Arbitration Appeal No.26/2010 24.10.2011 In view of the detailed order passed today by this Court in Arbitration Appeal No.25/2010 (State of MP and another Vs. M/s. Dewas Udyog and others), this arbitration appeal is disposed of in same terms. A copy of the said order be retained in this appeal also. (Shantanu Kemkar) (Prakash Shrivastava) Judge Judge rcp 2 HIGH COURT OF MADHYA PRADESH : BENCH AT INDORE D.B.: Hon'ble Shri Shantanu Kemkar & Hon'ble Shri Prakash Shrivastava, JJ. Arbitration Appeal No.25/2010 State of Madhya Pradesh & another Versus M/s. Dewas Udyog, Indore and others Arbitration Appeal No.26/2010 Zila Panchayat, Neemuch Versus M/s. Dewas Udyog, Indore and others Writ Petition No.12075/2010 State of Madhya Pradesh & another Versus M/s. Dewas Udyog, Indore and others Writ Petition No.12172/2010 State of Madhya Pradesh & another Versus M/s. Dewas Udyog, Indore and others * * * * * 3 Shri AK Chitale, learned Senior Counsel with Ms. Seema Sharma, learned counsel for appellant (Zila Panchayat) in Appeal No.26/2010, for respondent No.3 in Appeal No.25/2010 and for petitioner No.2 in WP No.12172/2010. Shri Shekhar Bhargava, learned Senior Counsel with Shri Romesh Dave, learned counsel for the appellants in Appeal No.25/2010, for respondents No.3 & 4 (State) in Appeal No.26/2010 and for petitioners in WP No.12075/2010. Shri Vijay Assudani, learned counsel for the respondent No.1(M/s.Dewas Udyog). Shri Vivek Sharan, learned Assistant Solicitor General of India for respondent No.2 (Union of India). * * * * * O R D E R (Passed on this 24th day of October, 2011) Per Shantanu Kemkar, J. This order shall govern disposal of Arbitration Appeal No.25/2010, Arbitration Appeal No.26/2010, Writ Petition No.12075/2010 and Writ Petition No.12172/2010. 2. The appeals under Section 37 of the Arbitration and Conciliation Act, 1996 (for brevity, the Act 1996) are directed against the order dated 30.07.2010 passed by District Judge, Neemuch in Arbitration Case No.1/2010 by which the learned District Judge has 4 dismissed the applications filed by the appellants under Section 34 of the Act, 1996 for setting aside arbitral award dated 19.01.2010 passed by Arbitrator – Shri PC Agrawal, a former Judge of this Court and Senior Advocate of Supreme Court of India. 3. Brief facts necessary for deciding the controversy involved in these appeals and writ petitions may be stated as under. 4. The Union of India promoted the lift irrigation scheme by the name of “Swarna Jayanti Gram Swaraj Yojana” (for short, scheme) in respect of (i) Deori Somia and Barkheda villages and (ii) Khan Khedi village. The Zila Panchayat Neemuch was entrusted with the job of implementation of the projects in question by the State Government as well as by the Central Government. Two separate agreements were executed, first on 17.05.2000 (for Khan Khedi Village Project) and second on 15.11.2002 (for Deori Somia and Barkheda village Project) under the said “Swarna Jayanti Gram Swaraj 5 Yojana” between Zila Panchayat and first respondent M/s Dewas Udyog. 5. The arbitration appeals are arising out of the award passed in respect of the Khan Khedi Project. The writ petitions are in respect of Deori Somia and Barkheda Project. 6. For the sake of convenience, the facts are taken in respect of Khan Khedi Project relating to which the arbitration appeals are filed. 7. The Union of India under the aforesaid scheme sanctioned Rs.15,00,00,000/- for the execution of Khan Khedi Lift Irrigation Project. The agreement dated 17.05.2000, as aforesaid, was in the nature of lump sum contract with stipulation that no additional payment than the cost fixed in the agreement shall be payable to the first respondent. Out of the agreed amount of contract of Rs.14,32,86,036/- for the work executed by the first respondent, the appellant Zila Panchayat paid Rs.14,18,00,000/- to the first respondent Dewas Udyog. 