1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.407 OF 2006 Ispat Industries Ltd. ...Petitioners Vs. Baby Samuel & Co., ...Respondents Mr. Rahul Narichania with Shardul Ramaiya for Petitioners Mr. Gurukrishna Kumar with Ruchir Tolat I/b. L.C. Tolat & Co., for Respondents CORAM: SMT.ROSHAN DALVI, J. DATED: 21 ST OCTOBER, 2008 JUDGMENT 1. The Petitioners have challenged the Arbitration Award dated 15 th June, 2006 in this Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (the Act). 2. The parties had entered into various contracts for various works connected with the setting up of a steel plant called Hot Strip Mill (HSM). 3. There were in all 2 contracts between the Petitioners and the Respondents and 2 contracts between the Petitioners' sister concern one M/s Ispat Metallics Industries Ltd. (IMIL) 2 and the Respondents. Under the 2 contracts of the Petitioners certain additional works were required to be carried out as exigencies were created during the construction of the HSM. Those contracts were also given to the Respondents under certain work orders/letters of intent. The Respondents carried out those works also. 4. It has been the Petitioners case that the Respondents failed to carry out the work covered under the contracts and yet demanded the payment. It is the Respondents case that the Respondents carried out the works and submitted the bills. Those bills have been certified by the Engineers of the Petitioners M/s. M.N. Dastoor and Company Ltd. Upon such certification the amounts have become due and payable. The Respondents also contend that the Petitioners have shown these amounts as due and payable thereby acknowledging their liability towards such payments and deducted taxes at source (TDS) on the precise amounts certified by the Engineers. The Respondents have relied upon such circumstantial evidence in support of their claim showing the corroboration of their claim by the Petitioners themselves by actual deduction of TDS. 5. The Respondents entered into certain correspondence 3 with the Petitioners for demanding payments under the aforesaid certificates beginning with their letter dated 15th September, 1999. The correspondence thereupon ensued. The Respondents by their letter dated 5th January, 2000 invoked the Arbitration clause under the contracts between the parties and appointed their sole Arbitrator and called upon the Petitioners to appoint their Arbitrator. The Petitioners having failed to do that the Respondents filed an Application No.34 of 2000 under Section 11 of the Act on 8th March, 2000. 6. An order came to be passed on 2nd February, 2001 and 9 th February, 2001 by this Court under which an Arbitrator came to be appointed and certain further other directions, extraneous to an application under Section 11 of the Act also came to be passed. These directions clarified essentially that only the contracts between the Petitioners and Respondents were referred to Arbitration and hence, such arbitration would be for the 2 contracts between these parties and not for the 2 other contracts of the Respondents with the Petitioners' sister concern IMIL. 7. The Respondents challenged the order of the appointment of Arbitrator in a Writ Petition and thereafter in 4 a Special Leave Petition in the Supreme Court. On 4th October, 2004 the parties entered into a consent order. The contracts between the parties were referred to arbitration. This would mean and include only the 2 contracts between the parties and the work order/letters of intent thereunder. Consequently the parties agreed that all the matters for which there were disputes for payment were referred to arbitration excluding the matters for which payment was to be made by the sister concern of the Petitioners, IMIL. 8. The parties filed their statement of claim and sought an interim Award. 9. It has been the case of the Petitioners that only 2 contracts between the parties out of the 4 enumerated initially by the Respondents being contract Nos. (i) and (iv) formed a part of the reference, but the Arbitrator passed an interim Award in respect of not only those 2, but the other contracts as well. The Petitioners Advocate has referred me to the interim Award. The Petitioners have sought to have that order set aside on the ground of excess of jurisdiction. 10. The Petitioners further contend that even on merits the claim as adjudicated by the Arbitrators is not correct as it has been determined only under the TDS Certificates issued 5 by the Petitioners. 11. The Petitioners contended that only reliance upon TDS Certificates is improper and that the TDS Certificate is issued as a matter of practice in their Company on ad- hoc amounts before the bills came to be certified. The Petitioners were directed to lead oral as well as documentary evidence in that regard. The Petitioners led such evidence. The evidence showed no more than the fact of the issue of the TDS certificates upon the precise certified amounts. No other practice of the Petitioners Corporation other than that of the deducting tax at source at the rate of 2% on the amount specifically certified came out in the evidence. Hence, on merits the Arbitrators passed their Award which has been impugned in this case. The challenge is on the same 2 grounds. 12. The first challenge relating to the excess of jurisdiction would have to be seen from the initial statement of claim and the reply thereto read with the revised statement of claim and the reply thereto. It will also have to consider the order in the SLP dated 4th October, 2004 passed by the consent of the parties and incorporating the specific ambit of arbitration. It would have to be seen whether only the initial 2 contracts of the Respondents or the work orders/letters of 6 intent which came to be executed between the parties as an incident of the main contracts also would have to be seen. It may be mentioned that contracts arising out of and which are incidental to the main contract would necessarily have to be referred to and be decided in the same arbitration proceedings, as if it is otherwise it would run against the very purpose and spirit of arbitration itself which would be reference of all the dispute between the parties for its final adjudication before an adjudicating authority of their choice. The exclusion, if any, would therefore, have to be specifically pleaded and proved by the party so contending. 