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Union of India, through Chief Engineer, Military Engineering Services, Hyderabad through Commander Works Engineer v/s M/s. Steelfab Engineering Corporation

    First Appeal No. 306 of 1998

    Decided On, 06 February 2018

    At, In the High Court of Bombay at Nagpur

    By, THE HONOURABLE MR. JUSTICE MANISH PITALE

    For the Appellant: Mugdha Chandurkar, Advocate. For the Respondent: None.



Judgment Text

1. The appellant-Union of India has filed this appeal challenging judgment and order dated 16.03.1998 passed by the Court of Civil Judge, Senior Division, Wardha (trial Court) in Miscellaneous Judicial Case No.6 of 1995. By the said judgment and order, Trial Court has held that it could not go into the merits of the award under Section 17 of the Arbitration Act, 1940, in view of the fact that objections raised on behalf of the appellant under Section 30 of the said Act stood rejected in earlier proceedings and, therefore, all that remained in the application filed by the respondent under Section 17 of the said Act, was to proceed to pronounce judgment in accordance with the award.

2. The appellant takes exception to the approach of the trial Court and contends that under Section 17 of the said Act, the Court is duty bound to examine the merits of the award even if application for setting aside the award on the grounds enumerated in Section 30 of the said Act had been rejected earlier. The appellant also contends that in the instant case, such application filed on behalf of the appellant under Section 30 of the said Act was dismissed in default and that therefore, there was no consideration by the Court as regards the objections on merits. In this situation, it was all the more necessary for the Court to have examined the merits of the award while exercising jurisdiction under Section 17 of the said Act and in not doing so, the trial Court committed a grave error in passing the impugned judgment and order.

3. The facts in brief in the present case are that the respondent was awarded the work of construction of covered sheds at Ammunition Depot, Pulgaon, by the appellant in pursuance of an agreement executed between the parties. The said work was completed on 12.10.1997 and during the final settlement of accounts, certain claims to be forwarded by the respondent were denied by the appellant and there arose a dispute between the parties. Since there was an arbitration clause in the said agreement, the respondent gave a notice dated 26.03.1989 to the appellant for appointment of Arbitrator. The sole Arbitrator appointed in pursuance of the said notice retired and finally one Shri Gopalkrishna was appointed as sole Arbitrator on 26.11.1991.

4. During the pendency of the arbitration proceedings, death of partner of the respondent- partnership firm occurred. This person had signed the agreement on behalf of the respondent firm and upon his death, the respondent firm stood dissolved. The widow of the said person i.e. Smt. Jyoti Shah then authorised one Shri G.N. Tamankar and Shri Murthy to attend the arbitration proceedings on behalf of the respondent. It is the contention of the appellant that these persons had no authority in law to attend the said proceedings. Eventually, on 02.06.1992 the Arbitrator published the award without going into the aforesaid question of the legality of the said persons representing the respondent in the proceedings.

5. Aggrieved by the contents of the said award, the appellant filed objections under Section 30 of the said Act, which pertains to grounds for setting aside of award. The said objections were numbered as M.J.C. No.41 of 1992, that were filed before the trial Court. Apart from the objection regarding the authority of the aforesaid persons to represent the respondent in the proceedings before the Arbitrator, the appellant also pointed out that reimbursement granted in the award to the respondent for increase in prices of steel during the currency of the agreement was wholly unsustainable, because the terms of the contract specifically provided that no such reimbursement would be granted to the respondent for escalation in prices of steel. On these and other grounds, the appellant raised the objection in respect of the said award.

6. On 19.11.1994, the trial Court dismissed the application filed by he appellant under Section 30 of the said Act for want of prosecution. This was because the counsel for the appellant could not appear in the said proceedings. In this situation, the appellant filed M.J.C.No.49 of 1995, being an application for restoration of the said objections filed by it under Section 30 of the said Act. The respondent also filed an application being M.J.C. No.6 of 1995 under Section 17 of the said Act for pronouncing judgment in terms of the award.

