1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.439 OF 2008 Mr. Gaurav Dayanand Dongaonkar and Ors. ....Petitioners V/s Larsen & Toubro Limited and Anr. .... Respondents. Mr. Mayur Khandeparkar i/b Mehul Shah for the petitioners. Mrs. Shakuntala Joshi i/b S.I. Joshi & Co. for respondent No.1. CORAM: V.M. KANADE, J. DATE : 21ST AUGUST, 2009 P.C.: 1. Heard. 2. Rule. Rule is made returnable forthwith by consent of parties. Respondent No.1 waives service. 3. Petitioners are challenging the award dated 2 15/4/2008 passed by the Arbitrator in this Petition which is filed under section 34 of the Arbitration & Conciliation Act, 1996. 4. Brief facts are as under:- 5. An application was made by petitioner No.1 to respondent No.1 for recruitment as Graduate Engineer Trainee. He was accordingly appointed on 26/4/2007 as Graduate Engineer Trainee. Petitioner No.1 accepted terms and conditions of his appointment by signing a duplicate copy of the letter of appointment on 10/5/2007. An undertaking was given by petitioner No.1 to serve as Graduate Engineer Trainee for a period of two years and Petitioner No.1 further agreed to pay a sum of Rs 2,00,000/- in the event of Petitioner No.1 committing breach of the said undertaking. Petitioner Nos. 2 and 3 gave guarantee for a sum of Rs 2,00,000/-. Training period of petitioner No.1 commenced on 6/7/2007. On the same day, 3 further undertaking from Petitioner No.1 was obtained that he would produce Semester 8 Marksheet and address proof of 1st Guarantor within 30 days from the date of the letter, failing which his traineeship/employment with respondent – Company would be terminated. On 1/9/2007, petitioner No.1 expressed his inability to continue the training period with respondent No.1. Thereafter, advocate for respondent No.1 demanded liquidated damages from petitioners for breach of the undertaking given by petitioner No.1. Respondent No.1 relied on the arbitration clause of the letter of appointment dated 26/4/2007 and Deed of Guarantee dated 30/6/2007. By letter dated 18/10/2007, a statement of claim was filed before respondent No.2 by respondent No.1 on 5/11/2007. The first meeting for arbitration was held on 28/11/2007. Since settlement talks were going on, petitioner No.1 was advised to take time. Respondent no.2 granted three weeks’ time to petitioners to file reply. In the meanwhile, respondent No.1 4 wrote a letter to respondent No.2, stating therein that petitioners were not interested in defending the matter on merits. No copy of the said letter was sent to petitioners herein. Respondent No.2 fixed second date on 5/2/2008 and, thereafter, respondent No.2 passed the impugned award on 15/4/2008. 6. Mr. Khandeparkar, the learned Counsel appearing on behalf of petitioners firstly submitted that the arbitration clauses in the letter of appointment dated 26/4/2007 and undertaking dated 30/6/2007 and the Deed of Guarantee dated 30/6/2007 were in clear violation of Apprentices Act, 1961. It is submitted that respondent No.2 did not have jurisdiction to decide the dispute. He invited my attention to section 4 of the Apprentices Act, 1961 and also to rules framed thereunder. He submitted that respondent No.1 was under legal obligation to get the said agreement registered under the said Act and only the authority appointed under the said Act was entitled to decide the dispute 5 between the parties. He submitted that, therefore, the arbitration award which was passed was clearly without jurisdiction. He relied on the judgment of the Supreme Court in U.P. State Electricity Board vs. Shiv Mohan Singh & Anr reported in (2004) 8 SCC 402. He then submitted that it was open for petitioners to raise an issue of jurisdiction for the first time in a Petition under section 34 since petitioners did not have an opportunity to raise that issue before the arbitrator since the award was hurriedly passed after the second date. He invited my attention to the judgment of the Apex Court in Olympus Superstructures Pvt. Ltd. vs. Meena Vijay Khetan reported in AIR 1999 SC 2102. He then submitted that respondent No.2 was bias in conducting arbitration proceedings since respondent No.1 sent a private letter to the arbitrator – respondent No.2 herein, a copy of which was not sent to petitioners herein. 7. Mrs Joshi the learned Counsel appearing on behalf of 6 respondent No.1, on the other hand, submitted that provisions of Apprentices Act, 1961 would not apply since the said Apprentice Agreement stood terminated on the petitioner No.1 not producing relevant documents/certificates within 30 days from the date of undertaking annexed at Exhibit-A to the additional affidavit filed by respondent No.1 dated 19/08/2009. She further submitted that since the said Apprentice Agreement was terminated, parties were not governed by statutory contract but by regular contract and, therefore, arbitration clause under the said agreement and under the said undertaking was applicable and, therefore, the arbitrator had jurisdiction to decide the dispute. Secondly, she submitted that since petitioners have not raised the issue of jurisdiction before the arbitral tribunal, it was not open for petitioners to raise the said issue in a petition under section 34. In support of the said submission, she relied on the judgment of the Apex Court in Pimpri Chinchwad Municipal Corporation & Others vs. Gayatri 7 Construction Company and another reported in (2008) 8 SCC 172. 