1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY BENCH AT AURANGABAD APPEAL FROM ORDER NO.108 OF 2005 M/s S.D. Shinde, Contractor, Shree ZParvati, Behind Zopadi Canteen, Savedi Road, Ahmednagar,through its partner Annasaheb Shripati Shinde, age 45 years, occup.business, r/of Shriparwati, Savedi Road, Ahmednagar, Taluka and Dist. .. Appellant/ Ahmednagar. ori.pltff./ claimant versus 01. Government of Maharashtra, Irrigation Department, represented by the Executive Engineer, Kukadi Irrigation Project, Division No.VII, Shrigonda, Dist. Ahmednagar (M.S.) 02. Ramdas s/o Shripati Shinde, age major, occup. business, 03. Arun s/o Shripati Shinde, age major, occup.business, 2 04. Mala alias w/o Anita Hiralal Paear, age major, occupation household. 05. Bapusasheb s/o Shripati Shinde age major, occup. business, 06. Ravi s/o Shripati Shinde, age major, occup. business, (Respondent Nos. 1 to 6 r/of Yeshwant Coloney, Ahmednagar, Taluka and District Ahmednagar) 07. Prasad s/o Raosaheb Shinde, age major, 08. Sunny s/o Raosaheb Shinde, age minor, 09. Rohit s/o Raosaheb Shinde, age minor, through legal guardian Laxman Raosaheb Shinde, age 40 years occupation business r/o Takli Dhokeshwar, Taluka Parner, District Ahmedngar. ..Respondents 3 Shri V.J. Dixit, Senior Counsel, instructed by Shri P.R.Katneshwarkar, Advocate, for appellant. Shri G.B.Rajale, Advocate, for Respondent No.1. Shri G.K. Thigle, Advocate for Respondent Nos. 2 and 3. Shri S.M. Godsay, Advocate for Respondent Nos.4,5,7,8 and 9. ------ Coram: P.R.Borkar J. Judgment reserved on:05/08/2009 Judgment pronounced on:13/08/2009 JUDGMENT. 01. By this appeal from order the present appellant-original plaintiff-contractor challenges the judgment and order passed by learned Joint Civil Judge, Senior Division, Ahmednagar, in Regular Civil Suit No.595 of 1997 on 3.04.2003, thereby refusing to pass decree in terms of the award passed by sole Arbitrator Shri A.K. Shenolikar on 14.12.1997. 02. Briefly stated, the facts giving rise to the this appeal are that the appellant was earlier sole proprietary firm in the name and style `M/s S.D.Shinde Contractor' owned by one Shri S.D.Shinde. He expired during pendency of suit, on 14.1.1990 and after his death the suit was 4 continued by his legal heirs. Present appeal is filed by one of those legal heirs i.e. Annasaheb Shripati Shinde claiming to be partner of the said firm M/s.S.D.Shinde Contractor. Respondent Nos. 2 to 8 are the remaining heirs of deceased S.D.Shinde. The original dispute decided by the sole arbitrator was between late Shri S.D.Shinde contractor and Respondent No.1-Government of Maharashtra through Irrigation Department. 03. Along with suit, learned trial judge has also decided two miscellaneous applications, viz. Miscellaneous Application No.1 of 1998 filed by Respondent No.1-State under Sections 30 and 33 of the Indian Arbitration Act, 1940 ("The Arbitration Act" for short) for setting aside the award passed by the sole Arbitrator Shri A.K. Shenolikar; ARBI Miscellaneous Application No. 1 of 1999 was filed by one Bapusaheb Shripat Shinde on behalf of M/s S.D.Shinde Contractor for making the award of the sole arbitrator as rule of the court and for passing decree in terms of the award in the name of legal heirs of late S.D.Shinde who died on 14.1.1990. Basically, this appeal from order is challenging the refusal by the learned trial judge to pass decree in terms of the award passed by sole arbitrator and also the order setting aside the said award. 5 04. Late Shri S.D.Shinde who was a civil contractor, had submitted a tender in respect of construction of earthwork structure and lining of Kukadi Left Bank Canal. The tender was accepted in respect of the work in kilometer No.91 to kilometer No. 110 of the said Project. The work order was issued in favour of the claimant- appellant by the Executive Engineer vide letter No.AB/LCB/91 to 110/2257 dated 23/7/1983 and the parties entered into contract which was for Rs. 4,01,77,153/=. According to contract, the work was to be completed within eighteen calender months. Thus date of completion was stipulated to be 22.1.1985. However, it is now admitted position that the work could not be completed within stipulated time and both the parties agreed to the extension of time which was given on five occasions. Ultimately, Respondent No. 1 foreclosed the contract on 25.1.1990 on the application made by the appellant. Thus, 25.1.1990 is the date on which the work was taken away or foreclosed by Respondent No.1. It is further admitted position that the the appellant-original contractor had given application for foreclosure of the contract and its date is mentioned as 13.3.1990, but it appears that the the month was wrongly mentioned as there is no dispute regarding date of foreclosure being 25.1.1990. Final bill was submitted on 14.12.1990. On 18.1.1995 the 6 application was filed by appellant-original contractor to Respondent No.1 for appointment of arbitrator. 