- 1 - IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. ARBITRATION PETITION NO.341 OF 2006 ... Union of India through The Director, Directorate of Const. Services & Estate, Management ...Petitioner v/s. M/s.Thakkar & Associates and others ...Respondent ... Mr.D.R.Zaiwala, Sr.Counsel with Ms.Akhila Kaushik for the Petitioner. Mr.P.K.Dhakephalkar with Mr.Vikas J. Takalkar for the Respondents. ... - 2 - CORAM: D.K.DESHMUKH, J. DATED: 7TH DECEMBER,2006 P.C.: 1. By this petition the Petitioner challenges the award passed by the learned arbitrator directing the Petitioner to pay Rs.19,41,679/- with interest to the Respondent. The contract for construction was awarded by the Petitioner to the Respondent. In that contract there was an arbitration clause. Disputes arose between the parties. They were referred to arbitration. The learned arbitrator has made the award, which is challenged in the present petition. 2. The first ground on which the award is challenged is that the decision of the learned arbitrator on issue No.1 is erroneous. It is submitted that no claim certificate was signed by the Respondent. After having signed no claim certificate he could not have claimed any further amount. According to the learned counsel appearing for the Petitioner the arbitrator has committed an error in holding that No - 3 - Claim Certificate was signed by the Respondent under duress. According to the learned Counsel to prove the duress, it was necessary for the Respondent to lead oral evidence. In the absence of any oral evidence being led the case of the Respondent that No Claim Certificate was signed by him under duress could have been accepted. It was next submitted that the Issue No.1 was whether because of the conduct of the Respondent of signing the No Claim Certificate he is estopped from making any further claim. However, the answer given to this issue is that even after signing No Claim Certificate the arbitration clause continues. In the absence of evidence, according to the learned Counsel, therefore, a different answer is given to the issue. . On the contrary on behalf of the Respondent, it is pointed out that there is no ground raised in the petition that the learned arbitrator could not have recorded a finding that the No Claim Certificate was signed under duress in the absence of any oral evidence. It is submitted that had such a ground been raised in the petition, the Respondent could have produced material before this court to show that the parties before the arbitrator had agreed that the - 4 - arbitrator will decide the matter on the basis of the documentary evidence produced before him and no oral evidence would be necessary. It was further urged that even the ground that the answer given to issue No.1 is not proper and that there is no answer given to the actual issue which has been raised has not been raised in the petition. . Now, issue No.1 which was framed by the learned arbitrator reads as under:- "Whether the claims raised by the claimants are barred by the doctrine of estoppel? Obviously the question to be considered was having signed the No Claim Certificate is the Respondent barred from making any claim in relation to the contract. It is also urged that the answer that is given by the learned arbitrator is not whether estoppel operates against the Respondent in making the claim, but that despite signing the No Claim Certificate the arbitration clause continues. But in my opinion, there is considerable force in the submission made on behalf of the Respondent that the argument before the learned arbitrator on this issue - 5 - was not on estoppel, but on the point whether after signing the No Claim Certificate the arbitration clause continues or no. The learned arbitrator after considering the law laid down by the Supreme Court has held that even after signing No Claim Certificate the arbitration clause continue and the party is entitled to raise any genuine claim that it has even after signing No Claim Certificate. Perusal of the petition shows that in the petition there is no specific ground raised that before the learned arbitrator it was argued that the conduct of the Respondent of signing No Claim Certificate estops him from making a claim though the arbitration clause may continue. In the absence of such a ground being raised in the petition, the Petitioner cannot be permitted to argue that the issue of estoppel has not been answered by the learned arbitrator. Perusal of the award shows that the learned arbitrator has referred to several judgments of the Supreme Court to hold that the circumstances under which the Government contractors are required to sign No Claim Certificate are such that they cannot be held to bar the contractor for raising claims after signing No Claim Certificate. The learned Counsel appearing for the Respondent relied on a judgment of the Supreme - 6 - Court in the case of M/s. Ambica Construction v/s. Union of India, 2006(4) Arb.L.R. 288 (SC). Perusal of that judgment shows that the Supreme Court has held that merely because No Claim Certificate has been signed it will not operate to estop the contractor from raising a genuine claim. Following observations of the Supreme Court from that judgment, in my opinion, are relevant they read as under:- A glance at the said clause will immediately indicate that a No Claim Certificate is required to be submitted by a contractor once the works are finally measured up. In the instant case the work was yet to be completed and there is nothing to indicate