M/S.
Premier Fabricators, Allahabad Vs. Heavy Engineering Corpn.
Limited, Ranchi [1997] INSC 331 (21 March 1997)
MADAN
MOHAN PUNCHI
ACT:
HEADNOTE:
Punchhi,
J.
The
sole and subtle question arising in this appeal is whether in the facts and
circumstances, it was required of the Umpire making the award to formally
express in terms that items nos.2 to 5 of the dispute were arbitrable on the
terms of the contract? The appellant herein M/S. Premier Fabricators Allahabad
is the contractor. The Respondent Corporation engaged the contractor to execute
some works. On May 25,
1971, a deed of
agreement was executed in writing between the Parties.
Clause
78 thereof made provision for settlement of disputes by arbitration. That
clause reads as follows:
"SETTLEMENT
OF DISPUTES BY ARBITRATION 78(1) All questions, disputes or difference of any
kind, whatsoever, arising out of, or in connection with, the contract, at any
time, whether during the progress of work of after its completion, or whether
before or after the determination of the contract, other than questions,
disputes or differences for the decision of which specific provisions have been
made in the foregoing clauses of these conditions (hereinafter referred to as
"excepted matters") according to the said specific provisions shall
be final and binding on the contractor and shall not be re- opened on the
ground of any informality, omission, delay or error in the proceeding in or
about the same or on any other ground whatsoever, shall be submitted in writing
by the contractor to the employer, and the employer shall within a reasonable
time, after the submissions of the same, make and notify its decisions thereon
in writing.
(2) If
the contractor be dissatisfied with the decision of the employer on any matter
in question, dispute or difference, on any ground, or as to the withholding by
the employer of any certificate to which the contractor may claim to be
entitled to, or if the employer fails to make a decision within a reasonable
time, then and in any such case but not including any of the excepted matters,
the contractor may, within ten days of the receipt of such decision or after
the expiry of a reasonable period of time, as the case may be, demand in
writing that such matter in question, dispute or difference be referred to
arbitration. Such demand for arbitration shall be delivered to the employer by
the contractor and shall employer by the contractor and shall specify the
matters which are in question, dispute or difference and only such question,
dispute or difference of which the demand has been made and no other shall be
referred to arbitration.
(3)
The further progress of any work under the contract shall, unless otherwise
directed by the Engineer, continue during the arbitration proceedings, and no
payment due or payable by the employer shall be withheld on account of such
proceedings, provided however that it shall also be open to the arbitrators, to
consider and decide whether or not such work shall continue during the
arbitration proceedings.
(4) (a)
Matters in question, dispute or difference to be submitted to arbitration as
aforesaid shall be referred for decision to two arbitrators, one to be
nominated by the Chairman and the other to be nominated by the contractor. In
the event of the two arbitrators being divided in their opinion, the matter
under dispute shall be referred for decision to an umpire to be appointed by
the two arbitrators not later than one month from the latest date of their
respective appointments and, in any case, before they enter upon and proceed
with the reference.
(b)
The Arbitrators or the umpire shall have power to call for such evidence by way
of affidavits or otherwise as the arbitrators or the umpire, as the case may
be, shall think proper, and it shall be the duty of the parties to do or cause
to be done all such things as may be necessary to enable the arbitrators or
umpire to make the award without any delay.
(c)
Unless otherwise agreed upon by the parties, the venue of the arbitration
proceedings under these conditions shall be at Ranchi in the State of Bihar.
(d)
Subject to aforesaid, the provisions of the Arbitration Act, 1940 or any
statutory modification or enactment thereof and of the rules force, shall apply
to all arbitration proceeding under this clause.
provided,
however, that the arbitrators or, as the case may be, the umpire may, from time
to time, with the consent of the parties, enlarge the time for making the
award." The appellant-contractor laid claim for payments in terms of items
nos. 1 to 5, as mentioned in its claim, from the Corporation which was rejected
by the latter. Thereupon, the contractor asked for arbitration in terms of
Clause 78.
The
Corporation denied arbitration in respect of items 2,3,4, and 5 as being not
referable to arbitration in terms of the contract. On the basis of the disputes
and differences thus existing between the parties in respect of the claims of
the contractor, the Managing Director of the Corporation nominated Shri K.N. Mehra,
its Works Manager (Production) as an arbitrator to give a joint award on all
the above claims after deciding whether claims referred to in items 2,3,4 and 5
were or were not referable for arbitration in terms of the contract. The
contractor on its part nominated Shri S.B. Gadodia as the arbitrator to make a
joint award in respect of the terms of the arbitration made by the Corporation.
On
entering upon arbitration, the arbitrators on 6-2- 1973 recorded on their
respective files their decision that items nos. 2,3,4 and 5 of the claim of the
contractor were referable and could be decided by the arbitrators. This meant
that all the items 1 to 5 were arbitrable. Proceeding further went on but the
joint arbitrators ultimately could not arrive at a joint award. Therefore by a
joint letter dated November
2, 1973, they requested
Professor G.B. Pant of Birla Institute of Technology, Ranchi to enter upon the reference as
Umpire and give his award. As given out in their joint letter they forwarded
separately their respective files for perusal of the Umpire, as also rest of the
record.
The
Umpire then went into the matter. As is evident from the record, he took into
account the fact that the matter had come to him in pursuance of a contract
dated May 25, 1971 executed between the parties and that the parties in terms
thereof had referred to S/Shri Mehra and Gadodia by letter of reference the
matters of difference between them concerning items 1 to 5 (as detailed out)
and that since there was reported failure by the joint arbitrators to arriver
at a joint award in respect of the referred matters, the case was referred to
him as the Umpire. Therefore he observed in his award that having heard both
the parties and having seen all the documents submitted and having given the
matter a careful consideration he would direct the Corporation to Pay a sum of Rs.