7. On 14.03.1997, the trial Court dismissed M.J.C. No.49 of 1995, filed by the appellant for restoration, because the appellant and its counsel had not filed an affidavit pointing out the provisions under which such application for restoration was filed. In other words, the dismissal of the application filed by the appellant raising objections against the award attained finality.

8. The application M.J.C. No.6 of 1995 filed by the respondent under Section 17 of the said Act for pronouncing judgment in terms of the award remained to be considered. In the said application, the appellant contended that though application raising objections under Section 30 of the said Act had been dismissed for non-prosecution, yet it was entitled to point out that the award was not sustainable on merits. The appellant relied upon clauses of the agreement under which the respondent was not entitled for reimbursement in case of escalation in prices of steel and it was also pointed out that the Arbitrator had failed to take into consideration the contentions of the appellant in respect of lack of authority in the persons representing the respondent.

9. By the impugned judgment and order dated 16.03.1998, the trial Court has held that under Section 17 of the aforesaid Act, in view of rejection of the application filed on behalf of the appellant raising objections under Section 30 of the said Act, the Court was now having jurisdiction only to pass judgment and decree in terms of the award. The trial court held that the merits of the award could now not be looked into at all. As a result, the trial court allowed application of the respondent and passed the order making the award dated 02.06.1992 as absolute.

10. This appeal was admitted by order dated 07.08.1998 by this Court and interim stay was granted on the appellant depositing the decretal amount in this Court. Thereafter, by order dated 09.02.1999, the respondent was allowed to withdraw the amount deposited by the appellant on furnishing bank guarantee with a direction that the bank guarantee shall remain in operation till disposal of the appeal. On 11.09.2014, this appeal was dismissed in default, due to non-appearance of the counsel on behalf of the appellant. But, later by order dated 05.01.2016, this appeal was restored and fresh notice was issued to the respondent. The counsel appearing for the respondent was made standing counsel for the Union of India and, therefore, alternate arrangement was to be made. In this view of the matter, on 12.09.2017 notice was issued to the respondent for engaging another counsel. This notice was served on the respondent on its latest and correct address but none appeared for the respondent. When this appeal was listed for final hearing on 15.01.2018, it was adjourned to 18.01.2018 as none appeared on behalf of the respondent. Thereafter on 18.01.2018 this appeal was finally heard. It remained part heard and was then taken up for further hearing on 22.01.2018 and judgment was reserved. None appeared for the respondent during the hearing. It is seen from the record that after this appeal was dismissed in default, the respondent did not renew the bank guarantees and despite service of notice, none has appeared on behalf of the respondent. This court is proceeding to decide this appeal since it is a very old appeal pertaining to the year 1998.

11. The main question that arises for consideration in this appeal is, whether the Court below was duty bound to consider the merits of the award and its sustainability under Section 17 of the said Act, even when application raising objections for setting aside of the award filed on behalf of the appellant stood dismissed. In other words, upon dismissal of application under Section 30 of the said Act, whether the Court below was left with no alternative but to pronounce judgment in terms of the award or it was required to consider whether the award was sustainable.

12. Mrs. Mugdha Chandurkar, learned counsel appearing on behalf of the appellant submitted that a proper reading of Section 17 of the said Act would clearly show that it enjoins the Court to consider the sustainability of the merits of the award before pronouncing judgment in terms of the award, notwithstanding rejection of application of the appellant under Section 30 of the aforesaid Act raising objections for setting aside of the award. It was further contended that under Section 17 of the said Act, it was the duty of the Court to suo motu go into the question as to whether the award was null and void and non est, when such contentions were raised on behalf of the appellant. By holding in the impugned judgment and order that when the application of the appellant under Section 30 of the said Act for setting aside the award had been rejected, the Court was left with no alternative but to pronounce the judgment in terms of the award, was a wholly erroneous approach on the part of the trial Court. In this regard, reliance was placed on judgment of this Court in the case of Melanie Fialho and others . . Malcolm Francis Pereira and another – 1993 (2) Mh.L.J. 1784.

