1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRTION APLICATION NO. 100 OF 2007 M/s. Madhav Structural Engineering Ltd. ] having office at 29/1, Juhu Supreme Shopping ] Centre, Gulmohar Cross Road No.9, ] J.V.P.D. Scheme, Mumbai 400 049. ]... Applicants Vs The Vice Chairman & Managing Director, ] M/s. Maharashtra State Road Development ] Corporation Ltd., Napean Sea Road, ] Priyadarshini Park, Mumbai – 400 036. ]... Respondents Mr. Anniruddha Rajput, Mr. P.G. Chavan with Mr. Udaya Sankar Samudrala for the Applicants. Mr. P.P. Chavan i/b Vinay M. Bhate for the Respondents. CORAM : S.J. VAZIFDAR, J. DATED : 8TH JULY, 2010. ORAL JUDGMENT : 1. This an application under section 11 of the Arbitration and Conciliation Act. 1996, for the appointment of an Arbitrator. 2 2. There is no dispute between the parties as to the existence of the main agreement, including the clause therein pertaining to arbitration. The Applicants tender for certain construction work was accepted by the Respondent by a letter dated 2nd February, 2001. A work-order was issued on 2nd March, 2001. It is admitted that the parties were also governed by the General Conditions of the Contract. Clause 67 thereof pertains to the settlement of disputes. That the clause applies between the parties is admitted. The only contention on behalf of the Respondent is that the condition precedent to the invocation of the arbitration contained therein has not been fulfilled in the present application. Clause 67 reads as under :- 67.0 Settlement of Dispute 67.1 If a dispute of any kind whatsoever arises between the Engineer and the Contractor in connection with, or arising out of, the Contract or the execution of the Works, whether during the execution of the Works or after their completion and whether before or after repudiation or termination of the Contract, including any dispute as to any opinion, instruction, determination, certificate of valuation of the Engineer, the matter in dispute shall, in the first place, be referred in writing to the Engineer within 14 days of occurrence for review with a copy to the Employer. If the contractor fails to refer the dispute for review within 14 days, the Engineer’s decision shall be final and binding on the contractor. Such reference shall state that it is made pursuant to this Clause. No later 3 than the Fourteen days after the day on which he received such reference the Engineer shall give notice of his decision to the Employer and the Contractor. Such decision hall state that it is made pursuant to this Clause. Notwithstanding arises of any dispute, unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the Works with all due diligence and the Contractor and the Engineer shall give effect forthwith to every such decision unless and until the same shall have been revised, as hereinafter provided. 67.2 If either the Employer or the Contractor disagrees with the decision of the Engineer, the decision shall then be referred by the employer or by contractor, within 14 days of the Engineer’s Decision to the Steering Committee constituted by the MSRDC Ltd. The Steering Committee shall give its advice in writing within 28 days of receipt of a notification by it. The Steering Committee may call upon the Engineer and Contractor to hear their case before giving its advice. 67.3 If the decision of the Employer reached on consideration of the advice of the Steering Committee is not agreeable to the Contractor, the Contractor shall notify the Employer within 14 days of the receipt of the said decision, failing which the Employer’s decision shall be final and binding on the contractor. The Employer shall then nominated any person, who shall be a retired chief Secretary of Government of Maharashtra, such person to be selected by Managing Director, Maharashtra State Road Development Corporation Limited, as a arbitrator, within 28 days of the receipt of a contractor’s notice for non-acceptance of Employer decision. The arbitrator so nominated shall carry out to arbitration proceedings in, accordance with Arbitration and Conciliation Act, 1996, or any modification thereof, and give his decision in the case within 4 months from the date of reference of dispute to him. The decision the 4 above said arbitrator shall be final and binding Employed and Contractor. 67.4 Where neither the Employer nor the Contractor has given notice of intention to commence arbitration of a dispute within the period stated in Sub-Clause 67.1 and the related decision has become final and binding, either party may, if the other party fails to comply with such decision, and without prejudice to any other rights it may have, refer the failure to arbitration in accordance with Sub-Clause 67.3. The provisions of Sub-Clause 67.1 and 67.2 shall not apply to any such reference. 