- 1 - VPH IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION No. 495 OF 2006 The Maharashtra Agro-Industries ) Development Corporation Ltd. ) A Government of Maharashtra ) Undertaking, registered under the ) Companies Act, 1956, having it’s ) Regd. Office at Rajan House, ) 3rd Floor, Prabhadevi, Mumbai 400025 ... Petitioner Vs. M/s. Gupta & Company, ) a partnership firm, having it’s address) 508, Swastik Chambers, CST Road, ) Chembur, Bombay-400 071. ) ... Respondent *** Mr. H. J. Thakkar, Sr. counsel a/w Mr. N. N. Bhadrashette & Mr. M. G. Patil, for the Petitioner. Mr. S. U. Kamdar, Sr. counsel a/w Devurat Singh Dhankar i/b S. S. Phadke, for Respondent. *** CORAM : S. J. VAZIFDAR, J. DATE : 17th SEPTEMBER, 2009. ORAL JUDGMENT 1. This is a petition under section 34 of the Arbitration - 2 - and Conciliation Act 1996 (hereinafter referred to as the “said Act”) to set aside an award passed by the Arbitral Tribunal, comprising of three learned Arbitrators, dated 30th August 2006, in so far it awarded three claims made by the respondents with interest. The petitioner has not challenged the rejection of its counter-claim by the Arbitral Tribunal. 2. The petitioner by its letter dated 20th January 2003 accepted the respondent’s tender for civil construction work of a flower auction market at Goregaon Mumbai, in the sum of Rs. 4,59,24,281.20 Ps., subject to the condition that the work would be done only as per its requirement of the structures for the project of which the respondent would be informed from time to time. By the said letter the respondents were further required to furnish a security deposit and to mobilize their resources for commencement of construction work as per the directions from the petitioner and the consultants. The respondents were directed to furnish the proposed schedule of completion of works with the Bar/Pert chart and to ensure timely completion of the work. 3. The respondents by their letter 24th January 2003 acknowledged receipt of the above letter and stated that they were mobilizing the resources for commencement of the work. The respondents requested the petitioner for the drawings to enable them to plan and submit the programme for carrying out the work. As required by the letter dated 20th January 2003, the respondents under the cover of the letter dated 24th January 2003 enclosed a - 3 - duly signed copy of the letter dated 20th January 2003, describing it as the “work order”. This assumes significance, as will be noted later. 4. Under cover of its letter dated 31st January 2003 the petitioner forwarded the drawings but stated that they were only for reference and were not to be used for construction purposes. The respondent was requested to visit the site and measure the dimensions and to inform the petitioner in case of any discrepancy. The letter also stated that further progress of the work would be communicated to the respondents after obtaining the details from the petitioner’s consultants. 5. The respondents by their letter 4th February 2003 addressed to the petitioner enclosed the programme for carrying out the work. The letter specifically states that as per the instructions in the work order, meaning thereby the letter dated 20th January 2003 they had mobilized their resources and were ready to commence the work. The respondents therefore, once again requested for the drawings and to be handed over the site to enable them to commence the work. Enclosed with the work was the bar chart. 6. Thereafter correspondence ensued between the parties in the course of which the respondents referred to the work order, stated that they were fully mobilized to commence the work, indicated certain steps proposed to be taken by them and sought - 4 - instructions regarding the execution of certain aspects of the work and requested for the drawings to enable them to commence the work indicating that substantial part of the work period had already been lost. They further stated that they were incurring infructuous expenditure. The respondents in the course of the correspondence also indicated that they were unable to commence the work on a certain part of the site due to the existing structures thereon not having been demolished by another contractor and furnished the list of works which according to them could be commenced immediately despite the same. The petitioner’s consultants on the other hand informed the respondents that the said work could be commenced only after the demolition of the existing structures by the other contractors. . In these circumstances, the respondent by a letter dated 23rd April 2003 set out the difficulties faced by them in executing the said work and reserved their right to claim compensation when they were directed to start the work. They stated that the delay in commencement of the work was not attributable to them and that, time no longer remained of the essence of the contract. 7. The petitioner in response, by its letter dated 8th May 2003 asked the respondent to collect the drawings subject to their withdrawing the claims. The petitioner stated that the work was likely to be reduced by about 50% and that the respondent would not be entitled to any compensation for the same. - 5 - 8. By their letter dated 19th May 2003 the respondent refused to withdraw the claims. 9. This brings me to two important letters addressed by the respondents which formed the basis of the challenge to the award viz. a letter dated 18th October 2003 addressed to the petitioner and a letter dated 27th November 2003 addressed to the petitioner’s architect and consultants. The importance of these letters is in view of Mr. Thakkar’s submission on behalf of the petitioner that the reference to arbitration was beyond the time prescribed in the contract. It is necessary therefore to refer to these letters in detail. 