6 However, the first respondent claimed further amount of Rs.9,47,91,668/- from the Zila Panchayat and for that sent a legal notice dated 16.08.2007, demanding the said further amount. Thereafter, since the aforesaid amount was not paid by the appellants, the first respondent M/s. Dewas Udyog filed Writ Petition No.5787/2007 against the Zila Panchayat, the State Government and the Union of India, seeking direction against them to make payment of amount of Rs.9,47,91,668/-, including interest or to make payment of amount of Rs.4,26,22,106/- and further direction to the respondents to pay interest at the rate of 18% per annum with price escalation at the rate of 12% per annum. 8. The said Writ Petition No.5787/2007 was disposed of by the learned Single Judge of this Court vide order dated 04.03.2008, directing the said authorities to look into the matter and release the admitted amount of Rs.36,47,591/- in favour of M/s. Dewas Udyog within four weeks. As regards the claim of the first respondent 7 M/s. Dewas Udyog for extra work, the learned Single Judge observed that if the writ petitioner (M/s. Dewas Udyog) has already so applied, the matter shall be referred to an Arbitrator under the provisions of Arbitration & Conciliation Act, 1996 to resolve the dispute between the parties. Following is the operative part of the order passed in Writ Petition No.5787/2007 on 04.03.2008: - “Consequently, the present petition is disposed of and it is directed that the respondent no.2, Principal Secretary, Panchayat and Rural Development Department, shall look into the matter and release the admitted amount of Rs.36,47,591/- to the petitioner – contractor within a period of four weeks from the date of certified copy of this order is received. With regard to the rest of the claim made by the petitioner, if the petitioner has already so applied, the matter shall be referred to an Arbitrator under the provisions of 8 Arbitration and Conciliation Act, 1996 to resolve the dispute between the parties.” 9. Thereafter, when it was realized by the appellants herein that in the absence of any arbitration agreement between the parties, the learned Single Judge could not have passed the aforesaid order dated 04.03.2008, giving direction for reference of the matter to an Arbitrator under the provisions of the Act of 1996, a Review Petition No.14/2008 was filed by the appellants before the learned Single Judge, making a prayer to review/recall the part of the said order dated 04.03.2008 passed in Writ Petition No.5787/2007. The learned Single Judge, after hearing the parties, realizing the mistake, which had occurred in giving the direction to refer the matter to an Arbitrator, allowed the Review Petition No.14/2008 vide order dated 23.07.2009. For ready reference, relevant portions of the said order passed in Review Petition No.14/2008 are extracted below: - 9 “Now the present review petition has been filed by the applicants – State Government, Jila Panchayat and Executive Engineer, Water Resources Department, who were arrayed as respondents no.2 to 4 in the writ petition. It has been maintained that this Court, while disposing of the writ petition, had made an observation that “with regard to the rest of the claim made by the petitioner, if the petitioner has already so applied, the matter shall be referred to an Arbitrator under the provisions of the Arbitration and Conciliation Act, 1996 to resolve the dispute between the parties.” It has been specifically pleaded by the review petitioners, and has also been reiterated by Shri A.S. Kutumbale, during the course of arguments, that there is no arbitration agreement / clause in existence between the parties to the dispute. In this regard, Shri Kutumbale has specifically 10 drawn pointed attention of the Court to the agreement in question, which has been appended as Annexure A-4 with the review petition. Even Shri A.S. Garg, learned senior counsel for the non- applicant, does not dispute the fact that there is no written or specific arbitration clause existing between the parties in the agreement, Annexure A-4 or any other agreement, but maintains that keeping in view the fact that in the joint meeting convened by the parties on March 20, 2008, the review petitioners themselves had agreed, and suggested the name of certain retired High Court Judges, and as such shall be deemed to have given consent for appointment of an Arbitrator, and therefore, the contention that there is no written agreement or clause with regard to reference of dispute between the parties to an Arbitrator is absolutely without any justification, at this stage. 