13. The point that arises for determination in this appeal is as to whether the trial Court ought to have considered the validity of the award on merits under Section 17 of the aforesaid Act despite rejection of the application filed on behalf of the appellant under Section 30 of the said Act for setting aside of the award. In other words, whether the trial Court was justified in holding that it was left with only pronouncing judgment in terms of the award while exercising jurisdiction under Section 17 of the said Act.

14. In order to determine the aforesaid point and to consider the contentions raised on behalf of the appellant, it is necessary to refer to the relevant provisions of the said Act. These are Sections 15, 16, 17 and 30 which read as follows:-

"15. Power of Court to modify award. - The Court may by order modify or correct an award -

(a) where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred; or

(b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision; or

(c) where the award contains a clerical mistake or an error arising from an accidental slip or omission.

16. Power to remit award.

(1) The Court may from time to time remit award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks fit -

(a) where- the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred; or

(b) where the award is so indefinite as to be incapable of execution; or

(c) where an objection to the legality of the award is apparent upon the face of it.,

(2) Where an award is remitted under sub-section (1) the Court shall fix the time within which the arbitrator or umpire shall submit his decision to the Court:

Provided that any time so fixed may be extended by subsequent order of the Court.

(3) An award remitted under sub-section (1) shall become void on the failure of the arbitrator or umpire to reconsider it and submit his decision within the time fixed.

17. Judgment in terms of award. - Where the Court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the Court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with, the award.

30. Grounds for setting aside award. An award shall not be set aside except on one or more of the following grounds, namely:-

(a) that an arbitrator or umpire has misconducted himself or the proceedings

(b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35;

(c) that an award has been improperly procured or is other- wise invalid.

15. The provisions of the said Act quoted above show that the Court has power to modify, remit or set aside the award and that under Section 17 of the said Act where the Court sees no cause to either remit or to set aside the award, then it shall proceed to pronounce judgment according to the award. Although Section 30 specifies the grounds on which the award can be set aside, use of the words "where the Court sees no cause to set aside the award", in Section 17 of the said Act indicates that apart from exercising powers under Section 30 of the Act for setting aside award on the grounds specified therein, the Court under Section 17 of the Act, can still set aside an award on grounds other than the grounds specified in Section 30 of the Act. Apart from this, the Court has to proceed to pronounce judgment in accordance to the award only upon being satisfied about the validity of the award on merits. Therefore, in a case where there is no application filed for setting aside the award under Section 30 of the said Act, it would not mean that the Court would have to simply pronounce judgment according to the award under Section 17 of the said Act. The Court while pronouncing judgment would necessarily have to look at the sustainability of the award on merits.

16. In this context, it has been held by the Division Bench of this Court in the case of Union of India . . M/s Ajit Mehta & Associates – AIR 1990 Bombay 45 that even if an application under Section 30 of the said Act is barred by limitation, the powers of the Court suo motu to test the validity of the award under Section 17 of the said Act are same and that if the Court finds that the award is not sustainable on grounds other than those specified in Section 30 of the said Act, or that it would be necessary to remit the matter, the Court can do so under Section 17 of the Act. After quoting portions from the relevant judgments of the Hon'ble Supreme Court, in the aforesaid judgment, the Division Bench of this Court held as follows:-

"31. …........It is clear from what is observed by the Court above that the view taken by this Court in AIR 1954 Bom 243 (supra) that the Court can act suo motu is not disapproved. The said view can be said to have been modified only to this extent that when the grounds for setting aside an award fall within S. 30 of the Act, the Court has no power to act suo motu. However the Court has accepted that there can be circumstances which do not fall within S. 30 of the Act and the Court can exercise its suo motu powers to set aside the award in those circumstances. There is no manner of doubt therefore that the Court's suo motu powers in the circumstances which do not fall within S. 30 of the Act have been expressly saved and the decision of this Court in AIR 1954 Bom 243 (supra) stands to the extent of such suo motu powers.

