-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO. 457 OF 2002 WITH NOTICE OF MOTION NO. 1466 OF 2002 IN ARBITRATION PETITION NO. 124 OF 1994 IN AWARD NO. 67 OF 1994 Bi-water Penstocks Ltd., a Company ) incorporated in U.K. and having its registered office ) at Clay Lane, Oldbury Warley, West Midlands, ) B-69, 4 BP, England, U.K. )...Appellant vs. 1. Municipal Corporation of Greater Bombay, ) a Corporation established under the Bombay Municipal ) Corporation Act, having its office at Mahapalika Marg, ) Bombay-400 001 ) 2. Shri M.L. Dongre of Bombay, Indian residing at C-2/4, ) Casurina Co-operative Housing Society Ltd., ) Ghatkopar (East), Bombay-400 075 )..Respondents Mr. S.U. Kamdar, Senior Advocate, with Mr. D. Mehta, Mr. Snehal Shah and Smt. Pooja Patil, instructed by M/s. Dhruve Liladhar & Co., for the appellant. Mr. K. Setelwad with Mr. R.D. Dhanuka, Mr. H.C. Pimple and Mr. Sirsikar for the Respondents. CORAM: P.B. MAJMUDAR & ANOOP V. MOHTA, JJ. DATE: 24 th NOVEMBER, 2010 . -2- JUDGMENT (Per P.B. Majmudar, J.) This appeal is directed against the judgment and order dated 14th February, 2002 passed by the learned single Judge in Arbitration Petition No. 124 of 1994 by which the learned single Judge remitted the matter to the Arbitrator for de novo consideration. 2. The facts in a nutshell are as under. 3. A contract was entered into between the appellant and the first respondent (hereinafter ‘the respondent”) for carrying out the work of manufacture, supply and delivery of 171 sluice gates and for supervision of erection and commissioning of the said gates at sites. Subsequently certain disputes arose between the parties. As per the terms of the contract, when a dispute arises, firstly a claim is required to be made before the Chief Engineer and thereafter the matter is to be sent to the Commissioner and subsequently a reference can be made to the Arbitrator. A sole Arbitrator was appointed in connection with the dispute in question and statement of claim was filed before the Arbitrator. The statement of claims contains the claims made by the appellant on 25 counts. Out of the 25 claims, an objection was raised on behalf of the respondent about 17 claims on the ground that the said claims were never made by the appellants before the Chief Engineer or before the Commissioner of the Corporation and, therefore, the said claims cannot be decided by the -3- Arbitrator in terms of contract between the parties. The respondent Corporation initially had filed a petition before this Court in connection with the said aspect and in the said proceedings the parties agreed to refer the dispute to the sole Arbitrator for deciding 17 claims including the question as to whether in terms of the contract those 17 claims can be said to be within the jurisdiction of the Arbitrator or not. So far as remaining 8 claims are concerned, the same were decided by the sole Arbitrator and the Arbitrator after hearing the parties made an Award directing the respondent Corporation to pay to the appellant an amount of U.K. Pounds 3,77,252.91 plus Rs. 1,67,164.96. The Arbitrator allowed the interest on the basis of the claim in U.S. Pounds as well as claim in Rupees. The Arbitrator has not given reasons for giving an award which award is a non-speaking award. The award of the Arbitrator was challenged before the learned single Judge by way of Arbitration Petition being Arbitration Petition No. 124 of 1994. 4. The learned single Judge held that the Arbitrator has committed an error in coming to the conclusion that he has jurisdiction to decide the eight claims as the Arbitrator had no jurisdiction to entertain the claims in excess of the amount claimed before the Chief Engineer and the Commissioner. The learned single Judge found that the Arbitrator has decided the jurisdictional fact by ignoring the relevant material on record. Accordingly, the learned single Judge held that the award is required to be set aside on the said ground. The -4- learned single Judge also found that the Arbitrator has followed strange procedure by admitting two letters on record to prove the claim that the claimants had operated overdraft account during the period between 1st January, 1985 and 31st July, 1987 without examining the author of the documents and without there being any oral evidence to prove the said documents. The learned single Judge found that the Award of the Arbitrator is not in accordance with the principles of natural justice and it is an error of jurisdiction. Accordingly, the Arbitration Petition was allowed by the learned single Judge in part and remitted the matter to the learned arbitrator for de novo consideration. Since the learned Arbitrator died at the time when the said order was passed, the matter was ultimately remitted to the arbitration of Justice H. Suresh to whom 17 claims were already referred earlier. It is the aforesaid order of the learned single Judge which is impugned at the instance of the appellant. 5. Mr. Kamdar, learned senior counsel appearing for the appellant, submitted that the learned single Judge has committed a grave error in allowing the Arbitration Petition filed by the respondent. It is argued by Mr. Kamdar that the arbitration clause was invoked by the appellant in accordance with clauses 56 and 57 of the General Condition of Contract (GCC). It is submitted that as per clause 56.1 viz. “dispute or difference is to be referred to the Arbitrator”, the contractor was required to refer the disputes and differences to the -5- Commissioner for adjudication who was required to decide the same within 90 days of appointment. As per clause 56.2, the contractor, if dissatisfied with the decision of the Commissioner, can invoke arbitration which can be said to be de novo proceedings and the Arbitrator under the said clause has been given wide and extensive powers of opening