IN THE HON’BLE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. Arbitration Cases 82 and 84 of 2002. Judgment Reserved on 3.12.2009. Date of decision January 8, 2010. Arb. Case 82 of 2002. The Bishop Cotton School …Petitioner. versus M/S Kuthiala Builders Pvt. Ltd. ..Respondent. Arb. Case 84 of 2002. M/S Kuthiala Builders Pvt. Ltd. ..Petitioner. Versus The Bishop Cotton School ….Respondent. Coram: The Hon’ble Mr. Justice Dev Darshan Sud, J. Whether approved for reporting?1 No. Arb. Case 82 of 2002 For the petitioner Mr. K.D.Sood, Advocate. For the respondent Mr. J.S.Bhogal, Sr. Advocate with Mr. Suneet Goel, Advocate. Arb. Case 84 of 2002. For the petitioner Mr. J.S.Bhogal, Sr. Advocate, with Mr. Suneet Goel, Advocate. For the respondent Mr. K.D.Sood, Advocate. Dev Darshan Sud, J. 1 Whether Reporters of Local Papers are allowed to see the judgment? Yes. - 2 - Both these petitions under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter referred to as the Act) challenge the award made by the arbitrator in the claim and counter claim filed by the claimant- Kuthiala Builders Pvt. Ltd. and counter claim by the Bishop Cotton School. On the settled issues before the Arbitrator, he dismissed both the claims and the counter claims. The contractor was awarded work for construction of work for Dormitories called “Remove” by an agreement executed between them on 17.12.1991 pursuant to negotiations held on 29.11.1991. The school had engaged M/S Shilpa, The Mall, Shimla as Architect for the work and had nominated him to be their representative in accordance with the terms of the contract. The contractor claims that the work was completed by the objector on 28.7.1997 and bills were submitted for verification to the Architect appointed by the school who was also their agent. In the interregnum, the contractor had been submitting interim bills for the work executed which also included extra work executed and payments were being made by the school without any objection. The final bill was submitted on 4.9.1998 which was verified by the - 3 - Architect on his letter head under his signatures on 22.2.1999. The bill was for a sum of Rs.62,68,075.90 (Ex. C-9). The claimant contractor submitted that according to the provisions of the contract, it was to be paid within 15 days of verification. Objection with respect to defects had to be raised within a period of 12 months from the date of completion. The claimant submits that no claim for rectification of defects etc. was made within the stipulated period. Shri B.R.Gupta, Retired Additional District & Sessions Judge was nominated as the sole arbitrator who entered upon the reference on 10.3.2000 and announced his award on 12.7.2002 dismissing both the claim and counter claim filed by the parties to this petition. Both the contractor and the school have objected to the award. The school had filed a counter claim for Rs.38,47,431/- and additional counter claim of Rs.75,33,481/-. The certificate Ex. C-9 issued by the Architect was central to the dispute between the parties. This certificate was claimed as final and conclusive by the contractor in accordance with the contract between the parties whereas the Arbitrator has held that no reliance can be placed on it. - 4 - In arriving at this conclusion, the Arbitrator holds that the Certificate, unless admitted by the opposite side cannot justify the claim. He says that there is no admission on behalf of the School accepting this Certificate as final; (i) that in accordance with the provisions of Section 19 of the Act, he is not bound by the principles of the Code of Civil Procedure, but such principles have to be kept in mind. The Arbitrator notes that there is no evidence in support of the claim made by the contractor; (ii) Certificate Ex.C-9 is supposed to have been issued by the Architect M/S Shilpa through Sh. S.C.Rai, Architect and according to the Arbitrator this has not been proved as nobody has come forward to identify his signatures. The submission made by the learned counsel for the school that the Architect is not available and his whereabouts are not known was accepted and the Arbitrator holds that the contractor could take other steps to prove Ex.C- 9, but he failed to do so. Mere marking the certificate as an exhibit does not establish the claim of the contractor; (iii) the certificate includes escalation of costs which are not binding on the school, (iv) certificate is vitiated by fraud. - 5 - He holds: “(ix) ……Fraud defeats justice and cuts at the roots of all judicial proceedings. Once fraud is apparent in the issuance of the final certificate C-9 dated 22.2.1999 (as discussed above), the certificate has to be discarded as a whole and not in parts. Once that certificate C-9 is taken out of consideration, the claim of the contractor cannot sustain and therefore, these issues are decided against the contractor.” Taking up the last conclusion first that fraud has been established, I cannot subscribe to the conclusions arrived at by the Tribunal. It is true and the established law that fraud vitiates all transactions. (See S.P.Chengalvaraya Naidu (Dead) by LRs. v. Jagannath (dead) by LRs. and Others, (1994) 1 SCC 1, holding: “1. Fraud avoids all judicial acts, ecclesiastical or temporal” observed Chief Justice Edward Coke of England about three centuries ago. It is settled proposition of law that a judgment or decree obtained by playing fraud on the court is a nullity and non est in the eyes of law. Such a judgment/ decree- - 6 - by the first court or by the highest court- has to be treated as a nullity by every court, whether superior or inferior. It can be challenged in any court even in collateral proceedings.” “6. ….A fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another’s loss. It is a cheating intended to get an advantage….”) However, in order to establish fraud, it has not only to be pleaded, but proved. The necessary ingredients, the circumstances which either independently or cumulatively establish fraud have to be specified with certainty and proved in accordance with law. Fraud in law is a well defined concept. Section 17 of the Indian Contract Act defines fraud as:- “17.”Fraud” defined: Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract: - 7 - (1) The suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (2) The active concealment of a fact by one having knowledge or belief of the fact; (3) A promise made without any intention of performing it; (4) Any other act fitted to deceive; (5) Any such act or omission as the law specially declares to be fraudulent. Explanation:- Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence, is, in itself, equivalent to speech.” I do not find from the pleadings and evidence that any of these ingredients have been pleaded, much-less proved. A perusal of the pleadings shows that the School has adopted an ambivalent attitude and has not clearly spelt out the grounds of fraud which seek to vitiate the facts sought to be established by Ex.C-9. The Arbitrator has completely ignored the fact that the Architect was none other than the - 8 - representative of the School and everything seemed to have functioned normally till the final bill was submitted. The school is not correct in submitting (which submissions has been accepted by the arbitrator) that the Architect is not traceable. This submission was made in the context of the plea by the school that the Architect was required to submit the details of the verification etc. There are three letters on record, dated 25.2.2000, 5.4.2000 and 23.12.1999 addressed by the School to the Architect which show that it was within their knowledge as to where he was residing. One of these letters is addressed to this Architect in Bhopal. On the aspect of proof of signatures, all that I need say is that having accepted by the Arbitrator that he is not bound by the strict law of evidence, he should have at least made an attempt to consider the certificate on the material available and then see whether it establishes the claim of the contractor or not more especially when the pleading of the school also does not dispute the signatures of the Architect, but it is the verification of particular figures in measurements and calculations which are disputed. His finding that the claimant was not entitled to the escalation cannot be accepted as - 9 - according to clause 10 (cc) of the Central Public Works Department, terms and conditions of the contract were made integral part of the agreement between the parties allowing escalation as a cost component. I find that the reasons advanced by the Arbitrator are perverse and cannot be sustained. That is not to hold that the Certificate itself perse establishes the claim of the contractor. The consideration by the Arbitrator is perfunctory and cannot be sustained. Coming to the counter claims filed by the School, again the Arbitrator has given short shrift to its consideration. He only says that the Headmaster has not submitted himself for cross examination and, therefore, the material on record cannot be accepted. It is nobody’s case that the Headmaster himself was making all the calculations or checking the bills. What had to be established on record was the bills etc. of the counter claim submitted by the respondents and whether such costs were incurred owing to the acts attributable to the contractor claimant. The expenditure, measurements etc. required a different mode of proof and not mere cross examination of the Headmaster. - 10 - Both these petitions are accordingly allowed. The Award passed by the Arbitrator is quashed and set aside. I have not pronounced on the merits or the correctness of the claims and counter claims of both the parties. They shall be free to establish their respective claims in accordance with law. There shall be no order as to costs. Pending applications shall stand disposed of. January 8, 2010(PC). (Dev Darshan Sud), J.