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Municipal Corporation of Greater Bombay v/s Pre-Stress Products (India)

    Arbitration Appeal No. 2 of 2010
    Decided On, 21 January 2020
    At, High Court of Judicature at Bombay
    For the Appellant: Yashodeep Deshmukh, Kedar Khambete, Advocates. For the Respondent: Sunny Shah, i/b Hemant Sethi & Co., Advocates.

Judgment Text

Oral Judgment:

1. The Municipal Corporation of Greater Mumbai (“MCGM”) is the Petitioner. It challenges an order dated 23rd June 2009 of a sole Arbitrator dismissing at the threshold the MCGM’s Counter Claim. This Petition was admitted on 23rd July 2010.

2. I have heard Mr Deshmukh for the Appellants/Petitioners and Mr Shah for the Respondent at some length and with their assistance considered the record and the authorities they have placed. For the reasons that follow, I believe I have no option but to allow the Petition and to set aside the order.

3. The facts, to the extent necessary are these. Before May 1983, the MCGM proposed the construction of a large underground reservoir of approximately 10 million litres capacity, including a pump house and other ancillary facilities, to improve the water supply in the city’s A and C Wards. In May 1983, the MCGM invited tenders for this work on a turnkey and lump sum basis. The tender was published in local newspapers. The work comprised the construction of an underground RCC reservoir, the construction of an underground pump house, providing adequate machinery including electrical works, and, finally, provisioning a sub-station of electric supply. The Respondent was one of the bidders. Its bid was accepted by the MCGM, which issued a work order on 15th June 1984. The contract period was for 24 months, including the two monsoon periods.

4. There were disputes and differences between the parties. In 1996, the Respondent fled an Arbitration Suit No. 3262 of 1996 in this Court asking for a reference to arbitration. In November 1999, the MCGM accepted the Respondent’s suggestion and approved the appointment of a sole Arbitrator.

5. On 23rd December 1999, the Arbitrator gave directions for fling pleadings. The MCGM was allowed to file a Counter Claim. The Respondent was to file its Reply to that Counter Claim and an Affidavit in Rejoinder to the Written Statement. The Respondent fled its Statement of Claim and the MCGM fled a detailed Written Statement to the Counter Claim. However, the Respondent never fled any Written Statement or Statement of Defence to the Counter Claim nor a Rejoinder to the Written Statement from January 2000 for the next nine years until June 2009. Between 19th January 2001 and 20th March 2001, arguments were advanced by both sides. Then there was a hiatus. This continued for several years. Arguments resumed only six years later in April 2007 and concluded two years after that on 12th March 2009.

6. Up to this point, the parties were arguing the Statement of Claim. After these arguments were over, the MCGM through its counsel began arguments on the Counter Claim. One of the submissions on behalf of the MCGM was that in default of a Statement of Defence or a Written Statement, the MCGM would be entitled to its Counter Claim being allowed in full. At that point, the representative of the Respondent raised an oral plea of maintainability saying that the Counter Claim was not maintainable because MCGM had not followed Clause 96 of the General Conditions of Contract (“GCC”), admittedly a part of the contract in question, for referring the disputes to arbitration and, consequently, there was even a violation of Clause 97 of the GCC. The MCGM objected saying that there had been no intimation that such a plea was being taken or proposed. There was nothing in writing. The MCGM was caught unawares.

7. By the impugned order, and I am only concerned with the order made on the Counter Claim not the order made on the Respondent’s Statement of Claim, the arbitral Tribunal accepted the Respondent’s contention on maintainability and said that he had no jurisdiction to entertain the claim.

8. Hence, this Petition.

9. Clauses 96 and 97 of the General Conditions of Contract read like this:

“96. Any disputes or differences to be referred to Commissioner if any doubt, dispute or difference arises or happens between the Engineer or any other officer on the one hand and the Contractor on the other hand touching or concerning the said works or any of them, or relating to the quantities, qualities description or manner of work done and executed by the contractor, or to the quantity or quality of the materials to be employed therein, or in respect of any additions, deductions, alternations or deviations made into or form the said works or any part of them, or touching the concerning the meaning or intention of this contract or of any part thereof or of any plans, drawings, instructions or direction referred to therein or which may be furnished, or given during the progress of the works or touching or concerning any whatsoever relating to the Contractor in the premises every such doubt, dispute and difference shall from time to time be referred to the Commissioner who shall give his decision within a period of 90 days and if the contractor is not satisfied with the decision of the Commissioner or the Commissioner fails to give the decision within the period of 90 days, such dispute may be referred to arbitration as per condition no. 97.