up, reviewing, revising any opinion, decision, valuation of the Commissioner and more importantly the said clause provided that neither party was limited by the claims as originally before the Commissioner. It is submitted that the Arbitrator is required to decide the dispute afresh and de novo on the basis of pleadings and as per evidence. It is submitted that the respondent earlier raised an objection in respect of 17 claims out of 25 claims as filed before the Arbitrator on the ground that the same are outside the jurisdiction as the same were not placed before the Commissioner. However, in respect of balance 8 claims both sides submitted to the jurisdiction of arbitration with conscious knowledge that the said claims are within the jurisdiction of the Arbitrator. Mr. Kamdar submitted that the said fact is evident from the letter dated 27th April, 1991 addressed by the respondent to the sole Arbitrator as well as letter dated 5th December, 1990 addressed by the respondent to the sole Arbitrator as also the minutes of meeting held on 18th April, 1991 and letter dated 27th April, 1991. It is further submitted by Mr. Kamdar that in the arbitration petition, no point was taken in respect of the arbitrability and/or jurisdiction of the Arbitrator in respect of eight claims in question. It is submitted that the point regarding alleged increase in quantum in -6- respect of the said 8 claims has been raised for the first time in arbitration petition filed by the respondents but the same was never pleaded before the Arbitrator. It is submitted that in any event the arbitration proceedings as commenced before the Arbitrator are in fact a fresh and de novo proceedings and hence it was open for the appellant to enhance and/or include fresh claims. It is further submitted that it is well settled principle that the respective parties are entitled to enlarge scope of reference of arbitration, inter alia, merely by filing their statement of claim. In connection with the submission regarding enlargement of scope of reference, learned counsel Mr. Kamdar has relied upon various decisions of the Supreme Court to which we will refer at later point of time. It is further argued that the Arbitrator has awarded lesser amount than what was originally claimed before the Commissioner. It is submitted that the learned single Judge has committed an error in holding that variation in quantum was a jurisdictional error. It is further submitted that during the course of proceedings before the Arbitrator, the appellants had produced various documents in support of their claim of payment of interest to Banks for the funds that were being arranged for by the appellant. The said letters were in the nature of third party documents evidencing payment of interest by the appellant. It is submitted that it was not necessary for the appellant to examine the author of the documents to provide the same. It is submitted that the said documents in question are the documents from third party Banks and that there is no obligation on the part of the appellant to lead oral evidence to prove the -7- same. It is submitted that it is open to the Arbitrator to draw an adverse inference in view of the fact that the appellant had not led oral evidence to prove the same. It is submitted that it was open to the respondent to lead their own evidence and produce positive material on record to disprove the said documents. It is submitted that the Evidence Act does not apply to the arbitration proceedings. It is submitted that it is not obligatory on the part of the appellant to examine the witnesses only to facilitate the respondent to take cross-examination of the witnesses. It is submitted that the learned single Judge has committed an error in holding that there is breach of principles of natural justice. It is further submitted that the Award in question is a non-speaking order and, therefore, it is not possible to find out the mind of the learned Arbitrator as to which particular documents had weighed in his mind at the time of passing of the award. It is submitted that the quality and quantity of the evidence cannot be re-examined in the arbitration proceedings especially when the Award in question is a non speaking award. Mr. Kamdar submitted that the order of the learned single Judge is accordingly required to be set aside by dismissing the arbitration petition. 6. Mr. Setelwad, learned counsel appearing for the respondent, on the other hand, submitted that the present arbitration proceedings pertain to eight claims out of total 25 claims in respect of the contract work undertaken by the appellant for the respondent Corporation. It is submitted that out of 25 claims, -8- 17 claims have been referred to arbitration and the award is awaited. It is submitted that regarding 17 claims, the same were earlier adjudicated by Mr. H. Suresh who by his award dated 20th March, 2003 held that he had no jurisdiction to enter into 17 claims as the mandatory procedure prescribed by clauses 56.1 and 56.2 had not been followed by the appellant and the award was accepted by the appellant. Subsequently the appellant followed the procedure prescribed by clauses 56.5 and 56.2 in respect of 17 claims. It is submitted that the learned single Judge after remanding the matter regarding 8 claims directed that the same be decided by the same Arbitrator so that all the 25 claims can be decided by the same arbitrator. Mr. Setelwad further submits that the documents which were produced before the Arbitrator were wrongly admitted in evidence without giving an opportunity to the respondent to cross- examine author of the said documents. It is submitted that one of the documents is in connection with the internal correspondence dated 22nd November, 1989 addressed by one John Gilbert to one Pauline Jackson of the appellant which internal memo sets