32. ….....These observations of the Supreme Court therefore show that not only the suo motu powers of the Court are saved, but the suo motu powers can be exercised for setting aside awards which are otherwise patently illegal or void and that such grounds can be outside the purview of S. 30(c). The view of the Supreme Court in that behalf is also clear in its discussion of the Full Bench decision of the Calcutta High Court in AIR 1956 Cal.321 (supra) when it has not disapproved of the observation of the minority judgment in that case which had taken the view that objection beyond limitation can be taken on grounds which do not fall within S. 30. What is further, in paragraph 11 of the judgment, the Court has also referred to a decision of the Ajmer High Court in AIR 1955 Ajmer 47 (Mohan Das v. Kessumal), where the Ajmer High Court had taken the view that the award which had been filed by a person not authorised by the arbitrator to do so, did not fall within S. 30 of the Act, and therefore, the bar of limitation enacted in Art. 158 of the Act did not apply. The Court did not disapprove of this observation, and in fact has held that on this fact the decision in that case may be right. We have already pointed out in extenso the exact issue which fell for consideration before the Supreme Court in its decision in AIR 1976 SC 1745 (supra). As pointed out there, in that case the question whether the Court had suo motu powers or which were the grounds which fell outside the scope of S. 30, did not fall for consideration.

33. Another test for determining whether there is a ground which falls outside the scope of S. 30(c) of the Act is to ask a question whether there can be an award which is unenforceable at law and can be resisted even at the execution stage. That there are such awards and decrees cannot be disputed. If any authority is required for the proposition, we may refer to AIR 1977 SC 1201 (supra). If this is so, it can safely be accepted that not only the Court can set aside such awards in exercise of its suo motu powers but even a party can raise a contention to set it aside on that ground at any stage of the proceedings whether such contention is raised in the objection petition or not."

17. Thus, the position of law enunciated in the aforesaid judgment of the Division Bench of this Court is that even if objections for setting aside the award raised under Section 30 of the said Act are barred by limitation or they have been rejected, the Court is still duty bound under Section 17 of the said Act to consider the merits of the award, before proceeding to pronounce judgment according to the award.

18. The other aspect of the matter is that use of the words "pronounce judgment" itself indicates judicial determination by the Court as to whether it can pronounce judgment in accordance with the award. This would necessarily mean examining the award on its merits under Section 17 of the said Act. In this context judgment of the Hon'ble Supreme Court in the case of Union of India . . Jain and Associates – (2001) 3 Supreme Court Cases 277 is relevant. After quoting the relevant provisions of the said Act, in the aforesaid judgment, the Hon'ble Supreme Court has held as follows:-

"11. In view of the aforequoted Sections, it can be stated that -

(a) after receipt of an award, the Court can suo motu refuse to make award rule of the Court on the ground that (i) part of the award is upon a matter not referred to arbitration; and (ii) the award is imperfect in form or contains any obvious error. The Court can also remit the award to arbitrator in case (i) where the award has left undetermined any matter referred to arbitration; or (ii) where it has determined any matter not referred to arbitration; or (iii) the award is so indefinite as to be incapable of execution; or (iv) is on the face of it illegal. This is also provided under parenthesis clause of section 17 which provides Where the Court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the Court shall proceed to pronounce judgment. Therefore, it cannot be stated that in case where objections under Section 30 or 33 are not filed the Court is bound to pass decree in terms of the award.

(b) Section 5 of Limitation Act gives discretion to the Court to extend the time for filing application under Section 30 or 33 raising objections to the award.

(c) The Civil Procedure Code including Order IX Rule 13 is applicable to the proceedings initiated by producing award before the Court for passing a decree.

(d) The power of the Court to modify the award under Section 15 or to remit the award to the arbitrator for reconsideration under Section 16 varies from the jurisdiction of the Court to set aside the award under Section 30 or to determine the validity of the arbitration agreement or an award under Section 33.