97. Arbitration All disputes or differences whatsoever which shall any time arise between the parties hereto touching or concerning the works or the execution or maintenance thereof or this contract or the construction, execution, or maintenance thereof or this contract or the construction meaning operation or effect thereof or, to the rights or liabilities of the parties or arising out of or in relation thereof whether during or after completion of the contract or whether before or after determination, foreclosure or breach of the contract (other than those in respect of which, the decision of any person is by the contract expressed to be final and binding) shall after notice by either party to the contract to the other of them specify the nature of such dispute or difference and call for the point or points at issue to be referred to the arbitration.”

10. The relevant portion of the Award is paragraph 12 and this is what it says:

“12. There are judicial pronouncements to the effect that before referring any dispute for arbitration u/cl. 97, the contractor has to comply with the mandatory requirements of Cl 96. In the present case, the present Respondents have complied with such a requirement in respect of the proceeding wherein they are Claimants. The question is whether the claimants herein (i.e. MCGM) are also required to comply with the requirements of Cl. 96 of GCC.”

(Emphasis added)

11. This statement of law is entirely wrong. It is contrary to settled law, and was contrary to the law settled at the time when the learned sole Arbitrator made this order.

12. In Municipal Corporation of Greater Mumbai vs Atlanta Infrastructure Ltd & Anr, (2005 SCC OnLine Bom 1453: (2006) 2 Bom CR 596) a Division Bench of this Court while reversing the view of a learned Single Judge held in terms that this very Clause 96 of the GCC was never mandatory and did not demand mandatory compliance. There being an apparent conflict between Atlanta Infrastructure and an unreported decision in Chavan Construction Company vs MCGM (Arbitration Suit No. 3540 of 1992), the issue was referred to a Full Bench of this Court in S Kumar Construction Company Mumbai & Anr vs Municipal Corporation of Greater Mumbai & Ors. (2017 (2) Mh LJ 718). The Full Bench upheld the decision of the Division Bench in Atlanta Infrastructure.

13. Now Atlanta Infrastructure was a decision rendered on 16th December 2005, at least four years before the impugned arbitral order. There was not the slightest possibility of the learned sole arbitrator observing as he did in paragraph 12 that ‘there were judicial pronouncements to the effect that before referring any dispute to arbitration under Clause 97, a contractor had to comply with the mandatory requirements of Clause 96.’ In fact the position was exactly the reverse. There was no such requirement. The impugned order does not cite a single ‘judicial pronouncement’ in support of its view.

14. The entirety of this order proceeds on this basis.

15. But there is another dimension to this, and that is the second limb of the order, viz., the finding returned in paragraph 23 that the MCGM had not complied even with the provisions of Clause 97. The submission by the Respondent before the arbitrator and which the arbitrator upheld was that a notice specifying the claim was required. Here again, the finding of the arbitral Tribunal is patently illegal. It is actually perverse, and egregiously so. It ignores the opening portions of the clause which speaks of all disputes and differences. More importantly, while it refers to a letter of 13th May 1994 sent by MCGM, it does not deal with it even cursorily, let alone consider its evidentiary weight. The letter is undisputed. The impugned order simply brushes it aside, something that no court could have done. A copy of that letter is annexed to the present Petition, at Exhibit “A” from pages 20 to 22. That it was before the learned sole Arbitrator is not in doubt. That letter contains at its end a specific itemization of the five claims made by the MCGM, specifying the heads of claims and the amount under each. If this is not in sufficient compliance with Clause 97 then nothing is. The finding returned in paragraph 23 of the impugned award is unsustainable. It says:

“23. It is clear in the present case, the MCGM the Claimants, herein have not complied with the mandatory requirement as provided u/cl. 96 of GCC. Technically speaking, they have not even complied with the requirement of Cl. 97. Mr Siodia referred to certain letters, and in particular the letter dated 13.05.2014and stated that the Respondents had been informed about their claims. That is neither here not there, as there was no compliance with the requirement of Cl. 96 and 97 of GCC.”