13. The merits of awarding the amounts as per the TDS certificates after considering the evidence which the Petitioners desired to lead and which the Petitioners required the Arbitrators to consider would have to be seen to appreciate whether leading of such evidence by any practice of the Petitioners would make any difference. 14. With regard to the claim of excess of jurisdiction the initial reference sought to be made must be seen. The Petitioners gave notice for reference of the dispute to arbitration on 5th January, 2000. The notice referred to earlier correspondence between the parties. This correspondence commenced from the Petitioners' letter dated 7 15 th September, 1999 and ended with the letter dated 18th November, 1999 in which the Petitioners demanded payment for the work done by them under 4 contracts (2 of which were with the Petitioners herein and 2 with their sister concern IMIL). The Petitioners appointed Mr. Mukund Vaishampayani, C.A as their Arbitrator to enter upon and decide and adjudicate the requisitions set out in the Petitioners' earlier correspondence for payments demanded by the Petitioners which may arise out of the 4 contracts enumerated by the Petitioners. 15. A reference to the earlier correspondence is therefore, required. The initial letter dated 15 th September 1999 sets out the work carried out by the Plaintiff under the supervision of M/s. M.N.Dastoor and Company Ltd. It mentions about the 7th R.A bills submitted and specifies other distinct works carried out by the Respondents. Hence, the reference to arbitration was in terms of the 4 contracts read along side those specific works carried out by the Plaintiff. These other specified works were under separate work orders/letters of intent. Whether or not, the Respondents would be entitled to the amounts claimed under them would have to be adjudicated upon in the arbitration. My attention is drawn to the requirement of the notice of arbitration in Russell On Arbitration Twenty- First 8 Edition at page 183 . Notice in the form of a letter would suffice. My attention is also drawn to the scope of such reference at page 185 runs thus: “ Scope of the reference : Whether a particular matter is within the reference will be determined as a matter of construction of the notice of arbitration, giving the words used their natural meaning in the context in which they were used and applying an objective test. The factual background to the giving of the notice and any previous communications between the parties concerning the issues between them will therefore be relevant in construing the scope of the reference to arbitration. If, by the time the notice of arbitration is given, the parties' previous communications indicate that it would be natural to expect the reference to arbitration to include all the outstanding disputes , that fact may be taken into consideration.” (Underlining supplied) 16. Since the Petitioners did not appoint their Arbitrator, the Respondents flat a petition under Section 11 of the Act for reference of the disputes under the 4 contracts enumerated 9 as aforesaid. The Respondents also made reference to the previous correspondence including the letter dated 15th September, 1999 and the Respondents denial resting that letter dated 18 th November, 1999 of the Respondents. The prayer in the said Petition is for confirming the appointment of Mr. Mukund Vaishampayani, C.A and for appointing an Arbitrator on behalf of the Respondent for resolution by adjudication of all the disputes and all the claims by and between the parties “arising out of 4 contracts as mentioned in para 2(V) of the Petition and the work done and executed by the Petitioner ”. 17. Therefore, the work done under the aforesaid 4 contracts including contracts at Nos.(i) and (iv) were all sought to be referred to Arbitration. The reference to arbitration was specified to be for those 4 contracts as well as the work done and executed by the Petitioner and not only for “work done and executed by the Petitioner thereunder ”. 18. It is argued on behalf of the Petitioners that only those 4 contracts were sought to be referred to arbitration and that the other work under the work orders/letters of intent were not referred to arbitration. Aside from the fact that it would be for the Petitioners to show and prove why the Respondents would not refer all those disputes under those 10 work orders also to arbitration when they all related ultimately to the HSM project, the reading of the aforesaid prayer shows a complete contrary intention as well as application of the Respondents. It may be mentioned that if only those 4 contracts were sought to be referred to arbitration then the last portion of the prayer cited above would be redundant and if made the Respondents would have sought for work done and executed by them “thereunder”. 19. It is argued on behalf of the Petitioners that the orders passed in the said Petition dated 2nd February, 2001 and 9th February 2001 specified only 2 contracts being referred to arbitration and hence all the others being works done under the work orders / letters of intent came to be excluded. 20. This contention is erroneous. A reading of the order shows the exclusion of the 2 contracts which were excluded by the Respondents not with the Petitioners, but their sister concern. Hence, the order specifies only 2 contracts specified in paragraph 2 (V) of the Petition. That does not exclude the ancillary contracts thereunder since the prayers are also in respect of the work done and executed by the Respondents herein. 