IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.BALAKRISHNAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN TUESDAY, THE 6TH JANUARY 2009 / 16TH POUSHA 1930 MFA.No. 1772 of 1998() ---------------------- OPARB.230/1992 of PRL.SUB COURT,TRIVANDRUM .................... APPELLANT/RESPONDENT IN O.P(ARB) -------------------------------------------------------------- THE COMMISSIONER AND SECRETARY TO GOVERNMENT FOREST & WILD LIFE (D) DEPARTMENT THIRUVANANTHAPURAM BY SPL. GOVERNMENT PLEADER SHRI. M.P.PRAKASH RESPONDENT/CLAIMANT IN O.P (ARB): --------------------------------------------------------------- GRASION INDUSTRIES LTD. PULP DIVISION BIRLAKOOTAM, MAVOOR, KOZHIKODE BY ADV SRI.A.M.SHAFFIQUE (SR.) ADV SHRI. JOSON MANAVALAN THIS MISC. FIRST APPEAL HAVING BEEN FINALLY HEARD ON 6/1/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ORDER ON C.M.P. NO: 7398 OF 1998 IN M.F.A. NO: 1772 OF 1998 DISMISSED: 6/1/2009 SD/- K. BALAKRISHNAN NAIR, JUDGE SD/- K. SURENDRA MOHAN, JUDGE jj /TRUE COPY/ P.S. TO JUDGE K. BALAKRISHNAN NAIR & K.SURENDRA MOHAN, JJ. ------------------------------------------------------------------------------------ M.F.A. NO: 1772 OF 1998-D ----------------------------------------------------------------------------------- Dated this the 6th January, 2009. JUDGMENT BALAKRISHNAN NAIR, J. The appellant is the respondent in O.P (Arbitration) 230/1992 on the file of the Principal Sub Judge, Thiruvananthapuram. The respondent herein was the claimant before the court below. The brief facts of the case are the following:- 2. Appellant is the Commissioner and Secretary to Government, Forest & Wild Life (D) Department, Thiruvananthapuram. Respondent is the Grassim Industries Ltd. An agreement was entered into in the year 1958 between the State of Kerala and Grassim Industries Ltd concerning the supply of bamboos, eucalyptus and reeds for use as raw materials for the pulp division of the said company at Mavoor, Kozhikode. First supplemental agreement was executed on 6.8.1962 modifying certain terms of the said main agreement of the year 1958. It was followed by second and third supplemental agreements executed respectively on 10.7.1974 and 20.11.1976. There was a strike of the workmen in the pulp division of the respondent-company M.F.A 1772/1998 2 between 1985 and 1988. At the relevant time the company failed to lift and remove the Eucalyptus etc. cut and stacked. So, the Conservator of Forests issued a notice dated 4.2.1989 claiming certain amounts from the respondent on the ground of delay in removing the eucalyptus cut and stacked. The respondent represented before the government against the said action of the Chief Conservator of Forests by letter dated 20.2.1989. The government considered the matter and issued letter dated 26.10.1991 rejecting the objection of the respondent and upholding the action of the Chief Conservator of Forests. The claims of the government against the respondent were two fold:- (1) The respondent was directed to pay penalty at the rate of Rs.2/- per M.Ton in respect of eucalyptus that was felled and collected in 1985 and not removed from Trivandrum, Kozhikode and Wayanad forest divisions. (2) The respondent was directed to pay extra rate in respect of 442.425 M.Tons of eucalyptus supplied from Vazhachal division. The respondent by its communication dated 12.11.1991 nominated an arbitrator to consider and settle the dispute between them in terms of clause XV of second supplemental agreement dated 10.7.1974. The said clause reads as follows:- M.F.A 1772/1998 3 “In the event of there arising any future disputes or differences under or by virtue of the terms and conditions herein contained read with those which are contained in the principal Agreement and the First Supplemental Agreement, the same shall be referred for arbitration and award by two arbitrators, one to be nominated and appointed by each of the contracting parties hereto. Upon the appointment of the two arbitrators by the parties hereto, the arbitrators so appointed shall nominate and appoint an umpire as contemplated in the Arbitration Act, 1940, and the jurisdiction of the Umpire over the reference arising only on expression of difference of opinion between the two arbitrators in their respective awards. Subject to the provisions of this clause, the provisions in the Arbitration Act, 1940 shall apply in respect of arbitration between the parties hereto.” The government did not respond to the said communication. Thereupon the respondent issued letter dated 28.2.1991 nominating the arbitrator appointed by it as the sole arbitrator in the dispute as contemplated under Section 9 of the Arbitration Act, 1940 (hereinafter called the 'Act'). The arbitrator by communication dated 17.3.1992 issued notice to the parties to appear before him on 24.3.1992. After the initial default to appear, the State through its representatives appeared and filed their objections challenging the very jurisdiction of the arbitrator to enter upon arbitral proceedings. They contended that clause XV of 1974 supplemental agreement has been superseded by Clauses 4 and 12 of 1976 agreement. The dispute concerning removal of bamboos, M.F.A 1772/1998 4 eucalyptus, reeds etc are to be decided by the government in terms of the 1976 agreement. So, the arbitrator appointed under Clause XV of 1974 agreement has no jurisdiction to deal with the matter. Secondly it was contended that the appointment has not been made in terms of Section 9(b) of the Act. The arbitrator after hearing both sides rejected the contentions of the State and its representatives by order dated 20.7.1992. Thereafter the State or its representatives did not appear before the Arbitrator. So they were set ex parte and an award was passed on 25.8.1992. The said award was filed in the court under Section 14 of the Act. The appellant filed I.A.45(a)/1992 before the court to set aside the award on the ground of misconduct of the arbitrator. The State raised the very same contentions which were raised before the arbitrator. In