Construction Co. (P) Ltd. Vs. Punjab Police Housing Corpn. Ltd. & Ors.
[Civil Appeal No(S).
947 of 2006]
J U D M E N T
R.M. LODHA, J. :
Appeal, by special leave, arises from the judgment and order dated November 25,
2002 passed by the Punjab & Haryana High Court.
controversy arises in this way. A contract was entered into between the
appellant - M/s Ladli Construction Co. (P) Ltd. (hereinafter referred to as
'the Contractor'), and the respondent Nos. 1 and 2, namely, Punjab Police Housing
Corporation Limited and Executive Engineer (Civil), Punjab Police Housing Corporation
Limited (hereinafter referred to as 'the Corporation') for construction of 240 houses
Type II-A at Urban Estate, Ludhiana at an estimated cost of Rs. 273.84 Lakhs.
The contract provided
in Clause 2 that time was essence of the contract and the time allowed for carrying
out work as entered in the tender shall be strictly observed by 2Contractor. The
Contractor could not maintain the time schedule and the progress of the work
was not observed. The Contractor was directed to push up the progress of work
but that also it failed to do. The Contractor was notified that if it failed to
take any action to show requisite progress by 30th of April, 1991, action against
it under Clause 3 of the agreement would be taken.
Still there was no requisite
progress in execution of the work by the Contractor. On May 8, 1991, the Corporation
resorted to action under Clause 3 of the contract, rescinded the contract and adopted
further course by giving unexecuted work to another contractor. The disputes, thus,
having arisen between the parties, the Contractor moved the court of Sub Judge,
First Class, Chandigarh, for appointment of the arbitrator in terms of Clause
25A of the contract.
the application made by the Contractor for appointment of the arbitrator, the Sub
Judge, on May 13, 1992, ordered that matter in dispute may be referred for arbitration
as per Clause 25A of the agreement and, accordingly, as per the agreement and the
statement of parties, the Sub Judge ordered the Chief Engineer of the Corporation
to act as an arbitrator as provided under Clause 25A of the agreement. Both the
parties were permitted to file claim and counter claim before the arbitrator.
pursuance of the order dated May 13, 1992, the Corporation lodged its claim
against the Contractor on June 15, 1992. The arbitrator - Chief Engineer of the
Corporation - called upon the Contractor to appear before him on June 25, 1992.
Thereafter also the arbitrator called upon the Contractor to appear before him.
The Contractor, however, did not appear before the arbitrator and instead sent a
letter on June 29, 1992 intimating him that his appointment as arbitrator was
not acceptable to it; it did not expect any justice and fair play from him and
he must refrain from acting as an arbitrator in the case.
on July 24, 1992, the Contractor made an application before the Sub Judge,
Chandigarh under Sections 5, 11 and 12 of the Arbitration Act, 1940 (for short,
'the 1940 Act') for removal of the arbitrator. The Contractor did not appear before
the arbitrator. Consequently, the arbitrator proceeded with the arbitration ex
parte and passed the award on August 18, 1992.
filing of the award, the Contractor submitted objections under Section 30 of the
1940 Act alleging misconduct on the part of the arbitrator and also objected to
the award being made rule of the court.
Sub Judge heard the two applications together - (i) application made by the Contractor
for removal of the arbitrator and objections under Section 30, and (ii)
application for making the award rule of the court - and by a common order dated
May 8, 1995 dismissed the application made by the Contractor for removal of the
arbitrator and made the award dated August 18, 1992 rule of the court and
passed decree in terms thereof.
Contractor challenged the common order dated May 8, 1995 passed by the Sub Judge,
Chandigarh in appeal before the District Judge, Chandigarh. The District Judge dismissed
the appeal on September 19, 1998.
these two concurrent judgments, the Contractor filed civil revision before the
High Court which too was dismissed on November 25, 2002. As noted above, it is from
this order that the present Appeal, by special leave, has arisen.
have heard Mr. Rajeev Sharma, learned counsel for the Contractor, and Dr. Balram
Gupta, learned senior counsel for the respondent Nos. 1 and 2 - Corporation.