05. As per application M.A. No.1/1995 para 2, Superintending Engineer rejected claim on 11.1.1991 and on 21.1.1991, S.D.Shinde Contractor first requested for nomination of Arbitrator. However, in spite of repeated letters from 21.1.1991 onwards, arbitrator/s were not appointed either by Respondent No.1 or by Central Water Power Commission as per terms of the contract and, therefore, the original contractor Shri S.D.Shinde filed Miscellaneous Application No. 1 of 1995 in the court of Civil Judge, Senior Division, Ahmednagar under Section 8 of the Arbitration Act. That application came to be decided by learned Civil Judge on 25.2.1997. Admittedly, none of the respondents, including Respondent No.1 and its officers and the Chairman, Central Water Power Commission, New Delhi participated in the proceedings. Although initially Respondents had appeared in the matter and engaged Shri V.D. Athare, District Government Pleader they did not file their say. Later on Shri A.R. Phadnis, District Govt. Pleader also appeared for sometime. Consequently, application proceeded without any written statement and as suggested by the original contractor, Shri A.K.Shenolikar, retired Chief Engineer, Nagpur, was appointed as the sole 7 arbitrator. The order passed by learned Civil Judge, Senior Division on 25.2.1997 in Arbitration M.A. o.1 of 1995 needs to be quoted at this stage as it is argued that the court while appointing the arbitrator has exceeded its powers under Section 8 of the Arbitration Act and also made a reference of certain disputes to the arbitrator which were beyond agreement and thus vitiated the appointment of the arbitrator and the reference. The order reads:- ".1 The Petition filed under section 8 of the Indian Arbitration Act, 1940, is allowed. 2. Shri Shitolikar (Shenolikar), Retired Chief Engineer, Nagpur, is appointed as Arbitrator for settling the dispute in respect of payment of additional and extra work carried by the petitioner outside of Contract LCB-9/83-84. 3. The Arbitrator now appointed shall give his Award within 3 months from the date of this decision." (Note: emphasis is supplied to highlight term of reference.) 8 It is the direction in paragraph No. 2 of the order, which is criticised 06. Shri Shenolikar, pursuant to his appointment as arbitrator, passed award on 14.12.1997. The arbitrator accepted almost all major claims of the contractor Shri S.D.Shinde and awarded compensation as follows; (a) Idle Machinery charges at Rs.5,62,628.00 Rs2692 for 209 days. (b) Idle overheads at Rs.7440/- Rs.8,55,600.00 for 115 days. Total Rs.14,18,228.00 As per paragraph 6.5 of the award, the compensation amounts awarded are as below. a) Unabsorbed overheads Rs.28,89,000.00 b) period of contract Rs.15,72,000.00 c) Compensation for extended Rs.91,28,000.00 period of contract. d) Compensation for stoppages Rs.14,18,000.00 Total Rs.150,07,000.00 The learned Arbitrator awarded interest of Rs. 133.22 lacs for the period 10.12.12.1988 to 5.3.199. He did not award interest pendente-lite but awarded future interest from 1.3.1998 till actual payment. 9 07. For passing decree in terms of the said award, Regular Civil Suit No.595 of 1997 was filed by the present appellant-contractor in the Court of Civil Judge, Senior Division, Ahmednagar. Learned Civil Judge by his judgment and order dated 3.4.2003 set aside the award holding that the appointment of the learned Arbitrator and reference of disputes to him were not as per the law and, therefore, he refused to pass decree in terms of the award and set aside the award. It is this judgment and order which is challenged in this appeal. 08. Heard learned counsel for respective parties. Together, they have taken me through the entire record. 09. The award was quashed and set aside by the learned Civil Judge on the grounds of limitation, misconduct on the part of the arbitrator, invalid reference amongst other grounds. However, before going to the actual discussion of various facets with reference to the facts of the case, I may refer to the case law cited before me and in the light of the same, factual matrix of the case can be considered. 