w w w . L a w y e r S e r v i c e s . i n



Rajasthan Housing Board v/s Engineering Projects (India) Ltd. & Another


Company & Directors' Information:- ENGINEERING PROJECTS (INDIA) LIMITED [Active] CIN = U27109DL1970GOI117585

Company & Directors' Information:- ENGINEERING PROJECTS (INDIA) LIMITED [Under Liquidation] CIN = U27310JH1970GOI000860

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

Company & Directors' Information:- D ENGINEERING PRIVATE LIMITED [Active] CIN = U29269TZ1932PTC000046

Company & Directors' Information:- INDIA HOUSING LIMITED [Active] CIN = U45200PN2008PLC131883

Company & Directors' Information:- INDIA ENGINEERING PRIVATE LIMITED [Active] CIN = U72200PN1999PTC014259

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

Company & Directors' Information:- PROJECTS PVT LTD [Strike Off] CIN = U45201WB1951PTC019759

Company & Directors' Information:- INDIA HOUSING PROJECTS LIMITED [Active] CIN = U70109DL2013PLC253772

Company & Directors' Information:- H B PROJECTS PVT LTD [Amalgamated] CIN = U45201WB1993PTC058846

Company & Directors' Information:- J HOUSING PRIVATE LTD [Active] CIN = U74899DL1980PTC010338

Company & Directors' Information:- ENGINEERING PROJECTS PVT LTD [Active] CIN = U51109WB1948PTC017023

Company & Directors' Information:- K-HOUSING PRIVATE LIMITED [Strike Off] CIN = U45200TN2009PTC070655

Company & Directors' Information:- IN ENGINEERING PRIVATE LIMITED [Active] CIN = U74210DL2011PTC212284

Company & Directors' Information:- THE ENGINEERING CORPORATION PRIVATE LIMITED [Strike Off] CIN = U99999KA1951PTC000699

    Civil Revision Petition No. 1270 of 1998

    Decided On, 29 April 1999

    At, High Court of Rajasthan Jaipur Bench

    By, THE HONOURABLE MR. JUSTICE SHIV KUMAR SHARMA

    For the Appellant: Paras Kuhmad, Advocate. For the Respondent: M.R. Singhvi, Advocate.



Judgment Text

1. The meaningful question that falls for consideration in the instant revision is whether a void condition of agreement is severable from the main agreement or it renders entire agreement as void ?

2. This question arises in circumstances set out below.

3. The petitioner filed an application u/s 33 of the Arbitration Act, 1940 (in short the Act of 1940) inter alia questioning the validity of Article 14 of the Memorandum of Understanding dated 18-8-1989 (in short the MOU) initiated by Shri Shiv Prakash, respondent No. 2, at the instance of the Engineering Projects (India) Ltd., New Delhi (respondent No. 1). The case of the petitioner before the learned Court below was that the offers given by the respondent No. 1 on June 27, 1989 and July 29, 1989 for construction of houses at Jaipur for and on behalf of the petitioner were accepted by the petitioner and accordingly a MOU which was to remain in force for three years came to be executed on 16-8-1989. Article 14 of the said MOU is as under :

" 14. In the event of any dispute or difference relating to the interpretation and application of the provisions of the contract, such dispute or difference shall be referred by either party to the arbitration of one of the Arbitrators in the Department of Public Enterprises to be nominated by the Secretary to the Govt. of India in charge of the Bureau of Public Enterprises. The Arbitration Act, 1940 shall not be applicable to the arbitration under this clause. The award of the Arbitrator shall be binding upon the parties to the dispute provided however, any party aggrieved by such award may make a further reference for setting aside or revision of the award to the Law Secretary, Department of Legal Affairs, Ministry of Law and Justice, Govt. of India. Upon such reference the dispute shall be decided by the Law Secretary or the Special Secretary/Additional Secretary when so authorised by the Law Secretary, whose decision shall bind the parties finally and conclusively. The parties to the dispute will share equally the cost of arbitration as intimated by the Arbitrator."

4. In view of Articles 17, 19, 20, 21, 27. 41, 42, 44, 46, 47 and 56 of the MOU, the authorities/functionaries of the petitioner were authorised to decide any claim made by

the respondent No. 1 arising out of the works done and the defaults committed in respect of the works given to the respondent No. 1. Besides this Article 57 of the MOU specifically provided that if any disputes arise in respect of any of the matter comprised in the agreement it shall be settled by competent Court having jurisdiction. Therefore Article 14 of the MOU could not be invoked in respect of the disputes and situations which are covered by Article 57 of the MOU.