10. By the letter dated 18th October 2003 addressed to the petitioner, the respondents set out the above facts, contending that they had suffered heavy losses and listed the various amounts which according to them were due to them from the petitioners under the provisions of the contract. The respondents sought a refund of Rs.4,60,000/- being the earnest money deposit; a sum of Rs.68,88,642/- towards loss of profit calculated at the rate of 15% of the total value of the work; a sum of Rs.13,20,000/- towards mobilization expenses incurred by them; Rs.5,00,000/- towards construction of structures of the site, Rs.15,00,000/- in respect of the advance allegedly given by the respondents to various contractors for supply of material; Rs.5,00,000/- towards demobilization and Rs.3,75,000/- for infructuous head office and - 6 - site expenses. The respondents also claimed interest at 20% per annum on these amounts. The petitioner was called upon to settle and pay the claims within 15 days, failing which the respondent stated it would take it that disputes and differences had arisen between them and the petitioner, which they would proceed to have settled by arbitration. Mr. Thakkar, strongly relied upon the fact that the respondents themselves stipulated a period of 15 days for the petitioner to settle the claim.Mr. Thakkar also relied upon the note at the end of the letter, forwarding a copy thereof to the petitioner’s architects which reads as under:- “Copy forwarded : M/s. Khandekar Consultants, 124/6B, Shrikarrao Path, Erandvana, Pune-4. You are also requested to take notice of the contents of this communication and issue a Certificate as Architects under the contract in respect of the amounts claimed by us herein above immediately, and in any event within the notice period specified herein failing which we will take further action as provided under the contract.” (emphasis supplied) Mr. Thakkar emphasized that the 15 days notice period fixed period stipulated in the letter applied even in respect of the architects for they were asked to respond “within the notice period specified herein”. 11. By the letter dated 27th November 2003 addressed to - 7 - the architects, the respondents referred to the said letter dated 18rd October 2003 and stated that though the period of 15 days specified therein had expired the claims had not been settled by the petitioner and that the architects had not issued the certificate for payment of the same. The respondents stated that disputes and differences had therefore, arisen between the parties herein which were to be settled as per the procedure prescribed in Clause 44 of the Special Conditions of the Contract. The respondents further stated in the letter as under - “As per Clause 44 of the Special Conditions of Contract, all disputes and differences arising out of the Contract are to be referred to the Architects who are required to give their decision thereon in writing. We, therefore, refer the disputes and differences which have arisen due to non-settlement and non-payment of our various claims listed in our letter dated 18.10.2003 to your goodself for decision thereon in writing as contemplated in the said Clause 44 of the Special Conditions of Contract. We call upon you to give your decision in writing on the said disputes within 15 days (fifteen days) from the date of receipt of this communication, failing which we will take further steps as provided for in the said Clause 44 of the Special Conditions of Contract. The disputes and differences on which your decision in writing is required are those which have arisen due to non- settlement and non-payment of our various claims listed in our letter dated 18-10-2003.” - 8 - 12. The architects did not reply to the said letter dated 18th October 2003 and 27th November 2003. Nor did they responded to the same in any other manner. 13. The petitioner by a letter dated 2nd December 2003 raised various grievances against the conduct of the respondents. It alleged that the respondents had been informed that the work could not be proceeded with and despite the same, they continued writing letters making false allegations. The petitioner referred to its letter dated 8th May 2003 and stated that it had the right to suspend the work to any extent or to even cancel the same. The petitioner contended that the claims were therefore, not sustainable. What is of vital importance to note however, is that the petitioner did not cancel the contract. The letter concludes as follows :- “We have further to state that in view of various difficulties it is not possible for us to proceed with the work as contemplated and thus we have no alternative but to suspend the whole of the work which was proposed to be executed. We will let you know further development. We will not be in a position to give you the time period of suspension and thus you need not reserve any machinery, labour force, etc.” 14. It is thus, clear that the petitioner suspended the work and did not cancel it. 15. Ultimately, the respondents by their letter dated 10th January 2004 addressed to the petitioner invoked the arbitration - 9 - clause in the contract and appointed an arbitrator and called upon the petitioner to accept him as the sole arbitrator or alternatively to appoint an arbitrator. . Ultimately and pursuant to an order of this Court in Arbitration Application No. 101 of 2004, the Arbitral Tribunal was constituted. There was no dispute about the constitution of the Arbitral Tribunal. 16. By the said award, the arbitrators allowed only the said three claims made by the respondents and rejected the petitioner’s counter-claim. The Arbitral Tribunal awarded Rs. 4,60,000/- towards refund of security deposit; Rs.45,95,428/- towards loss of profit; and Rs.65,000/- towards compensation for construction of the temporary site office. The Arbitral Tribunal also granted interest to a limited extent and on certain terms from 23rd June 2004 till the date of the award. 