view of those grounds the arbitrator lacked jurisdiction to enter upon the arbitral proceedings. When the arbitrator proceeds with an abitration without jurisdiction, it will amount to a misconduct as contemplated under Section 30(a) of the Act. It was also contended that the appointment of the arbitrator was not made in terms of Section 9(b) of the Act. Therefore, for that reason also he has no jurisdiction to deal with the arbitration. Thirdly it was pointed out that the arbitrator has M.F.A 1772/1998 5 failed to pass the award within four months, which is the time limit fixed in para 3 of the first schedule mentioned in Section 3 of the Act. The conditions contained in the said schedule are implied conditions of the arbitration agreement. The arbitrator, unless gets extension of time from the court, cannot pass an award after the lapse of the time limit of four months. So, the award is one passed without jurisdiction. On the above grounds the appellant sought setting aside of the award. But the court below did not consider the first two points for the reason that the appellant suffered the decision of the arbitrator on those two points, without challenging it in appropriate proceedings. The third point regarding the time limit, though mentioned while dealing with the contentions of the appellant, was not dealt with by the court below. In other words no decision was rendered on that point, though it was specifically raised as evident from the order itself. Thus the court below has declined to set aside the arbitration award though valid grounds available under Section 30 were raised, it is submitted by the appellant. So this appeal is filed challenging the order of the court below declining to set aside the arbitration award, though the prayer in the appeal is an omnibus prayer. 3. Learned Special Govt. Pleader Mr.Prakash who appeared for M.F.A 1772/1998 6 the State submitted that the prayer in the appeal may be treated as the prayer against the order of the court below in I.A.45(a)/1992. Learned Special Govt. Pleader took us through Clause XV of the 1974 agreement which we have already extracted above. He took us through the entire 1976 agreement with special emphasis on clauses 4 and 12. Learned Special Govt. Pleader submitted that as evident from the preamble of 1976 agreement it covers felling, collection and removal of bamboos, eucalyptus etc. The present dispute is one concerning removal of those raw materials. The power to decide such disputes has been specifically given to the government as evident from clauses 4 and 12 of 1976 agreement. Therefore, the court below should have upheld the contention of the State regarding lack of jurisdiction of the arbitrator to consider a matter concerning the removal of the raw materials. Learned Govt. Pleader further submitted that in this case instead of appointing the arbitrator the respondent-claimant only nominated an arbitrator. Instead of nominating, the claimant should have appointed the arbitrator. The respondent should have waited for two weeks and thereafter appointed the arbitrator as the sole arbitrator. In this case no such appointment was made. Initially the nomination was made. It was followed by another nomination M.F.A 1772/1998 7 which will not satisfy the requirements of Section 9(b) of the Act. Learned Govt. Pleader also submitted that the arbitrator became functus officio on the expiry of the four months period, in view of paragraph 3 of the first schedule read with Section 3 of the Act. The arbitrator started functioning on 13.9.1990. So, the four months time limit expired on 12.7.1990. In this case the award has been passed on 25.8.1992. Admittedly it was passed after four months. The arbitrator has mentioned in his award that it was done with the consent of the representatives of the State. But learned Govt. Pleader appearing for the appellant submitted that in fact, there was no consent from the part of the State. After the preliminary order was passed on 20.7.1992, no one appeared on behalf of the State and therefore the state was set ex parte and proceedings were completed and the award was passed. Since the State was set ex parte, there cannot be any appearance for giving consent for extension of time. Though this valid point which will go to the root the matter was urged before the court below, the same was not considered. 4. In support of his submissions learned Govt. Pleader relied on the decision of the Apex Court in State of Punjab v. Hardyal {(1985) 2 SCC 629}. Learned counsel also cited the decision of the M.F.A 1772/1998 8 Apex Court in General Manager, Northern Railway and another v. Sarvesh Chopra {(2002) 4 SCC 45} to support his submission that if an arbitrator enters upon the arbitration proceedings without jurisdiction the same will amount to a misconduct of the arbitrator, warranting setting aside the award. 5. We heard learned counsel Shri. Joson Manavalan appearing for the respondent-claimant. Learned counsel pointed out that though in the preamble of 1976 agreement mention is made about removal of raw materials also, when the clauses of the said agreement are examined there is no provision specifically dealing with the delay in removal of the raw materials and the consequences thereof. It is also pointed out that though the word 'nomination' is used instead of 'appointment', it does not make any difference going by the provisions of Section 9(b) of the Act. Regarding the third point it is submitted that as evident from the order of the arbitrator dated 20.7.1992 over-ruling the preliminary objections of the State, the representative of the State has consented for extension of time. 6. We notice that the court below failed to consider the objection of the State regarding lack of jurisdiction of the arbitrator on the ground that it has suffered the order of the arbitrator dated M.F.A 1772/1998 9 20.7.1992, over-ruling their preliminary objection. Therefore, the court held that in the absence of any timely challenge to that order by the State they cannot be heard to canvass the very same point before it. But we feel that a litigant who is dissatisfied with a ruling on preliminary point need not rush to the higher forum immediately. He can wait and watch whether the final determination goes against him. He can raise all contentions including those against the adverse decision on the preliminary point while challenging the final order. It is the policy of law to discourage challenges on interim determinations and shuttling from court to court raising its validity when the main matter is still pending. So, we are inclined to consider on merits the contentions raised by the appellant regarding the lack of jurisdiction of the arbitrator. 