Rajeev Sharma, learned counsel for the Contractor, strenuously urged that the Contractor
had reasonable apprehension of bias on the part of the arbitrator as the action
of cancellation of contract was taken by the Executive Engineer at the behest of
the arbitrator as he was the Chief Engineer of the Corporation. He referred to the
inspection made by the Chief Engineer along with other Engineers of the Corporation
on October 26, 1990 and the opinion formed by the Chief Engineer on the basis of
the inspection that the work was not being carried out by the Contractor in accord
with the time schedule.
He also referred to conduct
of the arbitral proceedings by the arbitrator, particularly concluding the arbitration
proceedings in a short span of about 49 days and that too when the Contractor's
application for his removal was pending before the Court. In support of his submission
that the arbitrator was biased against the Contractor, the learned counsel also
referred to post arbitral conduct of the arbitrator in contesting the Appeal before
this Court and filing counter affidavit in opposition to the Appeal.
Rajeev Sharma would highlight two aspects, viz., (i) the arbitration agreement was
not placed before the arbitrator, yet he commenced and concluded the arbitral proceedings,
and (ii) the award relating to unutilised amount of secured advance which was not
claimed by the Corporation was passed, to indicate that the arbitrator was biased.
In support of his submissions, the learned counsel relied upon a Constitution
Bench judgment of this Court in Gullapalli Nageswara Rao and Others Vs. Andhra Pradesh
State Road Transport Corporation and Another1 and a judgment of the House of Lords
in Bristol Corporation Vs. John Aird & Co.2
Balram Gupta, learned senior counsel for the Corporation, supported the judgment
of the High Court. He submitted that only two submissions were made before the 1
 Supp. (1) SCR 319 2 [1911-13] All E.R. 1076 6High Court which have been noted
and considered and no other point was urged.
arbitration clause in the agreement, i.e., Clause 25A, reads as follows : "Clause
25A. Arbitration etc. - If any question, difference or objection whatsoever shall
arise in any way connected with or arising out of this instrument of the
meaning of operation of any part thereof or the rights duties or liabilities of
either party, then save in so far as the decision of any such matter is hereinbefore
provided for and has been so decided, every such matter including whether its decision
has been otherwise provided for and/or whether it has been finally decided accordingly,
or whether the contract should be terminated or has been rightly terminated and
as regards the rights and obligations of the parties as the results of such termination
shall be referred for arbitration to the Chief Engineer of the Punjab Police Housing
Corporation, Chandigarh or acting as such at the time of reference within 180
days or in six months from the payment of the final bill to the contractor or from
the date registered notice is sent to the contractor to the effect that his
final bill is ready for payment and his decision shall be final and binding and
where the matter involves a claim for or the payment or recovery or deduction of
money, only the amount, if any, awarded in such arbitration shall be recoverable
in respect of the matter so referred."
Contractor consciously agreed for the disputes between the parties to be referred
for arbitration to the Chief Engineer of the Corporation. The Contractor, at the
time of agreement, was in full knowledge of the fact that the Chief Engineer is
under full control and supervision of all civil engineering affairs of the Corporation,
yet it agreed for resolution of disputes between the parties by him as an
It is a fact that the
Chief Engineer inspected the progress of the work given to the Contractor along
with other engineers of the Corporation on October 26, 1990. In the course of
inspection, the slow progress of the work was brought to the notice of the Contractor
on that date. There was nothing unusual about it and, as a matter of fact, on
the contract being terminated on May 8, 1991, it was the Contractor who made an
application for appointment of arbitrator in terms of Clause 25A of the agreement
as it was well aware that the inspection by the arbitrator did not disqualify
him to be arbitrator.
In the application
for appointment of arbitrator, no allegation of any bias or hostility was made against
the named arbitrator, i.e., Chief Engineer of the Corporation, rather the Contractor
prayed for appointment of arbitrator in terms of the arbitration Clause 25A. When
the application came up for consideration before the Sub Judge on May 13, 1992,
the advocate appearing for the Contractor also submitted for appointment of the
arbitrator as named in the agreement. Before the Court, no allegation was made that
the contract was terminated at the instance or behest of the Chief Engineer.