16. Finally there is the question of procedure. It is argued before me that the Arbitrator was appointed in a suit. This should make no difference. It is also argued that because he is a creature of contract appointed by consent of parties rather than an order of a Court, his decision is final and cannot be assailed. That does not give an arbitral tribunal the license to return an order, award or finding that is in direct violation of settled law or one that perversely ignores vital evidentiary material. It also does not permit an arbitral tribunal to proceed like this without ensuring that both sides have sufficient advance notice of the points on which they have to address. As I have noted, the Respondent gave no warning to anyone that it was going to raise this issue of maintainability. Had it done so, there is no doubt at all that Atlanta Infrastructure would have been placed before the arbitrator. Had he done so, and this is something he was required by any concept of fair procedure to do, I have not the slightest doubt that he could not have returned the finding in paragraph 12. I do not see how the arbitrator could expect any lawyer to have the fullness of law and precedent at his fingertips.

17. It is also argued that a question of maintainability may be raised at any time and even by the tribunal itself. Nobody questions that. But even if that was raised by the tribunal, the answering party would have had to be given advance notice of it. A point for determination would have had to be framed.

18. None of this is even remotely compelling. The 1996 Arbitration Act, and before me both sides agree that this is what was being referenced by the learned sole Arbitrator, requires in Section 16 an objection as to competence to be raised not later than the submission of the Statement of Defence. The Respondent’s argument is that since it never fled a Statement of Defence, it could raise the objection at any time and had no requirement to do so even in writing. That is not the law. An overriding mandate is that the arbitrator must conduct himself above all in a fair and even manner. This means not only that the rules of natural justice must be followed but that the entire process must be even-handed. No party can be taken unawares. There is nothing at all urged or shown to me to indicate that the Respondent had at any time in almost the one decade that it took to get to this stage ever put the MCGM to notice that they were raising the question of maintainability. This was literally raised at the eleventh hour when the Arbitrator took up the Statement of Claim. The plea was raised in opposition to the MCGM’s counsel’s submission that for want of a written statement the MCGM’s Counter Claim should be allowed in full. Any concept of fair play required that the MCGM and its counsel should have been given sufficient notice or at least time to be able to address the issue. It seems that counsel for the Respondent merely raised this, cited no authority, explained no law and then left the rest of it to arbitral imagination. The arbitrator himself referenced no law and cited no precedent although there was clearly one that was entirely binding on him.

19. The Supreme Court gives us the full conspectus of the nature of challenges under Section 34 in Associate Builders vs Delhi Development Authority. I need only emphasise certain portions:

29. It is clear that the juristic principle of a “judicial approach” demands that a decision be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would obviously not be a determination which would either be fair, reasonable or objective.

31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:

(i) a finding is based on no evidence, or

(ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or

(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.

32. A good working test of perversity is contained in two judgments. In Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312], it was held: (SCC p. 317, para 7)

“7. … It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law.”

In Kuldeep Sinih v. Commr. of Police [(1999) 2 SCC 10 : 1999 SCC (L&S) 429] , it was held: (SCC p. 14, para 10)

“10. A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with.”