8. In my view, there is some substance in the submissions made by the learned Counsel appearing on behalf of petitioners. Under section 4 of the Apprentices Act, 1961 a duty is cast on the employer to get the agreement registered before the competent authority viz Apprenticeship Adviser. The agreement also is supposed to be in a particular format as prescribed under rules. Perusal of the agreement executed between petitioner No.1 and respondents dated 26/4/2007 clearly shows that the said agreement is Apprentice Agreement. In para 2 of the said Apprentice Agreement it is clearly mentioned as under:- “During your training, you will be registered with the Director of Training & Regional Central 8 Apprenticeship Adviser under the Government of India Apprentices Act, 1961.” Therefore, the said agreement is clearly covered under the provisions of the said Act, 1961. The said Act also stipulates that any dispute between the employer and apprentice shall be decided by the competent authority appointed under the said Act. In view of the provisions of the said Act, respondent No.1 was under statutory obligation to get the said agreement registered under the said Act. The Apex Court in U.P. State Electricity Board (supra) has interpreted sub-clause (4) of section 4 and has held that the said provision is directory and non-registration of the contract will not change the character of apprentices and once an incumbent is appointed as an apprentice, he will continue to be an apprentice unless a formal order of appointment is passed. In para 55 of the said judgment, the Apex Court has observed as under:- “55. Therefore, we hold that the expression “shall” appearing in sub- section (4) of Section 4 of the Apprentices Act, 1961 is directory and 9 non-registration of the contract will not change the character of the apprentices and they will not acquire the status of workmen. Once an incumbent is appointed as an apprentice he will continue to be an apprentice unless a formal order of appointment follows.” Therefore, under the circumstances, even if the agreement is not registered even then the provisions of the said Act would apply. The arbitration clause under the said agreement and in the undertaking given by petitioner No.1 and petitioner Nos. 2 and, 3, therefore, would be contrary to the provisions of the Apprentices Act, 1961. Sub-clause (3) of section 4 of the said Act reads as under:- “4(3) Every Contract of apprenticeship may contain such terms and conditions as may be agreed to by the parties to the contract; 10 Provided that no such terms or condition shall be inconsistent with any provisions of this Act or any rule made thereunder.” Sub clauses (4) and (5) of section 4 further read as under:- “4(4) Every contract of apprenticeship entered into under sub-section (1) shall be sent by the employer within such period as may be prescribed to the Apprenticeship Adviser for registration.” “4(5) The Apprenticeship Adviser shall not register a contract of apprenticeship unless he is satisfied that the person described as an apprentice in the contract is qualified under this Act for being engaged as an apprentice to undergo apprenticeship training in the designated trade specified in the contract.” 11 In view of the aforesaid provisions, section 20 of the said Act clearly states that any disagreement or dispute between an employer and an apprentice arising out of the contract to apprenticeship shall be referred to the Apprenticeship Adviser for decision. Section 20 of the said Act read as under:- “20. Settlement of disputes:-(1) Any disagreement or dispute between an employer and an apprentice arising out of the contract to apprenticeship shall be referred to the Apprenticeship Adviser for decision. (2) Any person aggrieved by the decision of the Apprenticeship Adviser under sub-section (1) may, within thirty days from the date of communication to him of such decision, prefer an appeal against the decision to the Apprenticeship council and such appeal shall be heard and 12 determined by a Committee of that Council appointed for the purpose. (3) The decision of the Committee under sub-section (2) and subject only to such decision, the decision of the Apprenticeship Adviser under sub- section (1) shall be final.” 9. The arbitration clause in the said agreement is, therefore, inconsistent with the provisions of the said Act and it is, therefore, illegal. The preamble of the said Act clearly stipulates that the Act was passed to provide for the regulation and control of training of apprentices and for matters connected therewith and, therefore, it is a beneficial piece of legislation. Sub-clause (3) of section 2 of the Arbitration & Conciliation Act also clearly stipulates that Part-I of the said Act will not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration. Respondent No.2, therefore, in my view, could not have 13 entertained the arbitration proceedings since the arbitrator has to first consider whether he has jurisdiction to entertain the dispute which is referred to him. In the present case, even before the statement of defence could be filed, an award was passed by the arbitrator. Petitioner No.1, therefore, did not have an opportunity to raise the issue of