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National Project Construction and Corporation Limited v/s Union of India


Company & Directors' Information:- P C INDIA LIMITED [Strike Off] CIN = U33111TN1986PLC013401

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- NATIONAL CONSTRUCTION CO. PVT LTD [Active] CIN = U45200JH2007PTC012720

Company & Directors' Information:- UNION CONSTRUCTION COMPANY PRIVATE LIMITED [Strike Off] CIN = U45201PN2001PTC015926

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- NATIONAL UNION CORPN PVT LTD [Strike Off] CIN = U51909WB1940PTC010240

Company & Directors' Information:- J A J PROJECT CONSTRUCTION PRIVATE LIMITED [Strike Off] CIN = U45400GJ2014PTC078635

Company & Directors' Information:- NATIONAL UNION LTD [Not available for efiling] CIN = U74999KL1951PLC000818

    A.P.O. No. 210 of 2014 & A.P. No. 1439 of 2013 (Original Side)

    Decided On, 19 September 2014

    At, High Court of Judicature at Calcutta

    By, THE HONOURABLE CHIEF JUSTICE DR.(MRS) MANJULA CHELLUR & THE HONOURABLE MR. JUSTICE ASHIM KUMAR BANERJEE

    For the Appellant: Sumita Mookherjee, KumKum Das, Advocates. For the Respondent: Maloy Das, Aparna Banerjee, Advocates.



Judgment Text

Ashim Kumar Banerjee, J.

CORE ISSUE

Short point involved in this appeal would be, whether appointment of a former Judge, by Court under Section 11(6) of the Arbitration and Conciliation Act 1996, to act as arbitrator, would be held to be invalid when the agreement would refer to appointment of Railway Gazetted Officers to act as arbitrator.

BACKDROP

Railway invited a tender for construction that the respondent procured being successful in the tender process. The parties signed and executed the formal agreement on May 28, 2004 and thereby made themselves bound by the General Conditions of Contract 2001. It was not clear as to what was the relevant clause prevalent as on the date of signing of the agreement. We observe so as we find, in 2001 two different clauses were governing the field. The relevant clauses are quoted below:

'Clause 63(a)(iii) it is a term of this Contract that no person other than a Gazetted Rly Officer should act as an Arbitrator/Umpire and if for any reason, that is not possible, the matter is not to be referred to Arbitration at all.'

The Railway would bank upon the aforesaid clause to set aside the award published by the former Judge of this Court whereas the claimant would strenuously contend, the clause quoted above was not prevalent as on the date of execution of the contract. They would refer to other clauses of the General Conditions of Contract, particularly clause 64 that would operate in the field of arbitration.

Clause 64(1)(I) and 64(3)(a)(ii) and (iii) being relevant herein are quoted below:

'64.(1)(I) Demand for Arbitration-

In the event of any dispute or difference between the parties here to as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such case, but except in any of the ‘except matters’ referred to in clause 63 of these conditions, the contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters, shall demand in writing that the dispute or difference be referred to arbitration.'

'64.(3)(a)(ii) In cases not covered by clauses 64(3)(a)(i), the Arbitral tribunal shall consist of a panel of three Gazetted Rly officers not below JA grade, as the arbitrators. For this purpose, the Railway will send a panel of more than 3 names of Gazetted Rly. Officers of one or more departments, of the rly to the contractor who will be asked to suggest to General Manager upto 2 names out of the panel for appointment as contractor’s nominee. The General Manager shall appoint at least one out of them as the contractor’s nominee and will, also simultaneously appoint the balance number of arbitrators either from the panel or from outside the panel, duly indicating the presiding arbitrator from amongst the 3 arbitrators so appointed. While nominating the arbitrators it will be necessary to ensure that one of them is from the Accounts department. An officer of selection Grade of the Accounts department shall be considered of equal status to the officers in SA grade of other departments of the Railways for the purpose of appointment of arbitrators.'

'64(3)(a)(iii) If one or more of the arbitrators appointed as above refuses to act as arbitrator, withdraws from his office as arbitrator, or vacates his/their officer/offices or is/are unable or unwilling to perform his functions as arbitrator for any reason whatsoever or dies or in the opinion of the General Manager fails to act without undue delay, the General Manager shall appoint new arbitrator/arbitrators to act in his/their place in the same manner in which the earlier arbitrator/arbitrators had been appointed. Such re-constituted Tribunal may, at its discretion, proceed with the reference from the stage at which it was left by the previous arbitrator(s).'

On a combined reading of the aforesaid three Clauses, the appellant would contend, the fetter imposed in 1985 quoted above, was not prevalent as on the date of execution of the contract. Hence, the Railway was not entitled to rely upon the said Clause.