out certain dates and certain interest rates. No source of information by which interest rates set out in the document is produced by the appellant. It is submitted that so far as letter dated 4th March, 1989 is concerned, the same is addressed by one Jacaran Transport which quoted certain handling and storage rates. There is nothing to show that the rates quoted in the said letter were accepted or approved or acted upon by the appellant. So far as letters dated 2nd August, 1991 and 22nd August, 1991 are -9- concerned, the said letters were merely signed in the name of Peat Marwick McLintock and not in the name of any particular person. It is submitted that certain letters produced before the Arbitrator were received from Royal Bank of Scotland and Lloyds Bank wherein different figures have been quoted. It is submitted that all these documents were admitted in evidence by the Arbitrator after commencement of arguments, despite objections raised by the respondent. The author of the said documents was not examined and, therefore, the respondent was denied right to cross-examine the persons who had written the said documents. The respondent was denied the right of cross-examination with regard to the veracity and in connection with the correctness and contents and with respect to the effect of the contents of the documents which had been illegally admitted in evidence by the Arbitrator in breach of principles of natural justice. It is submitted that the claim of the appellant in the arbitration included claim for storage and handling charges. The appellant sought to prove and support their claim by the letters, documents and also included a claim of interest on the basis of the said documents. The appellant tried to prove that they were maintaining overdraft account that the monies paid by respondent to the appellant were credited to the said overdraft account and that the appellant had paid interest to their bankers for the overdraft facilities. The respondent was denied the opportunity of cross-examining the author of the said documents as the author was not examined and yet the documents were taken on record and held to be proved. It is submitted that the respondent had -10- repeatedly objected to the procedure adopted by the Arbitrator. Yet the documents were sought to be produced and admitted into evidence after commencement of the arguments and that too during the course of arguments. It is submitted that the Arbitrator had also recorded minutes of the hearing held on 3rd September,1991 wherein it was recoded that the appellant did not desire to lead any oral evidence and in case respondent led any such evidence, oral evidence in rebuttal would be led. It is pointed out that respondent filed a detailed application on 16th September, 1991 before the Arbitrator raising specific and detailed objections to the various documents which were permitted to be admitted into evidence by the Arbitrator. Mr. Setelwad has invited our attention to various applications filed from time to time by respondent in this behalf before the Arbitrator. It is submitted that the Arbitrator rejected the said applications by his order dated 4th February, 1992. It is submitted that the Arbitrator has committed a legal misconduct by admitting documents in evidence in breach of the principles of natural justice. In order to substantiate the same, Mr. Setelwad has relied upon certain judgment to which we will refer later on. It is also further submitted that it is not in dispute that the claims referred to the Commissioner were different from those referred to the arbitration. It is submitted that the claims which were referred to the Commissioner were smaller than those referred to the arbitration. It is submitted that the claim is first required to be lodged before the Commissioner and the Commissioner must have entire claim before him so as to permit him to -11- adjudicate the same. It is submitted that the Arbitrator would not have the jurisdiction in respect of any claims which were not raised before the Commissioner. It is submitted that the claims referred to the Arbitrator were enhanced claims and, therefore, Arbitrator has no jurisdiction to enter into the same contrary to the terms of the contract. On this point, Mr. Setelwad has relied upon certain judgments of the Supreme Court to which we will refer later on. It is submitted that the learned single Judge has considered the matter in its proper perspective and the said award of the learned single Judge is not required to be interfered with in this appeal. 7. We have heard the learned counsel appearing in the matter at length. We have gone through the award of the Arbitrator as well as the order of the learned single Judge. We have also gone through the voluminous documents forming part of the proceedings and have also gone through the written submissions filed by both the sides. 8. The principal question which requires consideration is as to whether the learned single Judge has erred in setting aside the Award of the sole Arbitrator which is a non-speaking award. It is also required to be considered as to whether the learned single Judge has committed any error in coming to the conclusion that the Arbitrator could not have considered the 8 claims in question especially when the claim before the Commissioner was of -12- lesser amount than the one placed before the Arbitrator. It is also required to be considered as to whether there is a breach of procedure on the part of the Arbitrator in admitting the documents in question without proving the same by examining the authors of the said documents. 