80, 000/- to the contractor bearing interest at the rate of 6 per cent per
annum from the date of order till the date of decree.
The
contractor applied for the award of the Umpire being made Rule of Court, which
was registered as a suit in the Court of Third Additional Sub-Judge, Ranchi. The Corporation objected on a
number of grounds of the award being made Rule of Court. Despite objection the
award, all the same, was made Rule of Court. The Corporation then went up in
appeal before the High Court of Patna which was placed before a Bench of two Hon'ble
Judges of the High Court. It was contended on behalf of the Corporation before
the Bench that there was error of law apparent on the face of the award because
the Umpire, who was the substitute of the arbitrators, had not recorded the
preliminary finding whether items nos. 5 to 5 of the claim could be subject
matter of arbitration under the terms of the contract an, therefor, the award
was vitiated. It was urged that the Umpire could give his award on merits only
after deciding the preliminary question as to whether claim under item nos.
2 to 5
were arbitrable. Both the Hon'ble Judges of the High Court constituting the
Division Bench were in agreement that the order passed by the arbitrators on 6
2 1973 to that affect could not, on its own, be said to have disposed of the
preliminary question once for all and that on reference to the Umpire the
entire dispute including the question of referability was required to be
decided by him. Upto this point the Hon'ble Judges were in concurrence but not
thereafter. One Hon'ble Judge took the view that the Umpire must in the facts
and circumstances be deemed to have decided the question of referability of
items 2 to 5 in the affirmative and the award must therefore be accepted as
valid. The other Hon'ble Judge differed by stating that in the facts and
circumstances of the case, it was not possible to inferentially hold that the
Umpire must have decided the preliminary question about referability while
making the award to the tune of Rs. 80,000/- only, a sum much below than what
was claimed. The matter then had to be, and was, referred to a Third Hon'ble
Judge of that High Court.
The
controversy before the Third Hon'ble Judge was thus narrowed to the facts and
circumstances of the case, i.e. whether a deemed decision on referability
should or should not be inferred? The Third Hon'ble Judge noticing that since
the members of the Division Bench had agreed that it was for the Umpire to have
considered and decided the preliminary question, went on to opine that the
Umpire may not have appreciated the position as to his obligation and there was
a possibility that he might not have considered it necessary to form his
opinion on the point due to the decision of the Arbitrators. The Third Hon'ble
Judge also was of the view that inference in favour of the contractor could not
be drawn from the conclusion merely because an award in terms of money had been
made, unless he had stated so in express terms in the award. On this basis, the
Third Hon'ble Judge agreed with the view of one of the Hon'ble Judges of the
Division Bench holding that the contractor had failed to show that the Umpire
had decided the preliminary question in its favour before proceeding to
consider the claim on merits. It is on that account that the Award was set
aside leaving it for the parties to move the court below to proceed further in
the matter in accordance with the provision of the Indian Arbitration Act.
As is
evident, no abstract question of law or of legal import has arisen herein. It
is from the facts and circumstances of the case that one would have to draw and
record inferences. There are four reasons detailed hereafter which call to
infer that (i) the Umpire was alive to his duties as such, knowing fully well
that he was not a superior between the two arbitrators, but their sole
substitute assigned their duties; (ii). The Umpire did not consider the
decision of the joint arbitrators dated 6 2 1973 holding that claims under
items 2 to 5 were referable to arbitration, as binding on him as if in the
nature of an interim award, nor was it treated as such by the arbitrators by
delivery and dispatch to the parties concerned; (iii) that since the said order
was part of the proceedings recorded by the joint arbitrators, the Umpire on
receiving the matter is presumed to have gone through the terms of the contract
and the arbitration proceedings; and (iv) it is also implied that the Umpire as
a substitute of the arbitrators must be presumed to have known that before he
entered upon reference to decided item nos. 2 to 5 on their merits, he would
have to decide whether those items were arbitrable but the same need not have
been in express terms.
To
hold it otherwise would be to negate his independence. It may be true that the
joint decision dated 6 2 1973 of the arbitrators regarding referability of
those items might have been of some support to his view. Yet it cannot be
presumed that he considered himself bound by those orders, absolving him of the
duty from going into the question. It would thus in the circumstances be seen
that obligating the Umpire to make a speaking award in so far as the question
of referability is concerned, lest it vitiates his non speaking award on merit,
goes to the very root of the independence of the arbitrator. This is
impermissible in law and against the spirit of the Arbitration Act, 1940. The
award of the Umpire, as is plain, is a non-speaking award in entirety. He has preluded
it with the recorded awareness that differences between the parties had arisen,
and the matter stood referred to arbitration in pursuance of the contract in
writing dated may 25, 1971. He is then presumed to have real the terms of the
contract, the terms of reference and scope of items 2 to 5 of the claim. He is
presumed to have examined whether those claims were referable to arbitration in
terms of the contract. He is further presumed to have read the respective files
of the two arbitrators and to have heard both parties at length, screening all the
documents submitted, to come to the base finding that items 2 to 5 were
referable. All the five items were thus arbitrable, resulting in the award for
a sum of Rs. 80,000/- in favour of the contractor. The award must therefore be
upheld for the afore-reasons, holding that there is no error apparent on the
face of the record which would justify its vitiation.
For
the afore-going reasons, it must be held that the Third Hon'ble Judge was in
error in not agreeing with the view of one of the Hon'ble Judges in the
Division Bench who had held that there was a deemed/presumed decision on referability
inferable from the award of the Umpire.
Therefore,
the impugned order of the High Court is set aside by allowing this appeal, as a
result of which appeal from original order NO. 240 of 1975 in the Civil
Appellate Jurisdiction of Patna High Court shall stand dismissed with costs,
maintaining that of the court of first instance.
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