that the works, as undertaken by the contractor, had been finally measured and on the basis of the same a No Objection Certificate had been issued by the appellant. On the other hand, even the first Arbitrator, who had been appointed,had come to a finding that No claim Certificate had been given under coercion and duress. It is the Division Bench of the Calcutta High Court which, for the first time, came to a conclusion that such No Claim - 7 - Certificate had not been submitted under coercion and duress. From the submissions made on behalf of the respective parties and in particular from the submissions made on behalf of the appellant, it is apparent that unless a discharge certificate is given in advance, payment of bills are generally delayed. Although, Clause 43(2) has been included in the General Conditions of Contract, the same is meant to be a safeguard as against frivolous claims after final measurement. Having regard to the decision in the case of Reshmi Constructions’s (supra), it can no longer be said that such a clause in the contract would be an absolute bar to a contractor raising claims which are genuine, even after the submission of such No Claim Certificate. . Taking overall view of the matter, therefore, in my opinion, no fault can be found with the finding recorded by the learned arbitrator on issue No.1 , in - 8 - the face of the grounds that have been raised in the petition. 3. It was next submitted that the findings recorded by the learned arbitrator on issue No.2 that clause 25 of the contract between the parties is contrary to the provisions of Section 28 of the Contract Act is not valid in view of the provisions of sub-section 3 of Section 43 of the Arbitration Act. It was submitted that sub-section 3 of Section 43 specifically permits such a clause being included in the arbitration agreement. It was submitted that in the face of sub-section 3 of Section 43, arbitrator has committed an error in holding that clause 25 is contrary to the provisions of Section 28 of the Contract Act. 4. On behalf of the Respondents on the other hand it is submitted that it was never argued before the learned arbitrator on behalf of the Petitioner that because of the provisions of sub-section 3 of Section 43, Section 28 of the Contract Act does not operte in relation to condition put in the arbitration agreement. It was submitted that even in the present petition, there is no ground raised that though - 9 - argument on the basis of the provisions of sub-section 3 of Section 43 were advanced before the learned arbitrator, the learned arbitrator has not considered that. It is submitted that had such arguments been advanced before the learned arbitrator, it was open to the Respondent to move the court under the same provisions of sub-section 3 of Section 43 for extension of time. In this view of the matter, therefore, in the submission of the learned counsel on the basis of the material placed on record before the learned arbitrator no fault can be found with the finding recorded by the learned arbitrator on issue no.2. 5. Now, clause 25 of the agreement on which the Petitioner relied reads as under:- Clause 25: Settlement of Disputes by Arbitration: Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and to the quality of workmanship or materials used on the work or arising out of the terms or conditions of the - 10 - contract whether during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by the Director, Directorate of Construction, Services and Estate Management, Department of Atomic Energy, Mumbai in respect of the contracts entered into by any sub-ordinate authority under him. However, if the contract is entered into by the Director, Directorate of Construction, Services and Estate Management, Department of Atomic Energy, Mumbai, the arbitrator shall be appointed by the Department of Atomic Energy. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant, that he had to deal with the matters to which the contract relates or that in the course of his duties as a Government servant he had expressed views on all or any of the matters in dispute or difference. The Arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for - 11 - any reason, the authority as aforesaid at the time of such transfer, vacation of office or inability to act, shall appoint another person to act as arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by such authority, as aforesaid should act as arbitrator and if for any reason that is not possible, the matter is not to be referred to arbitration at all. In all arbitration matters wherein the total amount of either the claims or the counter claims in dispute is Rs.50,000/- (Rupees Fifty thousand only) or more, the arbitrator would have to give reason for awarding the claims or counter claims. In an arbitration invoked at the instance of either party to the contract, the arbitrator would be free to consider also the counter claims of the other party even though they are not mentioned in the reference to arbitration. - 12 - Subject as aforesaid the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause. It is also a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute. It is also a term of the contract that if the contractor(s) do/does not make any demand for arbitration in respect of any claim(s) in writing within 90 days of receiving the intimation from the Government that the bill is ready for payment, the claim of the contractor(s) will be deemed to have been waived and absolutely barred and the