11 Shri Garg also reasserts the fact that the Arbitration proceedings have already convened before the Arbitrator appointed with regard to the dispute arising between the parties. At the outset, it may be noticed that, concededly, it is not a matter of any dispute between the parties that there is no written agreement or any clause with regard to the reference of dispute between the parties to an Arbitrator. In these circumstances, the provisions of Arbitration and Conciliation Act, 1996 would not be attracted in any manner. However, existence of such an arbitration agreement is not the prerequisite for operation of the M.P. Madhyaastham Adhikaran Adhiniyam, 1983, therefore, even if there is no written agreement with regard to the reference of dispute to the Arbitrator between the contesting parties, the matter could be still referred to an 12 Arbitrator for adjudication of the dispute between the parties under the provisions of M.P. Madhyaastham Adhikaran Adhiniyam, 1983. However, such a dispute, obviously, could not be referred to an Arbitrator appointed under the Arbitration and conciliation Act, 1996. At this stage, an objection has been raised by Shir Garg that since the union of India and Jila Panchayat are also parties to the contest, therefore, a dispute in which any of such parties, are there, which are not so notified, cannot be referred to any Arbitral Tribunal under the provisions of M.P. Madhyaastham Adhikaran Adhiniyam, 1983. In my considered view, the objection raised by the learned senior counsel for the non- applicant no.1 cannot be sustained. As a matter of fact, as already noticed, the dispute is 13 essentially now between the State government on the one side and the executing agency i.e. Contractor-non-applicant no.1 on the other side. Union of India and Jila Panchayat are almost proforma parties to the dispute. Shri Zelawat, learned counsel for the Union of India, has already made a statement before the Court that the entire funds for the project in question had already been released by the Union of India to the State Government, and therefore, after the aforesaid release, the Union of India has also no subsisting interest in the matter. Shri Zelawat has in fact made a specific statement in this regard before the Court. On perusal of the ultimate para of the order dated March 4, 2008, passed in W.P. No.5787/2007, it appears that pointed attention of the Court was not drawn to the fact that no such arbitration 14 agreement / clause was in existence between the parties, and therefore being oblivious of the said fact, the aforesaid observations had been made by this Court to the effect that “if the petitioner has already has already so applied, the matter shall be referred to an Arbitrator under the provisions of Arbitration and Conciliation Act, 1996 to resolve the dispute between the parties”. Obviously, the said observation made by this Court cannot be treated to be any direction to appoint an Arbitrator to resolve the dispute between the parties. The aforesaid direction had been issued only with a view that, if the petitioner – Contractor had already so applied for appointment of Arbitrator, as per some existing agreement, then the Arbitrator was to be appointed. At his stage, Shri Garg has placed reliance upon a judgment of the Apex Court in the case of Union 15 of India Vs. Krishan Lal Arneja (2004) 8 SCC 453. Referring to para 34 of the said judgment, the learned senior counsel has argued that in fact even if there was no arbitration agreement/clause existing between the parties, the Court was not powerless in ordering the appointment of such an Arbitrator to resolve the dispute