10. Shri V.J.Dixit, learned Senior Counsel, instructed by Shri P.R. Katneshwarkar for the 10 appellant referred to the judgment of learned Single Judge of our High Court in the case of M/s R.P.Souza & Co. vs. Chief Engineer, PWD 1993 (3) Bom.C.R.738. In paragraph 15 of the judgment, after referring to the facts of the said case, it was observed that the work was to be commenced on 18.1.1992 and was to be completed in October 1994. The final bill was prepared by the respondents only on 16th January 1996. In other words, it took nearly two years for the respondents to prepare the final bill in respect of the work carried out by the applicants. Under such circumstances, it was held that the Respondent was not entitled to raise the question of limitation. Shri Dixit, learned Senior Counsel, argued that in the present case, final bill was submitted on 14.12.1992 and, therefore, application to the court for appointment of arbitrator filed on 18.1.1995 cannot be said to be beyond the period of limitation. 11. Second case relied upon by learned Senior Counsel Shri Dixit is M/s Tarapore and Company vs. Cochin Shipyard Ltd. Cochin AIR 1984 SC 1072. In para 32, it is observed; " On a conspectus of these decisions, it clearly transpires that if a question of law is specifically referred and it becomes evident that the parties desired to have a 11 decision on the specific question from the arbitrator about that rather than one from court, then the court will not interfere with the award of the arbitrator on the ground that there is an error of law apparent on the face of the award even if the view of law taken by the arbitrator does not accord with the view of the court. " In the present case, it is not that any question of law was referred to the sole arbitrator. Further, in paragraph 33 of the same judgment, it has been observed to following effect; ". Not only the respondent did not have recourse to an application under Section 33 of the Arbitration Act, but of its own it referred a specific question of law to the arbitrator for his decision, participated in the arbitration proceeding invited the arbitrator to decide the specific question and took a chance of a decision. It cannot therefore, now be permitted to turn round and contend to the contrary on the nebulous plea that it had referred the claim/dispute to the sole arbitrator without prejudice to its right to contend to the contrary. " It is argued before this court that though Respondent No.1 and its officers had not taken part in the arbitration proceedings in 12 Arbitration M.A. No.1 of 1995, Respondent No.1 had appeared before the sole arbitrator Shri Shenolikar and participated in the proceedings and, therefore, it cannot challenge the appointment of the arbitrator. 12. Another case cited by Senior Counsel Shri Dixit is International Airports Authority of India vs. M/s Mohinder Singh AIR 1996 Bombay 167. It is observed in paragraph 12 as follows; 12. .................................... Moreover, the appointment of the arbitrator was made by the petitioners themselves and the petitioners by long participation of the arbitration proceedings before the arbitrator accepted such appointment and it is neither valid nor legal nor proper on the part of the petitioners now to allege that the appointment of the arbitrator by the Chief Engineer of the petitioners in charge of the work at the material time was not proper." 13. In the case of H.P. State Electricity Board vs. R.J. Shah and company, (1999) 4 SCC 214, which is relied upon by the appellant, the Apex Court was considering Sections 30 and 33 of the Arbitration Act. In paragraphs 26 and 28 13 following observations are made; "26. In order to determine whether the arbitrator has acted in excess of jurisdiction what has to be seen is whether the claimant could raise a particular dispute or claim before an arbitrator. If the answer is in the affirmative then it is clear that the arbitrator would have the jurisdiction to deal with such a claim. On the other hand if the arbitration clause or a specific term in the contract or the law does not permit or give the arbitrator the power to decide or to adjudicate on a dispute raised by the claimant or there is a specific bar to the raising of a particular dispute or claim then any decision given by the arbitrator in respect thereof would clearly be in excess of jurisdiction. In order to find whether the arbitrator has acted in excess of jurisdiction the court may have to look into some documents including the contract as well as the reference of the dispute made to the arbitrators limited for the purpose of seeing whether the arbitrator has the jurisdiction to decide the claim made in the arbitration proceedings. 