3. It is also admitted that certain disputes and differences had arisen in respect of the Applicant’s claims. The Applicant, addressed to the Respondent and the Project Management Consultant – M/s. Consulting Engineering Services (India) Limited (hereinafter referred to as the “PMC”), a letter dated 26th September, 2005. In the said letter, the Applicant set out the facts relating to the formation of the contract and the execution thereof. The Applicant made various allegations, inter alia, to the effect that though it had fulfilled all its obligations, including mobilizing the resources, the Respondent and the PMC had wrongly alleged that it had not done so; that the Respondent had delayed in furnishing the working drawings; that the site was encroached upon with existing electric poles and electric wires at a low height which hampered the Applicant’s ability to carry 5 out the work and that the encroachment was removed only belatedly. The Applicant further alleged delay in payment on the part of the Respondent, curtailing the work by the Respondent and delay on the part of the Respondent in issuing various instructions and taking decisions. The Applicant, therefore, raised various claims against the Respondent. In paragraph 19, the Applicant called upon the Respondent and the PMC/Engineer-in-charge to take a decision on its claims and to communicate the same. It was further stated that if the claims were not acceptable to the Respondent or the PMC, a dispute between the parties would be deemed to have arisen and the same should be settled as per clause 67. The Respondent and the PMC were, therefore, called upon to communicate the decision as per clause 67. 4. The Applicant by its advocate’s letter dated 2nd January, 2006, addressed to the Respondent, stated that it had not received any reply to the said letter dated 26th September, 2005 from the PMC. In the circumstances, the Applicant called upon the Respondent to refer the decision to the Steering Committee constituted by the Respondent or to arbitration as per clause 67. 6 5. That the disputes raised and the claims made by the Applicant fall within the purview of clause 67 is not disputed. 6. Mr. Chavan, however, submitted that clause 67 contemplates only disputes between the Applicant and the PMC in connection with the work. He submitted that disputes between the Applicant and the Respondent are not covered by clause 67. This submission was based on the first sentence in clause 67.1 which opens with the words : “If a dispute of any kind whatsoever arises between the Engineer and the Contractor .......”. 7. The submission is not well founded. The Engineer/PMC is not a contracting party. The contracting parties are only the Applicant and the Respondent. The PMC acts on behalf of the Respondents. This is clear, inter alia, from clauses 1.1(a)(iv) which provides that the Engineer i.e. PMC is appointed by the employer i.e. the Respondent. Moreover, under clause 2.1 the PMC is to carry out the duties specified in the contract. The functioning of the Engineer would naturally, therefore, be controlled or would be subject to the control of 7 the Respondent. This would be so even in the absence of such a term in the contract. The contract, in fact, provides for the same in clause 2.1 which reads as under :- 2.1 Engineer’s Duties and Authority (a) The Engineer shall carry out the duties specified in the Contract. (b) The Engineer may exercise the authority specified in or necessarily to be implied from the Contract, provided, however, that if the Engineer is required, under the terms of his appointment by the Employer, to obtain the specific approval of the Employer before exercising any such authority, particulars of such requirements shall be set out in Part II of these conditions. Provided further that any requisite approval shall be deemed to have been given by the Employer for any such authority exercised by the Engineer. (c ) Except as expressly stated in the Contract, the Engineer shall have no authority to relieve the Contractor of any of his obligations under the Contract. (d) Engineer’s Duties and Authority The Engineer shall obtain the specific approval of the Employer before exercising any authority or taking any action under the following Clauses to the Conditions of Contract. (a) Clause 51.1. (c ) (b) Clause 52.3 (i) Granting claims to the 8 Contractor (ii) Granting extensions of time to the Contractor (iii) Ordering suspension of work (iv) Instructing additional work and / or varying quantities of work included in the contract, under clause 51.1 of the conditions of contract, provided that no prior approval for any such additional work or variation shall be necessary if the cumulative value of all such variations and additional works does not exceed 5% of the Contract Price named in the Letter of acceptance. (v) Fixing rates for