Government shall be discharged and released of all liabilities under the contract in respect of these claims. - 13 - The arbitrator(s) 6. Thus, a requirement is incorporated in Clause 25 that a demand for reference of dispute to arbitration has to be made by the contractor within 90 days of the receiving the intimation from the Government that the bill is ready for payment. The learned arbitrator has relied on provisions of Section 28 of the Contract Act to hold that such a condition imposed in a contract is invalid. The submission of the Petitioner is that because of the provisions of sub-section 3 of Section 43, provisions of Section 28 of the Contract Act do not come into play, because there is a specific provision made in sub-section 3 of Section 43 permitting incorporation of such provision in the arbitration agreement. Sub-section 3 of Section 43 reads as under:- 43(3) Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within a time fixed by the agreement, and a dispute arises - 14 - to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithdstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper. Perusal of the above quoted provisions of sub-section 3 of Section 43 shows that it is permissible for the parties to include a term in the arbitration agreement requiring the parties to take some steps for commencement of the arbitral proceedings within such time as may be fixed in the agreement. However, the same provision creates power in the court to extend the period fixed in the agreement if the court comes to the conclusion that forcing the party to adhere to that time frame will cause undue harassment. Thus, it is clear that had the Petitioner relied on provision of sub-section 3 of Section 43 before the learned arbitrator, firstly that aspect of the matter would have been considered by the learned arbitrator in the award. In the award one does not find any reference to sub-section 3 of Section 43. One does not also find a ground in the - 15 - petition that though argument based on the provisions of sub-section 3 of section 43 was advanced before the learned arbitrator, the learned arbitrator has ignored that argument. In my opinion, raising of such a ground in the petition is necessary because if a ground is actually argued before the arbitrator and the arbitrator omits to consider that ground and if while hearing the petition under Section 34, the court finds that omission of the arbitrator to consider the ground vitiates the award, resort can be had to the sub-section 4 of Section 34. In this matter, therefore, in my opinion, when a ground is raised before the learned arbitrator and if that ground is not considered by the learned arbitrator, it is necessary for the Petitioner to raise a ground to that effect in the petition. If such a ground is not raised in the petition, it will be safe for the court to assume that no such argument was made before the learned arbitrator. Had such argument based on provisions of sub-section 3 of Section 43 been made, it was open to the Respondent to move the court seeking extension of the period fixed by the agreement by pointing out to the court that it was not possible for him to comply with the time frame fixed by the agreement. By not raising the - 16 - contention based on sub-section 3 of Section 43 before the learned arbitrator, the Petitioner deprived the Respondent of a remedy which is provided to him by the law. Similarly, had such a ground being taken in the petition, it would have been probably possible for the Respondent to move an application in this petition also seeking the same order. But even in the petition no such ground is raised. Therefore, in my opinion, it will not be fair to permit the Petitioner to rely on provisions of sub-section 3 of Section 43 for the first time while arguing the petition. It is to be noted here that so far as this court is concerned, because of the judgment of the Division Bench of this Court it is a settled law that after period of limitation fixed of Section 43 is over, by amendment a ground cannot be permitted to be added in a petition. 7. Taking overall view of the matter, therefore, in my opinion finding recorded by the learned arbitrator on issue no.2 also cannot be faulted. 8. The learned Counsel appearing for the Petitioner claims that the award made by the learned arbitrator against claim No.1 is vitiated. According to the - 17 - learned counsel by that award the learned arbitrator has directed the Petitioner to pay an amount of Rs.5,47,463/- as charges for the water which was brought by the contractor for the work by hiring water-tankers. According to contract between the parties expenditure for water was to be borne entirely by the contractor, and therefore, merely because the water was not available to the contractor by adopting three methods, provided in the contract, the arbitrator could not have directed the Petitioner to make payment to the contractor on that count. According to the learned counsel, the award made in this regard is contrary to the terms of the contract. The learned counsel submits that by directing the Petitioner to make payment for the water which was brought by water-tanker by the contractor, the learned arbitrator has included a term in the contract which did not exist. This, according to the learned Counsel, is not permissible. 