14 28. The decision in Associated Engg. Co.case relied upon by Shri Maninder Singh does not in any way persuade us to take a view different than the view arrived at by the High Court. At p.103 Thommen J speaking for the Court observed as follows; (see para 24.) "24. The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the fact of it." 14. The next case cited by Senior Counsel Shri Dixit is T.R.George vs. State of Kerala, 2001 AIR (SC) 816. In paragraph 10, it has been laid down; 15 "Arbitrator is competent to award interest at four stages, namely, from the stage of cause of action till filing of proceedings, during pendency of proceedings before the Arbitrator, further interest i.e. from the date of award and date of decree and interest arising from the date of decree till payment." 15. In the present case, it is argued that the arbitrator has awarded interest of Rs.133.22 lacks from 10.12.1988 to 5.3.1995 which was during period of the contract.It is worth noting that the period of original contract was extended from time to time with consent of both the parties and this had happened on five occasions and the last extension was upto 25.1.1990 when the contract was foreclosed.Under the circumstances, the arbitrator could not have awarded interest for eight years. It is also submitted that entire approach of the arbitrator was partisan and he only wanted to oblige the contractor Shri S.D.Shinde. He did not consider the fact that because of fault of contractor, extensions of time had to be given. He overlooked that extensions were with consent of both the parties. In such circumstances, particularly when extension of time is with consent of both sides, there should not have been award of interest from back date i.e.10.12.1988. 16. Shri S.M.Godsay,learned Advocate for Respondent Nos.4,5,7,8 and 9 cited some 16 authorities. In Mohinder Kumar Jain vs. Beas Construction Board and another 1991 Arb.W.L.J.589, wherein observations in Nandyal Co-op.Spinning Mils Ltd. vs. K.V.Mohan Rao, 1993(2) SCC 654=1993 (1) Arb.LR 469 are referred which read thus: " Where a contract authorises a party to appoint an Arbitrator, but no arbitrator is appointed by that party within the time stipulated in the notice served by the other party, Court would get jurisdiction in terms of Section 8 of the Act to appoint an arbitrator." It is argued that since Respondent No.1 and Central Water Power Board have not exercised their right to appoint arbitrator in spite of notice, Respondent No.1 is not entitled to complain about appointment of sole arbitrator by the court. 17. Learned Counsel Shri S.M.Godsay also relied upon the case of Nandyal Co-op. Spinning Mills Ltd. vs. K.V. Mohan Rao, 1993 SCC 654, which is referred to above. In para 9, Sections 8 and 20 of the Arbitration Act are discussed. In paragraph 10, observations in para 3 in the case of Union of India vs. Prafulla Kumar Sanyal are referred to which are to following effect: ". If no such arbitrator had been appointed and when the parties cannot 17 agree upon an arbitrator, the court may proceed to appoint an arbitrator by itself. Thus if an arbitrator had been appointed whether in the agreement or otherwise, the court shall make an order of reference to him. In this case, clause 29 of the agreement provides that every dispute shall be referred to the sole arbitration of the person appointed by the President of India or if he is unwilling to act to the person appointed by the arbitrator. An arbitrator, in fact, has not been appointed by the President though provision has been made for such appointment..... If an arbitrator had not been appointed, as required in the sub-section, the court is to find whether the parties could agree upon an arbitrator. If there is no such agreement, the court will have to appoint arbitrator of its choice." 18. In Dharma Pratishthan v M/s Mudhok Construction Pvt. Ltd. AIR 2005 SC 214, it has been held that unilateral appointment of an arbitrator and unilateral reference by one party without consent of other is illegal and therefore the award given such Arbitrator is nullity and void ab initio and such award can be set aside under Section 30. 18 In paragraph 14to 19 of judgment in the said case, various earlier rulings have been referred and in paragraph 20 it has been observed: "20. Thus, there is ample judicial opinion available for the proposition that the reference to a sole Arbitrator as contemplated by para 1 of the First Schedule has to be a consensual reference and not an unilateral reference by one party alone to which the other party does not consent." 19. It is argued by Advocate Shri Godsay that though Shri A.K.Shenolikar was an arbitrator suggested by the contractor Shri S.D.Shinde, Respondent No.1 and its officers did not suggest any other name as an arbitrator and now they cannot complain about appointment of Shri Shenolikar as sole arbitrator by the court. 20. It may be noted that some of the authorities are referred to by more than one Advocate. I am not again referring to the same case, but I refer to ratio laid down in cases cited. 21. On the other hand, Advocate Shri Rajale for Respondent No. 1 also cited some authorities. 