additional works and / or variations in quantities of BOQ items pursuant to clause 52 of the Conditions of Contract; provided that no such prior approval for fixing the rates aforesaid shall be necessary so long as the cumulative value of all such additional works and variations does not exceed 5% of the Contract Price named in the Letter of Acceptance. Notwithstanding anything contained in this sub-clause, if, in the opinion of the Engineer, an emergency occurs affecting the safety of life or of the Works or of adjoining property, he may, without relieving the Contractor of any of his duties and responsibilities under the Contract, 9 instruct the Contractor to execute all such work or to do all such things as may, in the opinion of the Engineer, be necessary to abate or reduce the risk. The Contractor shall forthwith comply, despite the absence of approval of the Employer, with any such instruction of the Engineer. The Engineer shall determine an addition to the Contract Price, in respect of such instructions in accordance with Clause 52 and shall notify the Contractor accordingly, with a copy to the Employer. 8. From the contract, it is clear that the PMC has no privity of contract with the Applicant. It is not even the Respondent’s case that the PMC is liable to the Applicant, either for payment under the contract or for any payments in respect thereof as may be adjudicated against the Respondent. 9. In the circumstances, it must be held that clause 67 not merely includes, but pertains to the disputes between the Applicant on the one hand and the Respondent on the other. Mr. Chavan’s contention in this regard is, therefore, rejected. 10. Mr. Chavan then submitted that the procedure under clause 67 had not been followed. He submitted that the matter in dispute, in the first place, is to be referred in writing to the Engineer within fourteen 10 days of the occurrence for review with a copy to the employer. In the present case, the applicant had alleged that the Respondent had illegally terminated the contract on 18th October, 2002. Despite the same, the reference in writing to the Engineer was made only on 26th September, 2005, i.e. after almost three years. 11. Even assuming that the Applicant delayed in referring the matter in dispute beyond the period of fourteen days, it would make no difference to this application for the appointment of an Arbitrator. The consequence thereof is provided in clause 67.1 viz. “If the contractor fails to refer the dispute for review within fourteen days, the Engineer’s decision shall be final and binding on the contractor.” The consequence, therefore, of any delay in referring the dispute, is that the Engineer’s decision is final and binding on the contractor. This does not reflect upon or annul the arbitrability of the disputes. It does not affect the jurisdiction of the Arbitrator to decide the disputes. It would be open to the Respondent to contend before the Arbitrator that the Engineer’s decision is final and binding on the contractor. Whether, in the facts and circumstances of the case it is so or not is for the Arbitrator to decide. In other words, the delay on the part of the 11 contractor/Applicant in referring the disputes beyond the period of fourteen days does not affect the arbitration clause or the jurisdiction of the Arbitrator to decide the disputes. 12. The Engineer/PMC, therefore, ought to have given its decision even though the reference was made to it beyond the period of fourteen days of the occurrence for review. It was open to it to have considered the delay in deciding the matter in dispute, but it was bound to give it’s decision. The PMC, admittedly, did not do so. 13. Mr. Chavan then relied upon clause 63.1 which reads as under : 63.1 Default of Contractor If the Contractor is deemed by law unable to pay his debts as they fall due, or enters into voluntary or involuntary bankruptcy, liquidation or dissolution (other than a voluntary liquidation for the purposes of amalgamation or reconstruction), or becomes insolvent, or makes an arrangement with, or assignment in favour of , his creditors, or agrees to carry out the Contract under a committee of inspection of his creditors, or if a receiver, administrator, trustee or liquidator is appointed over any substantial part of his assets, or if, under any law or regulation relating to reorganization, arrangement or readjustment of debts, proceedings are commenced against the Contractor or resolutions passed in connection with dissolution or liquidation or if any steps are taken to enforce any security interest over a 12 substantial part of the assets of the Contractor, or if any act is done or event occurs with respect to the Contractor or his assets which, under any applicable law has a substantially similar effect to any of the foregoing acts or events, or if the Contractor has contravened Sub-Clause 3.1, or has an execution levied on his goods, or if the Engineer certifies to the Employer, with a copy to the Contractor, that, in his opinion, the Contractor : (a) has repudiated the contract, (b) without reasonable excuse has failed (i) to commence the Works in accordance with Sub- Clause 41.1 , or (ii) to proceed with the Works, or any section thereof, within 28 days after receiving notice pursuant to Sub- Clause 46.1. (c ) has failed to comply with a notice issued pursuant to Sub-Clause 37. 