33. It must clearly be understood that when a court is applying the “public policy” test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Very often an arbitrator is a lay person not necessarily trained in law. Lord Mansfield, a famous English Judge, once advised a high military officer in Jamaica who needed to act as a Judge as follows: “General, you have a sound head, and a good heart; take courage and you will do very well, in your occupation, in a court of equity. My advice is, to make your decrees as your head and your heart dictate, to hear both sides patiently, to decide with firmness in the best manner you can; but be careful not to assign your reasons, since your determination may be substantially right, although your reasons may be very bad, or essentially wrong”. It is very important to bear this in mind when awards of lay arbitrators are challenged. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. [(2012) 1 SCC 594 : (2012) 1 SCC (Civ) 342] , this Court held: (SCC pp. 601-02, para 21)

“21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or re-appreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. …”

(Emphasis added)

20. Then comes the pronouncement of law on ‘patent illegality’, in these words:

42. In the 1996 Act, this principle is substituted by the “patent illegality” principle which, in turn, contains three subheads:

42.1. (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is really a contravention of Section 28(1)(a) of the Act, which reads as under:

“28. Rules applicable to substance of dispute. —

(1) Where the place of arbitration is situated in India—

(a) in an arbitration other than an international commercial arbitration, the Arbitral Tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;”

42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality — for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside.

42.3. (c) Equally, the third subhead of patent illegality is really a contravention of Section 28(3) of the Arbitration Act, which reads as under:

“28. Rules applicable to substance of dispute. — (1)-(2)***

(3) In all cases, the Arbitral Tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.”

This last contravention must be understood with a caveat. An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do.

(Emphasis added)

21. The ratio of Associate Builders was reaffirmed in Ssangyoni Engineering Construction Company Ltd vs National Highway Authority of India (2019 SCC OnLine SC 677).

22. Not only is there an error apparent in this Award, but it also suffers from a patent illegality within the definition provided by Delhi Development Authority and is contrary to the public policy in India as explained by that decision. Depriving one side of a sufficient opportunity violates our public policy. Sufficient opportunity means not just letting parties argue but giving them enough notice of a ground proposed to be taken and giving them time to prepare for it to present the fullest of the opposition.

23. An arbitrator cannot be arbitrary. He cannot be capricious. If he is, his award will not survive judicial scrutiny.

24. The reliance by Mr Sash on the decision in the Supreme Court in State of Goa vs Praveen Enterprises (2012) 12 SCC 581) is of little assistance. The discussion there was of the distinction between different modes of reference of disputes to arbitration. Nothing in Praveen Enterprises permits an arbitral tribunal to proceed contrary to settled law, to ignore evidence, or to conduct proceedings in this uneven manner.

25. The arbitrator could not have dealt with the MCGM’s letter of 13th May 1994 in the manner that he did. If he was to hold that despite the five-point itemization of claims this was an insufficient compliance of Clause 97 then his decision had to contain reasoning to support this conclusion. Before him, there was neither argument nor reasoning but simply a statement that the 13th May 1994 letter is not even in technical compliance with the requirements of Clause 97. I fail to see why not. I do not know what further could be expected of the MCGM and if by this it is meant that the notice of 13th May 1994 had to specifically mention Clause 97 then that borders on the absurd because both sides would have known of the contract that applied to them and the omission of a specific reference to this or that clause can never be fatal. The failure to consider evidence is as we have seen fatal as Associate Builders tells us. This is not a question of appreciating evidence. This is a question of ignoring it altogether and that is something the Arbitrator could not have done. To this extent, therefore, the question raised in the Supreme Court in Praveen Enterprises is immaterial.

26. Then there is a reliance placed on the decision of a learned Single Judge of the Delhi High Court in BSNL vs Kavveri Telecom Products Ltd & Anr (2009 SCC OnLine Del 2337).There again, I do not find the decision to be on point. The arbitrator in that case himself raised the question of the limits of his jurisdiction under Section 16 and the learned Single Judge found that it was always open to the arbitral tribunal to do so. That is undoubtedly correct. But it has no bearing on this case. That is not even Mr Deshmukh’s case. Therefore, citing Kavveri Telecom is a strawman argument, trying to defeat a case that is not even made. The objection here came not from the arbitrator but on an oral plea taken by the Respondent, and that too without any intimation or notice to the MCGM that it was going to be raised or taken. There was no letter. There was no writing. There was no pleading. It was merely an oral submission made at the very last minute. Counsel for the Respondent did not even have the courtesy of informing counsel for the MCGM, although arguments were going on for 10 years, that he proposed to take this argument at some time or the other in opposition to the Counter Claim.