between the parties. However, as noticed above, at no stage, in the final order dated March 4, 2008 this Court had directed the appointment of an Arbitrator to resolve any dispute between the parties. The aforesaid observation had in fact been made under a mistaken impression that a request for appointment of Arbitrator had already been made by the writ petitioner, and the said request was yet pending before the department. In these circumstances, it was directed that the matter be referred to an Arbitrator under the provisions of Arbitration and Conciliation 16 Act, 1996. Obviously, it appears that the aforesaid observations, contained in the last five lines of the order dated March 4, 2008 were passed under a mistaken impression of the Court, and as such need to be recalled to the extent. Consequently, in view of the aforesaid discussion, since I find that there had been some mistake by the Court in passing the order dated March 4, 2008, to the extent as above, therefore, it is a fit case for the Court to exercise its suo moto powers to recall the aforesaid observations. In these circumstances, the application for condonation of delay in filing the review petition has no relevance. I.A. is disposed of accordingly. The present review petition is allowed. It is directed that the last five lines in the order dated 17 March 4, 2008 to the effect that “with regard to the rest of the claim made by the petitioner, if the petitioner has already so applied, the matter shall be referred to an Arbitrator under the provisions of the Arbitration and Conciliation Act, 1996 to resolve the dispute between the parties” shall stand recalled and shall be deemed to have been expunged from the aforesaid order. However, it is clarified that the writ petitioner shall have a liberty to resort to its remedies, in accordance with law, with regard to the rest of the claim as per the cause of action, which may be subsisting.” 10. It is worth mentioning here that during the intervening period between passing of the order dated 04.03.2008 in Writ Petition No.5787/2007 and the order of recall passed in Review Petition No.14/2008 on 23.07.2009, a joint meeting between the officers of the 18 State Government, Zila Panchayat and the first respondent was convened on 20.03.2008. The proceeding of the meeting dated 20.03.2008, reads as under: - ßvkt fnukad 20 ekpZ 2008 dks uhep ftys dh 3 mnogu flapkbZ ;kstukvksa ds dk;ksZ dks iw.kZ djus gsrq ,d cSBd eq[; vfHk;Urk dk;kZy; esa vk;ksftr dh xbZ] ftlesa fuEufyf[kr vf/kdkjhx.k mifLFkr jgs& 1- Jh ih-ds- iafMr] v/kh{k.k ;a=h] ty lalk/ku e.My mTtSu 2- Jh ,p-ds- ek:] dk;Zikyu ;a=h] ty lalk/ku laHkkx] uhep 3- Jh ,-ds- pkSgku] eq[; dk;Zikyu vf/kdkjh] ftyk&iapk;r] uhep 4- Jh ,e-,l- lksekuh] izfrfu/kh nsokl m|ksx] bUnkSj 5- Jh vkj- ds- tSu] lgk;d ;a=h] ueZnk rkIrh dNkj] bUnkSj 6- Jh Ogh-Mh-jeS;k] vuqfoHkkxh; vf/kdkjh] ty lalk/ku mi[k.M] euklk cSBd dk dk;Zokgh fooj.k& 19 loZizFke cSBd esa ekuuh; mPp U;k;ky; [k.MihB bUnkSj ds izdj.k dza- 5787@2007 gsrq fn;s x;s fu.kZ; fnukad 04-03-08 ds vuqikyu dh leh{kk dh xbZA ekuuh; mPp U;k;ky; us izdj.k esa QSlyk nsrs gq, fy[kk gS fd ;g fjV fiVh'ku fuEufyf[kr dk;Zokgh gsrq fuf.kZr fd;k tkrk gSA 1- izfroknh nks] izeq[k lfpo iapk;r ,oa xzkeh.k fodkl foHkkx] :- 36]47]591-00 dh jkf'k oknh ¼Bsdsnkj½ dks Qslys dh izekf.kr izfr izkIr gksus ls pkj lIrkg dh vof/k esa Hkqxrku djsA 2- oknh us izdj.k esa izfroknh ls vfrfjDr dk;ksZ ds Hkqxrku dh e; [kkfe;kts] C;kt bR;kfn lfgr ekax dh gSA bl laca/k esa oknh rFkk izfroknh ek/;LFke ,oa lqyg ¼vkchZVªs'ku rFkk dUlk;ys'ku½ fu;e 1996 ds izko/kkuksa ds rgr~ vkchZVªsVj fu;qDr djus dh dk;Zokgh djsaxs rkfd ;g fookn gy fd;k tk ldsA 3- U;k;ky; ds izFke fu.kZ; ds vuqikyu ds laca/k esa eq[; dk;Zikyu vf/kdkjh ftyk iapk;r uhep us voxr djk;k gS fd [kku[ksM+h ;kstuk esa yxHkx :- 24-00 yk[k dh jkf'k miyC/k gS ,oa 'ks"k jkf'k yxHkx :- 12-00 yk[k 20 'kklu ls ekax dh tk jgh gSA ekuuh; U;k;ky; }kjk fn;s x;s vkns'k ds fu.kZ; ij Hkh ppkZ dh xbZA oknh nsokl m|ksx }kjk voxr djk;k x;k fd mlds }kjk 5 vkchZVªsVjksa ds ukeksa dh lwph eq[; dk;Zikyu