jurisdiction before the arbitrator. The matter was posted before the arbitrator initially on 29/11/2007. On that date, advocate on behalf of petitioners appeared and parties were informed that they would be informed about the next date by a separate notice which was to be given by the arbitrator. The second date was fixed on 5/2/2008 on which date the petitioners could not appear since they had already informed respondent No.2 on telephone that they were out of station and, thereafter, an award was declared on 15/4/2007. Petitioners herein, initially, were tying to settle the dispute with respondent No.1 and, therefore, before they could file their statement of defence and raise an issue of 14 jurisdiction the award was hurriedly declared. Under section 34 of the Arbitration & Conciliation Act one of the grounds on which the award can be set aside is (i) if the court finds that the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force or (ii) if the arbitral award is in conflict with the public policy of India. In this case, therefore, arbitrator could not have passed the award in view of the specific provisions of section 4 sub-clause 4 and section 20 of the said Act, 1961 which clearly lay down that Apprenticeship Adviser alone is competent to decide the dispute between the parties. Sub-clause (3) of Rule 14 of the Apprentices Rules lays down that the Contract of Apprenticeship Training should be in Format-1 as specified in Schedule III and the maximum penalty which could be levied on a surety is Rs 2500/-. Therefore, the subject matter of dispute, apart from not being capable of settlement by the arbitrator, is also in conflict with public policy of India which is 15 clearly laid down under the said Apprentices Act, 1961. The introduction and statement of objects and reasons for enacting this Act read as under:- “INTRODUCTION After India gained independence, a wave to have its own strong industrial base swept the country. Backed by government policies, industrial growth had a quantum leap. With the industrial growth a need was felt to have trained manpower and for that steps were taken to arrange for training of apprentices in the industry. After some years it necessitated that the training being imparted to the apprentices should be regulated by legislation. Accordingly, the Apprentices Bill, 1961 was introduced in Parliament to provide for the regulation and control of training apprentices. 16 STATEMENT OF OBJECTS AND REASONS The question of undertaking legislation for regulating the training of apprentices in industry has been under the consideration of the Government for a long time. Expert committees which went into the question have recommended such legislation. Although certain establishments in the public and private sectors have been carrying out programmes of training of skilled organized workers on a systematic basis, industry in general has not as yet fully organised such programmes. In the context of the Five-Year Plans and the large-scale industrial development of the country, there is an increasing demand for skilled craftsmen. The Government consider that it is necessary fully to utilise the 17 facilities available for the training of apprentices and to ensure their training in accordance with the programmes, standards and syllabi drawn up by expert bodies. The Bill is intended to give effect to these objects” 10. The submissions made by Mrs. Joshi, the learned Counsel appearing on behalf of respondent No.1 that Apprentice Agreement had come to an end since the petitioner No.1 had not tendered relevant certificates and documents as per the undertaking given by him dated 6/7/2007 and therefore the provisions of Apprentices Act do not apply, cannot be accepted. Firstly, no order of termination was issued by respondent No.1 on the alleged failure on the part of petitioner No.1 to submit the documents. The undertaking which is given by petitioner No.1 is as under:- 18 “Dear Sir, I hereby undertake to produce the following certificates/documents in original within 30 days from today, failing which my traineeship/employment with M/s Larsen & Toubro Limited may be terminated 1. Semester 8 Marksheet 2. Address proof of 1st Guarantor” There is no letter of termination issued by respondent No.1 after thirty days from the date of the undertaking which was given on 6/7/2007. The ratio of the judgment in Pimpri Chinchwad Municipal Corporation and Others (supra) will not apply to the facts of the present case, since, in the said case, the question which fell for consideration before the Apex Court was : whether the High Court while exercising its jurisdiction under Article 226 could decide the contractual rights and whether writ petition was maintainable in respect of contractual matters? The learned Counsel also invited my attention to paras 10 and 11 of the judgment in Kerala SEB v. Kurein E. Kalathil reported in (2000) 6 SCC 293, which have been reproduced in para 13 of the said judgment. In my view, ratio of the said judgment does 19 not apply to the facts of the present case. 11. Under these circumstances, therefore, the arbitrator could not have entertained the arbitration proceedings in view of the bar enforced by section 20 of the Apprentices Act, 1961. Petition is allowed. Rule is made absolute in terms of prayer clause (a). (V.M.KANADE,J.)