27. The Award simply cannot be sustained. There are multiple grounds for setting it aside, as I have noted, and it certainly approaches the legal standard of perversity and of Wednesbury unreasonableness in arriving at a thoroughly implausible and illegal conclusion, one that was impossible given the state of the law and the state of the record.

28. The Petition succeeds. The impugned order on the MCGM’s counter-claim is set aside. The Counter Claim will have to be adjudicated. There is no question of leaving open to the Respondent any right to invoke clause 97 of the GCC as a threshold objection to the Counter Claim. Any other pleas as to jurisdiction are left unaffected. But they will have to be taken in writing. Neither party will be entitled to raise a jurisdictional plea orally.

29. I will exercise my powers under the Arbitration and Conciliation Act 1996 and refer parties to the arbitration for adjudication on the Counter Claim. I appoint Mr Firdosh Pooniwala, learned Advocate of this Court, to be the sole Arbitrator who will decide the Counter Claim of the MCGM on merits. The Respondent will be entitled to raise all questions of jurisdiction including limitation under Section 16 except to the extent noted above, and they will do so in writing.

30. In order to save time, and since so much time has been lost, I will myself set the schedule for fling and completion of pleadings before the learned Sole Arbitrator. The statement of claim in the Counter Claim is already with the Respondent. No application for amendment is now to be permitted. A statement of defence to the Counter Claim is to be fled and served on or before 21st February 2020. There is to be no Rejoinder.

(a) Appointment of Arbitrator: Mr Firdosh Pooniwala, learned Advocate of this Court is hereby nominated to act as a Sole Arbitrator to adjudicate the Counter Claim in question.

(b) Communication to Arbitrator of this order:

(i) A copy of this order will be communicated to the learned Sole Arbitrator by the Advocates for the Applicant within one week from the date this order is uploaded.

(ii) In addition, within one week of this order being uploaded, the Registry w

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ill forward an ordinary copy of this order to the learned Sole Arbitrator at the following postal and email addresses: Arbitrator/s Mr Firdosh Pooniwala, Advocate. Address 406, 4th floor, BNG House, Next to Central Camera, 197/199, Dr. DN Road, Mumbai 400 001 Mobile 98211 11461 Email firdoshpggmail.com (c) Disclosure: The learned Sole Arbitrator is requested to forward the necessary statement of disclosure under Section 11(8) read with Section 12(1) of the Arbitration Act to the Prothonotary and Senior Master of this Court, referencing this arbitration application, as soon as possible, and in any case sufficiently before entering upon the reference to arbitration. That statement will be retained by the Prothonotary & Senior Master on the file of this application. Copies will be given to both sides. (d) Appearance before the Arbitrator: Parties will appear before the learned Sole Arbitrator on such date and at such place as the learned Sole Arbitrator nominates to obtain appropriate directions in regard to fixing a schedule for completing pleadings, etc. (e) Contact/communication information of the parties: Contact and communication particulars are to be provided by both sides to the learned Sole Arbitrator within one week of this order being uploaded. The information is to include a valid and functional email address. (f) Section 16 application: The respondent is at liberty to raise all questions of jurisdiction within the meaning of section 16 of the Arbitration Act. All contentions are left open. (g) Interim Application/s: (i) Liberty to the parties to make an interim application or interim applications including (but not limited to) interim applications under Section 17 of the Arbitration & Conciliation Act, 1996 before the learned Sole Arbitrator. (ii) The learned Sole Arbitrator is requested to dispose of all interim applications at the earliest. (h) Fees: The arbitral tribunal’s fees shall be governed by the Bombay High Court (Fee Payable to Arbitrators) Rules, 2018. (i) Sharing of costs and fees: Parties agree that all arbitral costs and the fees of the arbitrator will be borne by the two sides in equal shares in the first instance. (j) Consent to an extension if thought necessary. Parties immediately consent to a further extension of up to six months to complete the arbitration should the learned Sole Arbitrator find it necessary. (k) Venue and seat of arbitration: Parties agree that the venue and seat of the arbitration will be in Mumbai. 31. The Petition is disposed of in these terms. In the facts and circumstances of the case, there will be no order as to costs.