5. The construction work as stipulated in the MOU and the contracts separately executed thereunder having not been completed in the stipulated manner and time, a decision was taken in the joint meeting held between the respondent No. 1 and the petitioner on Jan. 25, 1993 and June 10, 1993, in terms of which the MOU and the contracts, executed thereunder were revoked and novated for completion of pending work and finalisation of inter se claims between the parties. On July 7, 1993 a letter was written by the respondent No. 1 referring to the foreclosure of the contract. By the said letter the respondent No. 1 also raised a claim of Rs. 15 crores. On October 15, 1993 the petitioner rejected the claim. The contention of the petitioner is that the order dated October 5, 1993 was final and binding and it could not have been assailed by the respondent No. 1 by any process of law.

6. It was further pleaded by the petitioner that on June 15, 1995 the respondent No. 1 without giving any requisite statutory notice to the petitioner filed an arbitration claim before the respondent No. 2. The claim was filed after an expiry of nearly 18 months from the date when the claim earlier raised by the respondent No. 1 was rejected by the petitioner on October 5, 1993. On coming to know about the said claim the petitioner submitted preliminary objections regarding the maintainability of the said proceedings before the respondent No. 2 on November 27, 1995. On December 27, 1995, the respondent No. 2 disputed the participation of the petitioner in the proceedings through its counsel. Thereafter an application was filed by the respondent No. 1 on Jan. 18, 1996 raising an objection against the petitioner being represented by its counsel. The respondent No. 2 did not decide the preliminary objection raised by the petitioner and posted the matter for hearing on merits on March 25, 1996. The petitioner thereafter on April 10, 1996 moved a petition before the Court of learned District Judge Jaipur City u/s 33 of the Act of 1940 as indicated hereinabove. Following pleas/ grounds were raised by the petitioner in the said petition :

a) Article 14 of the MOU could not be said to be a valid arbitration agreement as is known to law.

b) Since Article 14 of the MOU did not confer any finality upon the award to be given by the persons specified therein therefore it could not be said to be a valid arbitration clause.

c) Article 14 of the MOU by providing for an appeal against an award, by negating the application of the Arbitration Act and by excluding judicial review of the so-called arbitration proceedings by any Court of law was ultra vires Section 28 of the Contract Act as well as Section 47 of the Arbitration Act.

d) The proceedings so initiated by the respondent No. 2 at the instance of the respondent No. 1 were even otherwise ultra vires Section 50 of the Rajasthan Housing Board Act for non-compliance of the mandatory requirement thereof.

e) Even otherwise, Article 14 of the MOU could be pressed into service only for the purpose of resolving any dispute/difference between the parties regarding interpretation of the provisions of MOU and that the same could not be pressed into service for resolving the dispute arising in respect of execution of the contract separately entered into by the parties pursuant to the said MOU.

f) Clause 17/Articles 17, 19, 20, 21, 27, 41, 42, 44, 46 and 56 of the same very MOU also empowered the petitioner to take final decision in respect of the claims, disputes and matters referred to therein and it was clearly stipulated in the aforesaid articles/ clauses that the decision so taken by the petitioner shall be final and binding. Accordingly, the claim raised by the respondent No. 1 was considered and rejected by the petitioner vide its order dated 5-10-93 and the same being final and binding in nature, could not have been and in any case was not assailed by the respondent No. 1 by any process known to law.

g) The MOU dated 16-8-98 and the arrangements made thereunder were terminated by the parties in the joining meetings held on 25-1-93 and 10-6-93. In the said meetings the parties mutually decided to revoke the MOU dated 16-8-98 and the arrangements made thereunder. A fresh arrangement was made in the said meetings in respect of the conclusion of the pending works and for determination inter se rights and obligations of the parties in respect of the works done and defaults committed in respect of construction works awarded to the respondent No. 1. Thus, the entire contractual relationship between the parties was completely novated by them in the aforesaid joint meetings held on 25-1-93 and 10-6-93. The MOU dated 16-8-98 which is of a limited tenure of 3 years having been revoked and novated by the parties in the aforesaid joint meetings, the respondent No. 1 could not have thereafter taken recourse to Article 14 of the said MOU for adjudication of its so-called claims.

h) Article 14 of the MOU was not only illegal and ultra vires but was also not a valid arbitration clause for the purpose of deciding the disputes arising under the contract since Article 57 of the said MOU specifically provided that all disputes arising under the contract shall be decided by the competent Court within whose jurisdiction the said MOU was executed.