These facts clearly
show that no case of bias on the part of the Chief Engineer was pleaded or pressed
by the Contractor before the court in the proceedings for appointment of the arbitrator.
There is nothing to indicate that something happened after May 13, 1992 which prompted
the Contractor to write to the arbitrator on June 29, 1992 that it had lost
faith in him.
is pertinent to notice that on May 13, 1992 while referring the disputes between
the parties for arbitration as per Clause 25A of the agreement, the Contractor as
well as the Corporation were permitted to file claim and counter claim before the
arbitrator. The Corporation filed its claim against the Contractor on June 15,
1992. Upon receipt of the claim by the Corporation, the arbitrator called upon
the Contractor to appear before him on June 25, 1992.
The Contractor did
not appear and instead sent a letter to the arbitrator on June 29, 1992
intimating him that his appointment as arbitrator was not acceptable. No steps were
taken by the Contractor for removal of the arbitrator immediately. The
application for removal of the arbitrator was made almost after 26 days. Although
the Contractor prayed before the Sub Judge for stay of the proceedings before
the arbitrator but it was not successful in getting any such order on July 24, 1992,
or on the subsequent dates, namely, July 30, 1992, August 3, 1992 and August 6,
1992 from the court.
In the absence of any
stay order from the court and non-appearance by the Contractor, the arbitrator was
left with no choice but to proceed ex parte and conclude the arbitral proceedings.
Merely because the award came to be passed on August 18, 1992, i.e., a day before
the next date fixed before the Sub Judge, it cannot be said that the arbitrator
concluded the proceedings hastily or he was biased.
two aspects highlighted by Mr. Rajeev Sharma, learned counsel for the Contractor,
regarding (i) non-availability of the agreement before the arbitrator, and (ii)
the award of return of unutilised amount of secured advance by him, as grounds
of bias have no merit at all.
order dated May 13, 1992 passed by the Sub Judge shows that photocopy of the arbitration
agreement was produced before the court. AW-1, who was examined by the Corporation,
in his deposition before the arbitrator, has stated that photocopy of the
agreement was tendered to the arbitrator. Merely because copy of the agreement was
not found by the District Judge in the record of the arbitral proceedings, it cannot
be assumed that copy of the agreement between the parties was not placed for consideration
before the arbitrator.
arbitrator in his award has awarded interest in the sum of Rs. 1,40,150/- upto December
31, 1991 on the amount of secured advance paid to the Contractor for the period
the amount remained unutilised although the Corporation had claimed the interest
on that count in the sum of Rs. 1,69,878/-. With regard to award of unutilised amount
of secured advance, the arbitrator observed in the award that the exact amount
of award will depend upon the 10actual unutilised amount of secured advance till
realisation. On ascertaining the total amount of unutilised secured advance, it
was found to be Rs. 9,63,635.25/-.
District Judge in the appeal preferred by the Contractor in challenging the judgment
and decree held in para 21 of the judgment thus :- "....In it unutilised advance
of Public Health items as per statement at page 243 of the arbitrator file is Rs.
5,85,423.75ps. The statement of this witness dated 14.8.1992 with statement of interest
and principal of the unutilised secured advance of building component is at pages
283-289 of the arbitration file in which unutilised secured advance of building
component is mentioned as Rs. 3,73,211.50ps. So the total unutilised secured
advance on both the counts comes to Rs. 9,63,635.25ps.
The maxim is,"Certum
est quod, certum reddi potest". (certain is that which can be made certain).
Now, from the perusal of the record of the total unutilised secured advance can
be ascertained as Rs. 9,63,635.25ps. Similarly, from the record, the principal amount
of the secured advance can also be calculated and on it, interest on the amount
of the secured advance paid to the appellant for the period the amount remain unutilised
could be calculated. The appellant has not been able to point out that the calculation
of this amount as Rs. 1,40,150/- upto 31.12.1991 was wrong or incorrect. Therefore,
it would be naove to contend that the award was vague, evasive or
above finding of the District Judge, Chandigarh, was not challenged by the
Contractor before the High Court as is apparent from the impugned order. Thus,
there is no merit, at all, in the submission of the learned counsel for the Contractor
that the arbitrator awarded unutilised 11secured advance for which there was no
claim. In any case, this hardly leads to any inference of bias of the arbitrator.