The facts would further depict, the appellant claimant asked for referring the dispute to arbitration that the Railway failed. As a result, the appellant invoked Section 11 and this Court appointed a former judge of this Court to act as arbitrator. The Railway participated in the arbitration process, they filed counter statement, however, in counter statement, they took the plea of maintainability of the arbitration. They contended, since the relevant Clause would require Gazetted Railway Officers to be appointed as arbitrator, the former Judge constituting the Arbitral Tribunal had no jurisdiction to deal with the reference. Pertinent to note, the Railway did not challenge the order of appointment, at least, it was not contended before us. The Railway contended, the appellant failed to perform their obligation under the contract, they inordinately delayed in commencing the work. As a result, by notice dated April 10, 2004, they were cautioned and ultimately the contract was terminated vide notice dated July 9, 2004. The appellant made a claim on November 10, 2004 with regard to their outstanding and demanded arbitration vide letter dated June 18, 2005. The Railway did not appoint arbitrator within the stipulated period resulting in an application under Section 11. The learned arbitration Judge, vide judgment and order dated July 11, 2005, allowed the said application and the Hon’ble Chief Justice appointed a former Judge of this Court to act as arbitrator vide order dated August 25, 2005. The Railway accepted the said order and did not challenge such appointment, save and except, filing the counter statement as indicated above. The arbitrator ultimately published his award on July 31, 2013 that the Railway challenged before the learned Single Judge.

SETTING ASIDE APPLICATION

The railway filed an application for setting aside of the award on December 3, 2013 coupled with a prayer for condonation of delay.

The principle ground of challenge, as we find from the application, was jurisdiction of the arbitrator to entertain the reference. According to them, under Clause 64(a)(ii) and (iii), only the Railway Gazetted Officers were entitled to act as arbitrator.

The preliminary objections were raised in the 9th sitting that the arbitrator ignored and proceeded to publish the award on July 31, 2013. The Railway also contended, claim No. 4 should not have been allowed and the arbitrator erred in law in awarding interest at the rate of 18 per cent per annum. The appellant contested the said application and reiterated, since the Railway did not appoint their arbitrator this Court was entitled to invoke their power under Section 11(6) that would deserve no challenge.

JUDGMENT AND ORDER DATED FEBRUARY 24, 2014

IMPUGNED HEREIN

The learned Single Judge did not go into the merits of the matter.

His Lordship considered the Clause relied upon by the Railway quoted (supra) and held, the Tribunal did not have the competence to arbitrate. His Lordship relied upon Division Bench decision of this Court in the case of Union of India vs. Builders Corporation Private Limited reported in 2009 Calcutta High Court Notes Volume-IV Page- 252 and held, it was an inherent lack of jurisdiction. The Division Bench considered earlier two Supreme Court decisions in the case of Union of India vs. M.P. Gupta reported in 2004 Supreme Court Cases Volume-X Page-504 and an unreported decision dated July 19, 2007 in the case of Union of India vs. Krishna Kumar (Civil Appeal No. 6324 of 2004). The Railway also relied upon a decision in the case of Union of India vs. Sohan Lal Puglia reported in 2004 Supreme Court Cases Volume-I Page-768 and the Constitution Bench decision in the case of SBP and Company reported in 2005 Supreme Court Cases Volume-VIII Page-618 that overruled the previous Constitution Bench decision in the case of Konkan Railway Corporation Limited vs. Rani Construction Private Limited reported in 2002 Supreme Court Cases Volume-II Page-388.

His Lordship also referred to the division Bench decision in the case of Supriya Kumar Saha vs. Union of India (APOT No. 520 of 2013). His Lordship ultimately held, the decision in SBP and Company would hold the field, however, that would have no retrospective effect, as the said decision would be final and binding from the date of delivery of the said judgment. In this regard, His Lordship relied upon the decision in the case of Niraj Kumar Bhora vs. Union of India reported in All India Reporter 2009 Calcutta Page- 59 in which one of us (Banerjee J.) was a party.

In SBP and Company Limited (supra), the Apex Court observed, when the Hon’ble Chief Justice made the appointment that could no longer be assailed before the Arbitral Tribunal. Only Course to question such appointment, was to approach the Apex Court.

Following the said decision so clarified by Niraj Kumar Bhora (supra), the learned Single Judge allowed the application for setting aside in view of earlier clause 63 (3)(a)(i) quoted (supra) where the parties agreed, there could be no arbitration in case the authority, for any reason, cannot appoint an arbitrator, meaning thereby, parties agreed, the appointment of arbitrator could only be done by the authority named in the agreement in the manner prescribed thereunder and not otherwise. His Lordship did not apply the ratio decided in SBP and Company Limited (supra) as the arbitrator was appointed before delivery of the said decision.

THIS APPEAL

Being aggrieved, the appellant claimant preferred the appeal that we heard on the above-mentioned date.

CONTENTION

Mrs. Sumita Mookherjee appeared on behalf of the appellant and contended, learned Judge proceeded on the wrong footing as the Clause so prevalent as on the date of execution of the contract was not the one that his Lordship considered. Mr. Maloy Das learned Counsel appearing for the respondent-Railway disputed such contention. Hence, we asked the parties to file affidavits.