19 In the case of P.Manohar Reddy vs. Maharashtra Krishna Valley Development Corporation (2009) 2 SCC 494 (paras 19 and 20) following observations are made; "19. A plain reading of the aforementioned provisions clearly show that Clause 54 does not envisage raising of a claim in respect of extra or additional work after the completion of contract. The jurisdiction of the Civil court under Section 8 of the Act or under Section 20 thereof can be invoked if the disputes and differences arising between the parties was the one to which the arbitration agreement applied. 20. The contractual clause provides for a limitation for the purpose of raising a claim having regard to the provisions of Section 28 of the Contract Act. It is no doubt true that the period of limitation as prescribed under Article 137 of the Limitation Act would be applicable, but it is well settled that a clause providing for limitation so as to enable a party to lodge his claim with the other side is not invalid. " 20 22. It is argued before this court that the application for appointment of arbitrator ought to have been made within a period of thirty days after Defect Liability Period is over. Since admittedly foreclosure of the work by both the sides was on 25.1.1990, the period of six months thereafter would end on 25.7.1990 and as per the terms of agreement between the parties, application to the court ought to have been made within thirty days i.e. 25.7.1990. The period of three years if counted from that date, it comes to 25.7.1993 and therefore the application made to the court on 18.1.1995 for appointment of an arbitrator is barred by limitation and, therefore, the view taken by the learned Civil Judge, Senior Division cannot be faulted with. 23. Here, I may refer to clauses 54-A and 55-A of the contract. I reproduce them from statement of claim filed by the appellant. "54-A. If the contractor considers any work demanded of him to be outside the requirements of the contract or considers any drawings record or ruling of the Executive Engineer, K.I.P.DN No.III 51 ROR on any matters in connection with or arising out of the contract or carrying out of work to be unacceptable, he shall 21 promptly ask the Executive Engineer, in writing for written instructions or decision. Thereupon, the Executive Engineer shall give his written instructions or decision within a period of 30 days of such request. Upon receipt of the written instructions or decision the contract shall promptly proceed without delay to comply with such instructions or decision. If the Executive Engineer K.I.P.DN No.III 51 ROR fails to give his decision in writing within a period of 30 days after being requested or if the contractor is dissatisfied with the instructions or decision of the Executive Engineer, the contractor may within 30 days after receiving the instructions or decision appeal to upward authority who shall afford an opportunity to the contractor to be heard and to offer evidence in support of his appeal. This official shall give a decision within a period of 60 days after the contractor has given the said evidence in support of his appeal. 22 If the contractor is dissatisfied with this decision the contractor within a period thirty days from receip0t of the decision shall indicate his intention to refer the dispute to Arbitrator failing which the said decision shall be final and conclusive. ----------------------------------------- To be deleted where condition 54 is included. * To be adopted in the tender documents for works whose estimated cost put to tenders is Rs.50 lakhs or more, in which case condition 54 is deleted. sd/- sd/- Signature of No.of corrections Executive Contractor Engineer. All the disputes or differences in respect of which the decision has not been final and conclusive shall be referred for arbitration to a sole arbitrator appointed as follows. Within 30 days of receipt of notice from the contractor or his his intention to refer the dispute top arbitration the 23 Chief Engineer (S.P.) IRRIGATION DEPT. PUNE C shall send to the contractor a list of three officers of the rank of Superintending Engineers or higher, who have not been connected with the work under this contract. The contractor shall within 15 of receipt of this list select and communicate to the Chief Engineer, the name of one officer from the list who shall then be appointed as the sole Arbitrator. In case contractor fails to communicate this selection of name within the stipulated period, the Chief Engineer shall without delay select one officer from the list and appoint him as the sole arbitrator. If the Chief Engineer fails to send such a list within 30 days as stipulated the contractor shall send