11 21. The true ambit of the reference is spelt out in the Consent order signed by both the parties in the SLP dated 4th October, 2004. The parties have specified that all the contentions of the parties are kept open for the arbitral proceedings. This clause would have been redundant if only 2 contracts were to be considered. The contentions of the Respondents herein were not only in respect of the 2 contracts but also works done by them. This consent order came to be passed despite the fact that the writ petition filed by the Respondents herein was only against the appointment of the Arbitrator from which order the SLP came to be filed. It was, therefore, settled between the parties that all the disputes between them would be referred to arbitration and all their contentions would be kept open. This would be in the fitness of things. It is impossible to accept that the Respondents specifically did not want to refer everything to arbitration when they have claimed amounts on their bills also under the Work Orders / Letters of Intent. 22. The contention of the Respondent that all their claims and contentions were referred to arbitration can be seen also from the statement of claim made by them followed by the reply of the Petitioners and the revised statement of claim again made by them followed by the reply of the Petitioners. In the first statement of claim the Respondents have set out 12 not only the 4 contracts but the specified works done under work orders/ letters of intent. They are in all 8 heads showing the contracts between the parties. 3 of these contracts are with the sister concern. Hence, in the amended statement of claim those 3 have been excluded. The reply of the Respondents to the first suit claims containing 8 separate heads shows the 3 items which required to be excluded because they were with IMIL. They have specified that there are in all 5 contracts between the claimants and the Respondents. They have also specified the descriptions of these contracts as work orders, contract for soil improvement work, site leveling work etc. These were under 2 parent contracts. 23. Similarly in the Petition filed by the Petitioners herein under Section 11 of the Act only the contracts of IMIL are sought to be executed. The matter being referred to arbitration is specified to be “only in respect of claims arising out of the contract between claimants and the Respondents” and not between the claimants and IMIL. This also shows exclusion of only the contracts of IMIL. Consequently the Arbitrators themselves in the interim award excluded the contract of IMIL and restricted the interim award to the contracts between the parties. Hence they specifically included contracts (i) and (iv) contained in 13 the initial para 2(V) of the Petition of the Respondents and excluded the contracts (ii) and (iii) of the said para. 24. The revised statement of claim, therefore, showed the specific the 2 contracts between the parties and the work orders which were the works done by the Plaintiffs also. 25. In short it can be seen that in the first statement of claim the Respondents claim 4+3 aspects for reference and in the revised statement of claim they claimed 2+3 aspects for reference. The aforesaid 2+3 aspects for reference have been considered by the Arbitrators. All the contentions of the parties which were kept open were heard. Their jurisdiction cannot be taken to be excluded. 26. So far as the merits of the claim is concerned the Arbitrators have considered the bills drawn by the Respondents upon the Petitioners and certified by the Engineers of the Petitioners M/s. M.N. Dastoor and Company Ltd. The certification is to the last decimal point. Unless contrary is shown that amount must be taken to be paid upon certification. What else is shown is that the Petitioners have deducted taxes on those specified amounts at the rate of 2%. The Respondents contend that this constitutes acknowledgment of liability to pay. That 14 acknowledgment is only after the certification of the bills. The Petitioners have failed to show that the TDS was deducted on any ad- hoc basis or by way of practice. The Arbitrators have considered the evidence led and concluded that the specific amounts were certified and on that specified amount taxation has been paid by deduction at source. Those amounts are in-disputably the liability of the Petitioners. The Petitioners have relied upon the case of Jyotsna K. Valia Vs. T.S. Parekh & Co., 2007(3) BCR 772FB to show that the TDR deducted cannot be looked into. The contention is completely misconceived. That judgment of the Full Bench is with reference to which matters could be the subject matter of a Summary Suit filed under Order 37 of the C.P.C. The Summary Suit could be filed only on a negotiable instrument, a guarantee or a written contract. A mere deduction of TDS is held not to constitute such a written contract or an acknowledgment of liability of a liquidated amount. Hence, merely on such a TDS Certificate a Summary Suit is held not to be competent. Reading of a part of that judgment without reference to the question being considered by the Full Bench results in misconceived contentions. In this case the Arbitrators have not only relied upon the TDS Certificates as an acknowledgment of debt or liability. They have essentially considered the certified bills. They have found nothing 15 shown by the Petitioners herein to dispute their own Engineers' certification. They have relied upon the TDS as corroborative, circumstantial evidence showing the intention and acknowledgment of the Petitioners towards the liability. Hence, the award has been passed thereunder and up to that claim. This certification as well as the TDS certificates relied upon not only for the main contracts (i) and (iv), but also for works done by the Respondents herein. These are for the 3 other work orders/letters of intent etc. specified in the Petition of the parties and in the reference. The adjudication is based upon the same factors. Nothing shown by the Petitioners constitutes an error in considering the certified bills and the TDS paid pursuant to the Petitioners' Engineers' certification in each of these contracts and works done by the Respondents. There is nothing to successfully challenge the Arbitration Award. The Petition is dismissed. Execution of the award is stayed for 4 weeks. (SMT. ROSHAN DALVI, J.)