1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.282 OF 2007 Union of India .. Petitioner Versus M/s.Duwell Agency .. Respondents. Mr.S.R.Rajguru with Ms.Nila Lakhani for petitioner Ms.Asha Bhambwani for respondents. CORAM : S.C.DHARMADHIKARI, J. DATE : 22nd July 2009. P.C.: 1] This is a petition under Section 34 of the Arbitration and Conciliation Act. 2 2] By an order dated 28th November 2008 and even by prior orders this Court directed that the petition would be disposed of finally at the stage of admission. Hence, admit. Respondents waive service. By consent of parties petition is taken up for hearing and final disposal at this stage itself. 3] Petitioner is Union of India, through Chief Engineer, Navy, Mumbai. Petitioner impugns the Award passed by the Arbitrator dated 26th February 2007. 4] The basic facts are not in dispute, inasmuch as, the petitioner awarded a contract for augmentation of existing fire fighting system at INS TUNIR KARANJA, as the Agreement in that behalf was duly executed. It is also not in dispute that some differences and disputes arose and on the own showing of the parties from 1998 itself, the petitioner and respondent could not agree on implementation of certain works arising out of the contract. It appears that disputes and differences were on account of finalisation of rates and finally a claim was made by the respondents on the petitioner. The respondents, according to the 3 petitioner, were submitting running bills and ultimately, on the basis of the documents available with the petitioner, they prepared a final bill on 24th March 2000. Respondents requested the petitioner to perform reciprocal promise of taking measurement under Condition No.61 and for issuing deviation order and for valuing the same as per the Condition No. 62, without which they could not submit the final bill. It appears that the petitioners issued a communication in September 2002 which was signed by the respondents and, thereafter, they submitted final bill on 15th November 2002. Petitioners requested the respondents to sign certain documents but they signed the same under protest. Petitioners requested respondents to represent the matter pertaining to protest to CWE whose order or decision was final and binding as per Condition No.62 (Clause G). The CWF conveyed final and binding decision fixing the rate and, thereafter, the respondents signed final bill prepared by the petitioners under protest. In these circumstances, the disputes and differences were referred to the Sole Arbitrator and after giving parties adequate opportunity to place their version and supporting materials, he has made the subject award. 4 5] It is this award which is under challenge before me. Mr.Rajguru has raised three contentions before me while impugning the same. 6] The first contention of Mr.Rajguru appearing for petitioner is that the Award is vitiated because the Arbitrator has brushed aside the specific terms and conditions of contract. The award is rendered ignoring the same. In this behalf, he has referred to clause 65 of the General Terms and Conditions of contract for Lumpsum contract under the Military Engineering Services. He has also relied upon clause 67 of the Terms and Conditions. Mr.Rajguru submits that the contractor has submitted a final bill and has included the claims therein but the, clause provides that he is prohibited from making any other and further claim and all further claims shall be deemed to have been waived and extinguished. The net effect of this clause is that no amount other than which is claimed in the final bill is allegedly due and payable. The amount mentioned in the final bill comprises of all claims which the contractor had against the petitioner. Once, the claim is so crystalised and the amount mentioned, then, the Arbitrator should not have entertained any grievance of the respondent 5 contractor as no further claim could have been made by him. They are deemed to have been waived and extinguished. 7] Mr.Rajguru’s next contention is that the Arbitrator should have considered that the claim arises out of the alleged loss due to failure in the performance of reciprocal promises. Mr.Rajguru submits that Claim No.2 has been entertained on the basis that it consists of three parts. The first part relates to testing of pipes. The contractor made the claim but the Arbitrator has categorically held that reimbursement of the loss sustained for organising and carrying out 17 additional tests is covered under section 55 of the Indian Contract Act, 1872. However, the Arbitrator had taken second and third part of the claim for consideration. The Arbitrator ought to have gone by the Terms and Conditions of the contract