17. Mr. Thakkar submitted that the award is liable to be set aside on the following grounds- I. The respondent firm was not registered on the date of initiation of the arbitration proceeding. The reference was therefore, not maintainable; II. The reference was not made within the period stipulated in Clause 44 of the Special Conditions of Contract; III. The claim for loss of profit is not maintainable by reason of Clause 6(d) of the Special Conditions of Contract and - 10 - Clause 15 of the General Conditions of Contract. . Re - I The respondent firm was not registered on the date of initiation of the arbitration proceeding. The reference was therefore, not maintainable. 18. Mr. Thakkar submitted that the firm was not registered on the date of initiation of the proceeding and therefore, the reference was not maintainable in view of section 69 of the Indian Partnership Act, 1932. Mr. Kamdar, on the other hand submitted that the provisions of section 69 do not apply to the facts of the present case. He further submitted that in any event the finding of the Arbitral Tribunal that the firm was registered, is a finding of fact which does not warrant any interference. 19. It is not necessary to consider the question whether section 69 of the Indian Partnership Act is applicable to the facts of the present case, as I am entirely in agreement with Mr. Kamdar’s submission that the finding of the Arbitral Tribunal that the respondent firm was registered warrants no interference in this petition. 20. The statement of claim filed by the respondents did not refer to the respondent firm being registered. The list of documents filed therewith did not refer to any registration certificate. The petitioner raised this contention in the written- statement. In the rejoinder the respondents denied that they were - 11 - not registered and expressly stated that the firm was registered with the Registrar of Firms and furnished the registration number, being Registration No. BA-56735. In the sur-rejoinder the petitioner contended that the respondents had not submitted the registration certificate, disclosing the names of the partners which was also a requirement under section 69 of the Indian Partnership Act, 1932. 21. Mr. Thakkar contended that despite the above pleadings, the respondents did not produce in evidence the registration certificate but merely produced a copy thereof during the course of arguments before the Arbitral Tribunal. 22. The Arbitral Tribunal rejected the petitioner’s contention. What weighed with the Arbitral Tribunal as recorded in the award is that the respondents had disclosed the registration number of the firm and that the matter pertains to information in the public domain. They observed that the respondents having disclosed the registration number of the firm, the petitioner could have verified the same which they did not. Moreover, the respondent had also stated on oath in the said Arbitration Application No. 101 of 2004, filed under section 11 of the said Act, that they were a registered partnership firm and that the same was never denied nor challenged by the petitioner in those proceedings. The Arbitral Tribunal further held that the petitioner could not produce or furnish any information which persuaded them to hold that the respondent firm was not registered. - 12 - 23. I am unable to hold that that the reason furnished by the Arbitral Tribunal and the basis on which it proceeded is unsustainable or perverse. It was certainly a possible approach. I am not inclined to reappreciate the evidence nor is it open to me to do so. 24. I am unable to accept the Mr. Thakkar’s submission that the copy of the registration certificate proved nothing. That was a matter for the Arbitral Tribunal to consider and decide. It was for the Arbitral Tribunal to decide whether to accept the same as genuine or nor. The strict rules of evidence do not apply to arbitrations. It is also important to note that it is not the petitioner’s contention that it made an application to the Arbitral Tribunal for time to examine the authenticity of the certificate. Nor did it make any application of any nature whatsoever to challenge the copy of the said certificate. There is no ground in the petition alleging that the petitioner made such an application but that the Arbitral Tribunal rejected the same. In view thereof, it is not even open to the petitioner to contend at this stage that the Arbitral Tribunal ought not to have considered a copy of the certificate merely because it was produced during the course of arguments. 25. I do not find any force in the submission that the registration certificate discloses the names of the partners when the firm was registered but not on the date on which the reference was filed. There is nothing to suggest there was a change in the constitution of the firm by adding new partners. Nor is there any reason to presume that new partners had been admitted to the - 13 - partnership after the firm was registered. The respondents could not prove the negative. The petitioner could not produce anything in evidence to suggest there was any change in the constitution of the respondent firm. 26. In the circumstances, the first contention is rejected. . Re-II The reference was not made within the period stipulated in Clause 44 of the Special Conditions of Contract; 27. Mr. Thakkar based his arguments on Clause 44 of the Special Conditions of Contract, which reads as under:- “Clause 44 - SETTLEMENT OF DISPUTE : ARBITRATION: All disputes and differences of any kind whatever arising out of or in connection with the contract or the carrying out of the works (whether during the progress of the works or after their completion and whether before or after the termination, abandonment or breach of the contract) shall be referred to and settled by the Architect who shall state his decision in writing. Such decision may be in the form of a final certificate