Gullapalli Nageswara Rao and Others (supra) this Court restated the principle of
natural justice that the authority empowered to decide the dispute must be one without
bias towards one side or the other in the dispute. There can hardly be any doubt
about this fundamental principle of natural justice. The question is - Whether
on facts, the Contractor has been able to establish that the arbitrator was biased
against it ? None of the circumstances pointed out by the Contractor leads to any
inference that the arbitrator had any bias, personal or otherwise. No doubt, bias
may be found in variety of situations and each case, where bias of adjudicator is
alleged, has to be seen in the context of its own facts but a fanciful
apprehension of bias is not enough.
observations of the Lord Atkinson in Bristol Corporation (supra), relied upon
by the learned counsel for the Contractor, instead of supporting his argument, go
fully against the Contractor. In Bristol Corporation (supra) Lord Atkinson
stated thus :
If a contractor chooses
to enter into a contract binding him to submit any disputes which arise between
him and the engineer of the persons with whom he contracts to that engineer to arbitrate
on, then he must be held to his contract; whether it be wise or unwise, prudent
or the contrary, he stipulated that a person who is the servant of the persons with
whom he contracted shall be the judge to decide upon matters upon which,
necessarily, that engineer or arbitrator has himself formed an opinion.
But though the
contractor is bound by that contract, still he has a right to demand that, notwithstanding
those pre-formed views of the engineer, that gentleman should listen to argument,
and should determine the matters submitted to him as fairly as he can, as an honest
man; and if it be shown in fact that there is any reasonable prospect that he will
be so biased as not to decide fairly upon those matters, then the contractor is
allowed to escape from his bargain, and to have the matters in dispute tried by
one of the ordinary tribunals of the land. But he has more than that right.
If, without any fault
of his own, the engineer has put himself in such a position that it is not fitting,
or decorous, or proper that he should act as arbitrator in any one or more of those
disputes, the contractor has the right of appealing to a court of law to exercise
the discretion which s. 4 of the Arbitration Act vests in them...."
above observations exposit the legal position that a contractor is bound by the
contract if he has agreed to submit the disputes to the engineer for arbitration
although he has to deal with such engineer under the contract. It needs no emphasis
that once the dispute is referred to such arbitrator, the arbitrator has to act
fairly and objectively and the proceedings must meet the requirements of
principles of natural justice.
as the facts of the present case are concerned, the Contractor moved the court for
appointment of the Chief Engineer as arbitrator and then chose not to appear before
him. What was the intervening event after the arbitrator was appointed at his
instance that prompted him to ask the arbitrator to recuse is not stated by the
Contractor. The Contractor was not successful in getting any final or interim
order in the proceedings initiated by it for removal of the arbitrator. The award
passed by the arbitrator also does not show that he misconducted in any manner
in the proceedings. He gave full opportunity to the Contractor to appear and put
forth its case but the Contractor failed to avail of that opportunity.
is no justifiable circumstance on record that enables the Contractor to escape from
the bargain that it made under the contract and have the disputes resolved through
the process other than agreed.
The Secretary to the Government, Transport Deptt., Madras Vs. Munuswamy Mudaliar
and Others3, this Court stated:- "11... When the parties entered into the contract,
the parties knew the terms of the contract including arbitration clause. The parties
knew the scheme and the fact that the Chief Engineer is superior and the
Superintending Engineer is subordinate to the Chief Engineer of the particular circle.