12. The result is --before pronouncing judgment, the Court has to apply its mind to arrive at the conclusion whether there is any cause to modify or remit the award. Further the phrase pronounce judgment would itself indicate judicial determination by reasoned order for arriving at the conclusion that decree in terms of award be passed. One of the meaning given to the word Judgment in Websters Comprehensive Dictionary [International Edition, Vol. I (1984)] reads thus : the result of judging; the decision or conclusion reached, as after consideration or deliberation. Further, Order XX Rule 4(2) C.P.C. in terms provides that Judgment shall contain a concise statement of case, the points for determination, the decision thereon, and the reasons for such decision. This is antithesis to pronouncement of non-speaking order.

13. Section 17 of the Act is, to some extent, similar to the provisions of Order VIII Rule 5 and/or Rule 10 CPC. Order VIII provides the procedure where written statement by the defendant is not filed. Order VIII Rule 5(2) provides that where the defendant has not filed a pleading, it shall be lawful for the court to pronounce judgment on the basis of facts contained in the plaint and after pronouncing the judgment a decree is required to be drawn up in accordance with such judgment. Under Order VIII Rule 10 where any party from whom a written statement is required under Rule 1 or Rule 9 fails to present the same within the time permitted or fixed by the court, the court shall pronounce judgment against him or make such order in relation to the suit as it thinks fit and on the pronouncement of such judgment a decree shall be drawn up. This rule gives a discretion to the Court either to pronounce the judgment against the defendant or make such order in relation to the suit as it thinks fit. While interpreting Order VIII, this Court in Balraj Taneja & Another v. Sunil Madan [(1999) 8 SCC 396] held that merely because written statement is not filed the Court should not proceed to pass judgment blindly and observed thus:- (SCC p. 410, para 29)

The court has not to act blindly upon the admission of a fact made by the defendant in his written statement nor should the court proceed to pass judgment blindly merely because a written statement has not been filed by the defendant traversing the facts set out by the plaintiff in the plaint filed in the court. In a case, specially where a written statement has not been filed by the defendant, the court should be a little cautious in proceeding under Order 8 Rule 10 CPC. Before passing the judgment against the defendant, it must see to it that even if the facts set out in the plaint are treated to have been admitted, a judgment could possibly be passed in favour of the plaintiff without requiring him to prove any fact mentioned in the plaint. It is a matter of the courts satisfaction and, therefore, only on being satisfied that there is no fact which need be proved on account of deemed admission, the court can conveniently pass a judgment against the defendant who has not filed the written statement.

14. Similarly, when the Court is required to proceed without objection application under Section 30 or 33 of the Act, it can not pronounce the judgment without considering the provisions of Sections 15 and 16 of the Act, which provide, as stated above, for modification or correction of any award or for remitting it to the arbitrator for reconsideration on the ground that (i) there is any error of law apparent on the face of the award, (ii) the award is incapable of being executed, (iii) the award has left undetermined any of the matters referred to arbitration, (iv) that a part of the award is upon a matter not referred to arbitration and (v) the award contains any obvious error. Jurisdiction of the Court to pronounce judgment depends on exercise of its power to modify or remit the award.

15. Further, the Full Bench of the High Court arrived at the conclusion that decree passed in terms of Section 17 of the Act where no objection has been filed cannot be said to be an ex-parte decree because (1) even if both the parties are absent, the Court has duty to pass a decree unlike the provision of Order IX of the CPC; (2) the Court passes the decree on the basis of award, which may not be a speaking one and no party before it is required to file its proof in respect of its claim or defence; and (3) in a suit there is a plaintiff and defendant and Order IX deals with them. As against this, in a proceeding based on award, strictly neither party of an award is plaintiff or defendant and both of them are entitled to ask the Court to pronounce judgment according to the award."