and seen the reciprocal obligations thereunder. There is no question of applying section 55 of the Contract Act. 8] The third contention of Mr.Rajguru is that the Arbitrator has erred in making an Award in favour of the respondents under claim No.3. This was a loss allegedly sustained due to non supply of water for testing of 6 pipelines during the peak working period. Mr.Rajguru submits that the petitioner had specifically contended that the claimant/ respondent has not conducted the tests 18 times. They had made arrangements for water supply as per the provisions of contract and respondent was never ordered to make his own arrangements for water. Further, he has not submitted any bills for arrangement of water from private/ market sources. Mr.Rajguru submits that despite this position, the Arbitrator has taken some figures and has held that the contractor/ respondent has arranged water for testing of old as well as new pipelines laid under the contract and, therefore, awarded the entire sum. 9] Mr.Rajguru’s contention, therefore, is that the Arbitrator has not only gone beyond the terms of the contract but even while awarding claims, he has not taken into consideration the materials produced before him. The Award is, therefore, perverse. Such an Award is, therefore, contrary to the public policy as well. For all these reasons, the Award under challenge must be set aside. 10] In support of his contentions, Mr.Rajguru has relied upon the 7 following decisions of the Supreme Court. (a) Ramnath International Construction (P) Ltd. Vs. Union of India (2007) 2 S.C.C. 453; (b) State of Rajasthan Vs. Nav Bharat Construction Co. (2006) 1 S.C.C. 86; (c) Union of India & Ors. Vs. M/s.Onkar Nath Bhall & Sons (JT) 2009 (5) SC 682; 11] On the other hand, Ms.Bhambwani appearing for respondent has contended that the petition under section 34 of the Arbitration Act is not an appeal against the Award. This Court’s jurisdiction is extremely limited and if the petitioner fails to make out a case for setting aside the Award within four corners of law, then, no equitable consideration can come into play while considering the plea that the Award be set aside. She submits that in the memo of the Petition, there are no grounds which would demonstrate that the contentions now raised were raised before the Arbitrator. Reliance upon clause 65 would mean that the claims are not 8 arbitrable and, therefore, the Arbitrator would have no jurisdiction to entertain and make any award in respect of these claims. Such an objection goes to the root of the jurisdiction of the Arbitrator and, therefore, must be raised before the Arbitrator and unless so raised, it cannot be permitted to be raised or agitated for the first time in a petition under section 34 of the Arbitration Act. That apart, she submits that there is misconception with regard to the first submission of Mr.Rajguru. She submits that the final bill was prepared by the petitioner and forwarded to the respondent. The respondent did not accept the same and registered its protest so also raised number of objections thereto. This exercise went on for some time and finally when a bill was sent to the respondents, the same was accepted under protest. In these circumstances, there is no question of applicability of clause 65. This is not a case where any claims are raised for the first time in a claim petition before the Arbitrator. These are the claims forming part of the bill. When there is a refusal on the part of the petitioner to pay them, that disputes have arisen and that is how a reference was made to the Arbitrator. 12] She submits that the petitioners have suppressed from this Court 9 the fact that Arbitration Petition No.35 of 2004 was filed by the respondent against the petitioners and the prayer of the respondent was that this Court should appoint a fit and proper person as sole arbitrator for resolving the disputes between the parties. She submits that Exh.B to this petition mentioned claims under distinct heads so also, several disputes and Claim Nos.1, 2, 4, 5 and 6 were specifically referred to Arbitration. In fact the argument was that even the claim No.3 ought to have been referred to Arbitration. She invites my attention to the order dated 30th April 2004 which was passed in Arbitration Petition No.27 of 2004, between the same parties wherein directions were given to the Engineer- in-Chief, Army Head Quarters New Delhi to appoint a Sole Arbitrator. However, while making a reference, Item No.1/ Claim No.3 was not referred. That necessitated filing of Arbitration Petition No.35 of 2004 and by an order dated 25th August 2004, the learned Single Judge of this Court referred even that claim to the