9. Regarding the question about enlargement of the scope of reference, Mr. Kamdar has relied upon the decision of the Supreme Court in the case of Waverly Jute Mills Co. Ltd. vs. Raymon and Co. (India) Pvt. Ltd.1 In paragraph 23 of the said judgment, it has been held as under: “ The decisions in National Fire and General Insurance Co. Ltd.’s case, AIR 1956 Cal 11 and Pratabmull Rameswar’s case, 64 Cal WN 616 : (AIR 1960 Cal 702), relied on for the appellants are not really in point. In both these cases, there was a valid submission on which the arbitrators proceeded to act. Before them the parties filed statements and therein they put forward a claim which was not actually covered by the reference and invited them to give their decision thereon. The party again whom the award had gone contended that the arbitrators had acted without jurisdiction in deciding the claim. In overruling this contention the Court held that it was open to the parties to enlarge the scope of a reference by inclusion of a fresh dispute, that they must be held to have done that when they filed their statements, putting forward claims not covered by the original agreement, that these statements satisfied the requirements of S. 2 (a) of the Arbitration Act and that it was competent to the arbitrators to decide the dispute. The point to be noticed is that in both these cases there was no want of initial jurisdiction, but a feeding of existing jurisdiction by an enlargement of the scope of the reference. That this does not involve any question of jurisdiction in the arbitrators will be clear from the scheme of the Act. If an award deals with a matter not covered by the agreement it could either be modified under S. 15 (a) or 1 AIR 1963 SC 90 -13- remitted under S. 16 (1) (a). And where such matter is dealt with on the invitation of the parties contained in the statements, there can be no difficulty in holding that the arbitrators acted within jurisdiction. In the present case the arbitrators had no jurisdiction when they entered on their duties nor is it established that there was any subsequent agreement which could be held to be a submission of the question as to the validity of the contract. We are accordingly of the opinion that the respondents are not precluded by what they did before the arbitrators from agitating the question of the validity of the contracts in the present proceedings.” 9.1 Mr. Kamdar also relied upon the decision of the Supreme Court in the case of Kundale & Associates vs. Konkan Hotels (P) Ltd.1 wherein the Supreme Court has observed in paragraphs 4 and 5 as under: “ 4. Before the arbitrator the appellants had made a total claim of Rs. 98,023/-. This consisted of the claims in connection with the construction work and extra work as also giving credit for the amounts already received. In the course of the hearings before the arbitrator the appellants filed a revised statement of claim in which they reduced their total claim to Rs. 66,499/-. The High Court commented on the fact that there was considerable variance between the original claim and the revised claim. There is an increase in certain claims and a reduction in certain other claims. The High Court has also commented that a copy of this revised statement was not formally served on the respondents and their advocates in the same manner as the earlier statement of claims. The trial court in its judgment has observed that the revised statement of claim was filed before the arbitrator, a copy of it was handed over to the respondents and the respondents and their advocates in the course of their arguments dealt with the revised claims. There is, therefore, no prejudice to the respondents on account of revised claims for reduced amount being filed by the appellants. The High Court has also commented on the fact that the award itself does not show that the revised claim was considered by the arbitrator. 1 (1999) 3 SCC 533 -14- The award being a non-speaking award, there is no question of the arbitrator dealing in the award itself with various claims or revised claims made by the parties before him. 5. We fail to see how the High Court could have come to the conclusion that there is any legal misconduct on the part of the arbitrator in giving the award. The Court cannot go into the merits or otherwise of the claims which were before the Arbitrator. The decision of the Arbitrator is binding on both the parties.” 9.2 Mr. Kamdar has further relied upon the decision of the Supreme Court in the case of State of Orissa vs. Asis Ranjan Mohanty1 . In paragraph 12 of the judgement, the Supreme Court has observed as under: “12. Learned counsel for the appellant also submitted that the respondent has merely tried to take advantage of the appointment of a new arbitrator to increase his claims without there being any basis for such increase. They have also drawn our attention to the earlier conduct of the respondent. Initially the respondent’s letter referred only to the claim of Rs. 37,106. However, when the arbitrator was appointed, the claims filed before the arbitrator were to the tune of Rs. 1,35,959. Similarly, when the second arbitrator was appointed, these claims were again increased by Rs. 4,05,584. This, according to the appellant, showed a lack of bona fides in raising the claims. It was for the arbitrator to decide whether these claims raised by the respondent had any merit or not. In fact, although the subsequently filed claims were to the tune of an extra amount of Rs. 4,05,584, the arbitrator has only awarded to the respondent a sum of Rs. 95,952 in respect of those claims. It was for the arbitrator to examine the merits of the claims raised by the respondent and to give a suitable award. We cannot examine the merit or otherwise of all these claims. 1 (1999) 9 SCC 249 -15- 9.3 Our attention was also invited by Mr. Kamdar to the decision of the Supreme Court in the case of Paradip Port Trust and others vs. Unique Builders1 wherein the Supreme Court has observed in para 10 thus: “10. The clause relating to the arbitration extracted above, is wide enough to cover all