7. Detailed reply to the said petition was filed by the respondent No. 1. In the said reply it was inter alia contended by the respondent No. 1 as under :

a) Since the MOU excludes the application of the provisions of the Arbitration Act to the arbitrator exercising jurisdiction under Article 14 of the MOU therefore the petition u/s 33 of the Arbitration Act was not maintainable.

b) The petition u/s 33 of the Arbitration Act assails the legislative provisions of the Arbitration Act and therefore was beyond the jurisdiction of the Court.

c) The petition does not explain as to how the learned Court below before whom the said petition was filed had jurisdiction to decide the same.

d) The present petition also do not disclose the valuation the petition for the purpose of justifying/explaining the invocation of the jurisdiction of the learned Court below.

e) By virtue of Section 15 of the CPC the said petition ought to have been filed before

the lowest Civil Court i.e. the Court of Addl. Civil Judge.

f) The petitioner not having paid the requisite Court-fees as per the pecuniary jurisdiction of the learned Court below the petition u/s 33 deserved to be dismissed.

g) As per the judgment given by the Hon'ble Supreme Court no litigation between the Govt. of India and its undertaking could be commenced without prior permission from the competent committee. The petitioner being bound by the circular issued by the Central Govt. regarding resolution of all its disputes by arbitration, the petitioner could not have filed the present petition u/s 33 without taking prior approval from the concerned committee.

h) The petitioner having entered into the MOU which contains a specific clause about the non-application of the provisions of the Arbitration Act it was not permissible for the petitioner to subsequently turn around and assail the validity of the arbitration clause.

i) The petitioner having taken the benefits under the MOU it was estopped from subsequently challenging the validity of the said MOU.

j) If the petitioner does not accept the validity of the Arbitration clauses it ought to have filed a suit for declaration instead of filing of petition u/s 33,

k) Article 14 of the MOU which provides that the provisions of Arbitration Act shall not apply and also provides for an appeal against the decision taken by the arbitrator appointed thereunder is neither hit by Section 28 of the Contract Act nor is it in conflict with the provisions of Section 47 of the Arbitration Act.

l) The arbitration proceedings are immune from the law relating to limitation and therefore Section 50 of the Housing Board Act cannot have any bearing in respect of the proceedings initiated before the respondent No. 2.

m) The provisions of Articles 17, 19, 20, 21, 27, 41, 43, 42 and 46 of the MOU do not provide in any manner that the decision taken therein by the specified functionaries/authorities of the Housing Board would be final and binding and therefore the arbitrator appointed under Article 14 could exercise jurisdiction in respect of the matters covered by the aforesaid provisions of the MOU.

n) Mere determination of the works awarded under the MOU does not amount to novation of contract. Even if there is any novation of contract between the parties the right which has already accrued to one of the parties in respect of work already done prior to the novation does not come to an end.

8. The petitioner submitted rejoinder to the reply. The petitioner along with the petition u/s 33 of the Act of 1940 also submitted injunction application, which was dismissed by the Court below vide its order dated February 13, 1998. The petitioner assailed the said order by filing S. B. Civil Revision Petition No. 425/1998 before this Court. The said revision petition was allowed by this Court vide its order dated May 21, 1998 whereby the proceedings initiated by the respondent No. 1 before the respondent No. 2 were stayed and the learned Court below was directed to decide the main petition u/s 33 of the Act of 1940 within a period of three months. The learned Court below vide its order dated September 5, 1998 dismissed the petition of the petitioner filed u/s 33 of the Act of 1940. Against this order that the present action for filing the present revision petition has been resorted to by the petitioner.