Arbitrator. In these circumstances, there is no substance in the objection that the Arbitrator could not have entertained the claims in the light of clause 65 of the Terms and Conditions. That apart, the arbitrability of the dispute is something which is within the domain of the Arbitrator and once he has referred to all the 10 materials and held that the disputes were indeed arbitrable, then, his conclusion is not liable to be interfered with in a petition under section 34 of the Arbitration Act. 13] Thus, apart from the specific orders of this Court referred to above, Ms.Bhambwani submits that there have to be specific grounds in the Arbitration Petition which would raise a plea that the claims were not liable to be referred to arbitration. There are no such grounds raised in the present petition. She places reliance upon the Division Bench decision in Appeal No.799 of 2004 in Arbitration Petition No.493 of 2003 (Patel Engineering Company Ltd. Vs. Konkan Railway Corporation Ltd.) in this behalf. 14] In these circumstances, according to her, when the law laid down is very clear that the claim is not extinguished but it subsists and whether it does subsists and to what extent is a matter which is arbitrable and must be gone into by the Arbitrator. Reliance is placed upon a decision of the Supreme Court in the case of Union of India Vs. L.H.Ahuja, reported in A.I.R. 1988 S.C. 1172. Finally, she submits that in a notice dated 31st 11 October 2003, addressed to the Chief Engineer, the respondents have raised all the claims that are referred to by the Arbitrator and thus, it is not as if they were not forming part of the final bill. In fact, claim No.1 is for non payment of final bill for undisputed parts. Thus, even when the undisputed portion was not paid, it presupposes that there were disputes with regard to the final bill and, therefore, claims could have been referred to Arbitration. As a result of all this, the petition be dismissed. 15] Since the Counsel appearing for parties have raised only limited pleas, it is not necessary for me to go into all the contentions raised. Suffice it to say that the Arbitrator entered reference based upon a letter dated 19th July 2005 of the Engineer in Chief, Army H.Q., New Delhi. Claims of parties are claim Nos. 1 to 7 as listed in Appendix A and Claim Nos. 1 to 7 as listed in Appendix B. All these claims are preferred by the respondents. Petitioners raised only claim No.1. 16] The Arbitrator has observed that both sides have filed documents before him. A detailed hearing took place before him at which representatives of both sides were present. The claims that have been 12 itemised by him are pursuant to the particulars of disputes referred by him in para 10 of the Award. According to him, the work was augmentation of existing fire fighting system at INS TUNIR KARANJA. Tender was accepted on 9th December 1996 and the Contract amount was Rs. 65,51,207.54ps. The date of commencement is 16th December 1996 and although original date of completion was 15th June 1998, it was extended and the contract work was completed on 31st December 1999. The Arbitrator has specifically referred to the fact that final bill has not been paid. It is in that context and referring to the specific plea of the respondent that work was certified as completed and taken over on 31st December 1999 but final bill was not paid till 31st October 2003 that the Arbitrator has proceeded. That is how, the respondents invoke Condition No.70 of the General Conditions of the Contract. He refers to the orders passed by this Court. Claim No.1 was non payment of final bill for undisputed portion. According to the award, the amount was Rs.5.50 lakhs and it was revised to Rs.7.09,212/-. In para 14 of the Award, this is what is held by the Arbitrator:- “14. Contractor stated that they had submitted their 13 final bill on 15th January 2002. Union of India had prepared their own final bill bearing voucher dated 24th March 2000, technically checked in GE’s office on 24th October 2002 and signed “under protest” by claimant on 13th May 2003, technically checked by CWE’s office on 30th October 2003 but has still not been paid to them. The amount of final bill originally due as per Union of India was Rs.6,38,845.63 but was subsequently corrected to Rs.5,67,289.34. The reduction in amount was mainly due to wrongful reduction in escalation amount by about Rs.81,123.00. Contractor stated that they have the following observations on the corrected figures of the final bill. (a) Non payment of revised rates for increase beyond DO limit which is now a part of claim No.3 and will be discussed separately; (b) Underpayment against DO N.10; (c) Underpayment against wrongful escalation calculations; 14 (d) Non consideration of Works Contracts Tax against Add star rates.” 