9. The learned Counsel appearing for the Respondent, on the other hand, submits that whether the contractor was to pay entirely for the water that was necessary for the work was a question to be decided by construing various clauses of the contract. The - 18 - learned arbitrator construed various clauses of the contract and held that for the water that was required to be imported by the contractor by hiring a water-tanker is required to be paid by the Petitioner. According to the learned Counsel, the construction placed by the learned arbitrator on the relevant terms of the contract is a possible construction. It is pointed out that it is not the complaint of the Petitioner that any relevant terms of the contract was excluded from consideration by the learned arbitrator and therefore, the finding recorded by the learned arbitrator cannot be faulted. The learned arbitrator has considered condition (19) and alternative conditions for conditions nos. 19 & 20 in the contract. The learned arbitrator has held that the contract contemplated three modes for procuring water, (i) to use the water from existing Departmental well; (ii) to drill bore well; (iii) procuring water from the Bombay Municipal Corporation. So far as procuring water from the Bombay Municipal Corporation is concerned, the learned arbitrator has held that the alternative condition for conditions Nos.19 and 20 was applicable and according to that condition if the water has to be procured from the BMC, charges were payable by the - 19 - Petitioner and as the water was not available from the BMC also, the water had to be brought by hiring water-tanker, and therefore, it is the Petitioner which is liable to pay for the same. Perusal of alternative condition shows that if the water had to be taken from the Bombay Municipal Corporation, the contractor was to pay costs necessary for getting the connection. The contractor was also to pay for incidental charges for construction of water supply connection. So far as the actual water consumed is concerned, charges were to be paid by the Petitioner. Perusal of the award shows that the Petitioner actually paid an amount of Rs.13,05,520/- to the Bombay Municipal Corporation for the water supply. The learned arbitrator has also found as a fact that despite deposit of this amount with the Corporation no water supply was actually made by the Corporation for lack of adequate pressure, and therefore, the contractor had to procure the water by hiring tankers. Now, whether for supply of water in a certain situation, charges were payable by the Petitioner or not depends on the construction to be put on the provisions of the contract. The conduct of the Petitioner of depositing Rs.13,05,520/- with the Corporation for the water supply shows that at - 20 - the relevant time even the Petitioner interpreted those terms of the contract as making the Petitioner liable for paying costs of the water supply, otherwise, if entire expenditure for water supply was to be borne by the contractor, the Petitioner would not have deposited that amount with the Corporation. If the Corporation was paid an amount of Rs.13,05,520/;- by the Petitioner for getting water supply from the Corporation and no water supply was secured from the Corporation for any technical reason, normally the Petitioner should be entitled to refund of that amount from the Corporation. Whereas, the Petitioner was prepared to spend Rs.13,05,520/- for the water supply, the contractor got the same water supply for an amount of Rs.5,47,463/- and the arbitrator has directed the Petitioner to pay that amount. If one looks at the award, it becomes clear that taking water supply by hiring tankers turned out to be cheaper than taking water supply from the BMC. I, therefore, do not really understand as to why the Petitioner challenged this finding recorded by the learned arbitrator. What is interesting is, there is no challenge to the finding of the learned arbitrator that from the BMC no supply of water was possible for technical reason. It has also not come on record - 21 - whether the Petitioner has moved the Corporation for refund of the amount deposited by them because there was no water supply from the Corporation. 10. Taking overall view of the matter, therefore, in my opinion, no fault can be found with the construction placed by the learned arbitrator on the various terms of the contract which have been considered. 11. The last claim in relation to which submissions were made is claim No.2. By the award made against claim No.2, the learned arbitrator directed the Petitioner to pay an amount of Rs.5,62,862/- towards payment of excess quarry to the Respondent. The learned arbitrator has held that the deviation does not exceed 25% and that if the contractor had to claim revision of rates, a claim in that regard should have been made within 7 days. . So far as the first aspect of the matter is concerned, the finding that division exceed 25% is a finding of fact recorded by the learned arbitrator after considering material placed before it and in the limited jurisdiction that is conferred on this - 22 - court by Section 34 of the Arbitration, I will not be justified in reappreciating the evidence and disturb the finding of fact. . So far as the second aspect of the matter is concerned, the learned arbitrator relying on the judgment of the Supreme Court referred to in the award has held that entitlement to claim to revision of rates by the contractor arises when the deviation exceeds 25%. It will not be known when the contract is going on and the work is in progress, as to at what point of time exactly this 25% of deviation is reached and therefore, it is not pracitable for the contractor to