9. Mr. Paras Kuhad, learned counsel appearing for the petitioner canvassed that the Court below has committed manifest jurisdictional error in holding that although the relevant clauses of Article 14 of the MOU were illegal, nevertheless the arbitration proceedings were maintainable since the illegal clauses of Article 14 of the MOU could be separated and overlooked. The learned counsel urged that the impugned order i,, also redundant, inherent and full of contradictions. On the one hand, the learned Court below held that its jurisdiction u/s 33 of the Arbitration Act was validly invocatale and on the other hand the Court below has refused to interdict u/s 33 of the Act of 1940 on the reasoning that the parties had allegedly ignored the illegal clauses of the arbitration agreement by initiating the arbitration proceedings before the respondent No. 2 and by participating in the proceedings before him. It was further contended that a combined reading of Articles 14 and 57 of the MOU makes it abundantly clear that the parties had clearly intended that the disputes arising under the contract could be adjudicated upon only by the competent Court. It was further urged that the Court below committed jurisdictional error in holding that the provisions of Section 50 of the Rajasthan Housing Board Act, 1970 (for short the RHB Act) could not have any bearing or applicability in present case. It was lastly contended that in view of illegal clauses of Article 14 of the MOU, the entire arbitration agreement is void and void agreement cannot be split up. Reliance was placed on Sri Tarsem Singh Vs. Sri Sukhminder Singh, and the Firm of The Firm of N. Peddanna Ogeti Balayya and Others Vs. Katta V. Srinivasayya Setti Sons,

10. On the other hand, Mr. M.R. Singhvi, learned counsel appearing for the respondent No. 1 supported the impugned order and contended that the petition moved by the petitioner before the Court below did not explain as to how the Court below had jurisdiction to decide the same. Even the said petition did not disclose the valuation in the petition for the purpose of justifying the invocation of the jurisdiction of the Court below. By virtue of Section 15 of the CPC the said petition ought to have been filed before the lowest Civil Court i.e. the Court of Addl. Civil Judge. It was further contended that if the petitioner does not accept the validity of the Arbitration clauses it ought to have filed a suit for declaration instead of filing petition u/s 33 of the Act of 1940. Article 14 of the MOU provides that the provisions of the Act of 1940 shall not apply and also provides for an appeal against the decision taken by the arbitrator appointed thereunder is neither hit by Sect ton 28 of the Contract Act nor is it in conflict with the provisions of Section 47 of the Act of 1940. The arbitration proceedings are immune from the law relating to limitation and therefore Section 50 of the RHB Act could not have any bearing in respect of the proceedings initiated before the respondent No. 2. The par ties had clearly intended that the disputes arising under the contracts were to be resolved through arbitration. Since Article 57 of the MOU does not provide that such disputes would be decided only by the competent Court, therefore the provisions of Article 57 of the MOU could not oust the jurisdiction of the Arbitrator. It was lastly contended that illegal clauses of Article 14 of the MOU could be easily separated from the main arbitration clause of Article 14 of the MOU. In fact the parties themselves had initiated the proceedings before the arbitrator and participated in the proceedings by excluding Article 14 of the MOU. The illegal conditions and clauses of Article 14 of the MOU could be ignored and the provisions of the Act of 1940 could be made applicable to the arbitration proceedings. Reliance was placed on M/s. Indian Drugs and Pharmaceuticals Ltd. Vs. M/s. Indo Swiss Synthetics Gem Manufacturing Co. Ltd. and others, Shree Bhowani Cotton Mills Vs. Union Textile Traders, Union of India (UOI) Vs. Salween Timber Construction (India) and Others, Marittima Italiana Steamship Company Vs. Burjor Framroze Rustomji Joshi, Bindra Builders Vs. Delhi Development Authority, The Printers (Mysore) Private Ltd. Vs. Pothan Joseph, .

11. I have reflected over the rival submissions and carefully scanned the material on record.

12-14. In the impugned order, the learned Court below has observed that from a perusal of the MOU it becomes evident that the parties had entered into a written agreement. The parties had clearly intended that the disputes arising under the contract were to be resolved through arbitration. Since clause 57 of the MOU does not provide that such disputes would be decided only by the competent Court, therefore the provisions of Article 57 of the MOU could not oust the jurisdiction of the arbitrator. The illegal conditions and clauses of Article 14 of the MOU could be ignored and the provisions of the Act of 1940 could be made applicable to the arbitration proceedings. The provisions of Section 50 of the RHB Act are applicable to the civil suits and they have no bearing in respect of arbitration proceedings.