4 or an instruction issued pursuant to Sub-Clause 39. 1 within 28 days after having received it, (d) despite previous warning from the Engineer, in writing, is otherwise persistently or flagrantly neglecting to comply with any of his obligations under the Contract, or (e) has contravened Sub-Clause 4.1, Then the Employer may forthwith forfeit the performance security and retention money and after giving 14 days notice to contractor enter upon the Site and the Works and terminate the employment of the Contractor without thereby releasing the Contractor from any of his obligations or liabilities under the Contract, or affecting the rights and authorities conferred on the employer or the Employer of the Engineer by the Contract, and may himself complete the Works or may 13 employ any other contractor to complete the Works. 14. Clause 63.1 entitles the Respondent, inter alia, to terminate the contract in eleven circumstances. The first ten pertain to the financial aspects of the contract such as its liability to pay its dues, bankruptcy etc. The last circumstance is if the Engineer/PMC certifies to the Respondent-employer, with a copy of the contractor, that in his opinion the contractor is guilty of/responsible for the acts specified in sub-clauses (a) to (e). Mr. Chavan relied upon sub-clause (b) viz. the Applicant having failed without reasonable excuse to commence the work in accordance with sub-clause 41.1 or to proceed with the work or any section thereof within twenty-eight days of the receipt of a notice pursuant to sub-clause 46.1. In view of what I have held earlier, even assuming that the termination dated 18th October, 2002 was in accordance with the contract and justified, it would make no difference to the applicability or the validity of the arbitration clause. This is for the obvious reason that whether the termination was legal or not and whether it was in accordance with the terms of the contract or not are issues which must be decided by the Arbitrator. The contract does not stipulate that in the event of there being a delay in making a reference to the Engineer, the arbitration clause ceases to 14 have effect or that the Arbitrator would then cease to have jurisdiction to decide the contractor’s claims. Thus, even assuming that the notice of termination was pursuant to such communication by the PMC to the Respondent, it would make no difference. 15. In the circumstances, the disputes and differences are liable to be referred to arbitration in accordance with clause 67. 16. It was submitted on behalf of the Applicant that this court ought not to permit the Respondent to exercise its right under clause 67 to nominate any person who shall be a retired Chief Secretary of the Government of Maharashtra as the Arbitrator. Relying upon the judgments of the Supreme Court in Datar Switchgears Ltd. vs. Tata Finance Ltd. & anr., (2000) 8 SCC 151 and M.K. Shah Engineers & Contractors vs. State of M.P., (1999) 2 SCC 594, it was submitted that the Respondent is not entitled to exercise the right of nominating an Arbitrator when it has failed to do so as per the arbitration clause. 17. I will presume that to be so. However, in the facts of this case, I see no reason to exercise my discretion by appointing any person 15 otherwise than in accordance with clause 67.3. The judgments do not hold that in such circumstances, the court, in exercise of powers under section 11 cannot permit a party to nominate an Arbitrator in accordance with the arbitration agreement. They merely confer a discretion upon the court to appoint any other person. In the facts of this case, I do not see any mala fides or any negligence on the part of the Respondent in appointing an Arbitrator. Nor is there anything to indicate that the exercise of the power under clause 67.3 would be unjust or unfair. In the circumstances, I intend exercising my discretion by permitting the Respondent to nominate the Arbitrator in accordance with clause 67.3. 15. In the circumstances, the Arbitration Application is allowed. However, the Respondent shall appoint an Arbitrator in accordance with clause 67 and in particular clause 67.3, within twenty-eight days of the receipt of a certified copy of this order. In the facts of this case, there shall be no order as to costs.