vf/kdkjh] ftyk&iapk;r uhep dks iwoZ esa nh tk pqdh gS tks fuEukuqlkj gS %& 1- U;k;k/kh'k ¼ek- mPp U;k;ky;½ lsok fuo`Rr Jh vkj-Mh-O;kl th 2- U;k;k/kh'k ¼ek- mPp U;k;ky;½ lsok fuo`Rr Jh ih-Mh-ewys th] 3- U;k;k/kh'k ¼ek- mPp U;k;ky;½ lsok fuo`Rr Jh ,l-ch- lkdjhdjth 4- U;k;k/kh'k ¼ek- mPp U;k;ky;½ lsok fuo`Rr Jh 'kaHkw flag th] 5- U;k;k/kh'k ¼ek- mPp U;k;ky;½ lsok fuo`Rr Jh ok;-ch- lw;Zoa'kh th] eq[; dk;Zikyu vf/kdkjh ftyk iapk;r uhep us bl laca/k esa 'kkldh; vf/koDrk dh jk; ysuk mfpr le>k] rnkuqlkj fuEufyf[kr esa ls dksbZ Hkh vkchZVªsVj ds p;u gsrq vuq'kalk dh xbZA 21 1- U;k;k/kh'k ¼ek- mPp U;k;ky;½ lsok fuo`Rr Jh ih-lh- vxzoky th] 2- U;k;k/kh'k ¼ek- mPp U;k;ky;½ lsok fuo`Rr Jh ds-,y- bljkuh th] oknh us mijksDr esa ls fdlh Hkh vkchZVªsVj p;u fd;s tkus gsrq viuh lg"kZ lgefr iznku dj nh gSA ekuuh; mPp U;k;ky; ds fu.kZ; fnukad 04-03- 08 vuqlkj Hkqxrku jkf'k :- 36]47]591@& pkj lIrkg esa fd;k tkuk gS rFkk ekuuh; U;k;ky; ds vkns'kkuqlkj ekuuh; U;k;k/kh'k ¼ek- mPp U;k;ky;½ lsok fuo`Rr Jh ih-lh- vxzoky th ;k U;k;k/kh'k ¼ek- mPp U;k;ky;½ lsok fuo`Rr Jh ds-,y- bljkuh th dks vkchZVªsVj fu;qDr djus ij lgefr iznku dh tkrh gSA oknh nsokl m|ksx us vkchZVªsVj }kjk fu/kkZfjr 'kqYd dks ogu djus gsrq lgefr iznku dh gSA ;kstuk ls lacaf/kr vU; fuekZ.k dk;Zdze gsrq cSBd ,d lIrkg ds Hkhrj v/kh{k.k ;a=h Lrj ij vk;ksftr dh tkdj dk;Zokgh fooj.k bl dk;kZy; dks Hksth tk,aAÞ 11. On the strength of the aforesaid decision taken 22 in the meeting dated 20.03.2008, the first respondent M/s. Dewas Udyog alone singly approached Shri Justice (Retd.) P.C. Agrawal to start arbitration proceedings. However, the appellants objected to the same on the ground that there exist no arbitration agreement between the parties. After the decision in the review petition, as extracted above, on 19.10.2009, the first respondent M/s. Dewas Udyog again approached to the said Arbitrator Shri P.C. Agrawal to decide the dispute referred to it. The appellants submitted their objections about jurisdiction of the Arbitrator to decide the dispute on the ground that in the contract there exists no arbitration clause and that the directions issued by the High Court in writ petition have been withdrawn in review petition, and therefore, there is no question of Arbitrator to proceed in the matter. The Arbitrator considered the objection raised by the appellants and rejected the same, by holding that since in the review petition there is no specific direction for quashing the arbitral proceedings, he has jurisdiction to 23 proceed in the matter. The Arbitrator held that recall of its earlier order passed in writ petition by the High Court in review petition would not affect, invalidate or debar him to decide the matter, in view of the minutes of the meeting dated 20.03.2008. He, therefore, proceeded further and decided the dispute and passed an award for Rs.16,77,56,010/- (Rs.13,67,421/- claim for unpaid amount; Rs.4,26,22,106, amount towards extra item, amount of Rs.11,33,56,027/- towards interest; towards overheads/administrative expenses Rs.1,04,10,456/- with pendente lite interest of 12% on the said amount of Rs.16,77,56,010/-). The said award dated 09.01.2010 passed by the sole Arbitrator was challenged by the appellants before the District Judge, Neemuch. The learned District Judge dismissed the appeals vide order dated 30.07.2010 passed in Arbitration Appeal No.1/2010. Feeling aggrieved, the appellants have filed these appeals. 12. The writ petitions bearing WP No.12172/2010 24 and WP No.12075/2010 have been filed challenging the decision of the Arbitrator, by which their objection to the effect that in respect of Deori Somia and Barkheda villages Project there was no arbitration clause in the agreement and that there was no whisper in the order passed by the writ Court on 04.03.2008 about referring the dispute about this project to an Arbitrator, has been rejected. 