15. Now therefore I have to examine as to whether the Court below had committed jurisdictional error in passing the impugned order and if it is allowed to stand the petitioner would suffer irreparable loss or it would occasion failure of justice.

16. Admittedly, Article 14 of the MOU provides that the Arbitration Act, 1940 shall not be applicable to the arbitration under this clause and this condition is void in view of the provisions contained in Section 28 of the Indian Contract Act (for short the Contract Act). Section 47 of the Act of 1940 provides that the provisions of the Act of 1940 shall apply to all arbitrations and to all proceedings thereunder but this shall be subject to the provisions of Section 46 and save in so far as is otherwise provided by any law for the time being in force. Therefore the provisions of Act of 1940 shall not apply to statutory arbitrations to the limited extent as is provided in Section 46 of the Act of 1940.

17. Section 28 of the Contract Act provides thus --

"Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent."

(Underlining is mine)

18. In Marittima Italiana v. Burjor Framroze (supra) the Division Bench of Bombay High Court indicated thus --

"Where in an agreement, there is a stipulation attempting to oust the jurisdiction of the Court, it is undoubtedly void u/s 28, but that section has not the effect of making the whole agreement void but only that portion which relates to the ouster of the jurisdiction."

19. Their Lordships of the Supreme Court in Tarsem Singh v. Sukhmlnder Singh (supra) had occasion to interpret Sections 13, 14 and 20 of the Contract Act. It was indicated that mutual consent should be free consent and is sine qua non of a valid agreement. It was held that if a thing is not understood in the same sense by the other party that would u/s 20 invalidate the agreement from its inception even if the discovery of this fact is made at a later stage.

20. It was observed that Section 20 provided that an agreement would be void if both the parties to the agreement were under a mistake as to a matter of fact essential to the agreement. The mistake has to be mutual and in order that the agreement be treated as void, both the parties must be shown to be suffering from mistake of fact.

21. In para 28 of the judgment it was propounded thus --

'if the forfeiture clauses is contained in

an agreement which is void on account of the fact that the parties were not ad idem and were suffering from mistake of fact in respect of a matter which was essential to the contract, it cannot be enforced as the agreement itself is void u/s 20 of the Contract Act. A void agreement cannot be split up. None of the parties to the agreement can be permitted to seek enforcement of a part only of the contract through a Court of law. If the agreement is void, all its terms are void and none of the terms, except in certain known exceptions, specially where the clause is treated to constitu

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te a separate and independent agreement, severable from the main agreement, can be enforced separately and independently." 22. In the case before me the parties are not suffering from mistake of fact in respect of matter which was essential to the contract. Therefore the agreement is not void in view of Section 20 of the Contract Act. As already stated certain conditions and clauses of Article 14 are void in view of Section 28 of the Contract Act which attempted to oust the provisions of the Act of 1940 from their applicability to the arbitration proceedings. Section 28 of the Contract Act does not have the effect of making the whole agreement void but only that portion which relates to the ouster of the jurisdiction. It says in the concluding part of it that the stipulation is void "to that extent." The ratio of Marttima Italiana Steamship Co. v. Burjor (supra) is fully applicable in the instant case and I do not find any merit in the contentions of learned counsel appearing for the petitioner that entire MOU is void. 23. In so far as applicability of Section 50 of the RHB Act is concerned I am of the view that it relates to the notice before institution of civil suit. It has no applicability to the arbitration proceedings. 24. I also do not agree with the contentions that the proceedings initiated by the respondent No. 1 before the respondent No. 2 relates to disputes which are covered by Article 57 and not Article 14 of the MOU. Article 57 of the MOU does not prima facie oust the scope of Article 14 of the MOU, It is not necessary for me to appreciate the other articles referred by the learned counsel while making submissions. 25. I do not see any jurisdictional error in the observations made by the learned Court below in the impugned order. A combined look of the MOU demonstrates that the parties had entered into written agreement with the intention that the dispute arising under the contract were to be resolved through arbitration. The illegal conditions and clauses of Article 14 of the MOU can be ignored and the provisions of the Act of 1940 can be made applicable to the arbitration proceedings. To my mind if the impugned order is allowed to stand, the petitioner would not suffer irreparable loss. 26. Resultantly, the revision petition stands dismissed. No costs.
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