17] Thereafter, the Arbitrator has considered the submissions of both sides and as far as claim No.1 is concerned, in para 21 of the Award the Arbitrator has observed that the amount of claim in the arbitration petition before High Court was Rs.5.50 lakhs whereas the amount claimed before him is Rs.7,39,212 under the relevant head. Therefore, it should be restricted to Rs.5.50 lakhs is the plea raised by Union of India. Further the Union of India has contended that the amount of final bill could not be released to the claimants because of signing of D.Os. and memos with remark “UNDER PROTEST”. This aspect was clarified by letter dated 29th March 2004 which was filed by the Union of India in defence. Further objection raised was that the claimants- respondents signed no claim certificate of final bill without any reservations and as such no further claims can be made by the Contractor after submission of final bill and this aspect shall be deemed to have been waived and extinguished as per the Condition No.65. 15 18] Thus, a specific objection was raised before the Arbitrator and, therefore, I am not in agreement with Ms.Bambwani that in the absence of any grounds in the Arbitration petition, no contention based upon clause 65 can be urged before me. In para 21 of the Award, the very objection that has been raised has been spelt out. Subsequently, in para 22 of the Award, the Arbitrator refers to the fact that part payment was made in the running account bills to avoid financial hardship to the Contractor. The Arbitrator also refers to a letter dated 16th October 2003 where the Contractor was called to discuss the matter and since there was no response, a decision was conveyed to him in a letter dated 19th December 2003 and, therefore, the Union of India acted within the terms of contract. However, at the same time, the petitioner has also purported to clarify the position with regard to discrepancies pointed out by the contractor and referred to in para 17 of the Award. Thus, the matter did not rest before the Arbitrator only on the applicability of clause 65 but both sides placed their versions with regard to the claim No.1. 19] The Arbitrator has observed that no finality attaches to the decision taken by the petitioner Union of India and conveyed in a letter dated 19th 16 December 2003. Ultimately, there are claims made in the final bill under distinct heads and it may be the objection of the Union of India that nothing is due and payable under them. That by itself, in the peculiar facts of this case, could not be said to be a bar for the Arbitrator to adjudicate upon the disputes. In this context in paras 29 and 30 of the Award, the Arbitrator has referred to Exh.GP-15 which is no Claim Certificate produced by the Union of India. The remark in the Part 1 of the Certificate is “I agree”. Therefore, it is termed as agreed part. In Part 2 the endorsement is “disputed part”. This is written by the Contractor/ respondent in hand while signing the certificate. This was reason enough to reject the objection raised by Union of India on the basis of applicability of clause 65 of the terms and conditions. The Arbitrator was within his powers to rule upon the objection. He has not placed any interpretation on the terms of contract, much less, travelling beyond or neglecting or ignoring them. This is a plain and simple objection on the arbitrability of the disputes on the basis that clause 65 is applicable. For the reasons stated and on account of materials produced, that objection is over-ruled by the Arbitrator. Merely because the objection is over-ruled, the Award cannot be said to be vitiated and more particularly as 17 contended by Mr.Rajguru. The first contention of Mr.Rajguru must, therefore, fail. 20] Insofar as the second contention which arises out of claim No.2 is concerned, even there the Arbitrator has considered the claim raised in three parts. It is not as if Union of India was not allowed to raise any objections or any defence raised on the basis of documents produced, was totally omitted from consideration by the Arbitrator. The Arbitrator has applied the principles enshrined in section 55 of the Contract Act and held that the claim has been amended and that is permissible. It is not as if merely because the claim is amended that the entire amount as claimed as been awarded. Even while considering this claim, the Arbitrator has taken care to refer to all necessary and relevant documents, terms and conditions on which the contract obligations had to be performed and held that the causes for the delay were beyond the control of the Contractor as well the petitioners. He has been careful enough not to award the claim in its entirety but awarded Rs.3.52 lakhs. 