13. The appellants' case is that in the absence of any arbitration clause in the agreement entered into between the parties, the Arbitrator had no jurisdiction to act as an Arbitrator. According to the appellants, the minutes of the meeting dated 20.03.2008 cannot be construed to be an arbitration clause contemplated under Section 7 of the Act of 1996. The appellants' further case is that even assuming that there was some sort of agreement for appointment of an Arbitrator, that was only on the basis of direction dated 04.03.2008 issued by the writ Court, which on passing of the order in review got 25 completely wiped out. It is further case of the appellants that the Arbitrator had acted beyond the scope and jurisdiction as he could not have awarded any amount for the alleged extra work, in view of specific prohibitory clause contained in the agreement. According to the appellants', the Arbitrator could not have recorded the findings contrary to the findings recorded by the learned Single Judge in review petition. It is urged that while deciding the matter, the Arbitrator has violated the principles of natural justice. It has been contended by the appellants that reliance of the Arbitrator and the learned District Judge on the minutes of the meeting dated 20.03.2008 is wholly misconceived, in view of the fact that once the order passed by the writ Court on 04.03.2008 in WP No.5787/2007 was recalled on 23.07.2009 in Review Petition No.14/2008, the so-called decision about appointment of Arbitrator, assuming to be taken, stood wiped out as the legal existence of any such decision or act was inextricably linked with the continued 26 existence of such order. The appellants contended that the Arbitrator and the learned District Judge were duty bound to have given effect to consequences, which would naturally flow from the order of the review. According to the appellants, the Arbitrator and the learned District Judge have committed gross error in holding that the Arbitrator was having jurisdiction to proceed in the matter because in the order of review, the proceeding of the meeting of minutes dated 20.03.2008 were not quashed. It is also contended that Shri Justice (Retd.) P.C. Agrawal was not appointed as the sole Arbitrator in the meeting dated 20.03.2008, and therefore, only on the basis of the minutes of the meeting dated 20.03.2008, he could not have usurped the jurisdiction and proceeded in the matter. According to the appellants, assuming of the jurisdiction unilaterally as Arbitrator by Shri Justice (Retd.) P.C. Agrawal, is illegal, without jurisdiction and totally outside the purview of the Act of 1996. 14. On the other hand, the case of the first 27 respondent M/s. Dewas Udyog is that the learned Arbitrator has committed no illegality in holding that he has jurisdiction to pass an award, in view of the decision taken by the parties in the meeting held on 20.03.2008. The first respondent supported the decision of the Arbitrator as also of the learned District Judge. According to the first respondent, in view of the letter of Chairperson of the appellants Zila Panchayat, there was an admission to the effect that the first respondent has executed extra work. In the circumstances, an opinion of the Government Advocate was sought, who suggested names of two Arbitrators, including Hon'ble Shri Justice P.C. Agrawal. Since the amount, which was claimed by the first respondent was not paid by the appellants in respect of Khan Khedi Project, Writ Petition No.5787/2007 was filed before this Court. Learned Single Judge of this Court issued directions on 04.03.2008. Thereafter, a meeting was held between the parties on 20.03.2008, in which it was resolved that the 28 dispute arising between the parties in respect of all three irrigation schemes shall be referred to either of the two Arbitrators, namely, Hon'ble Shri Justice P.C. Agrawal (Retired) and Hon'ble Shri Justice K.L. Israni (Retired). Hon'ble Shri Justice K.L. Israni having left for his heavenly abode, a request was made by the first respondent to the remaining Arbitrator Shri Justice (Retd.) P.C. Agrawal to initiate arbitration proceedings. It is on that basis Shri P.C. Agrawal issued notice to the parties for appearance and thereafter