19. The position of law is, therefore, clear that under Section 17 of the said Act, the Court is required to consider the merits of the award before pronouncing judgment in accordance with the same. Applying the said position of law to the facts of the present case, it would be evident that while passing the impugned judgment and order dated 16.03.1998, the trial Court has committed an error in exercising its jurisdiction under Section 17 of the said Act. The Court has proceeded on the basis that since the application filed on behalf of the appellant under Section 30 enumerating the grounds for setting aside the award stood dismissed for non-prosecution, there was no option left for the Court but to pronounce judgment according to the award while exercising powers under Section 17 of the said Act. The trial Court failed to appreciate the true meaning of the words "where the Court sees no cause to set aside the award, the Court shall proceed to pronounce judgment according to the award". The said words necessarily cast a duty upon the Court to consider the merits of the award despite the fact that the application filed on behalf of the appellant under Section 30 of the said Act stood dismissed for non-prosecution.

20. In fact, the errors in the award were not at all looked into by the trial Court on the erroneous assumption that when the application of the appellant under Section 30 of the said Act stood dismissed for non-prosecution, it had no other alternative but to pronounce judgment according to the award. The following portion of the impugned judgment demonstrates the aforesaid error committed by the trial Court:-

"It is necessary to point out here that both the orders passed in MJC No.41/92 and 49/95 have not been challenged by the applicant before any appellate authority. So though the application of applicant i.e. non-applicant in this case has not been decided on merit, it is finally decided and no relief has been granted to. In this application by way of reply it is contended by non-applicant to consider his contention regarding award. If those contentions are considered and award is rejected, it will amount to ignore the earlier orders passed in MJC No.41/92 and 49/95. So, I do not think it proper to consider any of the contention of non-applicant regarding the award. In

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view of provisions of Sec. 17 of Arbitration Act now this Court has only jurisdiction to pass judgment and decree in view of the award. As the application of non-applicant for quashing and setting aside the award has been rejected whatever may be the grounds the only stage remained is to pronounce the judgment in view of the award u/s 17 of Arbitration Act. It is not necessary for me to go into the merits of the award as to whether there is any reason to remit award for consideration or to set aside it. Thus, I find no hindrance to pronounce the judgment in view of the award." This was a clear jurisdictional error committed by the trial Court because, as held by the Hon'ble Supreme Court, the phrase "pronounce judgment" would itself indicate judicial determination by reasoned order for arriving at the conclusion that decree in terms of the award was required to be passed. 21. Therefore, I hold that the impugned judgment and order passed by the trial Court is unsustainable and that it deserves to be set aside. Since there has been no consideration by the trial Court as regards the validity or the merits of the award passed by the Arbitrator, the matter will have to be remitted to the trial Court for considering the same. In doing so and while exercising power under Section 17 of the said Act, the trial Court shall examine the merits of the award and it shall consider whether there is any cause to remit the award or to set aside the award after hearing the parties. It is unfortunate that the matter has to be remitted to the trial Court after about 20 years, but, since the trial Court has committed serious errors in exercising jurisdiction and there is no finding on merits of the award, there is no alternative but to remit the matter. 22. In the light of the above, the instant appeal is allowed. The impugned judgment and order is set aside and the matter is remitted to the trial Court for consideration of M.J.C. No.6 of 1995, to examine whether the Court can pronounce judgment according to the award while exercising powers under Section 17 of the said Act. As noted above, the respondent has remained unrepresented although served. The bank guarantees furnished by it while withdrawing the amount deposited by the appellant have also not been renewed. Therefore, the respondent is directed to redeposit the amount withdrawn by it before the trial Court in the proceedings that have been remitted by this order. The amount shall lie in deposit before the trial Court during the pendency of M.J.C. No.6 of 1995 and the trial Court shall pass appropriate orders regarding its disbursal, depending upon the final outcome of M.J.C. No.6 of 1995. 23. Since the aforesaid M.J.C. No.6 of 1995 pertains to award passed on 02.06.1992, it is necessary that its hearing and disposal is expedited by the trial Court. Accordingly the trial Court is directed to decide the same expeditiously, preferably within a period of one year from the date of production of this order before the trial Court. 24. Appeal disposed of in above terms with no order as to costs.
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