21] Insofar as claim No.3 is concerned, there also the Arbitrator has by 18 referring to the materials produced observed that arrangements for water had been made by the contractor at site. The entire requirement of water has been taken into consideration by referring to the relevant materials produced. In para 55 of the Award, the Arbitrator has relied upon the vouchers for purchase of water from private sources which have been produced by the respondents and has observed that Union of India could not produce any evidence which would show that water for testing was supplied by them as per the contract provisions. The stand of the Union of India has been disbelieved and the contractor’s version has been accepted, taking into consideration the documents produced. It is on that basis and by taking the figures placed before him that the claim No.3 has been awarded by the Arbitrator. 22] These were the only claims which were objected to before me. Finally, a feeble attempt was made to demonstrate that in terms of clause 67 there were certain recoveries and the Arbitrator, therefore, ought to have made certain adjustments and deductions. Even that aspect has been considered by the Arbitrator and it is not as if he has made an award without any materials before him. The very argument which has been 19 raised before me on the basis of applicability of clause 67 had been raised before the Arbitrator and even that has been found to be without any substance. For the reasons that are mentioned by the Arbitrator, which are based upon materials produced and cannot be termed as perverse, I find that the challenge to the Award in question cannot be sustained. The learned Counsel appearing for respondents is right in urging that this Court cannot re-appraise and re-appreciate the materials as if it is sitting as an Appellate Authority over the Award of Arbitrator. Once the Arbitrator has acted within the scope and ambit of his powers under the contract and as by adhering to the terms and conditions, considered the claims and made an Award, then, it is not liable to be interfered with unless the case is proved to be falling in one of the grounds permissible under section 34 of the Arbitration Act. 22] The petition, therefore, must fail. The reliance by Mr.Rajguru on some decisions of the Supreme Court is misplaced in the facts of this case. In Ramnath International Construction Pvt.Ltd. Vs. Union of India, (2007) 2 S.C.C. 453, the Supreme Court observed in para 4 that the Contract work had to be completed in two phases. It could not be 20 completed within the stipulated time partly due to the default on the part of Union of India. Several extensions have been granted and that necessitated certain claims being raised and ultimately leading to termination of contract. The basis of the disputed claims is that the work was delayed on account of breaches on the part of the Union and, therefore, it is liable to compensate the Contractor for all loss and extra cost on account of such delays and extended execution. It is in that context that the Supreme Court has made the observations that have been relied upon by Mr.Rajguru. 23] In fact while dismissing the appeal of the claimants, the Supreme Court has reiterated that the conclusion of the High Court cannot be interfered with. In the light of the clear clauses in the contract, containing prohibitions against the contractor and finding that the Arbitrator exceeded his jurisdiction in awarding the damages, ignoring those clauses that the Supreme Court confirmed the decision of the High Court. Thus, this decision is distinguishable on facts, similarly, the decision of the Supreme Court in State of Rajasthan Vs. Nav Bharat Construction Company, (2006) 1 S.C.C. 86, relied upon by Mr.Rajguru to the extent of 21 rate of interest awarded by the Arbitrator on awarded sum is also distinguishable. The rate of interest is an aspect which I will advert to little later. 24] The decision of the Supreme Court in Union of India Vs. Onkarnath Bhalla (JT 2009 (5) 682) is distinguishable because there the Supreme Court observed that the final bill was signed without any protest or reservations and, therefore, the right was clearly waived as per the conditions of contract. The condition No.65 which has been relied upon before me was held to be applicable in the light of the clear factual position emerging from the record. Once again this decision is distinguishable. 25] The decision relied upon by Ms.Bhambwani insofar as the Arbitration Petition not raising any ground is concerned, need