or otherwise. The decision of the Architect with respect of any of the expected matters shall be final and without appeal. But if either the Employer or the Contractor be dissatisfied with the decision of the Architect on any matter, question or dispute of any kind (except any of the excepted matters) or as to the with-holding by the Architect of any - 14 - certificate to which the contractor may claim to be entitled, then and in any such case either party (the employee or the contractor) may within twenty eight days after receiving notice of such decision give a written notice to the other party through the Architect requiring that such matters in dispute be arbitrated upon. Such written notice specify the matters which are in dispute and such dispute and difference of which such written notice has been given and no other shall be and is hereby referred to the arbitration and final decision of a single Arbitrator being a fellow of the Indian Institute of Architects to be agreed upon and appointed by both the parties or in case of disagreement as to the appointment of single Arbitrator to the Arbitration of two Arbitrators both being fellows of the Indian Institute of Architects, one appointed by each party which arbitrators shall before taking upon themselves the burden of reference appoint an umpire. The Arbitrator, the Arbitrators or the Umpire shall have power to open up, review and revise any certificate, opinion, decision, requisition or notice, save in regard to the expected matters referred to in the clause 18 above and to determine all matters in dispute which shall be submitted to him or them and of which notice shall have been given as aforesaid. Upon every or any such reference the cost of and incidental to the reference and Award respectively shall be in the discretion of the Arbitrator, or Arbitrators or the Umpire who may determine the amount thereof, or direct the same to be taxed as between attorneys and client or as between party & party, and shall direct by whom and to whom and in what manner the same shall be borne and paid. This submission shall be deemed to a submission to Arbitration within the meaning of the Indian Arbitration Act 1940 or any statutory modification thereof. The Award of the - 15 - Arbitrator or Arbitrators or the Umpire shall be final and binding on the parties. Such reference except as to the withholding by the Architect of any certificates to which the contractor claims to be entitled, shall not be opened or entered upon until after the completion or alleged completion of the works or until after the practical cessation of the works arising from any cause unless with the written consent of the Employer and the Contractor. Provided always that the Employer shall not withhold the payment of an Interim Certificate, nor the Contractor, except with the consent in writing of the Architect, in any way delay the carrying out of the works by reason of any such matters, question or dispute being referred to Arbitration, but shall proceed with the work with all due diligence and shall until the decision of the Arbitrator or Arbitrators or the Umpire to be given, abide by the decision of the Architect and no Award of the Arbitrator or the Arbitrators or the Umpire shall relieve the Contractor of his obligations to adhere strictly to the Architect’s instructions with regard to the actual carrying out of the works. The Employer and the Contractor here also agree that Arbitration under this clause shall be a condition precedent to any right of action under the contract. In case of legal court matters, the Jurisdiction of the Mumbai Court will be considered.” 28. Mr. Thakkar submitted that in the letter dated 18th October 2003 the respondents themselves had stipulated a period of 15 days within which the petitioner and it’s architects were to take a decision. The petitioner received the letter on 22-10-2003. He submitted that the said period of 15 days expired on 7th November 2003. He therefore, submits that the respondents were bound to make a reference to arbitration within 28 days of 7th - 16 - November 2003 i.e. by 5th December 2003. 29. The submission is not well founded, as under Clause 44, the period of 28 days commences after receiving the notice of the decision of the architect. The words “receiving notice” themselves indicate a positive act on the part of the architect of taking a decision and communicating the same in writing to the parties. The decision may be of any matter, question or dispute of any kind or as to the withholding by the architect of any certificate to which the contractor i.e. the respondent may claim to be entitled. Admittedly, there was no decision communicated in writing by the architect to the parties. There was no communication of the architects decision even orally. Indeed there was no decision by the Architects on the respondents letter at all. In that view of the matter, the period of 28 days never commenced. 30. Faced with this, Mr. Thakkar submitted that the architect not having responded to the said letter constituted a withholding by the architect of the certificate claimed by the contractor. I do not agree. Clause 44 does not contemplate any implied withholding. The withholding must be pursuant to the decision of the architect and that decision must be communicated in writing. This is clear from the sentence in the first paragraph of Clause 44 which states that “if the parties are dissatisfied with the decision of the architect .... or as to the withholding by the architect of any certificate” and the very next sentence which provides that the decision must be contained in a notice received by the parties. - 17 - 31. It is impossible to accept Mr. Thakkar’s contention of implied withholding by the architect of a certificate for another reason. There is no provision in the contract which stipulates a period within which the architect must give his decision.