7. Clauses 4 and 12 of 1976 agreement read as follows:- “4. The company shall strictly observe the rules and regulations relating to fellings and collection of ecualyptus wood and other species of raw materials. The question whether the company has or has not failed to observe the rules and regulations relating to fellings and collections of ecualyptus wood and other species of raw materials shall be referred to the Government and the decision of the Government shall be final and legally binding on the company and the company shall pay to the Government, if so required, such sum as may be fixed by the Government by way of M.F.A 1772/1998 10 compensation.” “12. Any doubt or dispute arising in connection with or under this Agreement shall be referred to Government and their decision shall be final and legally binding on the company.” The above clause especially clause 12 would show that any dispute arising in connection with the implementation of 1976 agreement will have to be referred to the government for its decision and the decision so rendered will bind the company also. 8. We have closely perused the agreement between the parties entered into in 1976. But we cannot find any clause dealing with the delay in removal of the raw materials cut and stacked. So, we are of the view that if there is any dispute regarding additional payment or imposition of penalty for the delay in removing the raw materials cut and stacked, the same cannot be the subject matter of decision of the government under the 1976 agreement. We are in agreement with the view taken by the arbitrator that he who is appointed under Clause XV of 1974 agreement can decide it. 9. Regarding the objection raised concerning the appointment of the arbitrator under Section 9(b) of the Act we feel that the same is not of any substance. Instead of 'appointment' the word used is 'nominate'. As far as the purpose of Section 9(b) is M.F.A 1772/1998 11 concerned, it is of no consequence. So for using the word 'nominate' instead of 'appointment' we are not inclined to hold that the arbitrator was not appointed properly. 10. But the third contention of the State that the award has not been passed within the time limit prescribed in the schedule to the Act has to be upheld in view of the decision of the Apex Court in State of Punjab v. Hardyal {1985 2 SCC 629). In the said decision, it was held that the arbitrator has no jurisdiction to pass an award after the time limit of four months and passing of such an award may amount to misconduct from the part of the arbitrator. The relevant portion of the said judgment reads as follows:- “13. Once we hold that the law precludes parties from extending time after the matter has been referred to the arbitrator, it will be contradiction in terms to hold that the same result can be brought about by the conduct of the parties. The age-long established principle is that there can be no estoppel against a statute. It is true that the time to be fixed for making the award was initially one of agreement between the parties but it does not follow that in the face of a clear prohibition by law that the time fixed under Clause 3 of the Schedule it still remains a matter of agreement and the rule of estoppel operates. It need be hardly emphasized that the Act has injuncted the arbitrator to give an award within the prescribed period of four months unless the same is extended by the court. The arbitrator has no jurisdiction to make an award after the fixed time. If the award made beyond the time is invalid the parties are not estopped by their conduct from merely because of their having participated in the M.F.A 1772/1998 12 proceedings before the arbitrator after the expiry of the prescribed period.” But going by the very same decision the finding that the award was passed beyond the time limit will not conclude the issue. In the above decision the Apex Court itself granted extension of time. So this Court may also grant extension of time in appropriate cases. But in this case we notice that there are not sufficient materials before this Court to enter a proper finding on that issue. So we feel that it will be in the interest of both sides to remit the matter to the Sub Court, Trivandrum for taking a decision whether this is a fit case where the said court should grant extension of time so as to validate the award passed by the arbitrator. 11. In the result the order of the Sub Court, Trivandrum in I.A.45(a) of 1992 filed by the appellant is set aside and the application is remitted to the said court for consideration on the point whether time limit of four months provided in the schedule to the Act should be extended in this case. In case, the time limit is extended the order in the I.A will revive and consequently the final order passed in O.P(Arb) 230/92 shall revive. If time is not extended, the said final order shall stand set aside. The parties shall appear before the Sub Court, Trivandrum on 16.2.2009. The M.F.A 1772/1998 13 Sub Court shall endeavour to pass final orders in the matter as expeditiously as possible after affording an opportunity of being heard to both sides. No costs. K.BALAKRISHNAN NAIR Judge K. SURENDRA MOHAN Judge jj K.K.DENESAN & V. RAMKUMAR, JJ. ---------------------------------------------------- M.F.A.NO: ----------------------------------------------------- JUDGMENT Dated: