Case: M/s Laxmi Continental Construction Co Vs. State of U.P. &amp; Anr

2. The facts leading to the present appeal in nutshell are as under:-2.1 A contract was entered into between the appellant and the respondents regarding the earthwork including lining of V.U.G.C. from KM 10 to KM 11 vide agreement dated 06.02.1988. During the contract work, various disputes and differences arose between the parties. All disputes and differences between the parties were required to be resolved through arbitration in pursuance of clause 52 of the agreement. Clause 52 of the agreement reads as under:-All disputes or differences in respect of which the decision is not final and conclusive, shall be referred for arbitration to a sole arbitrator appointed as follows:Within thirty days of receipt of notice from the contractor of his intention to refer the dispute to arbitration the Chief Engineer shall send to the contractor a list of three officers of the rank of Superintending Engineer or higher, who have not been connected with the work under this contract. The contractor shall within fifteen days 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. If contractor fails to communicate his 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 thirty days, as stipulated, the contractor shall send a similar list to the Chief Engineer within fifteen days. The Chief Engineer shall then select an officer from the list and appoint him as the sole arbitrator within fifteen days. If the Chief Engineer fails to do so the contractor shall communicate to the Chief Engineer the name of one officer from the list, who shall then be the sole arbitrator.The arbitration shall be conducted in accordance with the provisions of the Indian Arbitration Act, 1940 or any statutory modification thereof. The decision of the sole arbitrator shall be final and binding on the parties thereto. The arbitrator shall determine the amount of costs of arbitration to be awarded to either parties.Performance under the contract shall continue during arbitration proceedings and payments due to the contractor by the owner shall not be withheld, unless they are the subject matter of the arbitration proceedings.All awards shall be in writing and in case of awards amount to Rs.1.00 Lakh and above, such awards shall state reasons for the amounts awarded.Neither party is entitled to bring a claim to arbitration if arbitrator has not been appointed before the expiration of thirty days after defect liability period.2.2 Arbitrator was required to be appointed as provided under clause 52 of the agreement. The Chief Engineer appointed one Shri S.S. Manocha, who at the relevant time was also a Chief Engineer, as an Arbitrator vide order dated 31.10.1992. The Sole Arbitrator entered into the Reference on 19.11.1992 and issued notice to the parties directing them to submit the relevant papers and documents etc. The claimant filed its claim giving all details. The respondents also filed their objections to the said claim of the claimant. The respondents, thus, participated in the proceedings before the Sole Arbitrator. On various dates, the arbitration proceedings were adjourned at the instance of the respondents. During the period, the learned Arbitrator Shri S.S. Manocha superannuated on completion of superannuation age on 30.11.1995. During the hearing, the time for making and publishing the award was extended from time to time by the respondents. That the Superintending Engineer vide its letter dated 09.08.1996 refused to extend the period of arbitration particularly when the arbitration was about to close and the same could not be completed due to lapses, default and seeking adjournments on the part of the respondents.2.3 The appellant thereafter filed Arbitration Suit No.116 of 1996 before the Civil Judge (Senior Division), Roorkee under Section 28 of the Arbitration Act, 1940 praying for extension of time for making the award and for hearing and conducting the arbitration. The respondents took their objections that the arbitrator has got retired and, therefore, the arbitration proceedings should not be proceeded further by the Sole Arbitrator, who has retired. Even the respondents also filed Misc. Suit No. 122 of 1997 with a prayer for declaring Reference sent to the Sole Arbitrator as inoperative and illegal.2.4 Both the suits were heard together by the learned Civil Judge (Senior Division), Roorkee. By common order dated 11.12.1997, the learned Civil Judge (Senior Division) extended the period of arbitration for 30 days and directed the Sole Arbitrator, Shri S.S. Manocha to decide the same within the extended period of time. That thereafter, the learned Sole Arbitrator, Shri S.S. Manocha declared the award on 08.01.1998 and ordered the respondents to pay a total sum of Rs.10,97,024.00 with interest on the said sum from 01.10.1990 to 07.01.1998. The respondents filed their objections under Section 30/33 of the Arbitration Act, 1940 vide Misc. Case No. 3 of 1998, challenging the said award and made prayer therein for setting aside the award dated 08.01.1998 before the learned Civil Judge (Senior Division), Roorkee.2.5 Having found that arbitration clause 52 of the agreement does not provide for terminating the mandate of the Arbitrator on his retirement, the learned Civil Judge (Senior Division), Roorkee overruled the objections raised by the respondents herein and made the award dated 08.01.1998 Rule of the Court.2.6 Feeling aggrieved, dissatisfied with the judgment and order dated 20.04.2001 passed by the learned Civil Judge (Senior Division), Roorkee, overruling/rejecting the objections of the respondents and making the award dated 08.01.1998 Rule of the Court, the respondents preferred appeal before the High Court and by impugned judgment and order the High Court has allowed the said appeal and has quashed and set aside the award dated 08.01.1998 made by Shri S.S. Manocha, the then Chief Engineer and the Sole Arbitrator and the order dated 20.04.2001 passed by the learned Civil Judge (Senior Division), Roorkee making the award Rule of the Court, solely and mainly on the ground that after the retirement of the Sole Arbitrator, Shri S.S. Manocha as Chief Engineer, he has misconducted himself by proceeding further with the arbitration proceedings.2.7 Feeling aggrieved and dissatisfied by the impugned judgment and order passed by the High Court, the original claimant has preferred the present appeal.

Court's reasoning:
12. Identical question came to be considered by this Court in the case of Himalayan Construction Co. (supra). The question before this Court was whether the High Court was justified in taking the view that the award, which is made the Rule of the Court by the learned Single Judge was illegal and liable to be set aside on the ground that the arbitrator, who was appointed by designation had retired and has ceased to hold his office when he passed the award. In that case also, the Sole Arbitrator even after his retirement prayed for extension of time and the extension was granted after hearing the parties and as no such objection was raised at that time, and thereafter the nominated Arbitrator, who was the officer, passed the award. This Court overruled the objection that after the retirement of the Sole Arbitrator, who was appointed by designation cannot continue arbitration proceedings after his retirement and cannot pass the award.13. In the present case also the Sole Arbitrator, who at the relevant time was the Chief Engineer and was qualified to become the Sole Arbitrator was even nominated and/or appointed by the Chief Engineer as per clause 52. Therefore, considering the clause 52 of the agreement, it cannot be said that his mandate to continue with the arbitration proceedings would come to an end on his retirement.14. It is further required to be noted that even the very objection was raised by the respondents before the learned Civil Judge (Senior Division), Roorkee when the question of extension of time was being considered by the learned Civil Judge (Senior Division), Roorkee. The learned Civil Judge (Senior Division), Roorkee overruled such an objection and granted further one months extension to the Sole Arbitrator to complete the arbitration proceedings. The said order has attained the finality. Therefore, thereafter, it was not open for the respondents to again raise such an objection.15. Now, so far as the reliance placed upon the amendment to Section 4 of the Indian Arbitration Act, 1940 as applicable to the State of U.P. is concerned, the aforesaid has no substance.On fair reading of the aforesaid provision, we are afraid that the aforesaid provision shall be applicable at all. It cannot be said that the Sole Arbitrator had become incapable of acting on his retirement from service.16. Even the observations made by the High Court in the impugned judgment and order that the Sole Arbitrator has misconducted himself by continuing with the arbitration proceedings after his retirement is also not tenable at law. In the present case, the learned Civil Judge (Senior Division), Roorkee extended the time to the Sole Arbitrator to complete the arbitration proceedings and granted further period of 30 days which was after his retirement and after specifically overruling/rejecting the objections raised by the respondents that after retirement, he cannot continue with the arbitration proceedings. Therefore, once the learned Sole Arbitrator continued with the arbitration proceedings and passed the award within the extended period of time, it cannot be said that he has misconducted himself as he continued with the arbitration proceedings.