In spite of that the parties agreed and entered into arbitration and indeed submitted
to the jurisdiction of the Superintending Engineer at that time to begin with, who,
however, could not complete the arbitration because he was transferred and succeeded
by a successor.
circumstances on the facts stated no bias can reasonably be apprehended and made
a ground for removal of a named arbitrator. In our opinion this cannot be, at all,
a good or valid legal ground. Unless 3 AIR 1988 SC 2232 there is allegation against
the named arbitrator either against his honesty or capacity or malafide or interest
in the subject-matter or reasonable apprehension of the bias, a named and agreed
arbitrator cannot and should not be removed in exercise of a discretion vested
in the Courts under S. 5 of the Act.12. Reasonable apprehension of bias in the
mind of a reasonable man can be a ground for removal of the arbitrator. A
predisposition to decide for or against one party, without proper regard to the
true merits of the disputes is bias.
There must be
reasonable apprehension of that predisposition. The reasonable apprehension must
be based on cogent materials. See the observations of Mustill and Boyd, Commercial
Arbitration, 1982 Edition, page 214. Halsbury's Laws of England, Fourth Edition,
Volume 2, para 551, page 282 describe that the test for bias is whether a reasonable
intelligent man, fully apprised of all the circumstances, would feel a serious apprehension
of bias.13. This Court in International Airport Authority of India v. K.D.Bali,
(1988) 2 JT 1 : (AIR 1988 SC 1099) held that there must be reasonable evidence to
satisfy that there was a real likelihood of bias. Vague suspicions of whimsical,
capricious and unreasonable people should not be made the standard to regulate
normal human conduct.
In this country in numerous
contracts with the Government, clauses requiring the Superintending Engineer or
some official of the Govt. to be the arbitrator are there. It cannot be said that
the Superintending Engineer, as such, cannot be entrusted with the work of arbitration
and that an apprehension, simpliciter in the mind of the contractor without any
tangible ground, would be a justification for removal. No other ground for the alleged
apprehension was indicated in the pleadings before the learned Judge or the decision
of the learned Judge. There was, in our opinion, no ground for removal of the arbitrator.
Mere imagination of a ground cannot be an excuse for apprehending bias in the
mind of the chosen arbitrator."
S. Rajan Vs. State of Kerala and another4, this Court stated:- "12....Thus,
this is a case where the agreement itself specifies and names the arbitrator. It
is the Superintending Engineer, Buildings and Roads Circle, Trivandrum. In such
a situation, it was obligatory upon the learned Subordinate Judge, in case he was
satisfied that the dispute ought to be referred to the arbitrator, to refer the
dispute to the arbitrator specified in the agreement. It was not open to him to
ignore the said clause of the agreement and to appoint another person as an arbitrator.
Only if the arbitrator specified and named in the agreement refuses or fails to
act the Court does get the jurisdiction to appoint another person or persons as
the arbitrator. This is the clear purport of Sub-section (4). It says that the reference
shall be to the arbitrator appointed by the parties..."
parties enter into a contract knowing the role, authority or power of the Chief
Engineer in the affairs relating to the contract but nevertheless agree for him
to be arbitrator and name him in the agreement to adjudicate the dispute/s between
the parties, then they stand bound by it unless a good or valid legal ground is
made out for his exclusion.
raising the vague and general objections that the arbitrator was biased and had
predisposition to decide against the Contractor, no materials, much less cogent
materials, have been placed by the Contractor to show bias of the arbitrator. No
sufficient reason appears on record as to why the arbitrator should not have
proceeded with the AIR 1992 SC 1918 16arbitral proceedings. The test of reasonable
apprehension of bias in the mind of a reasonable man is not satisfied in the
may now deal with the submission of the learned counsel for the Contractor that
bias on the part of the arbitrator is also reflected from the fact that he has contested
the present Appeal and filed the affidavit in opposition. What would have the
arbitrator done when he has been personally impleaded as respondent in the Appeal
and the allegations of bias have been made against him. He was left with no
choice but to rebut the allegations by filing his affidavit. The arbitrator did
what any other person in his place would have done in the circumstances.
view taken by the High Court does not suffer from any infirmity justifying interference
by us in our jurisdiction in appeal under Article 136 of the Constitution of India.
Appeal is dismissed with no order as to costs.