Accordingly, affidavits were filed and ultimately Mr. Das conceded, the relevant clause earlier relied upon by the Railway, was not prevalent as on the relevant date. Mr. Das would however, contend, the other clauses so relied upon by the appellant quoted above, would also suggest, the Tribunal must contain members of Railway service being the Railway Gazetted officers, a former Judge of this Court, without having any such qualification, could not have manned the Tribunal that would also amount to inherent lack of jurisdiction.

OUR VIEW

In the case of Supriya Kumar Saha (supra), the Division Bench vide judgment and order on December 24, 2013 dealt with the earlier precedents referred to above, and observed that despite SBP and Company (supra) started holding the field, right to question the Constitution of the arbitral Tribunal in a Konkan Railway Corporation Limited (supra) situation was not lost until the decision in the case of SBP and Company (supra) started operating the field. In the case of Indian Oil Corporation Limited and Others vs. Raja Transport Private Limited reported in 2009 Arbitration Law Reporter Volume-III Supreme Court Page-354, the Apex Court in their decision rendered on August 24, 2009, considered M.P. Gupta (supra) and dealt with a situation where it was the term of the contract that no person other than the Director Marketing or his nominee could act as arbitrator. Considering such Clause the appointment was set aside. In the case of Niraj Kumar Bhora (supra), the Clause would stipulate, for any reason if there was no appointment in terms of the contract, there would be no arbitration at all.

Considering such situation, the Division Bench upheld the order of learned Single judge upsetting the award. In the case of Union of India vs. Bharat Battery Manufacturing Corporation Private Limited reported in 2007 Supreme Court Cases Volume-VII Page-684 decided on August 13, 2007, the Apex Court held, once application under Section 11 (6) was filed the right to appoint under the agreement ceased. However, this decision did not take care of Constitution Bench decision in the case of SBP and Company (supra).

The decision cited at the bar operating the field including Konkan Railway Corporation Limited (supra) and M.P. Gupta (supra) did have the view that the subsequent decision in SBP and Company (supra) overruled. However, SBP and Company (supra) would make it clear, that would have a prospective effect. In the instant case, arbitrator was appointed much prior to the decision in case of SBP and Company (supra). The present issue would however, stand on a different footing in view of the concession made by the Railway before us, inter alia, contending, the ouster clause so relied upon by the learned Single Judge had not been prevalent as on the date when the subject agreement had been entered into. It is true, the decision in the case of SBP and Company (supra), would have the prospective effect. However, we cannot overlook the principle so expressed by the Constitution Bench. With this mind set, may we decide the present issue.

The Clause referred to by the Railway would make it clear, in case, for any reason arbitrator could not be appointed by the appointing authority mentioned in the agreement, there would be no arbitration at all. Hence, the parties agreed, they would only go for arbitration through the mechanism stipulated in the agreement and in case, such mechanism failed, there would be no arbitration at all. Hence, on that score, learned Judge was absolutely right. The situation changed before us. Mr. Maloy Das ultimately conceded, the said Clause was not prevalent. In such view of the matter, the situation would be completely different. We have to proceed on the basis of the clauses relevant for the purpose relied upon by the appellant quoted (supra). Mr. Das would contend, the qualification of the arbitrator was Railway Gazetted Officer. The appointing authority could nominate only the Railway Gazetted Officers who only would be competent to arbitrate. The appellant demanded arbitration. The appointing authority failed to appoint, hence, Section 11(6) would have definite role to play. The provision would stipulate, when a party failed to act as required under the procedure, the other party m

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ay request the Chief Justice to appoint an arbitrator and the Chief Justice would appoint such arbitrator who would arbitrate the dispute. This appropriate provision is not under challenge. The principle that was laid down SBP and Company (supra), in our view, would definitely have a role to play particularly when the award was published after the said decision had been rendered. The situation would have been different if the earlier Clause relied upon by the Railway would hold the field. It was not so. The learned Single Judge allowed the application for setting aside as the appointment of arbitrator in this case was made in August 25, 2005 being a date anterior to delivery of judgment in the case of SBP and Company (supra) that was delivered on October 26, 2005. The situation was otherwise herein. RESULT The judgment and order setting aside the award is set aside. The award is upheld save and except, the interest part. The arbitrator awarded interest at the rate of 12 per cent per annum as interest pendentilite and thereafter added the same with the principal and awarded interest on judgment on the total amount at the rate of 18 per cent per annum. It would shock the conscience of the Court. Moreover, the arbitrator overlooked the provision as to whether interest could be allowed at all. We modify the award to the extent, the principal amount of Rs. 75,13,208 would attract interest at the rate of 12 per cent per annum on and from the date of final award until payment. The appeal is thus disposed of without any order as to costs. Dr. Manjula Chellur, CJ. I agree.
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