant for a hearing of the appeal. In 2005 (1) KLT 763 (National Thermal Power Corporation Ltd. v. Raghul Constructions (P) Ltd.) referred to above, such a situation arose and the Division Bench took the view that even if an arbitrator is appointed subsequent to the filing of the Arbitration Request, such a procedure cannot be faulted. In the present case, the arbitration clause can be invoked only after the decision of the Chairman. The Chairman has not decided the appeal. There is also a clause in Annexure A9 that if the contractor fails to make any demand for appointment of an arbitrator within 120 days of receiving the intimation from the Engineer that the final bill is ready for payment, the claim of the contractor shall be deemed to have been waived and barred and the Board shall be discharged and released of all the liabilities under the contract in respect of the claims. The learned counsel for the applicant pointed out that if the Arbitration Request is now closed awaiting the decision of the Chairman, the clause referred to above would preclude him from raising his claim. But, I do not think that the respondents would be able to raise such a contention since the applicant had already raised his claim within 120 days. The respondents would be estopped from raising such a contention. I hold that the applicant would not be precluded from ARB. REQUEST NO.35 OF 2009 :: 10 :: raising his claim and from contending that an Arbitrator should be appointed, in case the decision of the Chairman goes against him, since the applicant had already invoked the clause and made a request for appointing an Arbitrator. 9. Going by the peculiar terms of Annexure A9, I think it would be ideal to relegate the question of appointment or an arbitrator or the question of taking such measures, until the Chairman takes a decision in the matter. The Chairman shall take a decision in the appeal filed by the applicant within thirty days from today, after giving an effective and meaningful opportunity of being heard to the applicant. If, for any reason, the applicant is dissatisfied with the decision of the Chairman, invoking the clause in Annexure A9, he would be entitled to invoke the arbitration clause by issuing appropriate notice. The rights of both the parties are left open and the Arbitration Request is closed with the above direction. (K.T.SANKARAN) Judge ahz/